Byproducts, or by-products, are products with relatively little value that emerge from a common process along with the main products. The main products have significant value and are referred to as joint products. The point at which the byproducts and joint products emerge from the common process is known as the split-off point. The costs prior to the split-off point are known as the common costs.
Since the value of the byproducts is usually insignificant, the accounting for the byproducts can vary. Here are two of several methods of accounting for byproducts:
- The byproducts could be valued at the split-off point at their net realizable value. This amount reduces the common costs which will be allocated to the joint products at the split-off point.
- None of the common costs is assigned to the byproducts. As a result the full amount of the common costs are allocated to the joint products at the split-off point. When the byproducts are sold, the amount received is reported as revenues.