Chapter II Theoretical basis of Account payable
2.1. Theoretical basis of Account payable
According to Vietnamese accounting standard ( VAS 01 ) item 18, we can be awared that :
“ Payable liabilities is the current obligation of the business arising from the past transactions and events that the business must pay from its resources “. This account will be device into two kinds of payment terms which are short-term and long-term.
Short-term liability is the payment obligation with a maturity of less than 12 months or less than a normal business cycle such as payable to suppliers, internal payables, other short-term payables, financial debt at the time of reporting financial statement. Long- term liability is the total payment obligation of an enterprise with a maturity of more than 12 months or more than a normal business cycle of production and business at the reporting time such as : payables to suppliers, internal payables, other long-term
payables , long-term financial debt at the reporting date.
2.1.2. Principles of payable accounting
According to circular 133/2016/TT-BTC article 39, payable accounts must be followed specifically base on each payable object or each business contract. It indicate :
1. Liabilities of an enterprise must be accounted for and sorted by according to payment schedule, creditor, currency and other factors required by the enterprise.
2. Liabilities shall be classified into trade payables, intra-company payables and other payables according to following rules:
a) Trade payables are those derived from purchase of goods, services or assets. These include amounts payable when importing through the trustee (in the import trust transaction);
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b) Intra-company payables are amounts payables between superior units and affiliated units;
c) Other payables include payables that are non-commercial and not related to trade in goods or services:
- Payables related to financial expense, such as: interests, dividends and profits, financial investment expenses;
- Payables paid by third parties; payables which the trustor receives from relevant entities to pay for import-export trust transactions;
- Non-commercial payables, such as: non-monetary borrowings, fines, compensation, assets in surplus pending resolution, social insurance, health insurance, unemployment insurance, or union funds, etc.
3. When preparing a financial statement, the amounts payable shall be classified into long-term payables or short-term payables according to their remaining terms.
4. Currencies, creditors of payables in foreign currencies shall be specified as follows: - Liabilities (credit side of accounts payable) shall be converted into the accounting currency at the actual exchange rate applied at that time.
An advance payment to a seller in foreign currency shall be recorded to Cr 331 at the recorded specific exchange rate applied at the time of advance payment.
- When paying a debt (debit side of accounts payable), the enterprise may choose between the book weighted average exchange rate applied to each creditor or the actual exchange rate at the time of debt payment.
Advance payments to sellers recorded to Dr 331 shall apply the actual exchange rate at the time of advance payment.
- In the cases where the enterprise applies the actual exchange rate to record the debit side of accounts payable and exchange differences that occur in the period to debit accounts, it may record them at the time transaction on a periodical basis depending on the characteristics of its operation.
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- The payables that are foreign currency monetary items must be reassessed at the time of preparation of the financial statement at the closing average transfer rate of the enterprise’s regular bank.
The determination of the average transfer rate and method for handling exchange difference due to reassessment of payables that are foreign currency monetary items are specified in Article 52 of this Circular.
( Circular 200/TT-BTC )
2.1.3. The mission of payable accountant
Firstly, accountant must follow specifically each payable account. Every transactions’s unit currency must be converted to VND.
At the end of accounting period, payable accountant must base on the indenture of long-term liabilities, long-term debts, payment plan to determine the payable liabilities which come to the payment date on the next accounting period and forward.
At the end of accounting standard, payable accountant have to re-evaluate the ending balance of loans, short-term and long-term debt which have foreign currency follow the average exchange rate in foreign currency on the interbank market granted by the bank of Vietnamese government on the day of reporting date. The exchange rate arised from re-evaluate short-term loans, short-term and long-term debts must be reflected on Financial Statement.
In some cirumstances, accountant must follow up the discount and premium for each kinds of bonds and evaluate the allocation of discount and premium to determine financial loan expense compute on business production costs or periodly capitalization.
In case of expired bond’s interest is paid according to each period, accountant must compute period interest to treat as business production costs and capitalize on incomplete asset’s value.
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2.1.4. The role of payable accountant
Payable accounting is one of the most important section in the accounting process of every enterprise. The good organization of payable accounting contribute a large percentage on the success of controlling financial situation of company. This task will bring the effective management for the board of director to evaluate exactly and propose the fesible strategy.
Base on the result of payable accounting task, in the aspect of manager’s view, they can thorough and issue their own overview about the financial situation and the cash flow of their company. If their company perform a positive situation, it means they would not be occupied their capital too much ( in type of account receivable ) and the capital they can occupy in type of account payable would be affordable in payment date.
Consequently, managers can control and issue the appropriate strategy to run the cash flow of the company effectively.
2.1.5. Detailed principle of each payable accounts
According to the circular issued by Vietnamese Ministry of Finance, we have circular 200/ TT-BTC and its modification circular 133/TT-BTC which stipulate the rules of accounting, Structure and contents, methods of accounting for each detail account.
Thus, I could complete this dissertation and also practice reality base on these current circular. But because of brief requirement for this statement assignment, I will not quote these circular into my dissertation but we can be aware that all of theoretical basis base on these circular and for each account I will once again define what it is as following the circulars.
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