Accounting for sales and business result in hino motors vietnam, ltd and suggestions for improvement

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MINISTRY OF FINANCE ACADEMY OF FINANCE Student: Hồ Thị Thùy Phương Class: CQ46/51.03 Topic: “Accounting for sales and business result in HINO MOTORS Vietnam, Ltd and suggestions for improvement” GRADUATION THESIS Major: English for Finance and Accounting Hanoi, Year 2012 MINISTRY OF FINANCE ACADEMY OF FINANCE Student: Hồ Thị Thùy Phương Class: CQ46/51.03 Topic: “Accounting for sales and business result in HINO MOTORS Vietnam, Ltd and suggestions for improvement” GRADUATION THESIS Major: English for Finance and Accounting Supervisor: MBA. Nguyễn Thị Thùy Trang Hanoi, Year 2012 Graduation thesis DECLARATION I hereby declare that this thesis is my own work and effort and that has not been submitted anywhere for any award. Where other sources of information have been used, they have been acknowledged. The data and results described in the thesis are derived from the actual situation of the practice company. Hanoi, 30 April, 2012 Student Hồ Thị Thùy Phương – CQ46/51.03 Graduation thesis ACKNOWLEDGEMENT Firstly, I am deeply indebted to my supervisor MBA. Nguyen Thi Thuy Trang whose help, stimulating suggestions and encouragement helped me all the time of research for and writing of this thesis. I also want to thank Hino Motors Vietnam, Ltd for giving me permission to commence this thesis in the first instance, to do the necessary research work and to use departmental data. I have furthermore to thank the former Vice Director and Finance Manager as well as all seniors at Hino Motors Vietnam, Ltd who gave and confirmed this permission and encouraged me to go ahead with my thesis. My friends from Foreign Language Faculty also supported me in my thesis. I want to thank them for all their help, support, interest and valuable hints. Especially, I would like to give my special thanks to my family whose patient love enabled me to complete this work. Finally, because of limitation of time and knowledge, mistakes are unavoidable, so I wish to have more opportunities. I also wish to receive more contribution and suggestions to make my thesis better. Hồ Thị Thùy Phương – CQ46/51.03 Graduation thesis ABSTRACT In the modern economic world, especially when the number of bankrupt enterprises is rising, accounting for sales and business result has become more and more important, for every company in general, and for Hino Motors Vietnam, Ltd in particular. Therefore, my thesis with the topic “Accounting for sales and business result in Hino Motors Vietnam, Ltd and suggestions for improvement” will point out the importance of having a healthily and effective accounting department for sales and business result. The main content is reflected in three chapters. The first chapter is about the literature review for every company, mainly showing what accounts are involved in calculating business result, its definitions and accounting entries. In chapter 2, by taking a scenario in Hino Motors Vietnam, Ltd, the thesis focuses on a real accounting practice for sales and business result. From that, chapter 3 points out the company’s strengths and weaknesses and suggests some solutions to improve the current accounting system in Hino Motors Vietnam, Ltd. In conclusion, the thesis has already been complete in comparison with proposed objectives and targets in the introduction. Hồ Thị Thùy Phương – CQ46/51.03 Graduation thesis LIST OF ABBREVIATIONS No. Abbreviation Full phrase 1 Acc Account 2 COGS Cost of goods sold 3 Deprec Depreciation 4 Dept Department 5 HMV Hino Motors Vietnam 6 IS Income Statement 7 MKS Mankichi Kanjo System 8 No. Number 9 P&L Profit and Loss 10 Q’ty Quantity 11 VAS Vietnamese Accounting Standard 12 VAT Value Added Tax Hồ Thị Thùy Phương – CQ46/51.03 Graduation thesis TABLE OF CONTENT Part I: Introduction ..............................................................................................1 1. Rationale.................................................................................................1 2. Aims of the study .....................................................................................1 3. Subject and scope of the study .................................................................2 4. Introduction of the main content .............................................................2 Part II: Main content ............................................................................................3 Chapter 1: Literature Review .............................................................................3 1.1 Overview.......................................................................................................3 1.1.1 Characteristics of goods ....................................................................3 1.1.2 Managerial requirements ...................................................................3 1.1.3 Funtions of accounting for sales and business result..........................4 1.1.4 Methods of sales................................................................................5 1.2 Accounting entries for sales and business result .........................................6 1.2.1 Accounting for Cost of Goods Sold (COGS) .....................................6 1.2.2 Accounting for Sales and Sales Deductions. ......................................8 1.2.3 Accounting for Selling and Administration expenses ......................11 1.2.4 Accounting for Financial Expenses and Incomes ............................12 1.2.5 Accounting for Other Expenses and Incomes and Corporate Income Tax Expense. ............................................................................................13 1.2.6 Accounting for business result ........................................................14 1.3 Preparing financial statements ................................................................15 1.4 Systems of Accounting forms ....................................................................15 1.5 Computerized accounting for sales and business result ...........................17 Chapter 2: Current situation of accounting for sales and business result in HINO MOTORS Vietnam, Ltd.......................................................................... 18 2.1. Overview about Hino Motors Vietnam, Ltd ..............................................18 2.1.1. History ............................................................................................18 2.1.2. Business field and products .............................................................18 2.1.3. Organizational structure. .................................................................19 Hồ Thị Thùy Phương – CQ46/51.03 Graduation thesis 2.1.4. Characteristics of accounting department ........................................19 2.2. Current situation of accounting for sales and business result in Hino Motors Vietnam, Ltd. .......................................................................................21 2.2.1. List of main products.......................................................................21 2.2.2. Main selling method at Hino Motors Vietnam, Ltd .........................22 2.2.3 Current situation of accounting for sales and business result ...........23 2.2.3.1 Accounting for Cost of Goods Sold (COGS) ..........................23 2.2.3.2 Accounting for Sales and Sales Deductions ...........................26 2.2.3.3 Accounting for Selling and Administration Expenses.............32 2.2.3.4 Accounting for Business result ..............................................36 2.2.3.5 Income Statement ..................................................................38 2.3 General conclusion about accounting performance for sales and business result in Hino Motors Vietnam, Ltd .........................................39 Chapter 3: Some suggestions for improving the accounting system for sales and business result in HINO MOTORS Vietnam, Ltd ..................................... 40 3.1 Evaluation of accounting for sales and business result in Hino Motors Vietnam, Ltd.....................................................................................................40 3.1.1 Strong points ...................................................................................40 3.1.2 Weaknesses .....................................................................................41 3.2 Importance and requirements for improving the accounting system for sales and business result. .................................................................................42 3.2.1 Importance ......................................................................................42 3.2.2 Requirements ..................................................................................43 3.2.3 Orientation........................................................................................43 3.4 Some suggestions for improving the accounting system for sales and business result in Hino Motors Vietnam, Ltd ..................................................45 3.3.1.Updating the accounting software ....................................................45 3.3.2 Allocating tasks effectively to accountants .......................................45 3.3.3.Opening third-level accounts ............................................................46 3.3.4.Improving the Sales Discount accounts. ...........................................47 Hồ Thị Thùy Phương – CQ46/51.03 Graduation thesis 3.3.5.Improving the preparation of accounting reports ..............................47 Part III: Conclusion ............................................................................................ 51 References ................................................................................................................ Appendixes ............................................................................................................... Hồ Thị Thùy Phương – CQ46/51.03 Graduation thesis Part I: Introduction 1. Rationale In this modern economic world with many newly established enterprises which follows a more competitive economic environment, every company must be flexible and active in their businesses, make as many profits as possible; else they will fall into bankruptcy. In order to gain profits, they must realize the importance of sales and distribution phase because of its creating incomes to offset incurred expenses, then determining the profitability of the company. Besides, the very first objective of every enterprise is making a profit, so calculating business result in general and sales revenue in particular is very important in both forms of accuracy and timeliness. It’s the reason why efficient and effective accounting management for sales and business result plays an important role in the accounting system. Hino Motors Vietnam, Ltd is a manufacturer of heavy and medium – sized trucks. This field is rather new in Vietnam with competitive markets. It is now one of leading companies in this field. Therefore, maintaining its current position and being the market leader is more important than ever. From this situation, Hino Motors Vietnam, Ltd must have a flexible and effective sales campaign with a well-performed accounting system for sales and business result. Because of the importance of accounting for sales and business result, I chose “Accounting for sales and business result in HINO MOTORS Vietnam, Ltd and suggestions for improvement” as my graduation thesis topic. 2. Aims of the study My study has three objectives: First, it is to contribute to the background theory of accounting for sales and business result, which is done by pointing out definitions, accounts used and accounting entries for each account related to determining business result in a manufacturing company. Hồ Thị Thùy Phương – CQ46/51.03 Page 1 Graduation thesis Second, it is to illustrate how a company does accounting for sales and business result by taking the scenario at Hino Motors Vietnam, Ltd as a case for study. Third, it is to review the company’s achievements and limitations and to suggest possible solutions to improve the accounting performance for sales and business result in the future. 3. Subjects and scope of the study 3.1 Subjects of the study My study mainly focuses on sales, selling expenses, administration expenses, some other related expenses and incomes, and net income – their definitions, accounts used to do accounting and accounting entries. Besides, it is also about preparing accounting reports in which net income and retained earnings are reflected. 3.2 Scope of the study - Time: Accounting fiscal year from 1/4/2009 to 21/12/2012 (Quarter III of the fiscal year form 1/4/2011 to 31/3/2012) - Space: Hino Motors Vietnam, Ltd 4. Introduction of the main content Apart from the introduction, conclusion, references and documents attached, the main content is divided into three chapters as follows: Chapter 1: Literature Review Chapter 2: Current situation of accounting for sales and business result in HINO MOTORS Vietnam, Ltd Chapter 3: Some suggestions for improving the accounting system for sales and business result in HINO MOTORS Vietnam, Ltd Hồ Thị Thùy Phương – CQ46/51.03 Page 2 Graduation thesis Part II: Main content Chapter 1: Literature Review 1.1 Overview 1.1.1 Characteristics of goods In general, goods are finished products of the final manufacturing stage and have been approved to be qualified to put in stock or sell. Different goods, in different types, have some following characteristics: - Goods are finished products of the final manufacturing stage by the manufacturer itself or by outsourcing. - Finished products are considered as goods only after being approved to be qualified. - Goods have to be put into stock. Goods includes finished goods, semi-finished goods (or work-in-process), materials and services to customers. Among them, finished goods are the main products of a manufacturing company. To have more understanding, we must distinguish between finished goods and products: Items Finished goods Products Level of limit Finished goods are the final result of a certain manufacturing process with a certain technology in a company-scope. Products are results of manufacturing and service providing process in general. Scope The concept of product is larger than finished goods, because products include both finished goods and semi-finished goods 1.1.2 Managerial requirements for accounting for sales and business result Sales are the transfer of the goods usage right attached with the decisionmaking power from the seller to the buyer. In addition, sales are recognized when the customer makes payment or agrees to pay. Sales are in the final stage of a business process. It is the transfer of capital form, from capital in products to capital in monetary or in payment. Therefore, the Hồ Thị Thùy Phương – CQ46/51.03 Page 3 Graduation thesis faster the sales process happens, the shorter the business cycle is, the faster the capital turnover is, and the more profit it brings to the company. When a sales takes place, the company gains revenue and other incomes which are the total economic benefits for the company in the accounting period. Besides, some expenses must be paid, which decreases the economic benefits of the company in the same period. These expenses include out-of-pocket money and deductions such as discounts. After a sales process, the company must determine the business result, by comparing incomes with expenses. Afterwards, the net income will be allocated effectively as targeted and as regulated. If the company only has one revenue gain and one expense payment, it does not need any sales management. However, almost all companies have more than one transaction each day. Therefore, in order to be well managed, the company must have a single department to record, track, and report all of the sale transactions daily. From these requirements, accounting for sales and business result is established. 1.1.3 Functions of accounting for sales and business result In order for requirements of managing goods, sales, determination of business result and division of net income to be met, accounting for sales and business result has to execute some following missions of: - Fully, timely, accurately reflecting and recording occurred transactions and movements of each type of goods and products under quantity, quality, model and value; - Fully, timely, accurately reflecting and recording sales, sales deductions and expenses of each business activity, as well as following and supervising customers’ receivables; - Accurately calculating and reporting results of each transaction; - Monitoring the implementation of state obligations and division process of business result; Hồ Thị Thùy Phương – CQ46/51.03 Page 4 Graduation thesis - Interpreting accounting reports to information users. Accounting information must be accurate, easy-to-read and useful. Therefore, accounting for sales and business result must follow current regulated accounting standards, as well as be adaptable with the current status of the company’s accounting system. Besides, if carried out effectively, these above professions will put a hand into increasing the accounting productivity in general. Thanks to that, accounting information will be helpful for directors and managers in making sound decisions, which will raise the business profitability. 1.1.4 Methods of sales Sales is the process of delivering goods to customers. There are two typical methods of sales, including direct sales and sales through agents (consignment sales). 1.1.4.1 Direct sales Direct sales is the method of delivery to the buyer directly at the warehouse of the enterprise. Goods when delivered to customers must be paid or agreed to pay. After this package of goods is brought out of stock, the seller company will lose the ownership power of such goods. This method includes whole sales and retail sales. - Whole sales: is the method of delivery of goods to manufaturing and/or trading companies to put into the producing process as input materials or to consigned for sales or sell directly. Therefore, the wholesalers are very various, such as domestic or foreign or join-venture manufacturers, traders, or even private enterprises. Chracteristics of whole sales: The most typical characteristic is that goods are still in distribution phase, not in consumption. Secondly, goods are often bought in large quantity and in different kinds of payment. Before a sale, the buyer will assign someone to be at the seller’s warehouse. During the sales, the assigned person will check the quantity, quality, model and value of the goods package, and sign in realted vouchers and invoices. After that, when the buyer pays or agrees to pay (with valid documents and signatures), the Hồ Thị Thùy Phương – CQ46/51.03 Page 5 Graduation thesis buyer will record the transaction as sales revenue as well as state obligations (such as output VAT). Accountants use VAT Invoices, Sales Contract and Delivery Orders set by the company. This VAT Invoice may have 3 or 5 Copies (Liens) dependent on the company’s requirements. - Retail sales: is the method of delivery of goods direclty to the end consumers – the final destination of the distribution phase. The retailers are all Vietnamese citizens or foreigners, regardless of their class and nationality. Characteristics of retail sales: Goods are in consumption phase, not in distribution. The usge value of goods are being implemented. Retail goods are often bought in small quantity, and with immediate payment, usually in cash. 1.1.4.2 Sales through agents (Consignment sales) It is the method of delivery through the channel of agents. Different from direct sales, after the package of goods is brought out of stock, it still belongs to the company and is not considered to be in consumption phase. The company only records sales revenue when the agent reports to sell such goods. When goods are sold, the company must pay commissions for the agent which is considered as a selling expense. Sales of goods on consignment for agents are recorded as sales revenue only when: - The company has received money payment from the customers; - The customer has received his package of goods and agrees to pay; - The customer has advanced the amount of purchase payment of the package of goods; - The package of goods on consignment is paid via bank. 1.2 Accounting entries for sales and business result 1.2.1 Accounting for Cost of goods sold (COGS) 1.2.1.1 Definition Hồ Thị Thùy Phương – CQ46/51.03 Page 6 Graduation thesis Expense of finished goods and merchandise goods sold (shortly called cost of goods sold) is the expense of goods determined at the time they are sold out. According to VAS 2 - Inventory, cost of goods sold can be calculated by the following methods: - Specific identification method - Average expense method - First-in, First-out method - Last-in, First-out method 1.2.1.2 Calculating COGS Cost of goods sold (COGS) Expense of = Goods out of stock + Selling Expenses + Administration Expenses For manufacturing companies: The value of goods for sale from stock or finished goods for direct sales not through warehouse is considered as cost of goods sold. 1.2.1.3 Accounting entries for Cost of goods sold (COGS) For sales through agents (consignment sales) Accounts used  157 – Goods on consignment. This account reflects the current available amount and changes of value of goods on consignment. The ending balance of this account determines the volume of goods which are not in consumption (which means the goods are in the agent’s stock).  Others: 632 – Cost of goods sold, 156 – Finished goods… Accounting entry  For perpetual inventory method (see Flowchart 01)  For periodic inventory method (see Flowchart 02) For direct sales Account used Hồ Thị Thùy Phương – CQ46/51.03 Page 7 Graduation thesis  632 – Cost of goods sold. This account reflects the value of goods and services which were sold and afterwards, the transfer of ending balance to account 911 – net income  Others: 156 – Finished goods, 911 – Net income… Accounting treatment  For perpetual inventory method (see Flowchart 03)  For periodic inventory method (see Flowchart 04) 1.2.2 Accounting for Sales and Sales Deductions 1.2.2.1 Accounting for Sales 1.2.2.1.1 Sales revenue Types of revenues: Sales revenue; Revenue from rendering services; Revenue from deposit interest, selling copyrights, dividends, and distributed profit; and Revenue from trading real estates. Sales revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. Net sales is determined by sales revenue after deducting sales deductions including trade discounts, sale allowances, and sales returns. 1.2.2.1.2 Sales recognition principles Sales revenue is recognized only when meeting all recognition conditions stipulated in Vietnamese Accounting Standards (VAS) No. 14: Sales and other incomes. Revenue from the sale of goods shall be recognized when all the following conditions have been satisfied: The entity has transferred to the buyer the significant risks and rewards of ownership of the goods; The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; The amount of revenue can be measured reliably; Hồ Thị Thùy Phương – CQ46/51.03 Page 8 Graduation thesis It is probable that the economic benefits associated with the transaction will flow to the entity; and The expenses incurred or to be incurred in respect of the transaction can be measured reliably. 1.2.2.1.3 Accounting vouchers and invoices used - VAT invoice - Normal sales invoice - Payment voucher of goods on consignment - Other payment vouchers 1.2.2.1.4 Accounts used - 511 – Revenue from sales of goods and rendering of services - 512- Internal revenue - 3331 – VAT payables - 3387 – Deferred income - Others: 111 – Cash on hand; 112 – Cash in bank; 131 – Account receivables… 1.2.2.1.5 Accounting entries For direct sales For company applying deduction/subtraction VAT method (see Flowchart 05) For company applying direct VAT method (see Flowchart 06) For sales through agents (see Flowchart 07) 1.2.2.2 Accounting for Sales Deductions 1.2.2.2.1 Trade discount - Definition: Trade discount is the amount of money that enterprise credited or paid to customers who bought goods and services in large volume in accordance with the agreement that the seller will give trade discount to the buyer. - Accounts used 521 – Trade discount. This account has no beginning and ending balance. Hồ Thị Thùy Phương – CQ46/51.03 Page 9 Graduation thesis Others: 111, 112, 131, 3331… - Accounting entry (see Flowchart 08) 1.2.2.2.2 Sales returns - Definition: Sales return is the amount of goods sold which have subsequently been returned due to the following reasons: breaching the commitment or the economic contract, or in a wrong quantity, quality or specifications. - Accounts used 531 – Sales return. This account reflects the volume of goods which are returned due to the company’s mistakes. Account 531 has no balance. Others: 111, 112, 131…. - Accounting entry (see Flowchart 09) 1.2.2.2.3 Sales allowances - Definition: Sales allowance is a reduction made when the goods are not the same specification as those mentioned in the economic contract. - Accounts used: 532 – Sales allowances. This account only reflects the volume of sales allowances out of the VAT invoice according to the agreement between sellers and buyers. Price deductions written in VAT invoices are not considered as a sales allowance. - Accounting entry (see Flowchart 10) 1.2.2.2.4 Tax payables (VAT, Export Duty, Excise Duty) - Definition: VAT (Value Added Tax) is an indirect tax calculated on the added/increased value of goods and services, arising in the production, distribution and consumption phases; Export duty is calculated by Custom Office on the price written in the export contract at the border gate, usually FOB (Free On Board) price and export duty rate. This price is exchanged into Vietnamese Dong according to the average exchange rate in the inter-bank foreign exchange market, announced by SBV (State Bank of Vietnam) at the time of exporting; Hồ Thị Thùy Phương – CQ46/51.03 Page 10 Graduation thesis Excise duty (also called Special Consumption Tax) is levied on the profit of some special types of goods and services stipulated by the Government in order to limit the consumption speed because these goods and services are unnecessary or harmful to life such as wine, beer, cigarettes… The excise duty base is the price with export duty or price without VAT. - Accounts used 3331 – VAT payable 3332 – Excise duty payable 3333 – Custom duties payable - Accounting entry (see Flowchart 11) 1.2.3 Accounting for Selling and Administration Expenses 1.2.3.1 Accounting for Selling Expenses 1.2.3.1.1 Definition: Selling expenses are all expenses incurred in relation to selling process of goods and services. 1.2.3.1.2 Content of selling expenses Sale staff salary expense; Packaging and indirect material expense; Depreciation expense; Warranty expense; Rendered services; and other expenses 1.2.3.1.3 Principles of collection and allocation of selling expenses Selling expenses when actually incurred will be collected as selling expenses. Besides, selling expenses can be collected as fixed and variable selling expenses. At the end of the period, selling expenses will be transferred, allocated to determine the business result. Allocation criteria may be cost of goods sold or sales revenue. 1.2.3.1.4 Accounts used - 641 – Selling expenses. This account has no balance. - Others: 111, 131, 334, 152… 1.2.3.1.5 Accounting entry (see Flowchart 12) 1.2.3.2 Accounting for Administration Expenses 1.2.3.2.1 Definition Hồ Thị Thùy Phương – CQ46/51.03 Page 11
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