Account 632 - Cost of goods sold

1. Accounting Principles

This account is used to record cost of goods, products, services, investment property, costs of production of construction products (for construction business which are sold during the period. Furthermore, this account is also used to record costs relating to business of investment property, such as: depreciation expenses, costs of production, costs of investment property operation under operating lease method (in case costs cure is not great), costs of transfer, liquidating investment property.
b) If the enterprise is the owner of real estate business investment, when not summarizing complete records, documents of expenses directly related to the real estate investment, construction, which have been incurred in turnover of sale of real estate, enterprise may advance a part of the cost to calculate cost price of goods sold. When the full set of records, documents is summarized or when real estate is totally completed, the enterprise must settle the costs advanced from the cost price of goods sold. The difference between the cost advanced higher than actual costs incurred is adjusted as decrease the cost price of goods sold of the settlement period. Advancing cost to calculate the price cost of real estate must comply with the following principles:
- Enterprise shall only advance from the cost price of goods sold for costs which have been in estimates of investment, construction, but have not had enough dossiers and documents for volume acceptance and shall explain in detail the reasons, contents of accrued expense for each work item during the period.
- Enterprise shall only advance cost to calculate the cost price of goods sold for real estate that is completed, determined to be sold in period and meet all revenue recording criteria.
- The accrued expenses temporarily calculated and actual expenses incurred recorded in cost price of goods sold corresponding to the norm of cost price calculated on total cost estimate of the real estate determined to be sold (determined by area).
c) The provision against devaluation of goods in stock is included in cost price of goods sold on the basis of the inventory and the difference between the net realizable value lower than the cost price of inventories. In determining the amount of discounted inventory that needs setting up provisions, accountants must eliminate the inventory volume that has been signed consumption contracts (net value that may be earned is not less than book value), but not yet delivered to the customer if there is certainty evidence that customers shall not abandon the contract performance.
d) When selling products, goods associated with equipment, spare parts, the value of equipment and spare parts is recorded in the cost price of goods sold .
dd) For the value of inventory lost, accountants must account immediately into the cost price of goods sold (after deducting compensation, if any).
e) For the cost of direct materials consumed in excess of normal level, labor costs, fixed manufacturing overhead costs not allocated to the value of products in stock, accountants must account into the cost price of goods sold (after deducting compensation, if any) even if products, goods have not been determined to be consumed.
g) The import tax, special excise tax, environmental protection tax calculated to the value of goods purchased when delivering goods for sale but such taxes are refunded shall be recorded a decrease of the cost price of goods sold.
h) Costs that are not considered as business income tax expense under the provisions of the tax Law but have full invoices and have accounted in accordance with accounting policy shall not be recorded a decrease in accounting costs but only adjusted in final business income tax declaration to increase the business income tax payable.

2. Structure and contents of account 632 - Cost of goods sold
In case business applies perpetual inventory method.
Debit side :
- For activities of production and trade, this account records:
Costs price of products, goods, services sold during period.
Costs of raw materials, materials, part of labor costs in excess of normal level, and fixed overhead cost unallocated and added to costs of goods during the period.
Waste, loss of inventory after excluding compensation received from responsible individuals.
Costs of building, of business‘ own made fixed assets in excess of normal level, which are not added to prime cost of firm‘s own made tangible fixed assets.
Provision for devaluation in inventory value (difference between allowances for decrease in inventory value planned for this year and redundancies of allowances planned for last year)
- For activities of invested business real estate, this account records:
Depreciation of investment real property for lease in the period;
Costs of upgrading, improving investment property which is not eligible to be charged to prime cost of investment property.
Costs incurred from operation of investment property lease in period;
Net book values of investment property liquidated in period;
Costs of selling, liquidating transactions of investment property, incurred in the period.
accrued expense for real estate determined to be sold
Credit side :
- Transferring cost price of products, goods, services sold during period to account 911 ―Income Summary‘‘
- Transferring total costs of investment property business incurred in period to determine trading results.
- Remission of provision for devaluation in inventory value at fiscal year-end (negative difference between provision planned for this year and that of last year)
- Sales returns to be stored
- Remission of accrued expense for real estate determined to be sold (the difference between the accrued expenses higher than actual costs incurred).
- Trade discounts, sales allowance received after purchasing consumed goods.
- The import tax, special excise tax, environmental protection tax calculated to the value of goods purchased when delivering goods for sale but such taxes are refunded.
Account 632 does not have ending balances.
In case business applying periodical inventory method.
For commercial business:
Debit side :
- Cost of goods sold in period
- Provision for decrease in inventory value (positive difference between provision planned for this year and that of last year).
Credit side :
- Transferring costs price of goods consigned for sales but not yet sold definitely.
- Remission of provision for inventory decrease at fiscal year-end (negative difference between provision for this year and that of last year);
- Closing out cost price of goods delivered to Dr 911 ―Income Summary.‖
For operating business.
Debit side :
- Costs price of beginning inventory of finished goods Inventory;
- Provision for inventory devaluation (positive difference between provision planned for this year and the provision planned for last year).
- Costs price of finished goods inventory have been stored and services have been implemented.
Credit side:
- Transferring costs price of ending inventory of finished goods to Dr 155 ―Finished goods‖;
- Remission of provision for inventory devaluation at fiscal year-end (negative difference between provision for this year and that of last year);
- Transferring costs price of finished goods delivered for sales, services determined to be sold in period to Dr 911 ―Income Summary‖.
Account 632 does not have ending balances.

3. Method of accounting for several major transactions
For business applying perpetual inventory method
When delivering products, goods for sales (including products used for equipment, spare parts associated products, goods) and implementing of services that have been determined to be sold in period, record:
Dr 632 - Cost of goods sold
Cr 154, 155, 156, 157,...
b) Recording costs items applied direct accounting to cost of goods sold:
- In case actual product capacity is lower than normal capacity, then accountants must calculate to determine fixed overhead cost, to allocate to processing cost for each unit of product at normal capacity. Unallocated part of fixed overhead cost (positive difference between total actual fixed overhead cost and fixed overhead cost changed to costs price) will be recorded to cost of goods sold in period, record:
Dr 632 - Cost of goods sold
Cr 154 - Work in process, or
Cr 627 – Manufacturing overhead cost
- Recording wastes, losses of inventory after excluding compensation received from responsible individual, record:
Dr 632 - Cost of goods sold
Cr 152, 153, 156, 138 (1381),...
- Recording costs of own made fixed assets in excess of normal cost level, which is not charged to prime cost of finished tangible fixed assets, record:
Dr 632 - Cost of goods sold
Cr 241 - Construction in progress
c) Appropriation accounting, or remission of provision for inventory devaluation
- In case provision for inventory devaluation in this period is bigger than that of last period, the difference will be appropriated additionally, record:
Dr 632 - Cost of goods sold
Cr 229 - Provision for asset losses (2294).
- In case provision for inventory devaluation in this period is smaller than that of last period, the difference will be returned, record:
Dr 229 - Provision for asset losses (2294).
Cr 632 - Cost of goods sold
d) Economic transactions relating to investment real property business:
- Periodic calculation and depreciation of investment property being operating leased, record :
Dr 632 - Cost of goods sold (detailed costs of investment real property business)
Cr 2147 - Accumulated depreciation of investment real property.
- When having incurred costs relating to investment real property which initially recorded, but is not eligible for record an increase in value of investment real property, record:
Dr 632 - Cost of goods sold (detailed costs of investment real property business) Dr 242 - Prepaid expenses (if it is deferred expenses)
Cr 1111, 112, 152, 153, 334,...
- Costs relating to operating lease of investment real property, record:
Dr 632 - Cost of goods sold (detailed costs of investment property business)
Cr 111, 112, 331, 334,...
- - Accounting for decrease in costs, depreciation value of investment real property (if any) resulting from liquidation, record:
Dr 214 - Accumulated depreciation (2147 - depreciation of investment real property)
Dr 632 - Cost of goods sold (Net book value of investment real property)
Cr 217 – Investment real property ( Cost)
- Incurred expenses of selling, liquidating investment real property, record:
Dr 632 - Cost of goods sold (detailed costs of investment property business)
Dr 133 – Deductible VAT ( if any)
Cr 111, 112, 331,...
dd) Accounting method of accrued expense to calculate the cost price of real estate determined to be sold to enterprises being investors :
- When advancing costs to temporarily calculate the cost price of sold real estate in the period, record:
Dr 632 - Cost of goods sold
Cr 335 - Accrued expenses
- The incurred actual capital investment costs that have enough documents and accepted to calculate the cost of capital investment of real estate, record :
Dr 154 – unfinished production, business cost
Dr 133 - Deductible VAT
Cr related accounts.
- When the accrued expense have enough records, documents proving to be actually occurred, accountants record a decrease of accrued expense and record a decrease of cost of work in progress, record :
Dr 335 - Accrued expenses
Cr 154 - Work in process.
- When the entire project of real estate completes, accountants must settle and record a decrease the balance of the remaining accrued expense, record :
Dr 335 - Accrued expenses
Cr 154 - Work in process.
Cr 632 - Cost price of goods sold (the difference between the remaining accrued expense higher than actual costs incurred).
e) If the product produced is transferred to fixed assets for use, record :
Dr 211 - Tangible fixed assets
Cr 154 - Work in process.
g) Sales returns to be stored, record :
Dr 155,156
Cr 632 - Cost of goods sold
h) In case of receiving trade discounts or sales allowances after purchasing goods, accountants must base on changes of the inventory for the allocation of trade discounts, sales allowances enjoyed based on unsold inventory, the delivered goods for the capital investment or goods determined to be consumed in the period:
Dr 111, 112, 331...
Cr 152, 153, 154, 155, 156 (value of trade discounts, sales allowances of unsold inventory in the period)
Cr 241 - Fundamental construction in progress (the value of trade discounts, sales allowances of inventory delivered for capital investment )
Cr 632 - cost price of goods sold (value of trade discounts, sales allowances of sold inventory in the period)
k) Transferring cost price of goods sold of products, goods, investment real property, services determined to be sold during period at Dr 911 ―Income summary‖, record:
Dr 911 - ―Income Summary‖.
Cr 632 - Cost of goods sold
For business applying periodic inventory method:
For commercial business:
- At end of period, determining and closing out costs price of goods delivered for sales and identified as being sold, record:
Dr 632 - Cost of goods sold
Cr 611 – Purchases.
- At end of period, transferring costs price of goods delivered for sales and identified as being sold, at Dr 911 - ―Income summary‖, record
Dr 911 - ―Income Summary‖.
Cr 632 - Cost of goods sold
b) For operating business :
- At beginning of period, transferring costs price of beginning inventory Finished goods Inventory to account 632 ―Cost of goods sold‖, record:
Dr 632 - Cost of goods sold
Cr 155 - Finished goods
- At beginning of period, closing out costs price of Finished goods Inventory services delivered for sales but not yet identified to be sold at account 632 ―Cost of goods sold‖, record:
Dr 632 - Cost of goods sold
Cr 157 - Goods consigned for sales.
- Costs price of finished goods Inventory stored, of accomplished services, shall be recorded a:
Dr 632 - Cost of goods sold
Cr 631 - Cost of product.
- At the end of period, transferring cost of ending inventory products at Dr 155 ―Finished goods Inventory‖, record:
Dr 155 - Finished goods
Cr 632 - Cost of goods sold
- At the end of period, determining values of Finished goods Inventory, of accomplished services consigned for sales but not yet identified to be sold, record:
Dr 157 - Goods consigned for sales
Cr 632 - Cost of goods sold
- At the end of period, closing out costs of Finished goods Inventory, of services identified to be sold during period at Dr 911 ―Income summary‖, record :
Dr 911 - ―Income Summary‖.
Cr 632 - Cost of goods sold

Source: Circular 200, Article 89