Recognition of net revenue method of costing by-products

Under recognition of net revenue method of costing by-products, all traceable costs are assigned to by-products but no attempt is made to allocate any joint cost to by-products.

Any costs incurred after split-off point to process or market the by-product are entered in separate accounts from those used for recording the costs of main product(s).

On income statement, the by-product figures are presented using one of the four approaches discussed in recognition of gross revenue method of costing by-products.

Under recognition of net revenue method, the journal entries involve charging all costs incurred on the by-product after split-off point against the revenue realized from the sale of by-product. Marketing and administrative costs, if any, are also assigned to the by products.

Some companies maintain an account named as “by-product account” to which all revenues realized from the sale of by-products are credited and all costs incurred on by-products after split-off point are debited.

The balance of the by-product account is disclosed on the income statement using one of the four manners discussed in recognition of gross revenue method of costing by-products.

The total production or manufacturing costs that are applicable to the unsold inventory of by-product is presented in the balance sheet.

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