Account 635 - Financial costs
1. Accounting Principles
This account is used to record financial operating cost including expenses or losses relating to financial investment activity, expenses of lending and borrowing, costs of capital contributed to joint venture, to associates, losses from short-term security transfer, expenses of security selling transaction; provision for business security decrease, provision for losses from investment in other units, losses incurred when selling foreign currency, losses from exchange rate...
b) Account 635 must be applied of detail accounting for each item of expenses. Not accounting on account 635 these types of expenses:
- Costs of manufacturing products, rendering services
- Selling expenses ;
- General administration expenses;
- Operating costs of real estate;
- Capital investment expenses;
- Expenses covered by other source of fund;
- Other financial expenses.
c) Cost of issuing bonds is gradually allocated in accordance with the bond maturity and is recorded in the financial cost if the bonds are issued for purposes of ordinary production, business.
d) Interests payable of the convertible bonds included in finance costs in the period are determined by the value of the principal at the beginning period of convertible bonds multiplied (x) with interest rates of similar bonds in market which are ineligible to be converted into shares or common loan interest rates in the market at the time of issue of convertible bonds (see the detailed provisions in guidance section of account 343 - Bonds issued).
dd) If the preference shares are classified as liabilities, such preference dividends are essential loan interest and must be recorded in the financial expenses.

2. Structure and contents of account 635 - Financial costs
Debit side :
- Interests expenses of loan, of credit purchases, of financial lease;
- Losses from selling foreign currency;
- Discounts for buyers;
- Losses from liquidating, transferring investments;
- Loss on exchange rates incurred in period; Losses on exchange rates revaluated at fiscal year-end of accounts derived from foreign currencies;
- Provision for decreases in business security price, provision for loss from investment in other units;
- Expenses of other financial investment activities.
Credit side :
- Return of provision for business security price decrease, provision for loss from investment in other units (difference between provision planned for this period and that of last year);
- Items recorded a decrease of financing costs;
- At end of account period, closing out total costs incurred in period to determine trading results.
Account 635 does not have ending balances.

3. Method of accounting for several major transactions
When incurring costs relating to selling security activity, lending capital, foreign currency sales, record:
Dr 635 - Financial costs
Cr 111, 112, 141,...
When selling business securities, liquidating and selling investment in subsidiary companies, joint venture or allied companies which incur losses, record :
Dr 111, 112,... (selling price calculated on the fair value of assets received)
Dr 635 - Financial costs( loss)
Cr 121, 221, 222, 228 ( net value).
When receiving back contributed capital from subsidiaries, associates of which fair value of assets subdivided in parts is smaller than value of contributed capital, record:
Dr 111, 112, 152, 156, 211, ... (fair value of assets divided)
Dr 635 - Financial costs( loss)
Cr 221,222.
In case enterprises sell investments in shares of other enterprises under the form of share swap, enterprises must determine the fair value of the shares received at the time of exchange. The difference ( if any) between the fair value of the shares received less than the book value of the shares exchanged shall be recorded a financial expense, record:
Dr 121, 221, 222, 228 (book value of the shares received)
635 - Financial expenses (the difference between the fair value of the shares received less than the book value of the shares)
Cr 121, 221, 222, 228 (fair value of shares exchanged).
Accounting for provision for decreases in business security price, provision for loss from investment in other units when financial statement is established ;
- In case provision in this period is bigger than that of last period, the difference shall be appropriated additionally, record:
Dr 635 - Financial costs
Cr 229 - Provision for asset losses (2291, 2292).
- In case provision in this period is smaller than that of last period, the difference shall be returned, record:
Dr 229 - Provision for asset losses (2291, 2292).
Cr 635 - Financial costs
Discounts for buyers of goods, services which result from settlement before deadline agreed in business contract, record:
Dr 635 - Financial costs
Cr 131, 111, 112,...
Costs directly related to the loan (other than loan payable), such as cost of the audit, verification and applications for borrowing capitals..., if they are included in finance costs:
- For loans under the form of bond issue, record :
Dr 635 - Financial costs
Cr 343 - Bonds issued (3431, 3432)
- For loans under the form of ordinary contract, agreement, record :
Dr 635 - Financial costs
Cr 111, 112
In case business must pay periodical loan interests, bond interests for lenders, record:
Dr 635 - Financial costs
Cr 111,112,...
In case business prepay loan interests, bond interests for lenders, record:
Dr 242- Prepaid expenses ( if interest is prepaid)
Cr 111,112,...
Periodically, when allocating loan interests, bond interests payable for each period to financial costs, record:
Dr 635 - Financial costs
Cr 242 - Prepaid expenses
In case interests payments are deferred:
- When periodical calculating interests payables for each period, if payables can be changed to financial costs, record:
Dr 635 - Financial costs
Cr 341 – Loans and finance lease liabilities (3411) (if the interest added to principal)
Cr 335 - Accrued expenses
- When borrowing period is expired, business pay back long-term principal and interests, record:
Dr 341 – Loans and finance lease liabilities (principal payables)
Dr 34311 - Face value of bonds
Dr 335 – Expenses payable ( if interest of previous periods)
Dr 635 - Financial costs (loan interests of maturity period)
Cr 111,112,...
In case business issue discount bond or premium bond to mobilize debts used for production and trade, periodical computing interest expenses to charge to costs of production and trade in period, record:
Dr 635 - Financial costs
Cr 111,112,... (if interest payments are made periodically)
Cr 242 - Prepaid expenses (cost of borrowing payable in the period)
Cr 335 – Expenses payable (Appropriation in advance debt expenses payables in period - if debt expenses are deferred).
- If issuing discount bonds, when periodical allocating bond discount in borrowing expenses, record:
Dr 635 - Financial costs
Cr 34312 - Bond discount (in period)
- If issuing premium bonds, when periodical allocating bond premium by recording or decrease in borrowing expenses, record:
Dr 3433 - Bond premium ( allocated in each period)
Cr 635 - Financial costs
Periodically, accountants record financial costs or capitalization for the interest of bonds payable calculated on interests of similar bonds without conversion rights or on common loan interest rates in the market and adjust the value of the principal of convertible bonds, record:
Dr 635 - Financial costs
Dr 241 - Construction in progress (if capitalized)
Cr 335 - Accrued expenses (interest of bonds payable in period calculated on nominal interest rate)
Cr 3432 - Convertible bonds (the difference between the bond interest recorded in financial expenses (or capitalized) and the interest of bond payable in the period under nominal interest rate).
In case business pay periodically interests from fixed assets financial lease, when the lessee receives payment invoices from the lessor, record:
Dr 635 - Financial costs (periodical lease interest payment)
Cr 111, 112 (if it is cash price)
Cr 341 – Loans and finance lease liabilities (3412) (if receiving debt)
When purchasing fixed assets under deferred payment, installment payment for production and trade activities, record:
Dr 152, 153, 156, 211, 213 (cash price)
Dr 133 – Deductible VAT ( if any)
Dr 242 - Prepaid expenses (Deferred payment interests is difference between total payments which minus purchase cash price and minus Deductible VAT (if any)
Cr 331 - Supplier payable (Total settlement price)
Periodically calculating interests from deferred or installment payment financial costs, record:
Dr 635 - Financial costs
Cr 242 - Prepaid expenses
Accounting for exchange rate losses
a) In case of purchasing goods, services, assets, payment of costs paid in foreign currencies, if real transactional rate is smaller than account book exchange rate of accounts 111, 112, record:
Dr 151, 152, 153, 156, 157, 211, 213, 217, 241, 623, 627, 641, 642, (actual exchange rates )
Dr 635 - Financial costs( loss on forex)
Cr 1112, 1122 (at the exchange rate in the accounting books)
b) When settling liabilities in foreign currencies, if accounting book exchange rate of liabilities is smaller than accounting book exchange rate of accounts 111, 112, record:
Dr 331, 336, 341,... (the exchange rate in the accounting books)
Dr 635 - Financial costs( loss on forex)
Cr 1112, 1122 (at the exchange rate on the accounting books)
c) When collecting amounts receivables in foreign currencies, if accounting book exchange rate of accounts receivables is bigger than actual transactional rate, record :
Cr 111 (1112), 112 (1122) (actual exchange rates )
Dr 635 - Financial costs( loss on forex)
Cr 331, 136, 138 (the exchange rate in the accounting books)
d) Losses arising from selling foreign currency of trading activities, record:
Dr 111 (1111), 112 (1121) (under selling exchange rates )
Dr 635 - Financial expenses (losses-if any))
Cr 111 (1112), 112 (1122) (at the exchange rate in the accounting books)
e) Transferring loss on forex due to reevaluation of accounts derived from foreign currencies to financial expense, record :
Dr 635 - Financial costs( loss on forex)
Cr 413 - exchange differences (4131).
g) Other cases of loss on forex shall comply with the provisions of the relevant accounts.
Enterprises which have not allocated the loss from exchange differences of stage prior to operation (recorded on account 242 - Prepaid expenses), must transfer the entire losses from exchange differences to financial costs to determine income statement in the period, record:
Dr 635 - Financial costs( loss on forex)
Cr 242 - Prepaid expenses
In case of reevaluation of currency gold arising loss (domestic gold price is lower than the book value), accountants record financial cost, record :
Dr 635 - Financial costs
Cr 1113,1123.
For the sale of government bonds under repurchase order (repo), when allocating the difference between the sale price and the repurchase price of government bonds of the repurchase order contract of government bonds into periodic costs under the time of the contract, record :
Dr 635 - Financial costs
Cr 171 – Resale of government bonds
In case state-owned enterprises before being transformed into joint stock companies must handle liabilities payable :
- For loans of state-owned commercial banks and the Vietnam Development Bank overdue but unable to be paid due to the loss of enterprises which have no state capital, enterprises must carry out procedures, application for rescheduling, freezing and remission of loans under the provisions of current law. When having decision on remission of loan, record:
Dr 335 - Expenses payable (interest from remitted loans)
Cr 421 - Undistributed post-tax profits (interest of loans recorded in expenses in previous terms remitted)
Cr 635 - financial expense (interest of loans recorded in expenses in current terms)
- For expenses for interest payable for investors buying shares: In case of the time from investors buy shares to the time the company is granted the Certificate of Business is over 3 months, enterprises are counted the borrowing interest paid for investors. In case if sums received from sale of shares to mobilize additional capital are under accounts of the units and used by the units, record:
Dr 635 - Financial costs
Cr 335 - Accrued expenses
In case preference shares are classified as liabilities payable, enterprises must pay dividends according to a certain percentage without depending on income statement in the period which is profit or loss, such preference dividends by nature is the loans and must be recorded in the financial cost, record :
Dr 635 - Financial costs
Cr 338 - Other payables
At end of period, closing out total financial cost incurred in period to account 911 ―Income Summary‖, record:
Dr 911 - ―Income Summary‖.
Cr 635 - Financial costs

Source: Circular 200, Article 90