Debitoor Dictionary

Accounting terms explained simply

Over 300 Articles for Founders and Entrepreneurs

  1. Inventory
  2. Joint products
  3. Market value
  4. Spoilage

By-products – What are by-products?

By-products, sometimes called byproducts, are secondary products which result incidentally from the manufacturing of a main product.

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Whilst by-products are often not intended products, they are an inevitable result of many production processes. For example, a sugar manufacturer’s main product is sugar, but they will also generate molasses through the process of producing the sugar.

By-product vs. joint product vs. spoilage

Almost every production process results in additional products which are not the main, intended products. As well as the main product and by-product, production processes can also generate spoilage and joint products.

Whereas by-products are secondary products which usually have market value, and can therefore be processed and sold on, spoilage has no market value and is therefore disposed of.

Unlike a by-product, which is always of lower market value than the main product, joint products are two or more different products generated within the same production process which have roughly equal market value.

Accounting for by-products

There are two ways of accounting for a by-product: the production method and the sales method.

Under the production method, product’s sales value is recognised in the accounting period in which the product is produced, and the by-product is considered as inventory.

Under the sales method, the value of the by-product is recognised in the accounting period in which the product is sold, and the product is not recorded as inventory.