Concept and Classification of Costs in Commercial Enterprises

The form is called promotion but in essence it is a sale because the customer will not benefit if he does not buy the product. In this case, the value of the product given away

The cost of goods sold is reflected in the cost of goods sold and revenue corresponding to the fair value of the product must be recognized.

Or in the case of selling products, goods accompanied by replacement products, goods, equipment (prevention in case of product, goods failure), revenue must be allocated to the products, goods sold and the products, goods, equipment delivered to the customer to replace to prevent damage. The value of the replacement products, goods, equipment is recorded in the cost of goods sold.

+ For transactions that give rise to present and future obligations of the seller, revenue must be allocated according to the fair value of each obligation and recognized when the obligation is performed.

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- Revenue, interest or loss is only considered unrealized if the enterprise still has the responsibility to perform future obligations (except for normal warranty obligations) and it is not certain to receive economic benefits; The classification of income, interest or loss as realized or unrealized does not depend on whether cash flows have arisen or not.

+ The losses and amortizations arising from revaluation of assets and liabilities are not considered unrealized because at the time of revaluation, the entity already has rights to the assets and has current debt obligations for the liabilities, for example: Losses and amortizations arising from revaluation of assets used as capital contributions to other entities, revaluation of financial assets at fair value, exchange rate differences due to revaluation of foreign currency items... are all considered realized.

- Revenue does not include collections on behalf of third parties, such as:

+ Indirect taxes (VAT, export tax, special consumption tax, environmental protection tax) must be paid;

+ The amount of money the agent seller collects on behalf of the owner of the goods due to the agent sale;

+ Additional charges and fees beyond the selling price are not enjoyed by the unit;

+ Other cases.

In case indirect taxes payable cannot be separated immediately at the time of transaction, to facilitate accounting work, it is possible to

Revenue is recorded in the accounting books including indirect taxes, but the accountant must reduce revenue for the indirect taxes payable. However, when preparing the financial statements, the accountant must determine and eliminate all indirect taxes payable from the indicators reflecting gross revenue.

- The time and basis for recording accounting revenue and taxable revenue may vary depending on each specific situation. Taxable revenue is only used to determine the amount of tax payable according to the law; Revenue recorded in accounting books to prepare Financial Statements must comply with accounting principles and the amount in each case does not necessarily have to be equal to the amount recorded on the sales invoice.

- When circulating products, goods, and services between dependent accounting units within the enterprise, depending on the characteristics of operations and management hierarchy of each unit, the enterprise can decide to record revenue at the units if there is an increase in the value of products and goods between units without depending on accompanying documents (invoices or internal documents). When preparing the Consolidated Financial Statement, all revenue between units within the enterprise must be eliminated.

- Revenue recognized includes only revenue of the reporting entity.

Revenue reflection has no balance, at the end of accounting period, revenue must be transferred to determine business results [Ministry of Finance 2014].

Thus, a business's revenue comes from different activities, including: Revenue from sales and service provision, revenue from financial activities and other income.

For commercial enterprises, revenue from BH CCDV includes revenue from selling goods, selling purchased goods and selling investment real estate, performing work agreed upon in contracts in one or more accounting periods, providing transportation services, leasing fixed assets under the operating lease method... Unlike manufacturing enterprises, revenue comes from selling products produced and distributed by the company itself, the revenue of commercial enterprises is affected by external factors such as source of goods, prices of goods, services and other market factors that will also affect the sales and service provision of the enterprise.

Financial revenue includes revenue from royalties, royalties, dividends and shared profits and other financial revenue of the enterprise (income from investment activities, trading of short-term and long-term securities; income from recovery or liquidation of capital contributions to joint ventures, investments in associated companies, investments in subsidiaries, other capital investments; income from other investment activities; differences from foreign currency sales; differences from capital transfers; other financial revenue items).

Other income is income that is not the business's revenue. This is income generated from activities other than the business's normal operations, specifically including:

- Income from sale and liquidation of fixed assets.

- The residual value or selling price or fair value of fixed assets sold for leaseback under the form of finance lease or operating lease.

- Fines collected from customers and other units for violating economic contracts.

- Collect outstanding debts and write them off.

- Taxes exempted by the state from corporate income tax.

- Revenue from payables of unidentified owners.

- Customer bonuses related to the consumption of goods and products are not included in revenue.

- Income from gifts, cash and in-kind gifts from individuals and organizations to businesses.

- Previous year's business income that was missed or forgotten in the accounting books is now discovered...

Thus, in essence, revenue is the total benefit arising from business activities that the enterprise has obtained in accounting. The perception of revenue and the correct determination of the scope, time, and basis for recording revenue are decisive to the objectivity and honesty of revenue indicators in financial statements. Contributing to the success of business decisions.

1.1.1.2. Revenue classification

Revenue management is not outside the purpose of maximizing revenue for the business. Therefore, business administrators always need specific detailed information about revenue of each type of activity, each type of product... to meet the needs of the business.

meet the requirements of macro management, to have the right decisions for business development not only in the present but also in the long-term future. Therefore, identifying and classifying revenue to serve as information for revenue accounting is extremely important. Businesses can choose the following classification methods:

* Classification of revenue in relation to business organization system:

Internal sales revenue: is the revenue from sales volume within the enterprise's organizational system such as internal consumption between affiliated units in the corporation...

External sales revenue: is the total revenue of the volume of products and goods that the enterprise has sold to customers outside the enterprise.

* Revenue classification by geographical area:

Revenue is classified into domestic revenue and international revenue, in which domestic revenue is revenue from domestic sales and services, international revenue is revenue from sales and services arising abroad.

* Revenue classification by micro-relationship

Break-even revenue: is the revenue at which the profit of products and services is zero or revenue equals cost.

Safe revenue: is the revenue level greater than the break-even level or in other words, the revenue level that the business can get to cover all expenses.

This classification helps businesses determine the break-even point or safety point for each business plan, on that basis, businesses make the right choice of the most optimal business plan for their business.

* Revenue classification by payment method

According to this criterion, revenue is classified as follows:

Cash on delivery sales: is the total revenue of the volume of products, goods, services... sold during the period and paid by customers immediately upon revenue generation.

Sales revenue on credit: is the total revenue of the volume of products, goods, services... sold in the period, which has been recorded as revenue. However,

Customers still owe money for goods (customers buy on credit).

Installment sales revenue: is the total revenue of the volume of products, goods, services... sold in the period, the customer has paid a part of the goods or has not paid yet. In this case, the buyer must pay the full amount of the goods within a certain period of time, must buy the goods at a price higher than the cash price = (cash price + li).

We see that this classification will help businesses build estimates of debts and expenses in the business. In addition, this classification helps analyze and evaluate customers' payment ability, which is an important basis for determining the level of provisions for receivables.

* Revenue classification by product type

According to this criterion, business revenue is divided into the following categories:

Wholesale revenue: is the total revenue of the volume of products, goods... sold to other agencies and units for the purpose of continuing to transfer sales or processing production.

Sales revenue: Is the total revenue of the quantity of products, goods... sold to other agencies, units, individuals for consumption purposes.

Consignment sales revenue: is the total revenue of the quantity of goods consigned for sale according to the contract.

Classifying revenue according to this criterion will help businesses determine the total consumption of each type of product, thereby planning the level of goods circulation, building the necessary level of goods reserves, avoiding the situation of stagnation or shortage of goods causing negative effects on the business operations of the business.

In addition, businesses can classify by sales method, including revenue classified into wholesale revenue, retail revenue, agency revenue, or by payment method, including cash sales revenue, credit sales revenue, and installment sales revenue.

In fact, there are many ways to classify revenue. Depending on the business characteristics, businesses choose the revenue classification method that is appropriate to the reality of the unit.

1.1.2. Concept and classification of costs in commercial enterprises

1.1.2.1. Concept of cost

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.

According to accounting standard No. 01 (VS 01), costs are the total of items that reduce economic benefits in accounting in the form of money spent, items

Deduct assets or incur liabilities that result in a decrease in equity

Excluding distributions to shareholders or owners. Expenses include operating expenses arising in the course of normal business operations of the enterprise and other expenses: Operating expenses arising in the course of normal business operations of the enterprise, such as: costs of raw materials, costs of research and development, costs of labor, insurance costs, management costs, loan costs, and expenses related to activities for other parties to use assets that generate income, royalties, etc. These expenses arise in the form of cash and cash equivalents, inventories, depreciation of machinery and equipment; other expenses include expenses other than operating expenses arising in the course of normal business operations of the enterprise, such as: costs of liquidation, transfer of fixed assets, fines imposed by customers for breach of contract [Ministry of Finance 2004].

According to Vietnamese Accounting Standard No. 01 - general standard:

- Production and business costs and other costs are recorded in the report.

business results when these costs reduce future economic benefits related to a decrease in assets or an increase in liabilities and these costs must be determined reliably.

- Expenses recorded in the income statement must comply with the principle of matching between revenue and expenses.

- When the economic benefits expected to be obtained in many accounting periods related to revenue and other income are determined indirectly, the related costs are recognized in the Income Statement on a systematic and proportional basis.

- An expense is recognized immediately in the Income Statement when it does not generate economic benefits in subsequent periods [Ministry of Finance 2004].

For commercial enterprises, business expenses mainly include cost of goods sold, costs incurred in the process of providing services, sales costs, business management costs and other costs related to the sales and service provision process of the enterprise.

Thus, the operating cost of an enterprise is the total loss of living labor and materialized labor that the enterprise has spent in a certain period of time, expressed in money. Cost accounting affects the honesty and reasonableness of information on financial statements, as well as the correctness of decisions in corporate governance. In enterprises that manage costs well, not only create conditions

increase profits, on that basis improve the quality of products provided to

From the perspective of financial economics, costs are viewed as expenses incurred in connection with the activities of a business to achieve a certain product, service or service. But from the perspective of management economics, costs are perceived in the way of identifying information for decision making. Costs can be actual costs associated with daily business activities when organizing, implementing, checking, and making decisions; costs can be estimated costs to implement a project, costs lost when choosing an option, or ignoring a business opportunity.

To manage costs, it is necessary to clarify different cost classifications in management accounting, because each cost classification provides information from many angles for managers to make appropriate decisions.

1.1.2.2. Cost classification

With the aim of providing useful information for management and facilitating accounting work, business costs are often classified in main ways such as: classification by economic content (nature) of costs; classification by cost transfer method,...

* Classified by expense item

Cost of goods sold: For trading companies, cost of goods sold is the total cost of having goods at their premises, including purchase price from suppliers, insurance, materials, shipping costs, etc.

Selling costs: Are costs incurred in the sales process, which are circulation costs and marketing costs incurred in the process of consuming products, goods, labor, and services. This type of cost includes: advertising costs, delivery costs, transaction costs, sales commissions, sales staff costs, and other costs related to the preservation and consumption of products and goods.

Business Administration Costs: Are expenses related to the general service and management of the entire business. Including: management staff costs, office equipment costs, depreciation of fixed assets used for the entire business, taxes and fees of a cost nature, administrative costs, conference costs, etc.

This classification helps managers know the business results (li or l) of each product and each type of service that the business is trading. However, due to certain limitations in choosing the criteria for allocating insurance costs and management costs for each product and each type of service, this classification is only for academic research purposes.

* Cost classification by cost aggregation method

According to this classification, costs incurred at the enterprise are divided into 2 types.

type:

Direct costs: Are costs directly related to the accounting object.

Cost aggregation such as each type of product, job, order, activity,... we can directly assign to each cost-bearing object.

Indirect costs: Indirect costs are common costs incurred in relation to many different cost-bearing objects such as customer care costs, advertising costs... Because they are related to many different cost-bearing objects, the causes of indirect costs often have to be aggregated together, then appropriate criteria are selected to allocate indirect costs to each cost-bearing object.

* Cost classification by activity level: In this way, costs are divided into variable costs, fixed costs and mixed costs.

Variable costs (BP): variable costs, also known as variable costs, are costs that are proportional to the level of activity.

Fixed costs (FFC): FF are costs that do not change within the limits of the scale of operations.