Answer:
- Production byproduct method.
This method recognizes byproducts in the financial statements at the time their production is completed. The estimated net realizable value from the byproduct produced is offset against the costs of the main (or joint) products, and reported in the balance sheet as inventory. Accounting entries are made and the byproducts are reported in the balance sheet at their selling price.
- Sale byproduct method.
This method delays recognition of the byproducts until the time of their sale. Revenues could be recorded in one accounting period, while the expense in an earlier period. Companies may find it necessary to keep an inventory of the byproduct processing costs in a separate account until the byproducts are sold. This practice can be rationalized on the grounds that the dollar amounts of byproducts are immaterial. But managers can use this method to manage reported earnings by timing when they sell byproducts.
