Process Account

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
I've been working on Process Accounts and have noticed that despite my rounding up or down, my conversion costs within the process account never seem to add up to the total balance. In the exam should I leave them as they are, or physically alter the numbers? Eg. My conversion costs total £70478, however my balance for the costs on the account is £70480. Does this matter? Sharon

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Process Account

    Both side sof the t account nees to balance. set your calculator to 2 decimal places or alter the number if its only a small difference.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Process Account

    Quick Question regarding normal loss and abnormal loss. If a scrap value is indicated, then you enter this in to the account. My question stated that ALL losses can be sold for scrap, therefore for the abnormal loss do I calculate the scrap value or the full value? I then need to prepare accounts for Normal loss/scrap account, and Abnormal Loss. I'm lost.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Process Account

    The key thing is to find out the normal cost per unit, use this formula:<BR><BR>Total cost less normal loss scrap value/ Total units less normal loss units<BR><BR>Then to show on a t account on the left you have the material costs, labour and conversion costs. On the right side you list your output (shown as normal cost per unit), normal loss (shown as the scrap value), then abnormal loss as a normal cost.<BR>That completes your process account<BR><BR>Then normal loss account:<BR><BR>On left side you would show the normal loss units @ scrap value and abnormal loss at scrap value. The right side would be the proceeds from total loss ie normal and abnormal.<BR><BR><BR>Abnormal loss account:<BR><BR>The proceeds from the normal loss account would then be transferred to this account and be shown as the scrap value and the units on the right. On the left you would record the units at the normal cost unit price (worked out from process account). Any variance between the actual money received and the abnormal loss units would be recorded as a balancing entry on the left to the profit and loss account.<BR><BR>Try this question:<BR><BR>Normal level of loss is 5%, any losses can be sold for £1.00. Input was 720kg and the actual output was 675kg.<BR>Material costs are £2,400 and conversion costs are £372.00<BR><BR>Prepare the process account, normal loss and abnormal loss account.<BR><BR><BR><BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Process Account

    Thanks - that was very useful. Is this right...<BR><BR>Process Acc balances at 720 units at 2772 cost.<BR>(output = 675 @ 2700, Normal Loss = 36 @ 6, Abnormal loss 9 @ 36)<BR><BR>Normal Loss/Scrap Account balances at 45 units at £45 cost.<BR>( normal loss 36 @ 36, Abnormal = 9 @ 9. Cash is CR at 45units @ £45)<BR><BR>Abnormal Account balances at 9 units at £36 Cost<BR>(Abnormal Loss = 9 @ 36 (full value), then CR = Abnormal (scrap value) 9 @ £9, and P&L with £27.00<BR><BR><BR>Is this right????? Its clicked!!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Process Account

    Perfect, see you did know it!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Process Account

    Thanks to your advice. To test myself Ive just found a question which asks that you produce the same accounts, however this time its an abnormal gain - I worked through it well. Thanks again. Best get back to the books.... Sharon
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Process Account

    You're welcome, good luck for Monday

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