what is the proper method of accounting for scrap? course hero

What is the difference between by-products and scrap?

Mar 26, 2019 · I – Accounting for Scrap The KCO Metal Fabricators, Inc. accumulates a fairly large quantities of metal shavings and trimmings from the products their produce. At least, once a month, the scrap metal is sold to a local jobber for further processing. This month’s scrap sales on account total P10,000. Required: Give the appropriate entry to record the sale of the scrap …

What is an example of waste in accounting?

View Accounting for Spoilage, Rework and Scrap.docx from AC COST ACCOU at Metropolitan Hospital College of Nursing. ACCOUNTING FOR SPOILAGE, REWORK, AND SCRAP MULTIPLE CHOICE 1. The Harleysville

How is the sale value of by-products credited to process account?

Hence, when scrap material is allocated to all work orders, the "Work in Process Inventory" account will not be affected. At the end of the period, the manufacturing overhead balance is computed by deducting the two balances (control or actual minus applied). The difference or balance then will be closed to the cost of goods sold for the ...

When are by-products accounted for in accounting?

48 Advanced Financial Accounting Notes Amity Directorate of Distance & Online Education Diminishing Balance Method Formula Depreciation Expense = (Book value of asset at beginning of the year x Rate of Depreciation)/100 3. Sum of Years’ Digits Method: Another accelerated depreciation method is the Sum of Years’ Digits Method. This method recognizes depreciation …

How is scrap accounted for?

Accounting for Scrap Any proceeds earned from the sale of scrap are normally offset against the cost of goods sold, thereby reducing the overall cost of goods of the reporting entity.May 16, 2017

How is scrap treated in cost accounting?

The sale value of scrap is credited to profit and loss account as other income. The unit cost of production is, therefore, inclusive of cost of scrap. This method fails to secure effective control over scrap as detailed records are not kept and scraps are not identified to jobs or processes.

How do I record a scrap sale?

Credit the sale proceeds of the scraps from all jobs to production or factory overhead account. Sale proceeds of scraps to be credited to ” Miscellaneous Income Account.” Debit the value to the job when the scraps using as raw materials and credit the job from which these originated.Nov 12, 2019

What would be the entry if the scrap recovered can be traced to a specific job?

Hence if a scrap can be traced to a particular job, its value is adjusted to the material inventory that has been used for that particular job. Scrap – General: However, if scrap cannot be attributed to a specific job, it becomes a part of general overheads.

How do you record scrap inventory?

The following journal entry is entered in books of accounts to record the sale of scrap. The debit impact of the transaction is the receipt of cash for the sale of scrap. On the other hand, credit impact reflects income from the sale of the scrap, which is recorded in the income statement as other income.

What is the difference between scrap and waste in cost accounting?

Scrap is discarded material having some values. ... Scrap is always physically available unlike waste which may or may not be physically present in the form of a residue. Thus scrap is always visible whereas waste may or may not be visible. Further, waste may not have any value whereas scrap must necessarily have a value.

How do you record scrapped assets?

The gain or loss is calculated as the net disposal proceeds, minus the asset's carrying value. The options for accounting for the disposal of assets are noted below....Example of Asset Disposal.DebitCreditCash25,000Accumulated depreciation10,000Loss on asset disposal5,000Machine asset40,000Jan 15, 2022

When sold scrap account is credited?

When an asset is purchased, asset account is debited as assets have debit balance. So when scrap is sold, asset account is credited with the amount received on sale.

How do you scrap an asset?

You can scrap an asset anytime using the "Scrap Asset" button in the Asset record. You will be asked for confirmation, click on Yes and the asset will be scrapped. The "Gain/Loss Account on Asset Disposal" account mentioned in the Company is debited by the Current Value (After Depreciation) of the asset.

What is the need for cost accounting?

Cost accounting is helpful because it can identify where a company is spending its money, how much it earns, and where money is being lost. Cost accounting aims to report, analyze, and lead to the improvement of internal cost controls and efficiency.

How will you treat defective and scrap in cost accounts?

Option 1: Nominal sales price realized out of negligible scrap is treated as other income in cost account. Option 2: A scrap account is opened with the full amount of the scrap of the process or job if such a scrap value is significant. Process account or job account is given credit by the value of scrap.

What are the limitations of cost accounting?

Limitations of Cost Accounting – Cost Accounting is Unnecessary, Cannot be Adopted by Small Business Concerns, Very Costly and Results are MisleadingCost Accounting is Unnecessary: ... Cost Accounting System cannot be adopted by Small Business Concerns: ... Cost Accounting System is Very Costly: ... Costing Results are Misleading:

What is allowance method?

The allowance method reports bad debts based on estimates of uncollectible accounts. The allowance method is required for financial reporting purposes when a company's bad debt write-offs are significant in amount to the financial statements. The allowance method is another method for accounting for bad debts or uncollectible accounts ...

What is allowance for doubtful accounts?

Allowance for doubtful accounts, therefore, has the effect of reducing the overall accounts receivable balance to what is referred to as its net realizable value.

What is net realizable value?

Net realizable value is the net amount a company expects to receive in cash from its receivables. The allowance method is the preferable method for reporting bad debt losses for a couple of reasons. First, by requiring that bad debt expense be estimated each reporting period, it better matches revenue and expenses.

What is the difference between scrap and by-product?

The distinction between scrap and by-product is a matter of degree determined in terms of value as well as manufacturing objective. Scrap is the incidental residue from the materials used in manufacturing operations which is recoverable and measurable without further processing. The recoverable value of a by-product is relatively more than that ...

Why is the valuation method criticized?

This method of valuation is criticized for the following reasons: (1) Valuation of stock of main products is inflated and no value is assigned to the by-product inventories. (2) All costs and expenses charged to the main products is not scientific.

What is waste in advertising?

Waste: ADVERTISEMENTS: Waste is a term used to describe material that has no value, or even negative value if it has to be disposed off at some cost. Examples include gases, saw dust, smoke and other unsalable residues from the manufacturing process.

How are by-products treated?

Where the by-products are having considerable commercial value or importance or where adoption of normal methods for by-product accounting may not be fair or reasonable to the main product or to the by-product, then the by-products will be treated as equal footing with the main products both for valuation and accounting of costs. The joint costs may be divided over joint products and by-products by using physical unit method (at the split-off point) or ultimate selling price (if sold).

What is standard cost method?

Standard Cost Method: The by-products are valued at a predetermined standard rate for each product which may be based on technical assessment. Standard cost of by-product is credited to the Process Account of the main product.

What is a by-product?

A by-product is a secondary product which incidentally results from the manufacture of main product and also from the same process. A by-product is a product which arises incidentally in the production of the main products ...

How often is the purchase committee report prepared?

This report is prepared once in a month. It is also submitted to the purchase committee. It contains information in respect of actual purchases, consumption and stock figures. Objective of this report is to show the effect of policies laid down for purchasing.

What is material control?

Material control is effected by coordinating the functions of all the departments involved with material namely purchasing department, stores department, production department and costing department. Management needs information to analyse and take appropriate decisions. Material cost reports communicate facts relating to materials to the attention of various levels of management.

What is economic ordering quantity?

Economic ordering quantity is the reorder quantity, which is the quantity to be purchased each time an order is placed.

What is the purpose of the purchase committee report?

The purpose of the report is to watch price movements and control cost of material.

What is reorder level?

Reorder level depends on economic ordering quantity, lead time and rate of consumption of material.

What is the ABC system?

It is ‘Management by exception’ system of Inventory control. In this Always Better Control (ABC ) technique of inventory control, the materials are classified and controlled according to value of the materials involved. It is also called proportional parts value analysis. Thus, high value items are paid more attention than low value items. The materials are classified under ‘A’, ‘B’ or ‘C’ designation on the basis of their value and importance.

What is the classification of materials?

The materials are classified under ‘A’, ‘B’ or ‘C’ designation on the basis of their value and importance . ‘A’ category consists of a few items of high value. Category ‘B’ includes more items of medium value and category ‘C’ includes all other materials of small value.