What are byproducts?

Byproducts are incidental products having minor value that are created as a secondary result of a production process that creates one or more other products.

It may be possible to sell byproducts; alternatively, any revenues to be gained from byproducts are so minor that they are simply discarded as waste. Examples of byproducts are:

• Sawdust at a sawmill
• Salt from a desalination plant
• Straw from a grain harvesting operation

The typical accounting for any revenues generated from byproducts is to offset them against the cost of goods sold for the primary products that are generated from the production process. It is also acceptable to record these revenues as miscellaneous revenue. This means that you do not need to assign any cost to byproducts; instead, assign all production costs to the primary products that are being manufactured.

There are other, more complicated methods available for accounting for the cost of byproducts, such as the sales value at split-off method and the net realizable value method, but they introduce considerable complexity to the accounting process, and so should generally be avoided.

When there are multiple products created from a production process, you can discern the byproducts by seeing which ones have a minor resale value in comparison to the value of the other products. If there is no clear differentiate between primary products and byproducts, treat them all as primary products.