Received job work material accounting

Hi Lakshman,

Your situation involves job work with raw materials received from the customer and usage of your own raw materials as well. Here's a simplified approach to handle the accounting and ledger issues:

Facts Recap:

• Customer sends raw materials worth Rs. 175.

• You add your own raw materials (mixed 75% both).

• Finished goods sold to customer for Rs. 100.

• Customer ledger still shows credit balance after receiving Rs. 100.

Accounting & Ledger Treatment:

1. Receipt of raw material from customer:

   • No purchase entry because you don’t own this material.

   • Pass an entry to record receipt of material on job work (off-balance sheet or memo entry).

   • Example (off-books, to track material):

     • Debit: Job Work Materials (Stock/Inventory account - Off Books) Rs.175

     • Credit: Customer Advances / Customer Materials Rs.175

2. Your own raw materials used:

   • You should account for purchase/consumption of your own raw materials normally:

     • Debit: Raw Material Consumption Rs. X

     • Credit: Raw Material Stock Rs. X

3. Job work processing & sales:

   • When finished goods are sold to the customer for Rs. 100:

     • Debit: Customer (Debtor) Rs. 100

     • Credit: Job Work Income Rs. 100 (or Finished Goods Sales, depending on accounting policy)

4. Settlement of raw materials received from customer:

   • Since raw material worth Rs. 175 was received from customer but finished goods sold for Rs. 100 only, the remaining Rs. 75 needs to be adjusted in the customer ledger to avoid credit balance.

   • You can do this by either:

     • Passing an adjustment entry to reduce customer ledger by Rs. 75, or

     • Settling the difference by raising an invoice for the leftover material or showing advance/stock with customer.

How to clear the credit balance in customer ledger?

• The credit balance arises because customer has "supplied" Rs. 175 material but payment due is only Rs. 100.

• You need to adjust the value of materials received from customer against the amount payable to them.

• In effect, your ledger with the customer should show net amount payable/receivable considering both materials received and finished goods sold.

Suggested simplified approach:

This way the customer ledger balance becomes zero or reflects the correct net amount.

Final note:

• Consult with your accountant or auditor to confirm treatment per your accounting policies.

• Job work transactions often require off-balance sheet tracking for customer materials.

• GST treatment also needs careful handling (whether input supplied by customer, job work services, etc.).