Normal Loss: The loss in the quantity of goods in the normal going business due to some unavoidable actions such as during the shipment of goods, packing or loading of goods. For example: shrinkage, evaporation, rusting etc. Normal loss increases the cost of production because when the cost is being recovered it results in the higher cost of production.

Abnormal loss: The type of loss which occurs due to some unfortunate incidence which can be avoided such as fire, or some other accidents. For example: bad working conditions, carelessness, rough handling, lack of knowledge, machine breakdown, accident etc. And the abnormal loss is assessed on the basis of production cost where profit and loss account is charged.