Lesson: Spoilage

In this lesson, Nick Palazzolo, CPA, breaks down the distinctions between normal and abnormal spoilage with practical examples to make the concepts clear. Starting with the fundamental understanding that product costs are capitalized, he walks through the treatment of normal spoilage as an inventoriable cost that should be included in the balance sheet. Conversely, he draws a sharp contrast with abnormal spoilage resulting from unexpected events, explaining that such costs are recognized as expenses on the income statement. Nick's tabletop production analogy offers a relatable illustration to clarify these accounting treatments, setting the stage to confidently tackle related multiple-choice questions.