Material has left the warehouse: which account is it charged to for production, the workshop, the office or sale?

At the "Oq Bug'doy" bakery workshop, storekeeper Jamshid wrote five different kinds of "issue" in one month: flour went to the oven, detergent to the workshop floor, paper to the office, bags to the shop counter, and a spare part to the in-house repair shop. From the warehouse's point of view they are all the same: "material went out". For the accounting department they are five different entries, because an expense is recorded according to where and for what it was used.

When is material written off?

The NAS No. 4 rule is simple: the value of inventory being disposed of is removed from the balance sheet at the moment the fact of disposal is established (paragraph 58). The standard lists the following disposal routes: 1. Sale 2. Contribution as a share to the charter capital of another organization 3. Return of a share previously contributed to the charter capital when a founder withdraws or when the property of an entity being liquidated is distributed among participants 4. Transfer free of charge 5. Exchange 6. Liquidation (destruction) due to unfitness after the end of the storage period, or physical and technological obsolescence 7. Discovery of a shortage, loss or damage (breakage, spoilage) 8. Transfer as a commodity loan or repayment of a commodity loan received 9. Other transactions and events

Issuing to production is not named separately in this list, but NAS No. 4 also mentions inventories issued to production among the inventories "being disposed of" (paragraph 62). Which account written-off material goes to depends on where it was used: what goes into the product goes to cost of production, what goes to the office goes to period expenses (see the table below). This article is about exactly this day-to-day consumption. Spoiled and unusable materials are covered in a separate article.

Depending on where the material is used, which account is debited?

NAS No. 21 gives the general rule: consumption of materials is reflected on the credit of the materials accounts (1000), in correspondence with expense accounts (paragraph 103).

NAS No. 4 is also clear about containers: single-use containers for packing products during production go to cost of production, while containers used for packing goods at points of sale and in warehouses go to selling expenses (paragraph 81).

If material is sold to third parties, the sale proceeds are recorded on the credit of 9220 (paragraph 393), and if there is a gain it is closed with 9220 / 9320 (paragraph 405, line 2).

At what value is it written off?

• The value of inventory being disposed of is determined by one of three methods: specific identification, weighted average cost (AVECO) or FIFO. For one group of inventories only one method is applied throughout the year (NAS No. 4, paragraphs 62, 63). We looked at the differences between the methods in detail in the article "FIFO or weighted average?"
• Materials are accounted for at the lower of actual cost and net realisable value (NAS No. 21, paragraph 87)
• If a standard accounting price is used, the difference from actual cost is calculated every month and accumulated in 1610 "Material cost variances" (paragraphs 88, 89), then allocated to the materials consumed in proportion (for example, 2010 / 1610: paragraph 120 line 5; 2510 / 1610: paragraph 130 line 4)

Example: October issues at "Oq Bug'doy"

Amounts are hypothetical; we assume the unit prices have already been determined by the method in the accounting policy.

Let us check the figures: - Total issued from the warehouse: 13 000 000 + 760 000 + 450 000 + 180 000 + 320 000 = 14 710 000 soum - Material returned: 60 000 soum, so the net issue from the warehouse is 14 710 000 − 60 000 = 14 650 000 soum - Net amount remaining in 2510: 450 000 − 60 000 = 390 000 soum. At the end of the month it is allocated to the cost of production (2010 / 2510: paragraph 130, line 16)

As a result, flour worth 13 000 000 soum went directly into the cost of the bread, 390 000 soum of workshop overhead is added through allocation, while the paper and bags go not to cost of production but to this month's period expenses.

Checklist for writing off materials

• Is each issue documented with a primary document that states "to whom and for what"?
• Does the debit account match where the material was used (product, auxiliary workshop, general workshop, office, selling)?
• Is material returned from the workshop reflected in the warehouse receipt and on the credit of 2510?
• Was the issue price determined by the method in the accounting policy, and was the method not changed mid-year?
• If a standard accounting price is used, was the variance in 1610 allocated at the end of the month?
• Is analytical accounting kept by storage location and material name (NAS No. 21, paragraph 103)?