There are accounts 152, 153, 156 according to book value. The difference between the revaluation value and the book value is recorded by the accountant in the Debit side of Account 811 or the Credit side of Account 711.
(6) In case of returning goods to the seller, the accountant shall base on the returned goods invoice, warehouse delivery note and other related documents to record an increase in capital in cash or a decrease in accounts payable to the seller in the Debit side of accounts 111, 112, 331 according to the total payment price, record a decrease in the value of inventory in the Credit side of accounts 152, 153, 156 according to the value of returned goods and record a decrease in deductible VAT (if any) in the Credit side of account 133(1).
(7) In case the trade allowance or sales discount is received after the purchase, the accountant must base on the fluctuation of the purchased goods to allocate the trade allowance or sales discount to be enjoyed based on the remaining inventory, the amount of goods used internally or sold during the period to record an increase in capital in cash or a decrease in the payables to the seller in the Debit side of Accounts 111, 112, 331 according to the total payment price, record a decrease in the value of inventory in the Credit side of Accounts 152, 153, 156 if the goods are still in stock or record a decrease in the cost of goods sold in the Credit side of Account 632 if the goods have been consumed or record a decrease in the cost of business management expenses in the Credit side of Account 642 if the goods are used internally, and at the same time record a decrease in deductible VAT (if any) in the Credit side of Account 133(1).
(8) For inventory shortages discovered during inventory, all cases of shortages or loss of goods discovered at any stage must be recorded and the cause must be investigated and the offender identified. Based on the inventory record and the handling decision of the competent authority, the following accounting entries must be made:
- If there is a mistake or no recording, additional recording or adjustment of the data in the accounting books must be made.
- If the cause of the missing goods is not yet determined and is pending settlement, based on the loss value, the accountant will record an increase in the value of the missing assets awaiting settlement in the Debit side of Account 138(1), and a decrease in the value of inventory in the Credit side of Accounts 152, 153, and 156. When there is a settlement decision, based on the settlement decision, the accountant will record a Debit in Account 111 if the offender pays cash for compensation, a Debit in Account 138(8) if the person making the compensation has not yet paid compensation, a Debit in Account 334 if deducted from the salary of the offender, etc., and a Credit in Account 138(1).
(9) For inventory that is stagnant and not needed, when liquidating or selling, based on the warehouse delivery note and other related documents, the accountant records an increase in the cost of goods sold in the Debit side of Account 632 and a decrease in the value of inventory in the Credit side of Accounts 152, 153, 156 according to the cost of goods sold.
Inventory reduction accounting diagram using the KKTX method ( Appendix 1.14 )
b. For businesses accounting for inventories using the KĐK method
(1) At the beginning of the period, based on the value of inventory transferred at the end of the previous period, the accountant transfers the value of inventory at the beginning of the period by increasing the value of purchases in the Debit side of Account 611 and decreasing the value of inventory in the Credit side of Accounts 151, 156, 157, etc.
(2) During the period, based on invoices and other related documents, the accountant records the increase in the value of goods purchased during the period in the Debit side of Account 611, records the increase in deductible VAT in the Debit side of Account 133(1) (if any), and simultaneously credits Accounts 111, 112, 331, ... according to the total payment price.
(3) If during the period there are trade discounts, purchase price reductions or returned purchases due to poor quality or incorrect specifications, etc., the accountant will debit accounts 111, 112, 331 according to the total payment price, reduce the value of purchased goods in the credit side of account 611, and at the same time reduce deductible VAT in the credit side of account 133(1) (if any).
(4) At the end of the accounting period, the enterprise conducts an inventory to determine the quantity and value of ending inventory. Based on the value of beginning and ending inventory and the value of imported inventory during the period, the accountant determines the value of exported inventory during the period. The accountant transfers the value of ending inventory to the debit side of accounts 151, 152, 153, 156, ... and credits account 611. Based on the value of sold inventory during the period, the accountant records an increase in cost of goods sold to the debit side of account 632 and credits account 611.
Inventory accounting diagram using the KĐK method ( Appendix 1.15 )
Accounting books
Depending on the accounting form applied, the enterprise may use different accounting books to reflect the import and export of inventory. According to Circular 133/2016/TT-BTC, enterprises can choose one of the following accounting forms: General Journal; Bookkeeping vouchers; Journal - Ledger.
* General Journal accounting form:
- Inventory accounting uses the following accounting books:
+ Detailed accounting books: Detailed books of materials, tools, products, goods; Detailed summary table of materials, tools, products, goods.
+ General accounting books: General Journal; Special Journal (if any); Ledgers of inventory accounts such as 151, 152, 153, 156, 157,…
- Accounting entry procedure ( Appendix 1.16) :
Every day, accountants base on documents related to inventory such as Warehouse Receipt, Warehouse Delivery Receipt, etc. to record economic transactions arising in the General Journal. Then, based on the data recorded in the General Journal, they record related inventory accounts in the General Ledger. If the enterprise opens detailed accounting books, the economic transactions arising are also recorded in detailed inventory accounting books. At the end of the month, quarter, and year, accountants add up the data in the General Ledger and create a Balance Sheet. After checking and comparing, the data recorded in the General Ledger and the Detailed Summary Table are used to prepare the financial statements.
* Accounting form Journal - Ledger:
- Inventory accounting uses the following accounting books:
+ Detailed accounting books: Detailed books of materials, tools, products, goods; Detailed summary table of materials, tools, products, goods.
+ General accounting books: Journal - Ledger
- Accounting recording procedure ( Appendix 1.17) :
Every day, based on documents related to inventory such as Warehouse Receipts, Warehouse Delivery Receipts, etc. or the Summary Table of accounting documents of the same type that have been checked and used as the basis for recording, the accountant determines the Debit Account, Credit Account to record in the Journal - General Ledger. Then, the accountant records in the relevant detailed accounting books and cards. At the end of the month, the accountant adds the data of the SPS column in the Journal section and the Debit and Credit columns of each account in the General Ledger section to record in the month-end addition line. The detailed accounting books and cards must also be closed to add the Debit SPS, Credit SPS and calculate the month-end balance of each object. The data on the Detailed Summary Table is compared with the data of each account in the Journal - General Ledger. After the comparison is correct, the data will be used to prepare the financial statements.
* Accounting form: Bookkeeping documents:
+ General accounting books: Accounting vouchers; Accounting voucher register; Ledgers of inventory accounts such as 151, 152, 153, 156, 157,…
- Accounting entry procedure ( Appendix 1.18) :
Daily or periodically, based on documents related to inventory such as Warehouse Receipt, Warehouse Delivery Receipt, ... or Summary of accounting documents of the same type that have been checked, used as the basis for recording, the accountant creates a Bookkeeping Voucher. Based on the Bookkeeping Voucher, it is recorded in the Bookkeeping Voucher Register, then used to record in the General Ledger of inventory accounts. The accounting documents after being used as the basis for creating Bookkeeping Voucher are used to record in the related detailed accounting books and cards. At the end of the month, based on the General Ledger, the accountant creates a Balance Sheet. After checking and matching, the data recorded in the General Ledger and the Detailed Summary Table are used to prepare the financial statements.
1.2.2.4 Accounting for inventory depreciation provisions
* Subjects of inventory price reduction provision:
According to Circular 48/2019/TT-BTC, the subjects of inventory price reduction provision are inventories whose original price recorded in the accounting books is higher than the net realizable value and ensure the following conditions: Having legal invoices and documents according to regulations of the Ministry of Finance or other reasonable evidence proving the cost of inventory; Being inventories owned by the enterprise at the time of preparing the annual financial statements.
* Principles of inventory price reduction provision:
- Enterprises must set up provisions for inventory price reduction when there is reliable evidence of a decrease in the net realizable value compared to the original price of the inventory.
- Provision for inventory price reduction is made at the time of preparing the financial statements.
- The provision for inventory price reduction must be calculated for each type of inventory materials and goods.
Record an increase in cost of goods sold. Otherwise, the smaller difference is reversed by recording a decrease in the inventory write-down provision and a decrease in cost of goods sold.
* Determination formula: According to Article 4 of Circular 48/2019/TT-BTC, the level of provision for inventory price reduction is determined according to the following formula:
Provision for inventory price reduction
= | Actual inventory quantity at the time of preparing annual financial statements | x | Original price of inventory according to accounting books | - | Net realizable value of inventory |
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In there:
- The original cost of inventories is determined according to the provisions of VAS 02 and amendments, supplements or replacements (if any).
- The net realizable value of inventories determined by the enterprise itself is the estimated selling price of inventories in the normal production and business period at the time of preparing the annual financial statements minus (-) the estimated cost to complete the product and the estimated cost necessary for their consumption.
* Documents used:
- Invoices and documents reflecting the original price of inventory for which provisions are made.
- Inventory record at the time of making provision.
- Summary table of inventory price reduction provision levels.
- Reliable evidence of the estimated selling price and cost of the inventory for which provisions are made.
* Account used: Account 229(4) – “Provision for inventory price reduction” is used to reflect the situation of setting up or reversing provision for inventory price reduction.
* Accounting method:
(1) When preparing financial statements, compare the inventory devaluation reserve that must be established this period with the inventory devaluation reserve that was established in the previous period. If the inventory devaluation reserve that must be established this period is greater than the amount established in the previous period, the accountant shall make a deduction.
The accountant will then reverse the difference by recording a decrease in the inventory price reduction provision in the Debit side of Account 229(4) and a decrease in the cost of goods sold in the Credit side of Account 632.
(2) For materials and goods that are destroyed due to expiration, damage, or loss of use, the accountant handles the inventory depreciation provision by recording a decrease in inventory depreciation provision in the Debit side of Account 229(4) showing the amount offset by the provision and recording a decrease in inventory value in the Credit side of Accounts 152, 153, 156, etc. If the loss is higher than the amount of the provision, the accountant records an increase in the cost of goods sold in the Debit side of Account 632.
Inventory depreciation provision accounting chart ( Appendix 1.19 )
* Accounting books: Depending on the accounting form applied by the enterprise, the accounting books used to reflect the inventory depreciation reserve may also be different. For example, if the enterprise applies the General Journal form, the accountant uses the general accounting books which are the general journal and the ledger account 229, while if the enterprise applies the Voucher form, the accountant uses the general accounting books which are the voucher account and the ledger account 229.
1.2.2.5 Presentation of inventory accounting information on Financial Statements
According to Circular 133/2016/TT-BTC, information on inventory accounting will be presented in the following financial statements: Financial situation statement (Form No. B01a-DNN); Business performance report (Form No. B02-DNN); Cash flow statement (Form No. B03-DNN) and Notes to the financial statements (Form No. B09-DNN).
* Presenting inventory accounting information on the Financial Statement:
The total existing value of all types of inventories reserved for the enterprise's production and business process (after deducting the provision for inventory price reduction) at the reporting time is presented in the "Inventory" indicator - Code 140. Code 140 = Code 141 + Code 142.
The total value of inventory owned by the enterprise at the time of reporting is presented in the indicator "Inventory" - Code 141. The data to be recorded in this indicator is the debit balance of accounts 151, 152, 153, 154, 155, 156, 157.
form in parentheses (…).
* Presenting inventory accounting information on the Income Statement:
Inventory costs presented in the item “Cost of goods sold” include the original cost of inventory sold, inventory price reduction provision, inventory loss after deducting compensation due to personal liability, and unallocated general manufacturing costs.
* Presenting inventory accounting information on the Cash Flow Statement:
On the Cash Flow Statement prepared by the indirect method, information on inventories is presented in the indicator “Increase, decrease in inventories” – Code 11. This indicator is prepared based on the total difference between the ending balance and the beginning balance of inventory accounts (excluding the balance of account 229(4)) on the basis of excluding: Value of inventories used for capital construction investment activities or inventories used to exchange for fixed assets, investment real estate; Trial production costs are included in the original price of fixed assets formed from capital construction. Information on inventory depreciation provisions is presented in the indicator “Provisions” – Code 04. This indicator is prepared based on the difference between the beginning balance and the ending balance of asset loss provisions, including inventory depreciation provisions and payable provisions on the Financial Statement.
* Present inventory accounting information on the Notes to the Financial Statements:
On the Notes to the Financial Statements, businesses need to present basic information related to inventories including:
- Inventory recognition principles: Clearly state whether inventories are recorded at original cost or at net realizable value.
- Method of calculating inventory value: Clearly state whether the business applies the weighted average method or first in first out method, etc. to calculate inventory value.
- Method of setting up inventory price reduction provision: Clearly state that the enterprise sets up inventory price reduction provision based on the larger difference between the original price and the net realizable value of the inventory. Is the net realizable value of the inventory determined in accordance with the provisions of VAS 02?
1.3 Inventory accounting from the perspective of management accounting
According to the 2015 Accounting Law: “Management accounting is the collection, processing, analysis and provision of economic and financial information according to the management requirements and economic and financial decisions within the accounting unit”. Inventory management accounting is a part of management accounting that collects, processes and provides specific information about inventories for internal management purposes within the enterprise. Inventory management accounting not only provides historical information but also provides information of an orientational nature to help managers evaluate and make appropriate economic decisions. Therefore, each enterprise needs to establish norms, inventory estimates, collect, process, analyze and provide information about inventories in an appropriate and effective manner.
1.3.1 Inventory standards and estimates
Inventory budgeting is understood as detailed and comprehensive calculations, forecasts, and coordination of inventory, methods of mobilizing and using inventory to perform a certain amount of work in a certain period of time expressed by a system of indicators of quantity and value. Inventory budgeting helps businesses anticipate capital needs and capital values in inventory to have plans to mobilize and use capital effectively. Therefore, inventory budgeting needs to be built accurately, scientifically, and in accordance with the capabilities and conditions of the business.
Ending inventory budget:
The end-of-period inventory budget is a detailed plan that determines the output and value of the end-of-period inventory to meet the future consumption and storage needs of the business. Building an end-of-period inventory budget helps businesses to be proactive in their goods sources and in their production and business planning, avoiding the situation of