Accounting for payable provisions – account 352 according to Circular 200

Learn: What is account 352; structure of account 352; timing of provisioning, instructions on accounting & examples of provisions for payables – account 352 according to Circular 200.

I. What is account 352?

Account 352 – Reflects the provisioning and use of existing provisions for payables of the enterprise.

II. When to set up provisions for payables – What is account 352?

• Provisions are made at the time of preparing financial statements. In case:

>> Amount of provisions to be established > Amount of provisions established in the previous period ➜ The difference is recorded in the production and business expenses of that accounting period;

>> Amount of provisions for payables to be established < Amount of provisions for payables established in the previous period ➜ The difference is reversed and recorded as a reduction in production and business expenses of that accounting period.

• Provisions for construction warranty liabilities are established for each project and are established at the end of the annual accounting period or in the middle of the accounting period.

>> Established provision for payables > Actual expenses incurred ➜ Difference is reversed into other income (account 711).

• The amount recognised as a provision is the best estimate of the amount required to settle the existing obligation at the end of the annual or interim reporting period. 
• Provisions are recognized only when the following conditions are met:

>> An enterprise has a present obligation (which may be legal or constructive) as a result of a past event.

>> It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation on demand and a reliable estimate can be made of the amount of the obligation.

• Only expenses related to the originally established provision for liabilities may be offset.
• Future losses should not be recognised in a provision (unless they relate to an onerous contract and satisfy the criteria for recognising a provision). 
• Where an enterprise has a major risk contract, it must record and assess the liability as a provision for payment. A separate provision must be established for each major risk contract.
• Enterprise restructuring costs are only recorded as a provision when they meet all the recognition conditions prescribed in Accounting Standard No. 18 “Provisions, Contingent Assets and Liabilities”.

III. Structure and content of account 352 – Provision for payables

 

IV. Accounting method for account 352 – Provision for payables

1. Provision for payables (account 352) and related costs incurred for repair and warranty of sold products

• In case the enterprise sells goods with warranty papers, repairs manufacturing defects, the enterprise estimates the warranty cost on the quantity of goods sold during the period, and records:

Debit account 6415 – Warranty costs.

Credit account 3521 – Provision for product warranty payable.

• In case the enterprise does not have an independent product warranty department:

➧ Expenses related to product warranty, record:

Debit account 621, 622, 627… (price excluding VAT).

Debit account 1331 – Deductible VAT amount (if any).

There are accounts 111, 112, 152, 214, 331… (total value includes VAT).

➧ At the end of the period, transfer the costs incurred during the period, record:

Debit account 154 – Unfinished production and business costs.

There are accounts 621, 622, 627…

➧ When completing the repair of the product and handing it over to the customer, record:

Debit account 3521 – Provision for product warranty payable. 

Debit account 6415 – Provision for outstanding warranty expenses.

Credit account 154 – Work in progress costs.

• In case the enterprise has its own independent warranty department, the warranty costs for products delivered to customers are recorded as follows:

Debit account 3521 – Provision for product warranty payable.

Debit account 6415 – Provision for outstanding warranty expenses.

Credit account 336 – Internal payables.

2. Provision for payables (account 352) and expenses related to the provision for payables for construction warranty

➤ When determining the construction warranty reserve made for each project and project item upon completion and handover during the period, record:

Debit account 627 – General production costs.

Credit account 3522 – Provision for construction warranty payable.

➤ When expenses arise such as material costs, labor costs, fixed asset depreciation costs, outsourced service costs… related to the provision for construction warranty originally established, record:

• In case the enterprise performs construction warranty itself:

➧ Expenses related to construction warranty, record:

Debit account 621, 622, 627… (price excluding VAT).

Debit account 1331 – Deductible VAT amount (if any).

There are accounts 111, 112, 152, 214, 331… (total value includes VAT).

➧ At the end of the period, transfer the actual costs incurred during the period, record:

Debit account 154 – Unfinished production and business costs.

There are accounts 621, 622, 627…

➧ When completing the construction repair and handing over to the customer, record:

Debit account 3522 – Provision for construction warranty payable.

Debit account 632 – Cost of goods sold (difference between actual costs incurred is greater than the amount of provision for payables set aside).

Credit account 154 – Work in progress costs.

• In case the enterprise assigns a subsidiary or outsources the construction warranty work, record:

Debit account 3522 – Provision for construction warranty payable.

Debit account 632 – Cost of goods sold (difference between actual costs incurred is greater than the amount of provision for payables set aside).

There are accounts 331, 336…

➤ When the warranty period expires, if the construction is not warranted or the provisional amount is greater than the warranty cost, the difference must be reversed and recorded as a reduction:

Debit account 3522 – Provision for construction warranty payable.

Credit account 711 – Other income.

3. Provision for payables (account 352) and related expenses for business restructuring expenses

• When setting aside provisions for payable expenses for business restructuring, record:

Debit account 6426 – Provision expenses.

Credit account 3523 – Provision for payables for business restructuring.

• When expenses related to the provision for business restructuring have been established, record:

Debit account 3523 – Provision for payables for business restructuring.

There are accounts 111, 112, 331…

4. Provision for payables (Account 352) and related expenses for other provisions for payables

• When determining with certainty the amount of provision to be made for a onerous contract in which the expected economic benefits from the contract are greater than the costs required to pay for the obligations related to the contract (such as compensation, contract compensation, legal proceedings), record:

Debit account 6426 – Provision expenses.

Credit account 3524 – Other payable provisions.

• When setting aside provisions to pay for expenses such as environmental restoration costs, cleaning costs, site restoration and site return costs, severance allowance provisions according to the Labor Law…, record:

Debit accounts 627, 641, 642.

Credit account 3524 – Other payable provisions.

• For fixed assets that require periodic repairs according to technical requirements, fixed asset repair costs must be provisioned in advance, recorded as follows:

Debit accounts 627, 641, 642.

Credit account 3524 – Other payable provisions.

• When expenses related to other provisions for payables that have been set up arise, record:

Debit account 3524 – Other payable provisions.

There are accounts 111, 112, 331…

5. At the end of the accounting period, when preparing the financial statements, the enterprise needs to calculate and determine the amount of provisions to be set aside for product warranties, construction warranty, business restructuring costs and other provisions.

➤ Case 1: The amount of provisions to be established > The amount of provisions established in the previous period ➜ The difference is recorded in the production and business expenses of that accounting period, recorded:

Debit account 6415, 6426 – Sales expenses, business management expenses.

Credit account 352 – Provisions for payables (3521, 3522, 3523, 3524).

➤ Case 2: The amount of provisions for payables that need to be established < The amount of provisions for payables established in the previous period ➜ The difference is reversed and recorded as a reduction in the production and business expenses of that accounting period, recorded as:

Debit account 352 – Provision for payables (3521, 3522, 3523, 3524).

Credit account 6415, 6426 – Selling expenses, business management expenses.

6. Some other cases related to payable provisions – Account 352 

• Enterprises use insurance contracts, compensation or warranties from other suppliers (third parties) to pay part or all of the costs for the provision. When a third party reimburses part or all of the costs for the provision that the enterprise has previously paid, record:

Debit account 111, 112…

Credit account 711 – Other income.

• When converting a 100% state-owned enterprise into a joint stock company, the accountant handles the provisions payable after compensating for losses up to the time of official conversion into a joint stock company. If there is still a need to record an increase in state capital at the time of handover, record:

Debit account 352 – Provision for payables.

Credit account 4111 – Owner’s equity.

For example:

On February 2, 2021, Company A manufactured and launched water purifier product C at a price of VND 4,990,000/product, the warranty policy included when purchasing the machine is 12 months and the company estimates the product warranty cost to be 5% of the product price. In 2021, the company sold 800 water purifiers C. During the year, 100 products were returned to Company A for warranty and the warranty cost for these 100 products was VND 30,000,000.

➥ Accounting for product warranty reserves is as follows:

• Estimated warranty cost for 800 products: 800 x 5% x 4,990,000 = 199,600,000 VND.

Debit account 6415: 199,600,000.
Credit account 3521: 199,600,000.

• Accounting for goods sent for warranty, warranty costs are recorded:

Nợ TK 3521: 100 x 5% x 4,990,000 = 24,950,000.

Debit account 6415: 5,050,000.

Credit account 336: 30,000,000.

See also: 

>> Accounting for account 511 – Sales revenue, service provision.

>> Accounting for account 642 – Business management costs.

V. Frequently asked questions about setting up account 352