The expenses incurred on packing of goods to make the goods for salable purpose or for transportation purpose or for safety of goods purpose, are booked under packing charges account. Packing charges includes the material used for packing and the labor charges paid in respect of packing of material.
Some time the packing of goods become compulsory because without packing the goods it is not possible to deliver the goods to the consumer. For example food items can not be sold unless these are packed according to the convenient of the customers. Therefore, this cost of packing is treated as cost of goods.
When the packing expenses are incurred in respect of extra facilities to be given to the consumers or for display of the products then these expenses will be treated as indirect expenses and will be shown in expenses column of profit and loss account. For example attractive carry bags or attractive carry boxes or attractive wrappers etc. are the part of packing charges but all are not compulsory expenses.
Accounting Treatment:- Cash payment or Bank payment or Journal vouchers are prepared as per the nature of transactions.
Treatment of Packing Charges in Final Accounts
If the cost of packing is related to goods then the packing charges will be shown in expenses side of trading account otherwise it will be shown in expenses side of profit and loss account.
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