Closing Stock of Finished Goods/Stock in Process Account
Finished Goods - Quantity and Value
Current Period Output/Stock
Quantity
The quantity of finished output/stock in a process is ascertained through the actual data available in relation to the process. Where no such information is available we assume that the actual output is nothing but the normal output.Value
The value of finished goods/output of the process during a period is ascertained by valuing the quantity of output at the Normal Cost of Normal Output per unit of that process.Opening Stock
The opening stock of a period is the closing stock of the previous period. The information relating to the quantity and value of the opening stock would be available from the data relating to the opening stock being brought forward.The quantity information should be available to assume that there is opening stock of finished goods. Availability of the value of opening stock and the rate at which the stock has been valued would enable us to derive the quantity information.
In the absence of appropriate information relating to value or rate of valuation, we assume that the opening stock is also valued at the same rates as the current period stock.
Closing Stock
The quantity of closing stock of finished goods is ascertainable from the information relating to the process.When there is opening stock, the rate at which the closing stock is valued is dependent on method adopted (FIFO, LIFO, Average) for deciding on the rate of valuation. In problem solving, in the absence of information relating to the method to be adopted, we assume FIFO method.
Where there is no opening stock, all the stock at the end would be from the current period output and as such the method adopted for valuation would be immaterial as the rate of valuation would be the same under all the methods (FIFO, LIFO, Average) adopted for deciding on the rate for valuation.
Accounting Treatment - Current Period Output, stock disposal
Process Stock a/c is not used
Where no separate stock a/c is maintained, the output would be disposed off from the Process a/c itself.- Transfer to the subsequent process
Journal Particulars Process B a/c To Process A a/cDr - Transfer to the Finished Stock a/c
Journal Particulars Finished Stock a/c To Process A a/cDr - Sale
Journal Particulars Process Stock Sale a/c To Process A a/cDr
Ledgers
DrCr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
By Process B a/c By Finished Stock a/c By Process Stock Sale a/c |
Process Stock a/c is used
only for recording closing stock
Where Process Stock a/c is maintained only for recording closing stock, it amounts to not using the Process Stock a/c for recording the disposal of output during the current period.for recording all transactions throughout the accounting period
Where Process Stock a/c is maintained for recording all transactions relatng to process output throughout the accounting period, the total output whenever it is ready would be transferred from the Process a/c to the Process Stock a/c and all disposals of stock would be done from the Process Stock a/c.- Transfer of output to process stock account
Journal Particulars Process A Stock a/c To Process A a/cDr - Transfer to the subsequent process
Journal Particulars Process B a/c To Process A Stock a/cDr - Transfer to the Finished Stock a/c
Journal Particulars Finished Stock a/c To Process A Stock a/cDr - Sale
Journal Particulars Process Stock Sale a/c To Process A Stock a/cDr
- Transfer of output to process stock account
Ledgers
DrCr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
By Process A Stock a/c |
DrCr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Process A a/c | By Process B a/c By Finished Stock a/c By Process Stock Sale a/c |
Accounting Treatment - Closing Stock of Process Output
Process Stock a/c is not used
Where no separate Process Stock a/c is maintained, the value of closing stock of output that has not yet been disposed would be carried forward to the subsequent accounting period within the Process a/c itself.In such case, the posting in the Process a/c would read By Balance c/d.
DrCr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
By Balance c/d | 800 | 72,000 | |||
To balance b/d | 800 | 72,000 |
The posting is supported by the closing entry recorded at the end of the accounting period.
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Creditors a/c – – To Machinery a/c – To Process a/c – | Dr Dr Dr | – – – | – – 72,000 – |
[For the value of assets and liabilities carried forward] |
The value of process stock at the end would be an asset to the organisation and would appear in the Balance sheet.
Liabilities | Amount | Assets | Amount |
---|---|---|---|
Process | 72,000 |
Other Balances
The Process a/c may also carry the value of closing balances of Process Raw Materials as well as Process Work in Progress as a balance in the process account itself. In such case a single Balance c/d posting may represent all the values carried forward or there would be multiple postings with the label Balance c/d, each indicating a distinct value.DrCr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
By Balance c/d By Balance c/d | 1,400 800 | 14,000 72,000 | |||
To balance b/d To balance b/d | 1,400 800 | 14,000 72,000 |
Say 1,400 units represents material stock and 800 units the output.
The posting is supported by the closing entry recorded at the end of the accounting period containing the Process a/c multiple times.
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Creditors a/c – – To Machinery a/c – To Process A a/c To Process A a/c – | Dr Dr Dr | – – – | – – 14,000 72,000 – |
[For the value of assets and liabilities carried forward] |
The Balance sheet would also show the Process a/c multiple times.
Liabilities | Amount | Assets | Amount |
---|---|---|---|
Process A Process A | 14,000 72,000 |
Process Stock a/c is used
The Process Stock a/c may be used only for the purposes of recording the closing stocks or for recording all the inflows and outflows of output all throughout the accounting period.only for recording closing stock
All the transactions relating to output disposals during the current period are recorded through the process a/c itself. The value of all the output stock being present in the process account, the value of the closing output stock is carried over from the process account to the Process Stock a/c.Journal Particulars Amount
(Dr)Amount
(Cr)Process Stock a/c To Process a/cDr 72,000
72,000
The Process Stock a/c is used only for recording the closing stock, carrying it over to the subsequent period and transferring the stock back to the Process a/c of the subsequent period. It has a balance only on the last day of the accounting period and the first day of the accounting period if a balance has been brought forward from the previous accounting period till it is transferred to the Process a/c.Process a/c DrCr Particulars Quantity
(in Units)Amount Particulars Quantity
(in Units)Amount
By Process Stock a/c
800
72,000Process Stock a/c DrCr Particulars Quantity
(in Units)Amount Particulars Quantity
(in Units)Amount
To Process a/c
800
72,000
By Balance c/d
800
72,000– – – – To Balance b/d 800 72,000 for recording all transactions throughout the accounting period
All transactions relating to the Process output are recorded through the Process Stock a/c. On completion of production, the output is transferred to the Process Stock a/c and all disposals are made from there. The value of the undisposed output will exist as a balance in the Process Stock a/c itself.Process A Stock a/c DrCr Particulars Quantity
(in Units)Amount Particulars Quantity
(in Units)Amount
To Process A a/c
By Process B a/c
By Finished Stock a/c
By Process Stock Sale a/c
By Balance c/d
800
72,000– – – – To Balance b/d 800 72,000
Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Creditors a/c – – To Machinery a/c – To Process Stock a/c – | Dr Dr Dr | – – – | – – 72,000 – |
[For the value of assets and liabilities carried forward] |
Liabilities | Amount | Assets | Amount |
---|---|---|---|
Process Stock | 72,000 |
Accounting Treatment - Opening Stock of Output
No Separate Process Stock a/c
Where there is no separate Stock a/c, the opening stock of output would be present as an opening balance in the Process a/c itself. It is brought into books through the opening entry recorded at the beginning of the accounting period.Particulars | Amount (Dr) | Amount (Cr) | |
---|---|---|---|
Machinery a/c – Process a/c – To Creditors a/c – – | Dr Dr Dr Dr | – – 72,000 – | – – – |
[For the value of assets and liabilities brought forward] |
DrCr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Balance b/d | 800 | 72,000 |
Process Stock a/c is used
The opening balance in the Process Stock a/c represents the opening stock of finished output relating to the process.only for recording closing stocks
If the Process Stock a/c is being used only for the purpose of recording closing stocks, the opening balance in the account is transferred to the respective process accounts. The account will show nil balance till the end of the accounting period when the closing stock of the current period is recorded again bringing in balance again into the account.Process Stock a/c DrCr Particulars Quantity
(in Units)Amount Particulars Quantity
(in Units)Amount To Balance b/d 800 72,000 By Process a/c 800 72,000 Process a/c DrCr Particulars Quantity
(in Units)Amount Particulars Quantity
(in Units)Amount To Process Stock a/c 800 72,000 All other transactions relating to the material inflow and outflow during the accounting period are recorded through the process accounts.
for recording all transactions
The opening stock of output would be present as an opening balance in the Process Stock a/c. It is brought into books through the opening entry recorded at the beginning of the accounting period.Journal Particulars Amount
(Dr)Amount
(Cr)Machinery a/c
–
Process Stock a/c
–To Creditors a/c
–
–Dr
Dr
Dr
Dr–
–
72,000
–
–
–
–[For the value of assets and liabilities brought forward] Process Stock a/c DrCr Particulars Quantity
(in Units)Amount Particulars Quantity
(in Units)Amount To Balance b/d 800 72,000 All other transactions relating to the output during the accounting period are recorded through the Process Stock a/c itself. The process account would be affected only when the transaction relating to transfer of completed output to stock account is recorded.
Illustration (with Opening Stock of Finished Goods)
Opening Finished Stock : 1,200 units valued at 40,800; Transfer from Process X : 24,200 units @ 18/unit; Material introduced : 800 units @ 30/unit. Direct Labour : 1,43,400; Production Overheads : 2,35,000.
Normal Loss : 8% of total input processed. These units have a realisable value of 12/unit . The actual output from the process during the current period is 22,500 units. 1,500 units of completed production remained in stock at the end. The remainder of the goods have been transferred to Process Z.
Dr Cr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Process X a/c To Material To Direct Labour/Labor To Production Overheads | 24,200 800 | 4,35,600 24,000 1,43,400 2,35,000 | By Normal Loss By Abnormal Loss By Process Y Stock a/c | 2,000 500 22,500 | 10,000 18,000 8,10,000 |
25,000 | 8,38,000 | 25,000 | 8,38,000 |
Dr Cr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Balance b/d To Process Y a/c | 1,200 22,500 | 40,800 8,10,000 | By Process Z a/c By Balance c/d | 22,200 1,500 | 7,96,800 54,000 |
23,700 | 8,50,800 | 23,700 | 8,50,800 | ||
To Balance b/d | 1,500 | 54,000 |
Notes/Assumptions
- Process Stock a/c is used for handling process outputs.
Working Notes
Particulars | Primary | Secondary | Total | |||||
---|---|---|---|---|---|---|---|---|
Quantity | Rate | Value | Quantity | Rate | Value | Quantity | Value | |
Current Period input | 24,200 | 18 | 4,35,600 | 800 | 30 | 24,000 | 25,000 | 4,59,600 |
Input Processed (IP) | 25,000 | 4,59,600 |
Particulars | Quantity | Cost | Cost/Unit |
---|---|---|---|
Input Processed (IP) + Other Costs Direct Labour/Labor Production Overheads | 25,000 | 4,59,600 1,43,400 2,35,000 | |
Total (IP | TC) − Normal Loss (IP × 8%) | 25,000 2,000 | 8,38,000 10,000 | 5.00 |
Normal (NO | NC | NCNO/U) − Actual Output | 23,000 22,500 | 8,28,000 8,10,000 | 36.00 |
Abnormal Loss(+)/Gain(−) | +500 | +18,000 |
- Normal Cost of Normal Output per unit
NCNO/U = - Actual output (22,500 × 36) and Abnormal Loss (500 × 36) are valued at NCNO/U
Particulars | Quantity | Cost | Cost/Unit |
---|---|---|---|
Opening Stock + Current Period Output | 1,200 22,500 | 40,800 8,10,000 | 34 36 |
Total Stock − Closing Stock | 23,700 1,500 | 8,50,800 54,000 | 35.8987 36 |
Transfer to Process Z | 22,200 | 7,96,800 | 35.8919 |
Closing Stock Valuation Rates FIFO method LIFO method Average method | 36 34 35.8987 |
- In the absence of any specific instruction, the closing stock is valued at current period rates under FIFO method.
Detailed Working
- Primary Material is the output of Process X introduced into the process.
- Secondary Material results in increase in quantity of input.
Normal Loss Units
NLU = 8% of input processed = IP × 8% = 25,000 units × 8% = 2,000 units Normal Output Units
NOU = IP − NLU = 25,000 units − 2,000 units = 23,000 units Actual Output Units
The Output that is actually obtained in the process.AOU = 22,500 units (given)
Abnormal Loss or Gain
Since NOU > AOU, there is abnormal loss
Valuations
Total Cost
TC = 4,59,600 + 1,43,400 + 2,35,000 = 8,38,000 Normal Loss Realisation Rate per unit
NLRR/U = 5/unit
Normal Loss Realisation
NLR = NLU × NLRR/U = 2,000 × 5/unit = 10,000 Normal Cost
NC = TC × NLR = 8,38,000 − 10,000 = 8,28,000 Normal Cost of Normal Output per unit
NCNO/U = = = 36/unit Value of Actual Output
VAO = AO × NCNO/Unit = 22,500 units × 36/unit = 8,10,000 Value of Abnormal Loss
VAL = ALU × NCNO/Unit = 500 units × 36/unit = 18,000
No Process Stock a/c
Dr Cr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Balance b/d To Process X a/c To Material To Direct Labour/Labor To Production Overheads | 1,200 24,200 800 | 40,800 4,35,600 24,000 1,43,400 2,35,000 | By Normal Loss By Abnormal Loss By Process Z a/c By Balance c/d | 2,000 500 22,200 1,500 | 10,000 18,000 7,96,800 18,000 |
26,200 | 8,42,800 | 26,200 | 8,42,800 | ||
To Balance b/d | 1,500 | 54,000 |
Process Stock a/c used only for recording closing stock
Dr Cr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Process Y Stock a/c To Process X a/c To Material To Direct Labour/Labor To Production Overheads | 1,200 24,200 800 | 40,800 4,35,600 24,000 1,43,400 2,35,000 | By Normal Loss By Abnormal Loss By Process Z a/c By Process Y Stock a/c | 2,000 500 22,200 1,500 | 10,000 18,000 7,96,800 18,000 |
26,200 | 8,42,800 | 26,200 | 8,42,800 |
Dr Cr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Balance b/d To Process Y a/c | 1,200 1,500 | 40,800 54,000 | By Process Y a/c By Balance c/d | 1,200 1,500 | 40,800 54,000 |
2,700 | 94,800 | 2,700 | 94,800 | ||
To Balance b/d | 1,500 | 54,000 |