debt, resulting in a reduction in equity without any distribution of equity to owners”.
According to the Financial Accounting Standards Board (FASB), “Cost is the outflow (or self-use) of assets or the arising of liabilities (or a combination of both) from the sale or production of goods or services.”
producing goods, providing services or carrying out other activities that constitute the main or central activity of the enterprise”.
According to Vietnamese Accounting Standards VAS 01- General Standards: “ Costs are the total amount of amounts that reduce economic benefits during the accounting period in the form of expenditures, account deductions or arising debts leading to a decrease in equity, excluding amounts distributed to shareholders or owners ”.
According to Circular 200/2014/TT-BTC dated August 22, 2014 of the Ministry of Finance on Guidance on Enterprise Accounting Regime, "Costs are amounts that reduce economic benefits, recorded at the time the transaction occurs or when there is a relatively certain possibility that they will arise in the future, regardless of whether money has been spent or not . "
Thus, the concept of cost is associated with a monetary measure to measure the expenses consumed in the production and business process of the enterprise. Costs are always associated with a certain purpose, which is the purpose of production and business to make a profit of the enterprise, costs are always associated with a certain period of production and business, the actual costs spent on production and business activities.
Costs are associated with production and business activities, funded by business capital and offset by income from production and business activities. Expenditures are simply a reduction in the assets and capital of the enterprise regardless of the purpose for which they are used. The total expenditures of the enterprise during the period include expenditures for the supply process (expenses for purchasing goods and materials, etc.), expenditures for the production and business process (expenses for production, manufacturing products, management work, etc.) and expenditures for the consumption process (expenses for transportation, loading and unloading, advertising, etc.). Costs and expenditures are not only different in quantity but also in time. There are
Expenses that have been incurred but not yet included in costs, such as materials purchased but not yet used and still in stock, and there are also expenses that are included in this period's costs but not yet spent, such as pre-deductible expenses.
1.1.3.2. Cost classification
a, Classify costs according to input factors of the business production process of the enterprise
To serve the purpose of collecting and managing production and business costs according to their original economic content without considering the specific function or location of occurrence, costs are classified by factors. According to current regulations in our country, all production and business costs of enterprises are divided into the following factors:
- Material costs: include all costs of labor objects such as main materials, auxiliary materials, fuel, spare parts, materials, basic construction equipment, etc.
- Labor costs: include all salaries, allowances and salary deductions of all employees in the enterprise. This type of cost can be divided into two factors: salary costs and salary deductions (social insurance, health insurance, union funds, unemployment insurance, etc.)
- Fixed asset depreciation expense: includes the depreciation amount during the period of all fixed assets in the enterprise.
- Outsourced service costs: include costs for various types of outsourced services serving business operations such as: electricity, water, telecommunications, major repairs of fixed assets, etc.
- Other cash expenses: include expenses paid in cash, not regularly every month such as entertainment expenses, other expenses...
b , Classify costs by economic activity and function
Based on the purpose of each activity and economic function, costs are divided into two types: production costs and non-production costs.
* Normal production costs include:
+ Direct material costs: These are the costs of main materials,
accessories, fuel... that accountants can directly collect for cost-bearing objects. The characteristics of direct material costs are often variable in nature, they constitute the entity of the product, accounting for a fairly high proportion in the product cost index. Normally, direct material costs can be set for a product unit, which is both the basis for building estimates and the basis for cost control. However, in reality, the direct material cost item depends on the characteristics of business activities in different industries.
+ Direct labor costs: include salaries, allowances and deductions based on salaries, meal allowances... of workers who directly create products. The characteristics of this cost item are often variable costs, often establishing standards for a product unit to contribute to cost control and building a cost estimate system. Accounting direct labor costs can be directly aggregated to cost-bearing objects similar to direct material costs. The direct labor cost item also depends on the characteristics of each enterprise, the characteristics of business activities, and the financial mechanism of the enterprises.
+ General production costs: these are the costs for workshops, teams, and groups in the production process to create products and services.
* Non-production costs:
+ Selling costs: are the monetary expression of the costs of circulation and marketing of products, goods, labor, and services. Including advertising costs, delivery, transactions, sales staff costs, costs associated with the process of preserving and consuming goods, etc.
+ Business management costs: Are the monetary expressions of expenses related to general management services of the entire enterprise, such as management staff costs, management material costs, depreciation costs of fixed assets used for general operations of the enterprise, etc.
c , Classify costs according to their relationship with the business results calculation period
According to this classification, production and business costs are divided into product costs and period costs.
- Product costs: Are costs associated with the process of manufacturing products or purchasing goods for sale, including direct material costs, direct labor costs, and general manufacturing costs. The characteristic of product costs is that when products and goods have not been sold, product costs are reflected in the cost of inventory on the balance sheet. When products and goods are consumed, product costs will be transferred to the cost of goods sold indicator on the business performance report.
- Period costs: Are costs for business activities during the period, do not create inventory value, they are not recorded on the balance sheet but are deducted entirely from revenue to determine business results in the period in which they arise. Therefore, period costs are recorded on the business performance report.
Period costs include selling costs and administrative costs. These costs are recorded in two items “Selling costs” and “Administrative costs” on the Income Statement.
d, Classify costs according to their relationship with the indicators on the business performance report.
Costs are shown on the income statement according to the function of costs in the production and business process such as production costs, sales costs, business management costs, etc. From this characteristic, costs on the income statement only generally show the costs corresponding to each business activity function to achieve a source of income and profit. Showing costs like this will provide information in accordance with the requirements for auditing business activities according to the functions from partners outside the business such as functional management agencies, credit institutions, banks, current and future investors, etc. Therefore, this form of cost presentation is suitable for providing public information, consistent with financial accounting information.
According to this classification, costs incurred by enterprises are divided into 5 types:
Cost of goods sold : Cost of goods sold is the total cost of creating a
Finished goods. For a trading company, the cost of goods sold is the total cost necessary to have the goods in stock (purchase price from suppliers, transportation, insurance, etc.). For a manufacturing company, it is similar but a bit more complicated because its input is raw materials, not finished products. Some suppliers can deliver goods to our warehouse, they add costs such as transportation, insurance, taxes, etc. to our selling price. Thus, the cost of goods sold will be calculated specifically depending on the specific provisions of the contract with the supplier. For tourism and service businesses, the cost of goods sold includes all costs to complete the provision of that service to customers (salaries paid to tour guides, train and bus tickets, plane tickets, sightseeing tickets, food and accommodation costs, etc.)
Selling expenses are all expenses incurred in the process of consuming products, goods, and services. Selling expenses are tracked in detail for each cost item such as: Employee costs, materials, packaging, tools, supplies, depreciation of fixed assets, warranty, outsourced services, other cash expenses, etc. Depending on the business characteristics and management requirements of each industry and each enterprise, selling expenses can be tracked in detail for some additional cost items.
Business management costs: Business management costs include costs for salaries of employees in the business management department (salaries, wages, allowances, etc.); social insurance, health insurance, union fees for business management employees; costs of office materials, labor tools, depreciation of fixed assets used for business management; land rent, business license tax; provision for bad debts; outsourced services (electricity, water, telephone, fax, property insurance, fire and explosion insurance, etc.); other cash expenses (reception, customer conferences, etc.)
Financial expenses: The financial expense account is used to reflect expenses or losses related to financial investment activities, lending and borrowing costs, joint venture and association capital contribution costs, short-term securities transfer losses, securities transaction costs, etc.
Other expenses : Other expenses are all expenses arising from events or operations separate from the normal operations of the business.
1.1.4. Concept and classification of business results
1.1.4.1. Concept of business results
Business results are the final results of production and business activities, financial investment activities and other activities in a certain period. The expression of business results is the profit (or loss).
The results of production and business activities are the results of the consumption of products, goods, labor, services and financial activities. Or the difference between revenue and production and business costs after an operating period.
Other results: Is the difference between other income and other expenses.
Thus, the nature of business results is the profit or loss in the business activities of the enterprise. If the business results of the enterprise are greater than zero, the enterprise makes a profit, if the business results of the enterprise are zero, the enterprise breaks even, if the business results of the enterprise are less than zero, the enterprise makes a loss. The results of production and business activities can be specific quantities that can be quantified and measured, or they can be quantities that only reflect the purely qualitative aspects such as brand, reputation, and customer trust in product quality. Quality is always the goal of the enterprise. Formula for determining business results
after corporate income tax
Business results= | Business results before corporate income tax | - | Tax costs Corporate Income Tax |
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before tax
Business results= | Net results from operations business | + | Other results |
business
Net results from operations= | Gross results of sales and supplies service | + | (Financial operating revenue) main | - | Financial costs) | - | Cost of sales | - | Business management costs career |
and service provision
Gross sales results= | Net sales revenue goods and services | - | Cost of goods sell |
sales and service
Net revenue= | Sales revenue goods and services | - | Discounts minus revenue | - | Special consumption tax, Environmental protection, export tax |
1.1.4.2. Classification of business results
Business results are classified according to the following criteria:
a, Classify business results by field
Financial performance: includes the performance of banks and companies that primarily make profits through investing and managing capital.
Commercial business results: include the results of purchasing activities to resell those goods to customers to satisfy the needs and desired benefits of the business person.
Service business results: include business results of service activities such as: tourism, hotels, food and beverage, entertainment, training, education, advertising, communication...
Production business results: include business results of manufacturing activities from raw materials or components, then selling them for profit.
b, Classify business results by location
Branch business results: include business results of production and business activities arising at the branch.
Store business results: include business results of production and business activities arising at the store itself.
Factory business results: include business results of production and business activities arising at the factory itself.
c, Classify business results according to their relationship with information on financial statements
Gross result of sales and service provision: reflects the difference between net revenue from sales of goods, finished products, investment real estate and service provision.
service with cost of goods sold incurred during the period.
Financial performance results: reflect the difference between financial performance revenue and financial expenses such as interest payable, copyright costs... incurred during the period.
Other results: reflects the difference between other income and other expenses incurred during the period.
Net operating results: reflects the business performance of the enterprise during the period.
Business results before corporate income tax: reflects the business's performance during the period before deducting corporate income tax expenses from business activities and other activities during the period.
Business results after corporate income tax: reflects the profit (loss) after tax from the business's activities after deducting corporate income tax expenses.
1.2. Contents of accounting work on revenue, expenses and business results from the perspective of financial accounting
1.2.1. Principles of accounting for revenue, expenses and business results in enterprises
a. General accounting principles
General standards prescribe and guide the basic accounting principles and requirements, elements and recognition of elements of enterprise financial statements.
The basic principles stipulated in the standard:
Accrual basis : According to regulations, all economic and financial transactions of enterprises related to costs and revenues must be recorded in accounting books at the time of occurrence, not based on the time of actual receipt or actual payment of cash or cash equivalents. Financial statements prepared on the accrual basis reflect the financial situation of the enterprise in the past, present and future.
Original price : According to regulations, assets of an enterprise must be recorded at original price. The original price of an asset is calculated according to the amount of money or cash equivalent paid, payable or calculated according to the fair value of that asset at the time the asset is recorded. The original price principle helps accountants determine the original price of assets and materials.