Accounting of Inter-Process Profits

Inclusion of inter-process profit creates complications in the accounts. As the internal profits remain merged in process stock, work-in-progress, and finished stock suitable adjustment is required to be made in the Balance Sheet in order to exclude such unrealized profit.

When inter-process profit is included in the accounts, it is advisable to have three columns in the ledger to indicate the cost, profit, and the total. This facilitates the calculation of the profit to be provided for inclusion in closing stock in each process and in the final finished stock.