Account 335 – Accrued expenses payable

1. Rules for accounting

a) This account is used to record payables to goods or services received from the seller or provided for the seller during a reporting period, but payments of such goods or services have not been made due to lack of invoices or documents on accounting, which are recorded to operating expenses of the reporting period.

This account is also recorded payables to employees during a period, such as annual leave salary and operating expenses during the reporting period which are deducted in advance, for example:

- Expenses in seasonal cessation of production period, in case production cessation plan can be set up. The expenses payables in cessation period shall be calculated and recorded to operating expenses during the period.

- Accruing interest expenses incurred from loans payable in case of deferred loans interests, deferred bonds interests (at maturity of bonds).

- Accruing expenses to provisionally calculate cost of property finished products sold.

b) It is required to differentiate accrued expenses and provisions recorded to the account 352 and report in the financial statement in conformity with each item, in particular:

- Provisions are current liabilities without specific payment schedule; accrued expenses are current liabilities with specific payment schedule;

- Provisions are amounts payable which are not identified (i.e. provisions for warranty on goods or building works); accrued expenses are amounts payable which is identified.

- In the financial statement, provisions are separated with trade payables and other payables but accrued expenses are a part of trade payables or other payables.

- The recording of accrued expenses to operating expenses during a period shall be carried out in conformity with revenues and expenses incurring during a period. The payables not incurring because the goods or services are not received which are recorded to operating expenses in advance in this period to avoid suddenness in the operating expenses shall be recorded to provisions.

c) The accrued amounts not recorded to account 335 but to provisions account, such as:

- Expenses incurred from major repairs of specific tangible fixed assets due to cyclical large production, enterprises are allowed to accrue repair expenses for planning-year or several years later;

- Provisions for warranty on goods, building works or restructure;

- Other provisions (refer to account 352).

d) Accruement and recording of expenses which have not yet incurred into operating expenses during a period, must be calculated strictly (preparing an estimate for expenses approved by the competent agency) and have reasonable and reliable evidences on expenses which have to accrue in the period, to ensure amount of expenses payable recorded in this account in conformity with actual expenses incurred. Strictly forbid accruement in expenses contents which are not allowed to be charged to operating expenses.

dd) In principle, accrued expenses payable must be settled with actual expenses incurred. The difference between accruement and actual expenses must be reverted.

e) The accruement of expenses to provisionally determine the costs of property goods shall also meet following rules:

- The enterprise may only accrue expenses stated in the investment estimates without sufficient documents for acceptance to the costs of goods sold and reasons and contents of accruement for every work item must be presented.

- The enterprise may only accrue expenses to provisionally determine the costs of goods sold for completed property held for sale, which is sold during a period and meet recognition criteria of revenues.

- The accrued expenses which are temporarily determined and actual expenses incurred which are recorded to the costs of goods sold must be equivalent to the quota on cost according to total estimated expenses for sold property held for sale (according to the area).

g) The capitalized interest expenses shall be determined according to VAS ―Borrowings costs‖. The interest expenses shall be capitalized in following cases:

- Regarding loans serving the construction of fixed assets, investment properties, and the interests shall be capitalized even if the construction duration is under 12 months;

- The contract may not capitalize loan interests to serve the construction of building works or assets for their clients, including separate loans, for example: A contractor applies for loans for construction of building works for their clients; a shipbuilder builds ships to ship-owner, etc.

h) Accruement expenses which are unused until the end of the fiscal year must be presented in the financial statement.

2. Structure and contents of account 335 – Accrued expenses

Debit:

- Actually incurred payments charged to accrued expenses;

- Positive difference between accrued expenses and actual expenses shall be recorded as a decrease in expenses.

Credit: Accrued expenses which are recorded to operating expenses.

Credit balance: Accrued expenses charged to operating expenses, but have not yet incurred actually.

3. Method of accounting for several major transactions

a) When accruing into expenses incurred from annual leave salary of workers, the following accounts shall be recorded as follows:

Dr 622 - Direct labor costs

Cr 335 – Accrued expenses.

b) When calculating actual annual leave salaries payable, if the accrued amount is greater than the actual expenses incurred, the following accounts shall be recorded as follows:

Dr 335 – Accrued expenses (accrued amount)

Cr 622- - Direct labor costs.

c) When accruing expenses incurred from repair of fixed assets without acceptance during a period to operating expenses and issuing invoices, the following accounts shall be recorded as follows:

Dr 241, 623, 627, 641, 642.

Cr 335 – Accrued expenses.

d) When the repair of fixed assets is completed and put into operation, if the accrued amount is greater than the actual expense incurred, the following accounts shall be recorded as follows:

Dr 335 – Accrued expenses (accrued amount is greater than expense incurred)

Cr 241, 623, 627, 641, 642.

dd) When accruing estimated expenses payable during seasonal or planned production cessation period into operating expenses, the following accounts shall be recorded as follows:

Dr 623 – Costs of construction machinery

Dr 627 – Factory overheads

Cr 335 – Accrued expenses.

e) Actual expenses incurring from accrued expenses, the following accounts shall be recorded as follows:

Dr 623, 627 (if the expense incurred is greater than the accrued amount)

Dr 335 – Accrued expenses (accrued amount)

Dr 133 – Deductible VAT (if any)

Cr 111, 112, 152, 153, 331, 334

Cr 623, 627 (if the expense incurred is smaller than the accrued amount)

g) When determining deferred interest payable in period at end of period, the following accounts shall be recorded as follows:

Dr 635 – Financial expenses (loans interests for business capital)

Dr 627, 241 (capitalized interests)

Cr 335 – Accrued expenses.

h) In case the enterprise issues bonds at par value, if interests are deferred (at maturity of bonds), periodically, the enterprise must accrue loan interests expenses payable in period into operating expenses, or capitalization of interests, and the following accounts shall be recorded as follows:

Dr 627, 241 (capitalized interests)

Dr 635 – Financial expenses (if the interest is included in financial expenses)

Cr 335 – Accrued expenses (bond interest payables in the period).

At the maturity of the bond, when the enterprise pays principal and interest of the bond to the bondholder, the following accounts shall be recorded as follows:

Dr 335 - Accrued expenses (total bond interests)

Dr 34311 – Bond par value

Cr 111, 112, etc.

i) In case the enterprise issues bonds at discount, if interests are deferred (at maturity of bonds), periodically, enterprises must accrue loan interests expenses payable in period into operating expenses or capitalization of interests, and the following accounts shall be recorded as follows:

Dr 627, 241 (capitalized interests)

Dr 635 – Financial expenses (if the interest is included in financial expenses)

Cr 335 – Accrued expenses (bond interest payables in the period).

Cr 34312 – Bond discounts (bond discount allocated in period).

At the maturity of the bond, when the enterprise pays principal and interest of the bond to the bondholder, the following accounts shall be recorded as follows:

Dr 335 - Accrued expenses (total bond interests)

Dr 34311 – Bond par value

Cr 111, 112, etc.

k) In case the enterprise issues bonds at premium, if interests are deferred (at maturity of bonds), periodically, enterprises must accrue loan interests expenses payable in period into operating expenses or capitalization of interests, and the following accounts shall be recorded as follows:

Dr 627, 241 (capitalized interests)

Dr 635 – Financial expenses (if the interest is included in financial expenses)

Cr 335 – Accrued expenses (bond interest payables in the period).

At the maturity of the bond, when the enterprise pays principal and interest of the bond to the bondholder, the following accounts shall be recorded as follows:

Dr 335 - Accrued expenses (total bond interests)

Dr 34311 – Bond par value

Cr 111, 112, etc.

l) Regarding wholly-state-owned enterprises converted into joint-stock companies:

- Regarding overdue loans given by JSC Bank for Foreign Trade of Vietnam and the Vietnam Development Bank because the enterprise suffers losses, has no state capital and close to insolvency, the equitized enterprise must apply for freezing, rescheduling or cancelling debts of bank interests as prescribed in regulations of law in force. When receiving the decision of cancellation of outstanding interests, the following accounts shall be recorded as follows:

Dr 335 – Accrued expenses (cancelled interests)

Cr 421 – Undistributed profit after tax (the loan interests recorded to expenses of previous periods which are cancelled)

Cr 635 - Financial expenses (the loan interests recorded to financial expenses in this period).

- If the period from maturity date for payment of share purchase made by investors to the date on which the enterprise receives Certificate of Business registration is longer than 3 months, the enterprise may determine interests paid to investors:

+ Interests payable shall be recorded as follows:

Dr 635 - Financial expenses

Cr 335 – Accrued expenses.

+ When paying to investors, the following accounts shall be recorded as follows:

Dr 335 – Accrued expenses.

Cr 111, 112.

m) Accounting for accrued expenses for provisional determination of costs of sold property held for sale.

- When accruing expenses for provisional determination of costs of sold property held for sale, the following accounts shall be recorded as follows:

Dr 632 – Costs of goods sold

Cr 335 – Accrued expenses.

- The expenses incurred from accepted construction with sufficient documents shall be recorded to expenses incurred from property construction as follows:

Dr 154 – Work in progress

Dr 133 – Deductible VAT

Cr, relevant.

- When there are sufficient documents proving that accrued expenses actually incurs, a decrease in accrued expenses and work in progress shall be recorded as follows:

Dr 335- – Accrued expenses.

Cr 154- – Work in progress.

- When all property projects are completed, a decrease in the remaining accrued expenses shall be recorded as follows:

Dr 335- – Accrued expenses.

Cr 154- – Work in progress.

Cr 632 – Costs of goods sold (positive difference between remaining accrued expenses and actual expenses incurred).

Source: Circular 200