What journal entries are made when defective output (rejects) appears in the workshop?

Defective output is bound to occur in a workshop. What matters is that the accounts keep showing where its value went: how much was reused, how much the person at fault will cover and how much ended up in production cost.

Key points

• Information on losses from rejects is accumulated in account 2610 "Production defects (rejects)" (NAS No. 21, paragraph 131)
• The debit of 2610 collects the costs of identified rejects and warranty repair costs
• The cost of irreparable rejects is taken out of primary production: Dt 2610 – Ct 2010 (paragraph 132, line 2)
• For repairable rejects, materials used are recorded as Dt 2610 – Ct 1010–1090, wages as Dt 2610 – Ct 6710, and costs of the single social payment relating to the defective output as Dt 2610 – Ct 6520 (lines 1, 8 and 7)
• The credit of 2610 records amounts that reduce the loss: scrap valued at its usable price, Dt 1010–1090 – Ct 2610, and the amount recoverable from the employee at fault, Dt 4730 – Ct 2610 (lines 11 and 13). The amount recoverable from a supplier for rejects caused by poor-quality materials or semi-finished products is also included here (paragraph 131)
• The remaining net loss is added to the cost of products: Dt 2010 – Ct 2610 (line 12). After that, 2610 has no balance
• Analytical accounting is kept by workshops, product types, cost items and causes of rejects (paragraph 131). The cause column later provides the most useful information: which machine or which material is producing the most rejects

Example: the "Durdona mebel" workshop

Amounts are hypothetical. At the end of the month, 12 chairs were found to be defective, each with a cost of 600 000 soum, 7 200 000 soum in total. The remaining wooden parts were valued at 1 080 000 soum and taken into the warehouse. The cause of the rejects has been established: one craftsman violated the technology, and 1 320 000 soum will be recovered from him. In addition, 5 stools were repaired: 250 000 soum of materials and 400 000 soum of wages were spent (for simplicity, the single social payment is not included in the example).

Check: debit of 2610 is 7 200 000 + 250 000 + 400 000 = 7 850 000 soum; credit is 1 080 000 + 1 320 000 + 5 450 000 = 7 850 000 soum. The balance is zero. Net loss: (7 200 000 − 1 080 000 − 1 320 000) + 650 000 = 5 450 000 soum.