Accurately identifying the nature of an expense helps businesses accurately record the value of inventory, cost of goods sold, and profit for the accounting period.
What are the costs of purchasing goods?
The cost of goods sold includes expenses directly related to the process of purchasing and delivering goods to their current location and condition. In practice, it is necessary to distinguish between the purchase price of goods and the procurement costs to avoid double counting when accounting or allocating.
The purchase price is the amount a business pays to a supplier after adjusting for deductions. Procurement costs are additional expenses such as transportation, loading and unloading, insurance, and storage of goods during the purchasing process.
Original cost of goods purchased = Purchase price + Acquisition costs + Non-refundable taxes − Trade discounts − Purchase price reductions
What are the costs involved in purchasing goods?
An expense should only be included in the cost of goods purchased when it is directly related to the goods being purchased and is necessary to bring the goods to their current location and condition. Not all expenses incurred close to the time of purchase are considered purchase costs.
| Amount incurred | Way of looking at it | Points to check |
|---|---|---|
| Purchase price as per invoice | Cost of goods sold after deducting allowances | Compare the contract, order, and invoice. |
| Transporting goods from the point of purchase to the warehouse. | Usually included in the cost price or procurement cost. | This is different from the delivery fee charged to the customer. |
| Loading, insurance, and storage during the purchasing process. | It could be procurement costs if directly related. | It needs to be linked to the shipment and have supporting documents. |
| Import duties and taxes are non-refundable. | It can be included in the original price. | Not the same as deductible VAT. |
| Input VAT eligible for deduction | Not included in the original price. | Tracking at account 133 |
| Delivery costs to customers | Related to sales activities | Not recorded as a cost of bringing purchased goods into the warehouse. |
Which account should the cost of goods purchased be recorded in?
The account used depends on the buyer, the nature of the expenditure, and the accounting system applied by the business. For businesses applying Circular 200, goods are typically tracked in detail through accounts 1561 and 1562.
| Subject or expenditure | Frequently used account | Content of the report |
|---|---|---|
| Purchase price of goods | TK 1561 | The purchase value of goods |
| Cost of purchasing goods | TK 1562 | Procurement costs related to goods |
| Raw materials and supplies are received into inventory. | Account 152 | Original cost of raw materials and supplies |
| Tools and equipment are received into inventory. | Account 153 | Original price of tools and equipment |
| Input VAT is deductible. | Account 133 | Taxes are not added to the original price when eligible for deduction. |
| You must pay the supplier. | Account 331 | Payment obligations to the seller |
| Pay now | Account 111, 112 | Cash or bank deposits spent |
What is the difference between account 1561 and account 1562?
Account 1561 reflects the purchase price of goods, while Account 1562 reflects the procurement costs associated with the goods and the allocation of those costs. Separating the two accounts helps businesses accurately determine the value of inventory and the cost of goods sold.
| Criteria | Account 1561 – Purchase price of goods | Account 1562 – Costs of purchasing goods |
|---|---|---|
| Content of the report | The purchase value of goods | Transportation, loading and unloading, insurance, and other direct procurement costs. |
| How to track | Details by type, group, or item | By shipment or cost group for allocation |
| End-of-period processing | The remaining portion continues to be held in inventory. | Allocate funds to goods sold and remaining inventory according to a reasonable basis. |
| Risks if incorrect recording occurs. | Incorrect value of goods | Incorrect cost of goods sold, profit, and ending inventory value. |
How to account for the cost of goods purchased, depending on the specific case.
Before recording the transaction, the accountant needs to determine the type of asset purchased, the purpose of the expenditure, and the possibility of deducting VAT. These are the three factors that determine account recognition.
Goods purchased and received into inventory, but not yet paid for.
Debit account 1561: Purchase price of goods
Debit Account 133: VAT is deductible, if the conditions are met.
Account 331 exists: Total amount payable to the seller
Transportation and loading/unloading costs are incurred to bring the goods to the warehouse.
Debit account 1562: Cost of purchasing goods
Debit Account 133: VAT is deductible, if the conditions are met.
There are accounts 111, 112, or 331: Total amount payable or due
Purchase raw materials and store them in the warehouse.
Debit Account 152: Cost of raw materials
Debit Account 133: VAT is deductible, if the conditions are met.
There are accounts 111, 112, or 331.
Purchase supplies for immediate use, no warehousing required.
Purchases are recorded in expense accounts or cost aggregation objects appropriate to their intended use, such as direct material costs, manufacturing overhead, or administrative expenses.
Shipping costs for goods sold to customers.
Delivery charges incurred after the purchase are fundamentally different from charges for bringing purchased goods to the warehouse. Businesses need to categorize them based on economic purpose and delivery terms, not just the service name on the invoice.
How to allocate purchasing costs effectively.
Procurement costs should be allocated according to criteria that are reasonably related to the causes of the costs and applied consistently. There is no single criterion that applies to all shipments.
Acquisition cost allocated to object A = Total acquisition cost to be allocated × Criterion of A / Total criteria of all objects
| Criteria | Suitable when | Risks to avoid |
|---|---|---|
| Value of goods purchased | Costs tend to be proportional to the value of each item. | High-priced but lightweight goods may incur excessive shipping costs. |
| Quantity | The units of goods are relatively uniform. | Not suitable if there is a large difference in size or weight. |
| Weight | Shipping costs are calculated primarily by weight. | Reliable weight data is needed. |
| Volume | Bulky items and shipping costs depend on the space they occupy. | The units of measurement must be standardized. |
Allocation of end-of-period procurement costs
The cost of goods sold related to the purchase of goods is included in the cost of goods sold. The portion related to remaining inventory continues to be included in the inventory value.
Acquisition costs allocated to goods sold = Acquisition costs to be allocated × Item of goods sold / Total item of goods sold and ending inventory
For example, allocating the cost of goods sold to multiple items.
The example below illustrates how allocation is done based on the value of goods purchased. Businesses should only use this criterion when it reasonably reflects the relationship between incurred costs and individual items.
- Step 1: Determine the total allocation criteria.Total value of goods purchased = 200 + 300 = 500 million VND.
- Step 2: Allocate to item A25 × 200 / 500 = 10 million VND.
- Step 3: Allocate to item B25 × 300 / 500 = 15 million VND.
- Step 4: Determine the original cost after allocation.Item A has an original cost of 210 million VND; item B has an original cost of 315 million VND.
Common errors in accounting and allocation
The most common mistake is classifying expenses by document name instead of economic purpose. This can distort inventory values, cost of goods sold, and profit margins.
| Error | Affect | How to handle it |
|---|---|---|
| Combine the purchase price with the acquisition cost. | There is a risk of duplication during distribution. | Clearly separate the purchase price and the amount of acquisition to be allocated. |
| Include all shipping costs in the cost of goods sold. | Omitting costs that should be included in the cost of goods purchased. | Determine the origin, destination, and purpose of the transportation. |
| Add the deductible VAT to the cost price. | This increases the incorrect value of inventory. | Check the deduction conditions and track them in account 133. |
| Not allocated to ending inventory. | Making errors in cost of goods sold and profit for the period. | Allocation between goods sold and remaining inventory. |
| Use one criterion for all types of expenses. | The allocated costs do not reflect the cause of their occurrence. | Choose specific criteria based on the nature of the expenditure. |
Purchasing cost control checklist
Businesses should thoroughly check all supporting documents, the purpose of the expenditure, and the allocation criteria before recording it in the books. The checklist below helps reduce the risk of missing documents or misclassification.
To reduce discrepancies between purchase documents, receipts, and payment requests, businesses should standardize them. purchasing process, clearly defining responsibilities purchasing accountant and compare thoroughly. input invoices. At the management level, businesses can refer to additional guidelines. Classifying and managing business expenses.
Connect accounting with the documentation and payment process.
Accurate accounting depends on the quality of the input data. Businesses need to connect purchase orders, receipts, input invoices, shipping documents, and payment requests instead of processing each document separately.
Standardizing invoice data helps accountants verify supplier information, value, tax, and related documents before recording. After the reconciliation step, the business can organize... payment request process according to budget and approval authority.
Frequently Asked Questions about Purchase Costs
The questions below focus on accounting accounts, transportation costs, VAT, and allocation criteria.
Which account should the cost of goods purchased be recorded in?
For businesses applying Circular 200, the purchase price of goods is usually reflected in account 1561, while the cost of purchasing goods may be accumulated in account 1562. For raw materials or tools and equipment, the commonly used accounts are account 152 or account 153.
Where are shipping costs associated with purchased goods accounted for?
Direct shipping costs to bring purchased goods to their current location and condition are typically included in the cost of goods sold or aggregated into the acquisition costs. Delivery charges to customers should be categorized according to the sales activity.
Is input VAT included in the cost of goods purchased?
Input VAT that is eligible for deduction is usually tracked in account 133 and is not included in the cost of goods sold. The portion of VAT that is not deductible needs to be handled according to the nature of the asset or related expense.
How are the costs of purchasing ending inventory handled?
The portion of procurement costs related to remaining inventory is retained in the inventory value. The portion related to goods sold is allocated to the cost of goods sold according to a reasonable basis.
Should allocation be based on value, quantity, or weight?
Businesses should choose the criterion that best reflects the cause of the cost. A fair value is appropriate when the cost is related to the value of the goods; weight or volume is often more appropriate for shipping costs.
