Finished goods from receipt into the warehouse until sale: account 2810 and journal entries at actual cost
A carpet workshop accumulated costs throughout the month and at month-end delivered 300 carpets to the warehouse. How is the actual cost of one carpet obtained, how are a sale, an exhibition, office use and a shortage written off from 2810, and how is the variance allocated when records are kept at a standard price: a full calculation.
Throughout October the workshop of "Xonobod Gilam" LLC used up yarn, accrued wages to the weavers and kept the workshop lights on. At month-end the storekeeper accepted 300 new carpets. Chief accountant Shahnoza has a single question: at what amount do these carpets enter the warehouse, and how do they leave it afterwards?
At what value are finished goods received?
Under paragraph 138 of NAS No. 21, products are recorded in account 2810 "Finished goods in the warehouse" at actual production cost. NAS No. 4 (paragraph 34) also says that the cost of self-produced inventories is their production cost. The selling price or the market price is not used here.
Actual cost is accumulated in account 2010 "Primary production". Costs go to its debit, and the cost of completed products leaves from its credit; the balance remaining at month-end is work in progress (paragraph 119). October's hypothetical figures:
| Indicator | Amount, soum | Journal entry (NAS No. 21, paragraph 120) |
|---|---|---|
| Work in progress at the beginning of the month | 18 000 000 | opening balance in 2010 |
| Yarn and dye used | 96 000 000 | Dt 2010 – Ct 1010 (line 3) |
| Weavers' wages | 30 000 000 | Dt 2010 – Ct 6710 (line 17) |
| General production overheads | 14 000 000 | Dt 2010 – Ct 2510 (line 8) |
| Work in progress at month-end (half-woven carpets on the looms) | 8 000 000 | closing balance in 2010 |
| Cost of the 300 completed carpets | 150 000 000 | 18 + 96 + 30 + 14 − 8 (mln) |
One carpet: 150 000 000 ÷ 300 = 500 000 soum. Receipt entry: Dt 2810 – Ct 2010, 150 000 000 soum (paragraph 141, line 1).
Note: only production costs go into cost. Under paragraph 36 of NAS No. 4, five kinds of expenses are not included in production cost: selling expenses, general (administrative) expenses for managing the organisation, other operating expenses, expenses on financial activities and extraordinary losses.
What if the old and new carpets in the warehouse have different costs?
At the beginning of the month there were 60 carpets in the warehouse from the previous month, costing 470 000 soum each, 28 200 000 soum in total. "Xonobod Gilam" has chosen the weighted average cost (AVECO) method in its accounting policy (NAS No. 4, paragraphs 62 and 65):
(28 200 000 + 150 000 000) ÷ (60 + 300) = 178 200 000 ÷ 360 = 495 000 soum each.
October's issues are now recorded at this price:
| Transaction | Quantity | Debit | Credit | Amount, soum | Basis (NAS No. 21, paragraph 141) |
|---|---|---|---|---|---|
| Cost of carpets sold to a buyer | 240 | 9110 | 2810 | 118 800 000 | line 11 |
| Given to a fair exhibition | 5 | 2820 | 2810 | 2 475 000 | line 10 |
| Laid in the management offices (administrative use) | 3 | 9420 | 2810 | 1 485 000 | line 6 |
| Shortage at stocktaking, storekeeper at fault | 1 | 4730 | 2810 | 495 000 | line 13 |
The sale itself is a separate pair of entries: 240 carpets at 750 000 soum each (excluding VAT) = 180 000 000 soum, Dt 4010 – Ct 9010 (paragraph 383, line 1); VAT 12%: 180 000 000 × 12% = 21 600 000 soum, Dt 4010 – Ct 6410 (paragraph 275, line 2).
Balance of 2810 at month-end: 360 − 249 = 111 carpets × 495 000 = 54 945 000 soum. Check: 178 200 000 − 118 800 000 − 2 475 000 − 1 485 000 − 495 000 = 54 945 000. The figures match.
The 5 carpets at the exhibition are still the company's property; they have only moved to 2820. If they are sold at the fair, the same entries as for 2810 are made (paragraph 139).
If records are kept at a standard price, how is the variance written off?
Some companies, so as not to wait for the actual cost every day, keep products in the warehouse at a standard price (in the example below, at planned cost) and show the variance separately. Paragraph 138 allows this and gives a formula for allocating the variance: the sum of the variance on the opening balance and the variance on products received during the month is divided by their value at the standard price.
Suppose the planned cost at "Xonobod Gilam" is 480 000 soum each:
| Indicator | At standard price, soum | Actual, soum | Variance, soum |
|---|---|---|---|
| Opening balance (60 pcs) | 28 800 000 | 28 200 000 | −600 000 |
| Received in October (300 pcs) | 144 000 000 | 150 000 000 | +6 000 000 |
| Total | 172 800 000 | 178 200 000 | +5 400 000 |
Variance percentage: 5 400 000 ÷ 172 800 000 = 3.125%. The 240 carpets sold are 240 × 480 000 = 115 200 000 soum at standard price, and the variance attributable to them is 115 200 000 × 3.125% = 3 600 000 soum. This is an overrun, and under paragraph 138 it is written off by an additional entry from the credit of 2810 to the debit of the relevant account, i.e. for products sold by Dt 9110 – Ct 2810. As a result the cost of the carpets sold is again 115 200 000 + 3 600 000 = 118 800 000 soum, the same result as with AVECO.
What happens if the price of carpets falls?
Cost is the upper limit in the balance sheet. If a carpet's net realisable value (its current value less the estimated costs of bringing it to a condition usable for its purpose and of selling it, as defined in NAS No. 4) falls below cost, the inventory is shown at that lower value and the difference becomes an expense of that period (NAS No. 4, paragraphs 49 and 56). This measurement is made separately for each type.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
The workshop of Chust Konserva LLC produced finished goods at actual cost and received them into the warehouse. Which journal entry is made?
Chairs made in a furniture workshop were received into the warehouse at actual production cost. What journal entry is made under NAS No. 21?
"Bekobod plyonka" LLC uses 1510 in its accounting policy. Polyethylene granules received from a supplier were first recorded as Dt 1510 Ct 6010. Now the granules have been received into the warehouse at actual cost. Which journal entry is made?
At Andijon Charm LLC, losses from defective products were accumulated in account 2610. Which journal entry is made to include them in the cost of primary production?
A wholesale trading firm sold goods from its warehouse to a customer. With what journal entry is the cost of the goods sold written off?
Answered: 0 / 50 of 5 correct
All tests →See also
- Accounting section
- Finished goods
- Work in progress
- Costing (cost calculation)
- At what cost is material issued from the warehouse written off: FIFO or weighted average?
- If the price of goods falls, at what value is the inventory in the warehouse shown in the balance sheet?
- 2810 Finished goods in the warehouse
Sources
- NAS No. 21 "Chart of Accounts for Accounting of Business Entities and Instructions for Its Application": paragraphs 119 and 120 (lines 3, 8 and 17) · production costs on the debit of 2010, actual cost of completed products on the credit, month-end balance is work in progress; Dt 2010 – Ct 1010-1090; Dt 2010 – Ct 2510; Dt 2010 – Ct 6710
- NAS No. 21 "Chart of Accounts for Accounting of Business Entities and Instructions for Its Application": paragraphs 136, 137, 138 and 139 · accounts 2810, 2820, 2830; services are not recorded in 2800; actual production cost in 2810; standard price and variance percentage; products at an exhibition
- NAS No. 21 "Chart of Accounts for Accounting of Business Entities and Instructions for Its Application": paragraph 141 (lines 1, 6, 10, 11 and 13) · Dt 2810 – Ct 2010; Dt 9410-9430 – Ct 2810; Dt 2820 – Ct 2810; Dt 9110 – Ct 2810-2830; Dt 4730 – Ct 2810
- NAS No. 21 "Chart of Accounts for Accounting of Business Entities and Instructions for Its Application": paragraph 383 (line 1), paragraph 275 (line 2) · Dt 4010 – Ct 9010 (amount excluding VAT); Dt 4010 – Ct 6410 (VAT)
- NAS No. 4 "Inventories" (approved by Order No. 24 of the Minister of Finance dated 28 May 2020, registered by the Ministry of Justice on 30 June 2020 under No. 3259), paragraphs 34, 49, 56, 62 and 65 · self-produced inventories at production cost; if net realisable value is lower, recognition at that value and the difference charged to expenses; measurement methods on disposal; weighted average cost (AVECO)
- General VAT rate 12% · the current general rate
- Example, company name and amounts · compiled by the author, hypothetical