Expenses incurred on Normal or Abnormal Loss Stocks

Transaction

Expenses may be incurred on the normal and abnormal loss stocks to sustain or enhance their value. These expenses may be paid by the consignor or the consignee.

Example

expenditure incurred

  1. on normal loss (in transit) stock, by the consignor in cash 150
  2. on abnormal loss (in storage) stock, by the consignee by cheque 250
  3. on abnormal loss (in transit) stock, by the consignor, by cheque 150
  4. on normal loss (in storage) stock, by the consignee, payment outstanding 50

Consignor Books

Dr/Cr - Transaction analysis

  • Debit - __ Loss a/c

    Nominal

    Debit
    {all expenses & losses}

    On account of the expenditure incurred, the notional loss represented by the loss account increases

    Or

    Real

    Debit
    {what comes in}

    On account of the expenditure incurred, the value of the notional asset represented by the loss account increases

    Note

    • Debit/Credit - Distinct Loss a/c

      To derive greater information relating to losses.

    • Debit - Combined Loss a/c

      To derive lesser information relating to losses.

  • Credit -

    The account to be credited is dependent on who incurred the expenditure

    • Consignee

      Personal

      Credit
      {the benefit giver}

      Where the expenditure has been incurred by the consignee, it has to be reimbursed to him and he would be the benefit giver.

    • Where the expenditure is incurred by the consignor, the account to be credited is further dependent on the mode of payment.

      • Cash

        Real

        Credit
        {what goes out}

        Cash goes out as payment for expenses.

      • Bank

        Personal

        Credit
        {the benefit giver}

        Amount goes out from the bank, making Bank the benefit giver.

      • Outstanding Expenses

        Personal

        Credit
        {the benefit giver}

        The person to whom the expense is due, represented by the Outstanding Expenses a/c, would be the benefit giver.

Journal

  1. Expenditure on Normal Loss (in transit)

    Normal Loss a/c
    To Cash a/c
    Dr
    150
    150
    [For the expenditure on normal loss (in transit) paid in cash]
    • Opting to derive greater information

      Normal Loss in Transit a/c
      To Cash a/c
      Dr
      150
      150
  2. Expenditure on Abnormal Loss (in storage) paid by the consignee

    Loss in Storage a/c
    To Consignee a/c
    Dr
    250
    250
    [For the expenditure on abnormal loss (in storage) paid by the consignee]
    • Opting to derive greater information

      Abnormal Loss in Storage a/c
      To Consignee a/c
      Dr
      250
      250
    • Opting to derive lesser information

      Abnormal Loss a/c
      To Consignee a/c
      Dr
      250
      250
  3. Expenditure on Abnormal Loss (in transit)

    Abnormal Loss a/c
    To Bank a/c
    Dr
    150
    150
    [For the expenditure on abnormal loss (in transit) paid by cheque]
    • Opting to derive greater information

      Abnormal Loss in Transit a/c
      To Consignee a/c
      Dr
      150
      150
    • Opting to derive lesser information

      Abnormal Loss a/c
      To Consignee a/c
      Dr
      150
      150
  4. Expenditure on Normal Loss (in storage)

    Normal Loss a/c
    To Consignee a/c
    Dr
    50
    50
    [For the expenditure on normal loss (in storage) paid by the consignee]
    • Opting to derive greater information

      Normal Loss in Storage a/c
      To Cash a/c
      Dr
      50
      50

Ledger

One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.

  • Normally

    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount

    By Loss in Storage
    By Normal Loss

    250
    50
    Normal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Cash
    To Consignee

    150
    50


    Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Bank

    150


    Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee

    250


  • Opting to derive greater information

    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount

    By Abnormal Loss in Storage
    By Normal Loss in Transit

    250
    50
    Normal Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Cash

    150


    Normal Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee

    50


    Abnormal Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Bank

    150


    Abnormal Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee

    250


  • Opting to derive lesser information

    Normal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Cash
    To Consignee

    150
    50


    Abnormal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee
    To Bank

    250
    150


    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Abnormal Loss
    By Normal Loss

    250
    50

Consignee Books

Dr/Cr - Transaction analysis

To the consignee, this would be like any other expenditure paid on behalf of the consignor, which has to be reimbursed by the consignor.

  • Debit - Consignor a/c

    The expenditure is incurred on behalf of the consignor who would be the benefit receiver.

  • Credit -

    Depending on whether the expenditure has been paid for or not and the mode of payment, the relevant account is credited.

    • Cash

      Real

      Credit
      {what goes out}

      Cash goes out as payment for expenses.

    • Bank

      Personal

      Credit
      {the benefit giver}

      Amount goes out from the bank, making Bank the benefit giver.

    • Outstanding Expenses

      Personal

      Credit
      {the benefit giver}

      The person to whom the expense is due, represented by the Outstanding Expenses a/c, would be the benefit giver.

Journal

  1. Expenditure on Abnormal Loss (in storage) paid by cheque

    Consignor a/c
    To Bank a/c
    Dr
    250
    250
    [For the expenditure on abnormal loss (in storage) paid by the consignee by cheque]
  2. Expenditure on Normal Loss (in storage) outstanding

    Consignor a/c
    To Outstanding Expenses a/c
    Dr
    50
    50
    [For the expenditure on normal loss (in storage) outstanding]

Ledger

Consignor a/c
Dr Cr
Particulars Amount Particulars Amount

To Bank
To Outstanding Expenses

250
50