Materials accounting in nissei electric hanoi company

Academy of Finance Graduation Thesis
PREFACE
Vietnam is in the wide and deep integration in all aspects. In there,
economic integration is always the most interesting since it has a great effect
on the society.
Together with opportunities of export expansion to international
market, getting a lot of investments from foreign enterprises, groups as well
as individuals, we also face many challenges from integration. At present,
goods from international market overflow into Vietnam market freely and
almost all of them have more competitive advantages. In addition, growing
numbers of foreign enterprises and groups set up their branches or companies
in Vietnam and supply to domestic market. They have better characteristics
by far than Vietnam such as: technology, capital, manufacture experiences,
etc. If we do not research promptly to improve for higher quality, lower cost
of products…, definitely our market share will be reduced right in the
domestic market.
Recently, I have an opportunity of practicing in Nissei Electric Hanoi
Company, studying their management system, enterprise culture and going
into the details of materials accounting at accounting department. This is an
export-processing company in the Nissei group, with 100% investment capital
from Japan. Materials in Nissei Electric Hanoi Company are various and
imported regularly for production. Materials play an important role and also
make up a high cost in product price. Therefore, managing materials well is
one of the most important issues of company. Nissei researched to create
model management software has high integrated ability, together with
confidential managers and a prompt working environment, they can manage
company in general and materials in detail efficiently. They are new features
that Vietnamese companies should follow and apply suitably to our
companies.
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Academy of Finance Graduation Thesis
Thanks to the thesis “MATERIALS ACCOUNTING IN NISSEI
ELECTRIC HANOI COMPANY”, I would like to present my opinion on
materials accounting in Nissei and the model management system as well as
Nissei culture thence I inferred some lessons for Vietnamese companies.
The thesis includes three chapters:
Chapter 1: General theory for materials accounting in productive
enterprises.
Chapter 2: Materials accounting in Nissei Electric Hanoi Company.
Chapter 3: Suggestions to improve materials accounting in Nissei Electric
Hanoi Company and lessons for Vietnamese companies.
Because of the limitation of time and knowledge, mistakes are not
avoided; I would like to receive contribution from readers for improvement of
content as well as form for my thesis.
Thanks a lot!
Author
Hoang Thi Lan Chi
CHAPTER 1
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GENERAL THEORY FOR MATERIALS ACCOUNTING IN
PRODUCTION ENTERPRISES
1.1. M
aterials and accounting issues in materials:
1.1.1.Definition and characteristic of materials:
Merchandise inventory is an important factor in determining the cost of
goods sold for retailers and wholesalers. In a manufacturing enterprise,
inventories are owned by the company and usually classified into three
categories: finished goods, work in process and raw materials.

In there, raw materials are a major component to take shape of product.
Effective material management is frequently the key to successful business
operations. Materials have two main characteristics:
-They participate in only one production cycle and their original forms
are changed;
-Their values are transferred into products’ value in the production
process.
1.1.2.Classification of materials:
Materials in production enterprises are various and plentiful. Each type
of materials has a different role, use and feature. Therefore to manage
materials effectively, businesses need to classify them.
Depending on managing requirement, materials can be classified in
different ways. Following are three ways to classify materials [1]:
1.1.2.1.According to materials’ use:
-Raw materials: are main objects forming products and their value is
transferred into products’ value entirely on production process.
-Sub-materials: are materials supporting for production process,
combining with raw materials to increase quality and design of product, used
to ensure that equipments run well or supporting for technical and
management demand.
-Fuels: are used for production such as coal, oil, etc... In essence, fuels
are sub-materials which are separated to manage and used accounts more
conveniently because of their important role.
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-Spare-parts: are used for replacement and repair of machinery,
equipment, etc...
-Capital construction equipment: includes construction parts, fit and
non-fit equipment used in capital construction, industry

-Other materials: are materials not grouped into the above types. They
mainly are scraps taking back from the production process or liquidation of
fixed tangible assets.
By this classification way, businesses can know which type of materials
is needed to be managed more strictly, especially materials are used directly
for production, materials have high values or materials are leaked easily.
1.1.2.2.According to suppliers:
-Home-made materials: are materials created by enterprises themselves
to support for production demands.
-Materials provided from outside: are materials which enterprises buy
from the domestic market or import from foreign countries.
-Other materials: are materials formed from presentation or from joint-
venture partners’ contribution...
Managing materials according to their sources is also very important to
companies. For example, with an exporting-importing enterprise, they usually
classify materials in two types according two main ways of importing
materials: import from domestic and import from foreign countries to manage.
1.1.2.3.According to purpose of using :
-Materials directly used for manufacturing products.
-Materials used for other demands like general manufacture, selling or
enterprise management.
According to this classification, business can arrange sections to manage
materials for difference purpose of using, ensure supplying materials timely…
1.1.3.Measurement of materials:
Determining material cost is an important task of materials accounting.
They use a monetary ruler to express the value of materials according to given
principles. These principles are assigned in the provision No 04 of VAS 02
about materials which is promulgated along with Decision 149/2001 of the
Ministry of Finance on 31
st

December 2001: “Materials are valued according
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Academy of Finance Graduation Thesis
to their original prices. Where the net realizable value is lower than the
original price, they must be valued according to the net realizable value”. In
there:
-The original price of inventories consists of the purchasing cost,
processing cost and other directly-related costs incurred for having the
inventories stored in the present place and conditions;
-The net realizable value is estimated price of inventories in the normal
production cycle minus (-) estimated cost to finish product and estimated cost
need to consume them.
Therefore, in accordance with Inventory accounting standard, materials
in enterprises are determined according to real price.
1.1.3.1.Determine cost of stored material:
Determining cost of stored materials conform to cost price principle.
Enterprises store materials from many sources. Depending on every source,
the real value of materials is defined differently [7].
-Materials are provided from outside:
Real value of
materials
=
Price
on bill
+
Purchasing
cost
+
Non-refundable

taxes
-
Trade discounts,
price reductions
In there:
+Purchasing cost includes: cost of transportation, loading and
unloading, loss in norm.
+Non-refundable taxes such as custom tax, VAT…
-Materials are provided by hiring people to process.
Real value of
materials
=
Real value of
material used
+ Hiring cost +
Transportation
cost (if any)
-Materials are provided by enterprises themselves:
Real value of materials = Cost price of materials used + Transportation cost (if any)
-Materials are provided by issuing:
Real value of materials = Price according to receiving report
-Materials are provided from join-venture partners’ contribution:
Real value of materials = Value of capital due to join-venture assembly defines
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Academy of Finance Graduation Thesis
-Materials are provided by presenting:
Real value of materials = Market price at receiving time
-Wasted materials are taken back from production:
Real value of materials = Reusing price or selling price of materials

1.1.3.2.Determine cost of materials used:
Choosing the determine cost of materials used method is based on the
characteristics of each business regarding quantity of materials; time of
storing and using materials; ability of accountant, stockman and material
condition. Provision No 13 of VAS 02, there are four methods to determine
cost of materials used:
-Specific identification method:
To this method, costs of materials used from which lot will be defined
follow the price of that lot. This method requires that each unit on hand be
identified with a specific purchase invoice. To do this, enterprise must use
some form of identification such as serial numbers, or stock tags, or bar codes
containing the cost recorded in some appropriate coding system, which are
attached to the item. Application of the specific identification method is a
greater possibility when using a computerized inventory system, where the
cost of each item may be identified in the bar code for that item. When the
item is used, the cost of that item is readily obtained from the computer’s
reading of the bar code. This method is applied to enterprises having a few
good items or stable and identifiable good items.
+Advantages: define exactly cost of materials used, certain cost is
suitable for certain revenue.
+Disadvantages: when business has a lot of material items, materials
move continuously, controlling materials will be very difficult and detail
materials accounting will be very complex. For most entities, this method is
not practical and is too costly to apply.
-Average method: the cost of materials used is equal to quantity of
materials used multiply with average unit price. The average unit price can be
defined according to two ways below:
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Academy of Finance Graduation Thesis

+Weighted average method: under this method, an average cost per unit
is calculated by dividing the total cost of beginning materials and materials
stored in period by the total number of units at the beginning and stored in
period.
Average unit
price
=
Cost of beginning materials + Materials stored in period
Quantity of beginning materials + quantity of materials stored in period

This method is suitable for enterprises having a few material items but
material movement is high; and is used with synthetic accounting by periodic
inventory system.
•Advantages: simple, possible to cut down materials accounting
works, not depending on materials movement.
•Disadvantages: materials accounting is driven into the late period,
therefore it affects the progress of other accounting.
+Moving average method: a new average cost per unit is calculated
after each purchase. The average is called a moving average because a new
weighted average cost is calculated after each purchase rather than simply
calculating a weighted average at the end of the period. The moving average
cost, calculated after a purchase, is used to calculate the cost of materials on
hand until additional units are acquired at a different unit price. The moving
average cost of materials is calculated as follows:
Uninterrupted
Average unit price
=
Materials value before n storing time + Materials value at n storing time
Quantity of materials before n storing time + Quantity of materials at n
storing time

This method should be applied in enterprise which has few types of
materials and where materials movement is not high; and is used with
synthetic accounting by perpetual inventory system.
•Advantages: gains the most accurate cost of materials used when
the accountant uses this method; reflects fluctuation of price timely;
determination cost of materials is implemented regularly.
•Disadvantages: accounting work is numerous and complex. This
method is suitable for enterprises using accounting software only.
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Academy of Finance Graduation Thesis
-First in first out (FIFO):
The FIFO method assumes that the earliest materials purchased are the
first to be used. FIFO is widely used because it is easy to apply. FIFO often
parallels the actual physical flow of merchandise because it generally is good
business management to sell the oldest units first [12].
This method is suitable for inflationary period and applied for
enterprises which have a few of materials items and movement of materials is
not high.
+Advantages: accountants can define cost of materials used timely.
This method supplies a logical estimation on material value at the end of the
period.
+Disadvantages: current cost is not suitable current revenue. The
current revenue achieved since cost of materials in detail and inventories in
general stored previously. Therefore, the business cost of an enterprise does
not react timely with market prices of materials.
-Last in first out (LIFO):
Under the LIFO method, the cost of last unit purchased is assumed to
be the cost of first unit sold. The cost of the most recent purchases is
transferred to cost of materials used. The cost of the ending materials consists

of the cost of the earliest purchase [12].
This method is suitable in deflationary periods and applied to
enterprises which have a few of materials items and movement of materials is
not high.
+Advantages: current revenue is suitable current cost. Costs of
enterprises’ products react timely with market prices of materials. Therefore,
the information about enterprises becomes more reliable.
+Disadvantages: reduce enterprise’s net income in deflation periods and
material values on the balance sheet can be smaller than their real value.
The selection of a cost method to use for a particular type of inventory
depends on many factors such as the effect that each method has on the
entity’s financial statement, Income tax laws, information needs for managers
and financial statement users, the clerical cost of applying a costing method,
and requirements of accounting standards. In practice, more than one of the
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Academy of Finance Graduation Thesis
methods may be considered appropriate in accounting for the same type of
inventory. That is, accounting standards do not prescribe the use of a specific
costing method as being “best” for a particular set of inventory conditions. It
is up to managers and the accountant to decide which method provides the
most useful information to financial statement users.
However, when using materials, accountant must calculate, determine
real cost of materials used according to method registered and must ensure
consistence in a finance year [13].
1.1.4.Managing requirement and accounting duty for materials:
1.1.4.1.Managing requirement for materials:
In our economy, profit becomes the last aim of business. The inverse
ratio relation between cost and profit is more and more interested in. So
enterprises always find the way to minimize production cost, reduce cost

price. Therefore, with the ratio is about 60-70% in total cost, materials must
be managed more effectively.
If business uses materials economically and suitably, they will make
products of high quality; in addition, the cost price of products will be
reduced. The business will have more advantages in the market. More
scientific management of materials more economical effect businesses gains.
These roles require materials management to be close in all stages from
purchasing, reserving and maintaining to using them.
In the purchasing stage: enterprises usually buy materials to satisfy
timely for production process and other demands. In this stage, materials must
be managed closely on quantity, specification, sort and price.
In the reserve and maintenance stage: to keep production process
continuously, enterprise must reserve materials sufficiently; however, avoid
storing materials exceeding the required level because it will lead to capital
stagnant; maintaining materials according to their physicochemical properties.
In the using stage: enterprises must determine cost of materials in
products sufficiently, correctly, timely. Therefore, in this stage, business must
record and reflect using materials for production process, ensure using them
effectively.
1.1.4.2.Accounting duty for materials:
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Academy of Finance Graduation Thesis
To meet managing requirement, materials accounting must include the
following tasks and functions:
-Organize the voucher system: obey rules of form, time of making
vouchers, rotation of vouchers, reserve and maintenance of vouchers of the
Ministry of Finance. Rotation of vouchers must ensure that supply
information sufficiently to materials managers, safety for vouchers; record
into accounting books sufficiently, timely; avoid tautology and should

minimize the rotation time of vouchers.
-Accounts system: ensure the rules of unity and accommodation. The
general accounts of business are due to accounting regulation and the detail
accounts are due to business’s characteristic.
-Organize accounting books system of a business must ensure two
rules: unity and accommodation. Business must apply all obligatory books
stipulated by the Ministry of Finance and create books supporting for material
management to supply information sufficiently and timely.
Reports on materials need to be created according to accounting
regulations on time and transported to the functional section managing
materials.
1.2. M
aterials accounting:
1.2.1.Detail accounting for materials:
Materials voucher system in enterprises is applied according to
accounting regulation promulgated on Decision 15/2006 of the Ministry of
Finance on the 20
th
March 2006.
Materials voucher system consists of:
-Storing materials voucher (Form 01 – VT);
-Using materials voucher (Form 02 – VT);
-Inventories test report (Form 03 – VT);
-Remaining materials at the end of period report (Form 04 – VT);
-Stock-taking report (Form 05 – VT);
-VAT invoice (Form GTKT - 3LL)
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Academy of Finance Graduation Thesis
The process of making and rotating materials vouchers is taken as

shown by this diagram:
Diagram 1: Rotation of materials vouchers
Detail accounting for materials is monitoring and recording the
fluctuation of storing, using and remaining of each material in production
process to supply detail information for managing every material item.
Detail accounting for materials must ensure controllable storing, using
and remaining situation in quantity and value of each material item;
synthesize the information above according to each warehouse, stand and
field.
Enterprises can use one of the three methods below to account
materials in details:
-Parallel inventory cards method;
-Balance books recording method;
-Rotation collation books recording method.
The thesis imitates three methods by diagrams and presents their
advantages, disadvantages and applying conditions.
Note:
Hoang Thi Lan Chi Class: K42/21.06
Business
Planning
Section
R
e
s
e
r
v
e
d
Director,

Chief
Accountant
Materials
Accountant
Stockman
Supplying
section
Research
demand of
materials
Sign
contract/
approve
using stock
Record
materials
books
Store
materials,
use
materials
Create
storing/
using
voucher
Daily recording
Periodically recording
Collating daily
Collating periodically
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Academy of Finance Graduation Thesis
1.2.1.1.Parallel inventory cards method:
Represent this method according to the diagram below:
Diagram 2: Parallel inventory cards method
Advantages: This method is simple in recording, controlling, collating
and supply information on storing, using and remaining of materials item
timely, correctly.
Disadvantages: recording by both stockman and accountant so taking a
lot of time and effort.
This method is suitable to apply for businesses using accounting
software and business with a few material items.
1.2.1.2.Balance books recording method:
Represent this method according to the diagram below:
Hoang Thi Lan Chi Class: K42/21.06
Using inventory
voucher
Storing inventory
voucher
General
accounting book
Storing-Using-
Remaining report
Detail
accounting book
Stock
card
General
accounting book
Storing-Using-
Remaining report

Balance
books
Voucher (1)
Transferring note
Stock
card
Storing inventory
voucher (1)
Voucher (2)
Transferring note
Using inventory
voucher (2)
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Academy of Finance Graduation Thesis
Diagram 3: Balance books recording method
Advantages: avoid recording many times, works are arranged for all
period so not accumulated to the late period.
Disadvantages: have much difficulty in controlling, collating and
detecting mistakes.
This method is suitable to apply for businesses which have a lot of
materials items and materials movement is high; accountant and stockman has
a good ability.
1.2.1.3.Rotation collation books recording method:
Represent this method according to the diagram below:
Diagram 4: Rotation collation books recording method
Advantages: makes fewer accounting books than parallel cards method,
reducing accountants’ recording work.
Disadvantages: controlling, collation and mistake detection meet with
much difficulty. Works are accumulated to the late period so it affects the
progress of other accounting.

This method is suitable to apply for businesses have a lot of material
items but materials movement is not high; organizing materials accountant to
follow storing and using materials everyday is unimplemented.
1.2.2.Synthetic accounting for materials:
There are two methods to synthetic accounting for materials.
Hoang Thi Lan Chi Class: K42/21.06
General
accounting book
List of inventory
used
Rotation
collation book
List of inventory
stored
Stock
card
Using inventory
voucher
Storing inventory
voucher
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Academy of Finance Graduation Thesis
-Periodic inventory system;
-Perpetual inventory system.
1.2.2.1.Periodic inventory system:
When the periodic inventory system is used, the cost of materials
purchased during the period is recorded in the Purchase account. Throughout
the period, the balance of the Materials account presents the cost of materials
on hand at the beginning of the period. To determine the cost of the ending
materials, the units on hand at the end of the period must be counted and

evaluated. The cost of ending materials is then reported usually as apart of
current asset in the balance sheet.
Due to the result of stocktaking at the end of period, accountants can
reflect the value of materials remaining on the general accounting book and
cost of materials using during the period.
Cost of materials
used
=
Cost of beginning
materials
+
Cost of materials stored
in the period
-
Cost of ending
materials
All movements of materials are not reflected on the Materials account,
cost of materials stored is reflected on the Purchasing account.
This method is suitable for enterprises with various categories of
materials, low value and often used.
The advantage of the periodic materials method is simple and reduces
greatly the amount of daily accounting work. However, the accuracy of
materials used during the period is based on how well manager performs their
job in the warehouse and at the counter.
Account used:
-Purchase account: 611.
Account No 611 is used in order to reflect cost of materials stored and
used during the period.
Structure:
Purchase account – 611

Debit Credit
- Transfer cost of beginning
materials
- Cost of materials stored in the
- Transfer cost of ending materials
- Transfer cost of materials used
in the period
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Academy of Finance Graduation Thesis
period - Cost of materials returned to
suppliers
Account No 611 has no ending balance and can be divided into two
following sub-account.
+Account No 6111: Purchase materials
+Account No 6112: Purchase goods
-Materials account - 152 and Goods in transit account - 151
Structure:
Purchase account – 611 (Goods in transit account – 151)
Debit Credit
- Cost of beginning materials
(beginning materials in transit
- Transfer cost of beginning
materials (beginning materials in
transit)
- Balance: Cost of ending
materials (ending materials in
transit)
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Academy of Finance Graduation Thesis
Accounting method:
611
133
111,112,331,
141…
138,331…
3333
154
411
128.222
621,641,642
331,111,112
133
VAT
241
154
128,222
152 152
711
621,642,641
(15)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)

(10)
(11)
(12)
(13)
(14)
(1)
Diagram 5: Accounting method according to periodic inventory system
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Academy of Finance Graduation Thesis
(1) Transfer cost of ending materials
(2) Purchase materials from domestic suppliers
(3) Purchase materials from foreign suppliers
(4) Receive materials provided by the enterprise itself
(5) Receive materials from Joint-venture partners’ contribution
(6) Receive materials from the enterprise’s joint-venture contribution
(7) Receive materials by presenting
(8) Move unused materials to warehouse
(9) Use materials for production or administration
(10) Receive trade discount from suppliers
(11) Return materials purchased or materials rebates from suppliers
(12) Use materials for construction or extra-ordinary repair of fixed assets
(13) Use materials for self-production
(14) Use materials for contribution.
(15) Transfer the beginning balance
1.2.2.2.Perpetual inventory system:
When perpetual inventory system is used, although the materials on
hand are available in the materials account at all times, a physical stock-take
is still taken at least once a year to verify the balance recorded in the
accounting record. In this way, any discrepancies from loss, theft or

deterioration can be accounted for.
Applying this method business can follow continuously all movements
of materials on the accounting books, determine cost of materials stored, used
or remained at any time.
This method is suitable for enterprises have materials with high value.
Account used:
-Materials account: 152
Account No 152 is used in order to control remaining cost and
movement of materials according to real price.
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Academy of Finance Graduation Thesis
Structure:
Materials account – 152
Debit Credit
- Cost of materials stored by
providing from outside, inside,
presentation or other sources
- Cost of redundant materials
detected from stocktaking.
- Cost of materials used for
production, sale, etc..
- Cost of materials rebated,
discount or return to suppliers.
- Cost of deficient materials
detected from stocktaking
- Balance: Cost of remaining
materials at the end of period.
Account No 152 can be divided into following sub-accounts follow to
each type of materials depending on managing requirement of enterprise.

According to materials’ use, they can be divided into five following sub-
accounts:
+Account No 1521: Raw materials
+Account No 15222: Sub-materials
+Account No 15223: Fuels
+Account No 15224: Spare parts
+Account No 15228: Other materials
-Materials in transit account: 151
Account No 151 is used in order to reflect cost of materials that
business bought or accepted to pay for suppliers but not yet stored at the end
of period.
Structure:
Materials in transit account – 151
Debit Credit
- Cost of materials in transit - Cost of materials in transit were
stored or transferred to other
sections used.
- Balance: Cost of materials in
transit have not stored at the end
of period.
Besides, synthetic accounting for materials uses some other accounts
involved such as: 111, 112, 133, 141, 331, 515…
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Accounting method:
Accounting method for transactions related to materials according to
perpetual inventory system is presented in the diagram 6 (when business
applies the VAT deduction method)
152133111,112,331,

141…
VAT
138,331…
3333
154
411
128.222
621,641,642
331
133
241
154
128,222
VAT
151
157,632
711
621,627,642
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)

(13)
(14)
Diagram 6: Accounting method according to perpetual inventory system
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Academy of Finance Graduation Thesis
(1) Purchase materials from domestic suppliers.
(2) Purchase materials from foreign suppliers.
(3) Receive materials produced by the enterprise itself.
(4) Receive materials from joint-venture partners’ contribution.
(5) Receive materials from the enterprise’s joint-venture contribution
(6) Receive materials in transit last month.
(7) Receive materials from presentation
(8) Move unused materials to warehouse.
(9) Use materials for production or administration.
(10)Receive trade discount, purchase returns or purchase rebates from
suppliers.
(11) Use materials for construction or extra-ordinary repair of fixed assets.
(12) Use materials for self-production.
(13) Use materials for contribution.
(14) Use materials for consignment or directly consume.
1.2.3.Accounting for stock taking and revaluating of materials:
Inventory management has been researched and developed for many
years, and stocktaking management is an important part of inventory
management. Many companies consider stocktaking an aid to stock
management, allowing forecasting, planning and budgeting to be as easy as
possible.
Enterprises often inventory materials to define the remains of each
material item in warehouse; then collate with data on accounting books,
specify the differences and the treatments.

Depending on enterprise’s condition and managing requirement,
enterprise can take stock of the whole of materials, parts of materials or by
choosing samples. Stock-taking can be implemented at the end of months,
quarters, years or at anytime according to management requirement and
applied in both periodic and perpetual inventory systems of enterprise.
However with enterprise applying periodic materials system, inventory
at the end of a period is obligatory. These enterprises usually have a lot of
types of material; therefore, inventory must be planned carefully and
implemented by many involved sections in company to have an exact result
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Academy of Finance Graduation Thesis
on amount of materials at the end of period.
Revaluation is carried out in some following cases:
-Being required by the Government.
-Ownership being transferred.
-Other cases such as materials being contributed to joint-venture or
corporate company, the price of materials having changed greatly…
Journal entries for the stocktaking and revaluation materials are
presented in the diagram 7:
152
3381
1381
Surplus materials
pending resolutions
Deficient materials
pending resolutions
412
412
Revalued cost >

the book value
Revalued cost <
book value
When enterprise has solutions:
Debit Acc 111, 112, 334, 3388: personals’ compensation
Debit Acc 632: enterprise compensates for the damage
Credit Acc 3381: cost of deficient materials is pending.
Surplus materials are defined belong to enterprise:
Debit Acc 152: cost of surplus materials belong to enterprise
Credit Acc 711: cost of surplus materials belong to enterprise
After definition, if surplus materials are not belong to enterprise and
must return to other business, accountant records singly to Acc 002; if
enterprise buy back these materials, they must report to suppliers and
implement these entries:
Debit Acc 152: cost of surplus materials buy back
Credit Acc 338: cost of surplus materials buy back
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Diagram 7: Taking stock of materials and revaluation of materials
Academy of Finance Graduation Thesis
1.2.4.Provision for decline in materials:
At the end of the period, if the net realizable value of materials is less
than the historical cost value of materials, enterprises must provide against
this decline. The materials provision is used to compensate for the decline due
to the reduction in the value of materials as well as to give a true picture about
the company assets on the financial statement at the late year. Provision for
decline in materials is the difference between the historical cost of materials
and the net realizable value of materials. Provision for decline in materials is
defined for each materials item, then synthesizes them to provision for
materials.

Provision level
for decline in
each material
item
=
Amount of
materials declined
at the late year
X
Historical cost
of materials
-
Net realizable value
of materials at the
end of year
Total amount
of provision
for decline in
materials
=
Σ Provision level for decline in each material item
Account used:
Provision for decline in inventory Account: 159
This account is to record the setting up and using the provision for
decline in inventory.
Hoang Thi Lan Chi Class: K42/21.06
Account No 159 – Provision for decline in materials
- Materials provision
returned
- Materials provision

counted towards the
enterprises’ cost of
goods sold
- Balance: Current
materials provision
22
Academy of Finance Graduation Thesis
Hoang Thi Lan Chi Class: K42/21.06
23
Academy of Finance Graduation Thesis
Accounting for provision for decline in materials:
159632 632
Materials provision
carried back
Materials provision
recognized
1.2.5.Forms of accounting books:
According to the Decision 15/QD-BTC on the 20
th
of March 2006 of
the Ministry of Finance, enterprises apply one of the five forms of accounting
books below:
-General journal
-Ledger – Journal
-General journal voucher
-Voucher – Journal
-Accounting by software (is presented in the next section 1.2.6)
Each form of accounting books follows concrete regulations on
quantity, structure, form of books, rotation, recording method and relationship
between accounting books.

Enterprises must refer to the scale, production and business characters,
managing requirement, accountant ability and the conditions of enterprise to
choose a suitable form of accounting books.
1.2.5.1.General Journal accounting form:
The main feature of the general journal accounting form is all
transactions must be recorded in journals, focusing on general journals,
following the time and content of transactions. Then, the data in journals is
transferred to ledgers according to transactions.
The general journal accounting form includes books below:
-General journal, Special journal;
-Ledger;
Hoang Thi Lan Chi Class: K42/21.06
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Diagram 8: Provision for decline in materials
Academy of Finance Graduation Thesis
-Detail accounting books and cards.
1.2.5.2.Ledger - Journal accounting form:
The main feature of the Ledger - Journal accounting form is all
transactions must be recorded in Ledger – Journal according to the time and
content of transactions. Due to list of vouchers, accountant synthesizes them
to record to Ledger – Journal.
The Ledger - Journal accounting form includes books below:
-Ledger - Journal;
-Detail accounting books and cards.
1.2.5.3.General journal voucher accounting form:
The main feature of the general journal voucher accounting form: due
to “general journal voucher” or list of vouchers, accountant synthesizes them
to record to synthetic accounting book according to:
-Time on the general journal voucher registered book;
-Content on the ledgers.

The general journal voucher accounting form includes books below:
-General journal voucher;
-General journal voucher registered book;
-Ledgers;
-Detail accounting books and cards.
1.2.5.4.Voucher – Journal accounting books:
The main feature of the voucher journal accounting form:
-Collect and systematize transactions according to credit accounts
combine with analyzing those transactions according to debit corresponding
accounts.
-Combine recording transactions follow to the time with systematizing
those transactions follow to the economic content (account).
-Co-ordinate synthetic and detail accounting in the same accounting
book and the same recording process.
-Use forms printed the corresponding accounts, norms of financial,
economic management and financial statements.
The Voucher - Journal accounting form includes books below:
-Voucher - Journal;
-Lists;
Hoang Thi Lan Chi Class: K42/21.06
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