Accounting for revenue, expenses and business results at An Ngai Mechanical and Construction Joint Stock Company

quantified in accordance with accepted accounting principles, resulting from the profitable operations of an enterprise and may result in changes in equity”.

According to International Accounting Standard No. 18 (IAS 18), “Revenue is the gross inflow of economic benefits during the period, arising in the course of normal operations, increasing equity, not the contribution of shareholders. Revenue does not include receipts for third parties”.

Thus, there are many different concepts of revenue. However, in essence, revenue is the increase in the value of the enterprise's assets and is calculated in a certain period. Revenue in the period is the total amount of money and receipts from the sale of products produced by the enterprise, the sale of purchased goods and the provision of services to customers during the enterprise period. However, not all transactions that increase cash and receivables or other assets are related to revenue, and not only revenue changes equity, revenue is only one of the economic transactions that increase assets and change equity. The nature of revenue only includes the value of economic benefits received and to be received by the enterprise itself arising from normal production and business activities. Revenues from activities other than revenue-generating activities are considered other income. Amounts collected on behalf of third parties that are not economic resources of the enterprise and do not increase the enterprise's equity are not considered revenue.

According to VAS 14 – Revenue and other income “Revenue arising from transactions is determined by the agreement between the enterprise and the buyer, service user or asset user. It is determined by the fair value of the amounts received or to be received after deducting trade discounts, payment discounts, sales discounts and the value of returned goods”.

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Trade discount : is the amount that a business reduces the listed price for customers who buy in large quantities.

Sales discount : is a deduction given to the buyer due to poor quality or incorrect specifications of goods.

Value of returned goods : is the value of the volume of goods sold that have been determined to be consumed but are returned by customers and refused to pay.

For manufacturing enterprises, revenue arises from various activities, including sales and service revenue, financial revenue and other income. Of which:

Sales and service revenue : Is the total sales and service revenue of the enterprise during the period, including revenue from selling products manufactured by the enterprise, selling purchased goods and selling investment real estate, performing work agreed upon in the contract during one or many accounting periods,...

Financial revenue : Is all revenue arising from financial activities such as interest, royalties, dividends and shared profits.

Other income : Is the revenue that contributes to increasing the owner's equity from activities other than revenue-generating activities. Includes revenue from irregular activities, including: revenue from liquidation of fixed assets, sale of fixed assets; revenue from fines from customers due to contract violations; revenue from insurance compensation; revenue from receivables that have been written off and included in previous period expenses; revenue from payables that have lost their owners and are recorded as an increase in income; revenue from taxes that have been reduced or refunded; other revenues.

Clearly understanding the nature of revenue and correctly determining the scope, timing, and basis for revenue recognition has a decisive impact on the objectivity and honesty of revenue indicators and results in financial statements, thereby making reasonable business decisions.

1.1.1.2. Revenue classification

Classification of revenue according to relationship with the business organization system of the enterprise

 Internal revenue: Is the revenue from the volume of goods sold internally or revenue from financial activities obtained from the business organization system of the enterprise such as transactions between affiliated units in the same company, corporation,....

 External revenue: Is the total revenue from the actual volume of goods and services sold by the enterprise to customers, or revenue from financial investment activities obtained outside the enterprise's business organization system.

This classification not only helps to accurately determine the actual business results of the enterprise during the period, but also serves the preparation of consolidated business reports; thereby making accurate decisions in choosing business plans.

Classification of revenue by relationship to geographic area

 Domestic revenue: is the revenue from sales and provision of services arising domestically.

 Foreign revenue: is the revenue from sales and service provision arising abroad.

This classification helps managers evaluate the level of activity by geographical area; is the basis for accountants to open accounts and corresponding revenue detail books; is the basis for evaluating the profitability and business risks of each area, serving the preparation of financial statements of the enterprise by geographical area.

Revenue Classification by Business Activity

 Sales and service revenue: Is the total sales and service revenue of the enterprise during the period, including:

+ Wholesale revenue: Is the revenue of the volume of products, goods,... sold to other agencies, units,... for the purpose of continuing to transfer sales or processing, manufacturing.

+ Retail revenue: Is the revenue of the volume of products, goods,... sold to other agencies, units,... for the purpose of consumption.

+ Revenue from consignment sales: Revenue from the volume of goods consigned for sale to agents according to the signed contract.

 Financial revenue: Is all revenue arising from financial activities such as interest, royalties, dividends and shared profits.

Classifying revenue by type helps business administrators determine the proportion of each type of revenue in general, and sales revenue in particular, on that basis, determine the total circulation of goods by type, thereby planning the level of goods circulation, building the necessary level of goods reserves, avoiding the situation of stagnation or shortage of goods that negatively affects the business operations of the enterprise.

Classification by payment method

Business revenue is divided into cash revenue, deferred revenue, and prepaid revenue.

This classification helps businesses estimate the amount of money collected during the period, which is the basis for building estimates for payment of debts and expenses during the period of the business. In addition, this classification helps analyze and evaluate the payment ability of customers, which is an important basis for determining the level of provision for bad debts.

Classification by relationship to break-even point

 Break-even revenue: Is the revenue of sales volume at the break-even point

 Safe revenue: Is the difference between realized revenue and break-even revenue.

This classification helps managers perceive basic and intuitive issues about the business performance situation in general and of groups, products, and departments in particular; determine the scope of profit and loss as well as measure the level of safety or risk in business of each group, product or business department.

In fact, there are many ways to classify revenue for convenience and suitability for the management and accounting of actual revenue of the unit. Classification of revenue by business activities is one of the classification methods chosen by many manufacturing enterprises. When determining the revenue of each type of activity, the enterprise will determine which is the key activity, on that basis the enterprise will come up with the most optimal business plan. In addition, to serve the needs of management accounting, enterprises should also choose to classify revenue according to the relationship with the break-even point so that the enterprise

Have full information to make the right choice of the most effective business plan for your business.

1.1.2. Concept and classification of costs

1.1.2.1. Cost concept

To conduct business activities, enterprises need to consume resources (assets, labor, etc.). The process of consuming resources is also the process of generating costs.

According to VAS 01 - General Standard, expenses are the total value of amounts that reduce economic benefits in the accounting period in the form of cash outlays, asset deductions or liabilities that result in a decrease in equity, excluding distributions to shareholders or owners.

IASB defines “A cost is a decrease in economic benefits during an accounting period in the form of an outflow (or decrease) of assets or an increase in liabilities that results in a decrease in equity rather than a distribution to owners.”

According to the Financial Accounting Standards Board (FASB), “Cost is the decrease of assets or the arising of liabilities (or a combination of both) from the provision of goods and services during the operation of an enterprise”.

Costs are defined in many different ways, but the most common cost is the recognition from the owner's perspective of what has been spent with the aim of gaining great benefits in the future. Costs in a business include business operating costs and other costs.

 Business operating expenses arise during the normal business operations of an enterprise, such as: cost of goods sold, sales expenses, business management expenses, loan interest expenses and expenses related to activities of letting other parties use assets to generate income, royalties, etc. These expenses arise in the form of cash and cash equivalents, inventory, depreciation of machinery and equipment.

 Other expenses include expenses other than production and business expenses arising in the course of normal business operations of an enterprise, such as: expenses on

liquidation, sale of fixed assets, fines from customers due to contract violations,...

Costs are expressed in money as the total loss of living labor and materialized labor arising in the production and business process of an enterprise in a certain period. Manufacturing enterprises that want to conduct production and business require a combination of three factors: Labor materials, labor objects and labor power. The loss of labor materials and labor objects is the loss of materialized labor; the loss of labor power is the loss of living labor. Using monetary measures to reflect the losses within the production and business process of manufacturing enterprises is called production costs.

Thus, from the perspective of financial accounting, costs are viewed as expenses incurred in connection with the activities of the enterprise, including expenses incurred in the normal production and business activities of the enterprise and other expenses. In general, costs are the waste of resources, materials, and labor; these losses must be associated with business purposes, must be quantified in money, and determined within a certain period of time.

Cost accounting affects the truthfulness and reasonableness of information in financial statements, as well as the correctness of decisions in business administration. In businesses, good cost management will contribute to increasing profits and improving the quality of products provided to customers.

1.1.2.2. Cost classification

Classification of costs according to the nature and economic content of costs (according to cost factors)

According to this classification, the total cost is divided into 5 elements:

 Raw material cost: is the total value of raw materials used for production and business activities during the period.

 Labor costs: are basic salary, additional salary, salary deductions (social insurance, health insurance, unemployment insurance, union fees) and other payable amounts to employees during the period.

 Fixed asset depreciation cost: is the part of the depreciated value of fixed assets transferred to production and business costs during the period.

 Cost of external services: electricity, water, telephone, rental space, etc.

 Other expenses in cash: are other production and business expenses that have not been reflected in the above expenses but have been paid in cash such as expenses for receptions, conferences, etc.

According to this classification, if the production and business costs have the same economic content, they are classified into one element regardless of which department they arise in or which product they are used to produce. This classification tells us which types of costs are used in the production and business activities of the enterprise and how much each type of cost is. This classification is the basis for enterprises to build necessary cost norms, make cost estimates, and prepare cost reports by element during the period. In addition, this is also the basis for building plans for supplying materials, capital, mobilizing labor, building fixed asset depreciation plans, etc., and is the basis for analyzing and evaluating the implementation of production and business costs.

Cost classification by business function

According to this classification, total costs are divided into 2 types:

 Production costs: are all costs related to manufacturing products or performing services in a certain period. Production costs are divided into 3 items:

Direct material cost : is the monetary expression of the main materials that make up the physical entity of the product. Direct material cost is directly accounted for in the cost object.

Direct labor costs : are basic salary, additional salary, salary deductions such as social insurance, health insurance, union fees, unemployment insurance and other payments to direct production workers.

General manufacturing costs : are the costs to produce the product (excluding direct material costs and direct labor costs).

 Non-production costs: are costs incurred in the process of product consumption and general management of the entire enterprise. Non-production costs include two main items:

Selling costs : are all costs incurred to consume products and goods.

Enterprise management costs : are all costs incurred for organization and management of the entire enterprise, including administrative, accounting, general management costs, etc.

This classification aims to manage costs according to each type of business activity, helping businesses determine the gross profit of each type of activity.

Cost classification according to relationship with the period of determining business results

According to this classification, costs are divided into two types: product costs and period costs.

 Product costs: are costs directly related to the purchase of goods or production of products, including direct material costs, direct labor costs and general production costs.

 Period costs: are costs incurred during a period and are fully included in period costs to determine business results, including sales costs and business management costs. When products, goods and services are consumed during the period, product costs are converted into period costs, and the business uses the revenue earned during the period to compensate.

This classification facilitates the accurate determination of the original price of goods and business results.

Cost classification by cost aggregation method and cost objects

According to this classification, costs are divided into two types: direct costs and indirect costs.

 Direct costs: are costs directly related to each cost-bearing object and are accounted for in the relevant object.