What is purchasing cost? Let’s find out with fdiinvietnam.com: types of purchasing costs, how to account for purchasing costs, criteria for allocating purchasing costs (with examples).
I. What are purchasing costs? Types of purchasing costs
Purchasing costs are when purchasing goods that incur costs directly related to the process of purchasing goods from the time of purchase until the goods arrive at the business.
Purchasing costs include: goods insurance, warehouse rent, yard rent, transportation, loading and unloading, storage costs during the purchasing process, natural losses in the norm arising from the purchasing process and other costs related to purchasing inventory.
II. Cost of purchasing imported and domestic goods
1. Purchase costs for domestic goods
Purchasing costs for domestic goods often incur costs such as: transportation, hiring purchasing staff, loading and unloading goods, renting warehouses, etc.
To be recognized as a reasonable business expense, the following conditions are required:
- Must serve the production and business activities of the enterprise;
- Purchase costs must have invoices and documents according to regulations;
- Invoices over 20,000,000 VND must be paid through the bank.
2. Cost of purchasing imported goods
Purchase costs for imported goods (import purchase costs) often incur costs such as: pre-customs fees, fees, charges, import taxes, special consumption taxes, environmental protection taxes (if any), warehouse fees (transportation, loading and unloading, warehousing, etc.).
The conditions for recognition are reasonable costs for imported goods similar to domestic goods, in addition to: customs declaration, payment receipt.
III. Accounting and allocation of purchase costs
All purchase costs will be included in the original cost of the purchased goods. If the purchase costs relate to many items, they must be allocated according to two criteria: quantity or value.
1. Accounting for purchase costs
Accounting for purchase cost account:
Debit account 1562: Pre-tax purchase costs;
Debit account 1331: VAT (if any);
Credit account 111, 112: Total payment amount.
Example 1:
On September 1, 2022, fdiinvietnam.com Company bought 10 computers for 10,000,000 VND/unit, VAT rate 10%, not yet paid to the seller. The shipping cost to the company before tax is 1,000,000 VND, VAT is 10%, cash payment. Accounting for the arising transaction?
➥ Accounting for imported goods:
Debit account 1561: 10 x 10,000,000 + 1,000,000 = 101,000,000 VND;
Debit account 1331: (101,000,000) x 10% = 10,100,000 VND;
Credit account 331: 111,100,000 VND.
2. Allocation of purchase costs
➤ Case 1: Allocation based on purchase value criteria
| Purchase cost allocated to inventory | = | Total cost of purchase | x | Value of each item |
| Total value of purchased goods |
Allocating purchase costs based on purchase value criteria has high accuracy, but calculation is complicated for large import quantities.
Example 2:
Company fdiinvietnam.com buys:
- Asus computers: 5 units, price excluding VAT 12,000,000 VND (VAT 10%);
- Dell computers: 5 units, price excluding VAT 10,000,000 VND (VAT 10%);
- Order value excluding VAT: 110,000,000 VND;
- Shipping cost to fdiinvietnam.com company warehouse: 1,000,000 excluding VAT (10%);
- Payment by bank transfer.
So:
Accountants allocate purchase costs according to value criteria as follows:
➥ Asus computer shipping cost:
(1,000,000 / 110,000,000) x 60,000,000 = 545,454 VND;
➥ Shipping cost for Dell computer: 1,000,000 – 545,454 = 454,546 VND.
Accounting:
Debit account 156 – Asus: 60,000,000 + 545,454 = 60,545,454 VND;
Debit account 156 – Dell: 50,000,000 + 454,546 = 50,454,546 VND;
Debit account 1331: 11,000,000 + 100,000 = 11,100,000 VND;
Credit account 112: 122,100,000 VND.
➤ Field 2: Allocation according to the quantity of goods imported into the warehouse
| Purchase cost allocated to inventory | = | Total cost of purchase | x | Quantity of each item |
| Total quantity purchased |
Example 3:
Data from example 2, but allocate purchase costs by quantity criterion.
Thus, accountants allocate purchase costs according to quantity criteria as follows:
➥ Shipping cost for Asus computer: (1,000,000 / 10) x 5 = 500,000 VND;
➥ Shipping cost for Dell computer: 1,000,000 – 500,000 = 500,000 VND.
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Through examples 2 and 3, we can see that the distribution based on the “quantity” criterion often gives less accurate values than the distribution based on the “value” criterion. However, depending on the characteristics of each enterprise, we can choose the appropriate distribution criterion.
IV. Frequently asked questions when accounting for and allocating purchase costs
1. Are purchase costs included in the cost of goods in inventory?
All purchasing costs directly related to the purchase of imported goods will be included in the original cost of imported goods.
2. If purchasing an item that incurs purchasing costs, do they need to be allocated?
No. The accountant will record the purchase cost into the value of the purchased goods when the goods are imported into the warehouse:
Debit accounts 156, 152, 211, 155;
Debit account 1331 (if any);
There are accounts 112, 111.
3. What are the criteria for allocating purchasing costs?
There are two criteria for allocating purchasing costs: value or quantity. Each criterion will have different advantages, depending on the specific operations of each business, choose the appropriate criterion.