This video shows the journal entries for a byproduct when the company uses the Production Method of accounting for byproducts.
Under the Production Method, the expected sales value of the byproduct reduces the total manufacturing cost of the main product(s) in the period in which the byproduct is produced. Thus, if a company incurs $400,000 of manufacturing costs to produce its two main products and happens to obtain a byproduct with a sales value of $30,000, the manufacturing costs of the two main products would be reduced to $370,000. Thus, when the main products are completed, the company would debit Finished Goods Inventory for $370,000 (instead of $400,000) and debit Byproduct Inventory for $30,000. When the main products are sold, the company will debit Cost of Goods Sold for $370,000 (instead of $400,000); thus, the byproduct effectively increases the company’s operating profit in the period the byproduct is produced. When the byproduct is ultimately sold, the company will credit the Byproduct Inventory and debit Cash or Accounts Receivable.