Learn: What is account 632? Structure of account 632, recording cases, reflection content of account 632 & how to account for cost of goods sold, account 632.
I. What is account 632?
Account 632 is used to reflect the capital value of products, goods, services, investment real estate; production cost of construction products sold during the period. In addition, it is also used to reflect costs related to investment real estate such as: depreciation costs, repair, investment real estate leasing, selling costs, liquidation of investment real estate, etc.
II. Cases of recording cost of goods sold – Account 632
- The provision for inventory depreciation is calculated based on the quantity of inventory and the difference between the net realizable value and the original cost of the inventory. When determining the volume of inventory for which a provision is required, the following must be excluded:
- The volume of inventory that has been signed for consumption contracts has not been transferred to the buyer but there is evidence that the buyer will not abandon the performance of the signed contract;
- Inventories used for basic construction activities, for manufacturing products where the products made from these inventories have a selling price equal to or higher than the production cost of the product.
- The value of inventory loss or damage (after deducting compensation, if any) must be included in the cost of goods sold;
- For direct material costs consumed in excess of normal levels, labor costs, and fixed general production costs, they will not be allocated to the value of products in stock, but accountants must immediately calculate them into the cost of goods sold (after deducting compensation, if any), even when the products have not been determined to be consumed;
- Import tax, special consumption tax, environmental protection tax when purchasing goods are included in the value of purchased goods, but if these taxes are refunded when selling, they are recorded as a reduction in cost of goods sold;
- Expenses that are not considered reasonable deductible expenses according to the provisions of the Law on Corporate Income Tax (CIT) but have invoices and vouchers and have been accounted for correctly according to the Accounting Regime will not be recorded as a reduction in accounting expenses but will be adjusted in the CIT finalization to increase the amount of tax payable.
III. Structure and content of account 632 – Cost of goods sold
1. For businesses accounting for inventories using the perpetual inventory method
➤ Debtor:
For production and business activities, reflect:
- Cost of goods and services sold during the period;
- Raw material, material, labor costs exceeding the normal level and unallocated fixed general production costs will be included in the cost of goods sold during the period;
- Damages, losses and damages to inventory after deducting compensation due to individual responsibility;
- Construction and self-made fixed asset costs exceeding the normal level will not be included in the original price of completed self-built or self-made tangible fixed assets;
- Amount of provision for inventory price reduction for goods and raw materials that are destroyed due to expiration, no longer having any value, etc. (the difference between the provision that must be set up this period is greater than the provision that was set up in the previous period but not fully used).
For investment real estate business, reflect:
- Depreciation value of real estate used for lease during the period;
- Real estate-related costs such as renovation, repair and upgrade costs are not eligible to be included in the original cost of that real estate;
- Costs arising from real estate rental such as: apartment management fees, maintenance fees, etc.;
- Remaining value of real estate when sold or liquidated during the period;
- Expenses from the sale and liquidation of investment real estate arising during the period;
- Prepaid expenses for real estate goods that have been determined for sale.
➤ The party with:
- At the end of the period, transfer the cost of products, goods and services sold during the period to account 911 “determining business results”;
- Carry forward all expenses related to investment real estate business incurred during the period to determine the business results of that period;
- Refund of inventory price reduction provision because the provision required for this period is less than the provision set aside for the previous period but not fully used;
- Goods sold during the period that are returned are put into inventory;
- Refund of pre-deducted expenses for investment real estate determined to have been sold (when the remaining pre-deducted expense difference is higher than the actual expenses incurred);
- Trade discounts, sales discounts if sold during the period;
- Refundable taxes such as import tax, special consumption tax, environmental protection tax have been calculated when determining cost price.
Note:
Cost of goods sold account – 632 has no ending balance.
2. For businesses that account for inventories using the periodic inventory method
2.1. For commercial enterprises:
➤ Debtor:
- Cost of goods sold during the period;
- Amount of provision for inventory devaluation (the difference between the provision to be set up this period is greater than the unused provision set up in the previous period).
➤ The party with:
- Carry over cost of goods sent for sale but not yet determined as consumed;
- Refund of inventory price reduction provision because the provision required for this period is less than the provision set aside for the previous period but not fully used;
- Transfer the cost of goods sold during the period to the account determining business results.
2.2. For manufacturing and service businesses:
➤ Debtor:
- Value of finished goods and services remaining in inventory at the beginning of the period;
- Amount of provision for inventory price reduction (the difference between the provision to be set up this period is greater than the unused provision set up in the previous period);
- Capital value of finished products in stock and completed service activities .
➤ The party with:
- Transfer the cost of finished products and services in inventory at the end of the period to the debit side of account 155 “finished products”, account 154 “production and business costs in progress”;
- Refund of inventory price reduction provision because the provision required for this period is less than the provision set aside for the previous period but not fully used;
- Transfer the cost of finished products and services determined to have been sold during the period to account 911 “determining business results”.
Note:
Cost of goods sold account – 632 has no ending balance.
IV. How to account for cost of goods sold (account 632)
1. For businesses accounting for inventories using the perpetual inventory method
➤ When selling completed products, goods and services that are determined to be sold during the period:
Debit account 632 – Cost of goods sold;
There are accounts 154; 155; 156; 157…
➤ Incurred expenses are directly accounted for in cost of goods sold:
- When the actual production level is lower than the normal capacity, the accountant must calculate and determine the fixed general production costs allocated to the cost of a product unit according to the normal capacity level. The surplus is not included in the cost of each product but is recorded in the cost of goods sold 632:
Debit account 632 – Cost of goods sold;
Credit account 154 – Unfinished production and business costs;
Credit account 627 – General production costs.
- Damages, losses and damages to inventory after deducting compensation due to individual responsibility:
Debit account 632 – Cost of goods sold;
There are accounts 152; 153; 156; 138…
➤ Accounting for provisions or reversals of inventory price reduction provisions:
- If the provision amount to be established this period is greater than the provision amount established in the previous period, the difference will be additionally set aside as follows:
Debit account 632 – Cost of goods sold;
Credit account 299 – Provision for asset loss (2294 – Provision for inventory price decrease).
- If the amount of inventory price reduction provision to be established this period is less than the amount of provision established in the previous period, the difference will be refunded:
Debit account 229 – Provision for asset losses (2294);
Credit account 632 – Cost of goods sold.
➤ Returned goods to warehouse:
- When returned goods are brought back to the warehouse, record a decrease in cost of goods sold:
Debit account 156; 155;
Credit account 632 – Cost of goods sold.
➤ Activities related to investment real estate business:
- Periodic depreciation of investment real estate for lease:
Debit account 632 – Cost of goods sold;
Credit account 214 – Depreciation of fixed assets.
- Costs related to investment real estate but not eligible to be included in the original cost of that real estate:
Debit account 632 – Cost of goods sold (if included immediately in expenses);
Debit account 242 – Prepaid expenses (if required to be gradually allocated);
There are accounts 111; 112; 152; 153; 334…
- Costs associated with leasing investment properties:
Debit account 632 – Cost of goods sold;
There are accounts 111; 112; 331; 334…
- When selling or liquidating investment real estate, the original price and remaining value of the real estate will be reduced:
Debit account 214 – Depreciation of fixed assets (2147 depreciation value of investment real estate);
Debit account 632 – Cost of goods sold (remaining value of investment real estate);
Credit account 217 – Investment real estate (original cost of investment real estate).
- Costs incurred when selling and liquidating investment real estate:
Debit account 632 – Cost of goods sold;
Debit account 133 – Deductible VAT (if any);
There are accounts 111; 112; 331…
➤ For trade discounts and sales discounts received after purchasing goods, accountants must base on the fluctuations in inventory to allocate the discounts and rebates received based on the unsold inventory or the amount issued for construction investment activities or consumed during the period:
Debit account 111; 112; 331… Discount amount according to invoice;
Credit accounts 152; 153; 154; 155; 156… (value of discount, rebate of unsold inventory during the period);
Credit account 241 – Construction in progress (value of discount and rebate of issued inventory used for construction investment activities);
Credit account 632 – Cost of goods sold (value of discounts and rebates of inventory sold during the period).
➤ Carry over cost of goods sold of products, goods, services, and investment real estate sold during the period to determine the business results of that period:
Debit account 911 – Determining business results;
Credit account 632 – Cost of goods sold.
2. For businesses that account for inventories using the periodic inventory method
➤ For businesses trading in commercial goods:
- At the beginning of the period, the value of finished products in inventory at the beginning of the period is transferred to record the cost of goods sold:
Debit account 632 – Cost of goods sold;
Credit account 156 – Goods.
- At the end of the period, determine and transfer the cost of goods sold, determined as sold:
Debit account 632 – Cost of goods sold;
Credit account 611 – Purchases (6112).
- At the end of the period, transfer the cost of goods sold, determined as sold, to determine business results:
Debit account 911 – Determining business results;
Credit account 632 – Cost of goods sold.
➤ For businesses operating in production and service business:
- At the beginning of the period, the value of finished products in inventory at the beginning of the period is transferred to record the cost of goods sold:
Debit account 632 – Cost of goods sold;
There is account 155 – Finished products.
- At the end of the period, transfer the cost of finished products remaining in inventory at the end of the period:
Debit account 155 – Finished products;
Credit account 632 – Cost of goods sold.
- At the beginning of the period, transfer the value of finished products and services sent for sale but not yet determined as sold:
Debit account 632 – Cost of goods sold;
Credit account 157 – Goods sent for sale.
- At the end of the period, determine the value of finished products and services sent for sale but not yet determined as sold:
Debit account 157 – Goods sent for sale;
Credit account 632 – Cost of goods sold.
- Cost of finished products in stock, completed services:
Debit account 632 – Cost of goods sold;
Credit account 631 – Production cost.
- At the end of the period, transfer the cost of finished products and services that have been determined to have been sold during the period to the account determining business results:
Debit account 911 – Determining business results;
Credit account 632 – Cost of goods sold.
V. Some frequently asked questions when accounting for account 632
1. When is cost of goods sold recorded?
The time of recording cost of goods sold is also the time of recording revenue of the enterprise. Expenses are recorded at the time of transaction arising or are likely to arise in the future (regardless of whether money has been spent or not).
2. What does cost of goods sold include?
Cost of goods sold includes direct costs arising from the production of goods sold by the enterprise such as costs of raw materials and direct labor to create goods. Cost of goods sold does not include indirect costs such as costs of distributing goods sold, transportation and costs for the sales force, etc.