Difference Between Normal Loss and Abnormal Loss

Normal loss and Abnormal loss both are a type of loss that affects the financial position and overall condition of the company. Normal Loss occurs while doing the normal course of business, and abnormal loss occurs from unexpected events. Companies take all the precautions required for preventing normal and abnormal loss.

What is Normal Loss?

Normal loss is defined as a type of loss that takes place in certain situations due to the nature of used processes and raw materials and that cannot be avoided. Normal loss takes place naturally such as spoiling, evaporation, leakage, or breakdown. Normal loss can be estimated with the help of prior experiences, technical knowledge, and required formulas. Normal losses are not being charged as they are considered the part of production cost. Normal loss occurs initially before the process starts or meanwhile when any process is executed. There are four forms of normal loss. They are:

1. Normal waste: Normal waste is defined as a type of material that is discarded and has no value.
2. Normal scrap: Normal scrap is defined as a type of material that is discarded and has some value.
3. Normal spoilage: Normal Spoilage is defined as a type of production that does not meet quality standards and is discarded.
4. Normal defectives: Normal defectives are defined as a type of production that does not meet quality standards but can be sent for preprocessing again.

Normal Loss can be calculated as:

Number of Normal Loss Units = Input × Expected Percentage of Normal Loss

What is Abnormal Loss?

Abnormal loss is defined as a type of loss that takes place due to some unexpected condition. This type of loss is avoidable and not natural. Abnormal loss can occur due to various events such as carelessness, mishandling, lack of knowledge, unplanned work, accidents, etc. Abnormal loss can be avoided by taking some prevention measures. The cost of production does not consist of the cost of abnormal loss but it can affect the financial condition of the company and requires more resources to mitigate them. The value of stocks is not inflated during abnormal loss. Abnormal loss cannot be predicted earlier. Determining the root cause of abnormal loss is difficult at many times and therefore requires skilful and more significant investigation.

Abnormal Loss can be calculated as:

Units of Abnormal Loss = Expected Output – Actual Output

Where, Expected Output = Input – Normal Loss

Difference Between Normal Loss and Abnormal Loss

Basis	Normal Loss	Abnormal Loss
Definition	Normal loss is defined as a type of loss that takes place in certain situations due to the nature of used processes and raw materials.	Abnormal loss is defined as a type of loss that takes place due to some mischief or unexpected condition.
Causes	Normal loss takes place due to factors such as market conditions, competitors in the market, turnover of employees, etc.	Abnormal loss can occur due to various events such as carelessness, mishandling, lack of knowledge, unplanned work, accidents, etc.
Avoidable	Normal losses can not be avoided.	Abnormal loss can be avoided by taking some prevention measures.
Estimation	Normal loss can be estimated earlier with the help of past experiences and an understanding of current scenarios.	Abnormal loss cannot be estimated earlier.
Impact	Normal loss can have a small impact on the financial condition of the company as compared to abnormal loss.	Abnormal loss can have a major impact on the financial condition of the company as compared to normal loss.
Cost of loss	Normal loss is included in the cost of production.	Abnormal loss is not included in the cost of production.
Effect on stock value	The stock value is inflated due to normal loss.	Abnormal loss does not have any impact on the stock value.
Insurance	Normal loss is insurable	Abnormal loss is not insurable.
Entries in journal	In order to show the normal loss, no separate journal entries are required.	Proper and separate journal entries are made for abnormal loss.
Preventive Measures	Normal loss can be prevented with the help of proper management, control, and checking for technical things.	Abnormal loss can be prevented by taking proper working measures by workers, working according to the strategy or plan, following all the rules, and being attentive while working.