Instructions on accounting and finished product warehousing procedures

What is a finished product? The process of steps to import finished products, how to account for imported finished products using the regular declaration method and periodic inventory.

I. Legal basis 

• Circular 133/2016/TT-BTC;
• Circular 200/2016/TT-BTC.

II. What is the finished product?

Finished products are products that have undergone processing by outsourcing or by the enterprise’s production departments, have been inspected, ensured to comply with technical standards and are put into storage. Finished products are made up of main production and secondary production departments. 

III. Finished product warehousing process

1. Step 1: Transport finished products after completion of assembly at the warehouse

After the production department completes the finished products, other internal departments in the enterprise such as the transportation department and the warehouse department will transfer the finished products to the warehouse.

Note:

Enterprises need to ensure the principle of no loss of quantity and no impact on the quality of finished products during transportation.

2. Step 2: Count and arrange finished products in the warehouse

Warehouse staff check the quantity and quality of delivered finished products under the supervision of relevant departments, then arrange and store them in the correct location.

3. Step 3: Create warehouse receipt

The accounting department, based on the data provided by the warehouse department according to the report, will make a finished product warehouse receipt. The warehouse receipt must have full signatures of confirmation from the relevant departments. 

4. Step 4: Review the warehouse receipt

After being signed by the departments related to counting and arranging, the warehouse receipt will be sent to the management level for review and approval. Only when the finished product warehouse receipt is confirmed with the signature and seal of the management department will it become a valid document, effective for recording in the enterprise’s reporting data.

5. Step 5: Update warehouse receipt and warehouse card

The warehouse receipt from the management level will be transferred back to the warehouse keeper. The warehouse keeper will update the document on the warehouse card. 

According to regulations, the warehouse receipt will have at least 2 identical copies. Of which:

• The first copy is kept in the warehouse of the storekeeper;
• The second copy is passed on to the warehouse accountant;
• Some businesses may have an additional third copy to keep with the supervisory department. 

After the warehouse keeper updates the warehouse card, the business will rely on it to monitor, control inventory quantities and review when needed.

6. Step 6: Record accounting and store warehouse receipts

After receiving the second copy of the warehouse receipt, the accounting department will proceed to record the finished product warehouse entry. This recording helps the business to track the finished product inventory between the warehouse accountant and the warehouse keeper, serving the operation of the finished product export steps and planning the next production. 

IV. Methods and ways of accounting for finished product inventory

1. Finished products inventory accounting account

Accounting for finished goods in stock is done based on the method that the business chooses to account for inventory. Depending on the business characteristics, the business can choose to account for inventory according to 1 of the following 2 methods:

• Periodic inventory method;
• Regular reporting method.

>> See more: Inventory declaration method.

1.1. Account 155 – Finished products (applying the regular declaration method)

➤ To record finished products imported into the warehouse using the regular declaration method, accountants use account 155 and record finished products imported into the warehouse according to the following principles: 

• Account 155: Reflects the current value and fluctuations (increase or decrease) of each type, group, and warehouse of finished products;
• The value of finished products is calculated and evaluated according to the original cost method, including basic costs such as: 
  • Direct material cost;
  • Direct labor costs;
  • General manufacturing costs;
  • Other costs associated with the production of finished products (*).
• The value of finished products outsourced for processing is determined based on the actual cost incurred by the enterprise before and during the outsourcing process;
• Accounting for inventories using the regular declaration method, performing detailed inventory of finished products imported and exported daily according to accounting prices, at the end of the period, it is necessary to handle the difference between actual price and accounting price. 

Note:

(*): Determined within reasonable standards for creating finished products, costs exceeding standards are not included in the value of finished products in stock. 

>> See more: Inventory accounting. 

➤Structure and content of account 155 (finished products):

• Debit side (recorded increase):
  • Value of finished products eligible for warehouse entry;
  • Value of finished goods surplus through inventory;
  • Carry forward the value of finished goods inventory at the end of the period.
• Credit side (record decrease):
  • Value of finished products in stock;
  • The value of finished goods missing from inventory;
  • Carry forward the value of finished goods at the beginning of the period. 
• Debit balance: Actual value of finished goods inventory remaining at the end of the period.

1.2. Account 632 – Cost of goods sold (applying periodic inventory method)

To record finished goods imported into the warehouse using the periodic inventory method, accountants use account 632. 

Below is the structure and content reflecting account 632 (cost of goods sold) in case of periodic inventory accounting:

• Debtor: 
  • Cost of finished goods recorded in opening inventory;
  • Provision for inventory price decline;
  • Cost of finished goods in stock and completed services.
• The party with: 
  • Transfer the cost of finished products in inventory at the end of the period to the debit side of account 155 – finished products;
  • Reversal of provision for inventory write-down at the end of the period;
  • Transfer the cost of finished products to the debit side of account 911 – determine business results.

>> See more: How to account for cost of goods sold (account 632).

2. How to account for finished product inventory

2.1. Accounting by the regular declaration method

After the finished product is manufactured or processed completely, has passed the inspection steps, and has a valid warehouse receipt approved, the accountant will record the finished product book as follows:

Debit account 155: Finished products in warehouse;

Credit account 154: Work in progress costs.

When importing finished products, accountants first record them according to the specified quantity. After collecting all new costs, accountants calculate the cost price to record the most accurate import value. 

Some methods of calculating the cost of finished products in stock can be applied: 

• Direct method;
• Standard method;
• Coefficient method;
• Method of elimination;
• Step method;
• Method of calculating product cost through purchase order.

2.2. Accounting by periodic inventory method

At the beginning of the period, the enterprise transfers the cost of finished products in inventory at the beginning of the period to account 632 (cost of goods sold), recording:

Debit account 632: Cost of goods sold;

There is account 155: Finished products.

At the end of the period, the enterprise transfers the cost of finished products in inventory at the end of the period to the debit side of account 155 (finished products), recording: 

Debit account 155 – Finished products;

Credit account 632 – Cost of goods sold.

2.3. Accounting for surplus or shortage of finished products and provisions for price reduction

➤ Accounting for excess or shortage of finished products

In the process of monitoring and inventorying warehouses, businesses may discover cases of surplus or shortage of finished products. At that time, the inventory department needs to make a record of the surplus or shortage of goods, determine the cause and record it in the accounting books.

If there is excess finished product due to errors or not recorded in the accounting books, it is necessary to make additional entries or adjust the data in the accounting books according to the accounting method of the following account items:

• In case the departments have not found the cause of excess finished products, they must wait for processing:

Debit account 155 – Finished products;

Credit account 338 – Other payables.

• After agreeing on the cause of excess finished products:

Debit account 338 – Other payables;

There are related accounts.

• In case the departments have not found the cause of the lack of finished products, they must wait for processing:

Debit account 138 – Other receivables;

There is account 155 – Finished products.

• After agreeing on the cause of the shortage of finished products:

Debit related accounts;

Credit account 138 – Other receivables.

➤ Accounting for inventory price reduction provisions

If an enterprise, through the inventory process, discovers that there are inventories of materials and goods that must be destroyed for a number of reasons such as: expiration date, quality, damage, or loss of use value, it must establish a provision for inventory price reduction, recording: 

Debit account 229 – Provision for asset losses;

Debit account 632 – Cost of goods sold;

There are accounts 152, 153, 155, 156.

3. Illustrative example of accounting for finished product inventory

3.1. Example of accounting for finished product inventory using the perpetual inventory method

fdiinvietnam.com Company accounts for inventories using the perpetual inventory method. On August 24, 2023, the company imported a batch of finished products and imported the following finished products: 

• Finished product A: Quantity 100 pieces, unit price 100,000 VND/piece;
• Finished product B: Quantity 200 pieces, unit price 200,000 VND/piece.

The company’s accountant performs the procedures for importing the above finished products into the warehouse as follows: 

Debit account 155: 50,000,000 VND;

Have account 154: 100 x 100,000 + 200 x 200,000. 

3.2. Example of accounting for finished product inventory using the periodic inventory method 

fdiinvietnam.com Company accounts for inventory using the periodic inventory method, with the following data: 

• As of July 1, 2023, finished goods inventory figures: 
  • Finished product A: Quantity 50 pieces, value 5,000,000 VND;
  • Finished product B: Quantity 100 pieces, unit price 20,000,000 VND.
• At the end of the period 09/30/2023, the inventory company determined the quantity of remaining goods as follows:
  • Finished product A: Quantity 30 pieces, value 3,000,000 VND;
  • Finished product B: Quantity 70 pieces, value 14,000,000 VND.

Accountants conduct accounting as follows:

• As of 01/07/2023: 

Debit account 632: 25,000,000 VND;

Account 155: 25,000,000 VND.

• On August 24, 2023, add finished products to the warehouse and record:

Debit account 632: 50,000,000 VND;

Credit account 154: 50,000,000 VND.

• At the end of the period, on September 30, 2023, inventory of finished products, transfer of the value of finished products inventory at the end of the period:

Debit account 155: 17,000,000 VND;

Credit account 632: 17,000,000 VND.

• At the end of the period, the accountant determines the value of finished products sold from the warehouse, transfers the cost of goods sold during the period to the debit side of account 911:

Debit account 911 – Determining business results: 58,000,000 VND;

Credit account 632 – Cost of goods: 58,000,000 VND.

V. Some questions related to finished product inventory accounting

1. How do businesses differentiate between finished products and products?

To distinguish between finished products and products, businesses can rely on some of the following criteria:

➤For finished products: 

• Limiting criteria: Finished product is defined as the final result of the production process;
• Scope: The finished product scope is defined as the final stage of the process in a manufacturing process.

➤For products:

• Limitation criteria: Product is the final result of the production process or service provision process;
• Scope of work: The scope of the product includes both finished and semi-finished products.

2. How to determine the original price of finished products?

➤Formula for calculating the original price of finished products in stock:

➤Formula for calculating the original cost of finished products in stock: 

In which, the average unit price is determined as follows: 

Weighted average unit price for the entire reserve period

=

Cost of finished goods in stock at the beginning of the period

+

Original price of finished goods imported during the period

Or: 

Weighted average unit price for the entire reserve period

=

Number of finished products in stock at the beginning of the period

+

Number of finished products imported during the period