Fantastic Normal Loss Account

It is debited with the normal loss of different processes.

Normal loss account. Normal unit loss Units x Loss Normal unit loss 1200 x 5 60 Allowing for the normal loss the expected output units for the period are 1200 60 1140. It forms the part of cost of goods sold. Accounting Treatment Of Normal Loss The normal loss is a loss of natural phenomena.

Inherent in the process are expected normal losses calculated as follows. That is the loss on account of normal loss is borne by good units. Normal loss meaning and treatment Normal loss occurs majorly due to natural causes like drying evaporation leakage shrinkage or perishing a few items due to handling goods in bulk quantities.

Normal loss is a loss which arises during normal course of business which is known in advance and is a small in nature like weight shrinkage etc. If there is no abnormal gain then there is no necessity to maintain a separate account for normal loss. Normal loss is an inherited loss that cannot be avoided.

The person who sends the goods is Consignor the manufacturer or producer and the agent who receives the goods is Consignee. It is an unavoidable loss. In accounting Consignment can be defined as the act of sending the goods by the manufacturers or producers to their agents for the purpose of sale.

A separate normal loss account is opened in the cost ledger. It should be taken into account while valuing the closing stock. The Abnormal loss is unknown and is above than normal loss and cannot be charged to the product as it arises because of negligence machine breakdown or accident which does not normally happens.

It is possible for an account expected to have a normal balance as a debit to actually have a credit balance and vice versa but these situations should be in the minority. It is taken into account only when unsold stock is to be valued. An account by name Normal Loss is used for holding the value of this asset.