How to account for Account 521 – Revenue deductions

What is account 521? Share accounting principles of account 521 & how to account for sales revenue reduction such as trade discounts, sales discounts, sales returns. All will be detailed instructions by fdiinvietnam.com in this article.

I. Accounting principles for account 521 – Revenue deductions

1. Details of account 521 – Revenue deductions

Account 521 is used to record adjustments to reduce sales revenue and service provision arising during the period such as:

➤ Trade discount: A reduction in the listed price for large volume buyers. There are two common types of discounts:

• Discount per purchase: The selling price written on the invoice is the price minus the trade discount and is not recorded in this trade discount account.
• Discount when reaching quantity, sales of services, goods, then the discount will be deducted in the next period or at the end of the program (the seller will record initial revenue at the price before discount):

>> If the discount amount is less than the invoice value in the next period or at the end of the program, it will be deducted directly from that invoice;

>> If the discount amount is greater than the invoice value issued in the next period or at the end of the program, issue a separate discount invoice to the buyer.

➤ Sales discount : A reduction for the buyer when the product or goods are of poor quality, degraded or incorrect specifications according to the terms of the signed economic contract. There are 2 common forms of sales discounts: 

• Discount on sales immediately upon sale: The business reflects revenue at the discounted price, not tracking on account 5123.
• Post-sale discount: Issue discount adjustment invoice.

➤ Returned goods: Buyers return goods due to reasons such as: poor quality, incorrect specifications, types, violations of commitments, violations of economic contracts, etc.

2. Determine when to record revenue deductions

➤ If it arises during the period of consumption of products, goods and services, the reduction adjustments of the period of occurrence are recorded.

➤ If arising after the period of consumption of products, goods and services, the reduction adjustments are recorded according to the principle based on the time of issuance of financial statements:

• In cases of revenue deductions arising before the issuance of financial statements, the revenue reduction is recorded on the financial statements of the reporting period (previous period).
• In cases of revenue deductions arising after the date of issuance of financial statements, the revenue deduction of the arising period (next period) is recorded.

➥ Revenue deductions do not have a balance at the end of the period, so at the end of the period they will be transferred entirely to “Sales and service revenue – Account 511” to determine net revenue in the reporting period.

II. Structure and content of revenue deductions – Account 521

Account 521 – Revenue deductions: There are 3 detailed accounts (level 2) as follows:

• Trade discount – Account 5211: Listed price discount for large volume buyers;
• Returned goods – Account 5212: Discount for buyers when products or goods are of poor quality, degraded quality or incorrect specifications according to the terms of the signed economic contract;
• Sales discount – Account 5213: Buyer returns due to reasons: Goods are poor quality, degraded, incorrect specifications, types, violate commitments, violate economic contracts…;

T-Chart- Revenue Deductions – 521

• Revenue deductions – Account 521: No ending balance.

III. How to account for account 521

1. Sales discounts and trade discounts arising during the period

➤ In case of declaring VAT using the deduction method:

Debit 5211/5213 – Revenue deductions.

Debit 3331 – VAT payable (output tax reduced).

There are 111/112/131…..

➤ In case of calculating VAT by direct method on revenue/not subject to VAT:

Debit 5211/5213 – Revenue deductions.

There are 111/112/131…..

2. Sales returns

➤ In case of declaring VAT using the deduction method:

Debit 5212 – Revenue deductions.

Debit 3331 – VAT payable (output tax reduced).

There are 111/112/131…..

➤ In case of declaring VAT using the direct method on revenue/not subject to VAT:

Debit 5212 – Revenue deductions.

There are 111/112/131…..

➤ Accounting reflects the cost of returned goods sold:

• In case of periodic inventory method:

Debit 611/631: Purchases (for goods)/Production costs (for products).

There are 632: Cost of goods sold.

• In case of perpetual inventory method:

Debit 154/155/156: Cost of production, business in progress/finished products/goods.

There are 632: Cost of goods sold.

Note : Expenses incurred related to returned goods, recorded:

Debit 641 – Selling expenses.

There are 111,112,141,334….

>> See more: Instructions for accounting for returned goods.

3. Carry over at the end of the accounting period

Revenue deductions do not have a balance at the end of the period, so at the end of the period they will be transferred entirely to “Sales and service revenue – Account 511” to determine net revenue in the reporting period.

Debit 511 – Sales and service revenue.

Yes 521 – Revenue deductions.

IV. Some frequently asked questions related to account 521