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INTRODUCTION
Society 5.0, a super-smart society, is made up of IoT, big data, artificial intelligence (AI), robot, is going into an early stage and pervaded in people’s lives. This makes enterprises face a range of opportunities and challenges in the race for technology and speed. How to reach the fastest rotation speed, apply the modern technologies, win the marketing competition, understand customer desires and trends are the keys to maximize sales revenue. Revenue is at the heart of all business performance However, to enhance profit, manager also need to focus on revenue management, calculating business operation result, controlling investment projects effectively such as what products are manufacture, what industry should participate and so on. As a result, accounting for revenue plays a vital role in financial management, analyzing, evaluating, deciding action projects. Within the scope of this assignment, I would like to show about The accounting for revenue in Vietnam (Profit Organization) The assignment encompasses:
- Overview and accounting treatment for revenue in Vietnam
- Evaluation and recommendation
- Conclusion
- Reference CHAPTER 1. OVERVIEW AND ACCOUNTING TREATMENT FOR REVENUE 1.1 Overview of revenue 1.1.1. The nature of revenue
- Revenue of goods and services are total value of economic benefits that an enterprise receives in the accounting period arising from its normal business and production activities, which contribute to increases of owner’s equity, except for the additional contribution of the shareholders
1.1.2. The characteristic of revenue
- Revenue is the value that the company earns in the course of its business by selling its merchandise. Revenue is one of the important indicators reflecting the business process of the unit at a time in need of analysis. Through it we can assess the current status of business operations effectively or not
- Turnover only includes the total value of economic benefits the enterprise has gained or will gain. Third-party collections are not economic benefits, do not increase equity, so they are not considered revenue. Capital contributions of shareholders or owners increase equity but not revenue Turnovers do not include sums collected on third party, for example: Indirect taxes (VAT, export duties, excise taxes, environmental protection tax) payable; Amount which the turnovers agent collects on goods owners due to turnovers agency ; Surcharges and fees collected in addition to the unit price are not entitled; Other cases: In case of indirect taxes payable that are not separated immediately at the time transactions are incurred, to facilitate accountants, turnovers in the accounting books including indirect taxes may be recorded but periodically, accountants must record a decrease for indirect taxes payable. However, when preparing financial statements, accountants are required to identify and remove all of the indirect taxes payable out of standards of recording turnovers payable
- Business revenue is generated from activities: Turnover from main business activities Revenue from financial activities Revenue from unusual activities
which occur infrequently that may be brought about by the subjective or objective business (Article 3. Accounting standard No. 14 - "Turnover and other income) o Revenues from liquidation of fixed assets o Customers fines for contract violation o Taxes refundable by the State Budget o Income from gifts, donation is cash or in kind of goods by organizations or individual to enterprises
- In addition, depending on each specific business, the revenue can be divided by consumption items, by places of consumption, by number of consumption such as wholesale sales, retail sales and so on **1.1.4. The valuation of revenue
- Net sales:** The different between sales revenue of goods and sale discount, sales returns and allowances - Sales allowance: Amount of money accepted for customers due to special causes such as poor quality, defects, and wrongly delivery place and time - Sales return: Revenue of goods sold but are rejected by customers due to the facts that seller did not comply with signed contract - Trade discount: Amount of money that seller offered to customer due to large volume of purchases or frequent customers **- Gross Profit = Net Sales – COS = (Sales – Sales allowance – Sales return – Trade discount) - COS
- Returned goods** are the value of products and goods returned by customers due to causes such as violations of commitments, economic contract violations, poor, lost, unqualified goods, specifications. 1.2 Accounting for revenue 1.2.1. Accounting documents
VAT invoices, Sales invoices The list of consignments sold Payment for agent goods, consignment Sales contracts Payment documents such as receipt, credit note, and so on Cash register receipts Computer-generated receipts Other relevant documents such as Goods issue document, Goods received note… 1.2.2. Accounting rules for revenue
- The determination and recording revenue need to comply with Circular 200/2014/TT-BTC on guidelines for accounting policies for enterprises and Vietnamese Accounting Standard VAS
- The lawful financial statement used to announce and submit to Vietnamese competent agencies is a financial statement made in Vietnamese dong and audited. Transactions in foreign currencies may be recorded during the period, but at the end of the period, foreign currencies must be converted into Vietnamese currency at the current rates.
- Sale revenues of goods are recognized when all of the following 5 conditions are satisfied: Company transfers most of the risks and benefits associated with product ownership to buyer Company no longer holds rights of management and control over products Revenue can be determined reliably Company earned or will gain economic benefits from sales Cost associated with the sales of goods can be reliably determinable
- An enterprise shall only record turnovers from providing services if simultaneously satisfies the following conditions:
If products, goods or services sold from the previous period, discounted for sales, returned in the next period, but incurred prior to the issuance of financial statements, accountants must consider them as an adjustment event incurred after the dated of balance sheet and record decrease turnovers in financial statement of the reporting period Where products, goods and services must be discounted for sales, returned after the release of financial statements, enterprises must record decrease turnovers of the incurred period
- Turnovers in some cases are determined as follows: Turnovers from selling goods, providing services do not include indirect taxes payable such as VAT (including paying VAT under subtraction method), excise tax, export duties, environmental protection taxes In case of no immediate separate of indirect taxes payable at the time of recording turnovers, accountants shall record turnovers including the tax payable and record periodically as decrease in turnovers for indirect taxes payable. When preparing reports on income statement, standards of "Sales of goods, provisions of services" and standards of "Turnover deductions" do not include indirect taxes payable in the period due to naturally indirect taxes are not considered as a part of the turnovers In case in period enterprises have written invoices and received money from sales but at the end of period, have not yet delivered to the buyer, the value of the goods is not considered to have been sold in the period and not recorded in account 511 "Turnovers from selling goods and providing services" but only accounted for in Credit side of accounts 131 "Receivables from customer " the sum received from customers. When making deliveries to the buyer, the value of goods delivered, received money in advanced in accordance with the conditions for recording turnovers shall be
accounted for in account 511 " Turnovers from selling goods and providing services " In case of dispatching goods for promotion, advertising, but customers only receive promotional, advertising goods together with other conditions, such as buying products, goods (eg, buy 2 get 1 free....), accountants must allocate the received sum to calculate the turnovers for promotional items, the value of promotional goods is calculated on the cost of goods sold (in this case the nature of the transaction is discount of goods sold ) In case the enterprise has turnovers from sales and services provision in foreign currency, then the turnovers must be converted into accounting currency unit under exchange rates of real transactions at the time of economic transactions. In case of receipt of advance payments of customers in foreign currency, turnovers corresponding to the advance sum shall be converted into accounting currency unit under the exchange rate of real transactions at the time of receipt of advance
- Turnovers from sales of real estates of enterprises being investors must comply with the following principles: For works, work items of which enterprises being investors (including works, work items of which enterprises being both investors and constructors), enterprises shall not record the turnovers of selling real estate under the accounting standard of construction contract and shall not record for the turnovers received in advance from the customers according to progress. Recording turnovers from sales of real estate must satisfy five following conditions: The real estate has completed and transferred to the buyers, enterprises have transferred risks and benefits associated with ownership of the real estate to the buyers
- In case goods are consigned to agencies for sales at exact prices and receiving commission, the turnovers shall be sales commission earned by the enterprises - For operations of authorization service of export, the turnovers are authorization fees of units earned - In case units only process materials, goods, then turnovers are actual amount of money earned, not including values of materials, goods processed - In case sales on credit, sales on installments, then turnovers are determined according to cash price - Principle on recording the turnovers for the sale of goods and provisions of services under the programs for traditional customers - Characteristics of the sale of goods and provisions of services under the programs for traditional customers: Transactions under the program for traditional customers must simultaneously satisfy all of the following conditions: When purchasing goods and services, customers built enough points to reach the prescribed points shall receive an amount of goods and services for free or discounted price The seller shall determine the fair value of goods and services provided free or discounted amount for the buyer when the buyer meets the conditions of the program (built enough points) The program must be limited to a specific and clear time, if the prescribed time limit is over, the customers have not met the conditions set out, the seller shall no longer be obliged to supply goods services for free or discount for buyers (number of points accumulated by buyers is invalid) Upon receipt of the goods or services for free or discounted prices, buyers are subtracted the cumulative points as prescribed
by the program (exchange cumulative points for goods, services or discount upon purchase) The provision of goods or services for free or discount for buyers when they reach enough bonus points may be made by the seller or a third party under the provisions of the program
- Accounting Principles At the time of sale of goods or provisions of service, the seller shall determine separately the fair value of goods and services provided free or discounted amount for the buyer when the buyer meets the conditions of the program The turnovers recorded the total amount that needs to be received or has been received minus the fair value of goods and services provided free or discounts to buyers. The value of goods and services provided free or discounts for buyers are recorded an unearned turnover. If at the expiry of the program, the buyer does not qualify under the prescribed conditions and is not entitled to free goods, services or discounts, the unearned turnover is transferred to the turnover of sales, provisions of services When buyers meet the conditions as stipulated by the program, handling of unearned turnovers shall be done as follows: Where sellers directly provide goods or services for free or discount for buyers: The unearned turnovers corresponding to the fair value of some goods and services provided free or discount for buyers are recorded a turnovers from selling goods, providing services when buyers have received goods or services for free or been discounted as prescribed by the program Where the third party is obliged to provide goods or services free or discount for the buyer: If the contract between the
(i) Bonuses are determined reliably. (ii) Bonuses are determined reliably Another payment that contractor receives from customer or another party to compensate for expenses not included in contract prices. For example, delays caused by customers; errors in technical or design indicators, and disputes on changes in carrying out the contract. Determination of turnover increase from these payments also depend on many uncertain factors, and usually depend on results of many negotiations. Thus, other payments are charged to turnover only if: Negotiation obtained the solution that the customer accept to compensate Other payments are accepted by customers and can be determined reliably
- Recording turnovers of construction contract will comply with one of two conditions:
In case the construction contract defines that the contractor shall be
entitled to payment basing on the progress, when achieved results of construction contract are estimated reliably, then turnover from the construction contract is recorded proportionally to part of works finished, determined by contractors on the date of financial statement without depending on the bills under the progress made or not and the amount on the bills
In case the construction contract defines that the contractor shall be
entitled to payment basing on value of volume achieved, when achieved results of construction contract are estimated reliably and confirmed by customers, then revenues and expenditures related to the contract recorded in proportion to the completed work confirmed by the customer in period are recorded in the bills set up
- In case achieved results of construction contract can’t be estimated reliably, then
Turnover is only recorded proportionally to with incurred costs of
contract that the repayment is relatively certain
Costs of contract is only recorded a period costs when these costs
had been incurred
- In case of assets lease, lessors received rent in advance for many periods, then recording turnovers shall be made under the principle of allocating the rent received in advance in accordance with the lease period - Where the rental period is 90% of the useful life of the assets, enterprises may choose method of recording turnovers once for the entire rental amount received in advance if the following conditions are met simultaneously
The lessee is not entitled to cancel the lease contract and the lessor
has no obligation to repay the amount received in advance in all cases and in all forms
The amount received in advance from the lease is not less than 90%
of the total lease amount expected to get under the contract during the lease term and the lessee must pay the entire amount of lease within 12 months from the beginning of the lease
Almost all the risks and benefits associated with ownership of the
leased asset are transferred to the lessee
The lessor must estimate relatively the full cost of the lease
Enterprises recorded turnover in the total amount received in
advance in this case shall be explain in the financial statements on The different in turnover and profits, if being recorded in method of gradual allocation under the lease time
Sum received from the sale of testing products Financial income Other income
- The revenue – generating activity must be fully or essentially complete for it to be included in revenue during the respective accounting period. Also, there must be a reasonable level of certainly that earned revenue payment will be received. According to the matching principle, the revenue and its associated costs must be reported in the same accounting period
- Turnovers and cost setting up such turnovers must be recorded simultaneously under the principle of conformity. However, in some cases, conformity principles may conflict with the precautionary principle in accounting, accountants must base on the nature and accounting standards to record transactions honestly and reasonably o An economic contract may include multiple transactions. Accountants must identify transactions to apply conditions to record turnovers in accordance with the provisions of accounting Standards of "Turnovers" o Turnovers must be recorded in accordance with nature rather than the form or the name of the transaction and must be allocated under obligations of providing goods or services For example: customers may only receive promotional goods when buying goods of units (buying two products, getting one free), the nature of the transaction is discount, free gift products in the form are known as promotion but in nature are sale because customers will not qualify if they do not buy the product. In this case, the value of free gift products is recorded in cost price and turnovers corresponding to the fair value of such products must be recorded For example: In case of selling products and goods with replacement products, goods, equipment (in case of malfunction
prevention), turnovers for shall products, goods sold and replacement products, goods, equipment must be allocated. The value of the replacement products, goods, equipment is recorded in cost of goods sold o For transactions from which obligations of the seller arising at the current time and in the future, turnovers must be allocated according to the fair value of each obligation and are recorded when the obligations are fulfilled
- Turnovers, profit or loss are only considered not to be earned if enterprises must be responsible for obligations in the future (except for normal warranty obligation) and are uncertain of economic benefit; The classification of gains and losses into earned or unearned does not depend on the cash flow is incurred or not o Turnovers, profit or loss are only considered not to be earned if enterprises must be responsible for obligations in the future (except for normal warranty obligation) and are uncertain of economic benefit; The classification of gains and losses into earned or unearned does not depend on the cash flow is incurred or not
- Revenue is a feature of accrual accounting , it means that revenues are recorded on the income statement in the period whether cash is received or not. Recorded when goods or services have been received by the customers but payment for the goods and services is later
- Time, basis for recording accounting turnovers and taxable turnovers may vary depending on the specific situation. The taxable turnovers are only used to determine tax payable as prescribed by law; Turnovers recorded in the accounting books for the financial statements must comply with the accounting principles and, depending on cases, are not necessarily equal to the amount stated on the bill of sale
- When rotating products, goods and services among dependent cost- accounting units within the enterprises, depending on the operating characteristics, decentralization of each unit, enterprises may decide on
Credit Dispatched cash, foreign currency or monetary gold Cash, foreign currency or monetary gold in deficit detected under verification Exchange rate differences due to re-evaluation of foreign currency balance at the reporting time (if foreign currency rate falls against VND) Differences due to re-evaluation of monetary gold at the reporting time Debit Balance Inventoried cash, foreign currency or monetary gold at the reporting time Account 111 – Cash, comprises 3 sub-accounts: Account 1111 – VND : reflecting revenues, expenses, balance in VND of the cash fund Account 1112 – Foreign currencies : reflecting revenues, expenses, exchange rate differences and foreign currency balance of cash fund which is converted into VND Account 1113 – Monetary gold reflecting the fluctuation and value of monetary gold of the enterprise’s fund
- Account 131 – Account receivable
This account is used to record receivables and payments of
receivables of customers from goods, investment properties, fixed assets, financial investment or services. This account is also used to record receivables from contractors and contract awarder related to finished infrastructure development. This account is not used to record immediate cash
Debit
Trade receivables generating within a tax period from sale of goods,
investment property, fixed assets, services or financial investments
Extra cash payable to customers
Revaluation of receivables in foreign currencies (if the foreign
currency rates rise against VND)
Credit
Customers' repayment
Advances received from customers
Discounts offered to customers after customers receive goods and
lodge complaints
Sales of returned goods (with or without VAT)
Amount of payment discounts and trade discounts offered to buyers
Revaluation of receivables in foreign currencies (if the foreign
currency rates fall against VND)
Debit balance:
This account may have credit balance Credit balance records amounts of advance or collected amounts which are larger than trade receivables according to every specific entity. When preparing balance sheet, it is required to record specific balance according to every receivable of this account to items "Asset" and "Equity"
- Account 157 - Goods on consignment Goods on consignment which are recorded to account 157 shall be accounted according to original prices as prescribed accounting standard “Inventory”. The account 157 “Goods on consignment” only records costs of goods or finished goods sent to customers or agents (consignees), services rendered transferred to customers under business contracts or orders by the enterprise (consignor), those goods are not determined as 'sold' (the goods or services on consignment are not recorded to sales revenues during a period) Debit: Cost of goods or finished goods on consignment sent to customers, agent; or dependent accounting units Cost of services rendered to customers, but they are not sold
