{"id":1655,"date":"2006-03-11T16:34:56","date_gmt":"2006-03-11T12:34:56","guid":{"rendered":"http:\/\/geoeconomics.ge\/en\/?p=1655"},"modified":"2013-03-11T16:35:55","modified_gmt":"2013-03-11T12:35:55","slug":"accounting-of-avail-and-expenses-related-to-it","status":"publish","type":"post","link":"http:\/\/geoeconomics.ge\/en\/?p=1655","title":{"rendered":"Accounting of Avail and Expenses Related to it"},"content":{"rendered":"

FROM THE REDACTION <\/strong><\/p>\n

The term \u201cexpenses\u201d is used in relation to the assets conversion process with the purpose of determination of the cost value. It may be related to production of inventory holdings, enterprise management, formation of long term assets and other processes. According to International Accounting Standards 2, inventory holdings conversion costs include the costs that are directly related to output units\u2019 production.<\/p>\n

From financial point of view, the costs, which form cost value of products, are turned into expense upon selling of the stock.
\n Costs and expenses may be equal but more often their amounts are different. The difference is stipulated by:
\n \u00d8 The amount of the produced output does not correspond to the amount of the sold output;
\n \u00d8 Based on the accounting practice, some expenses do not relate to cost value of the output;
\n \u00d8 There takes place capitalization of costs.
\n The costs that will not be included in the cost value of inventory holdings and will be acknowledged in the period\u2019s expenses are as follows:
\n \u00d8 Loss sums related to raw stuff and materials, living labor and other supernormative production costs;
\n \u00d8 The costs related to storage of inventory holdings with the deduction of the costs that are necessary for the previous production stage;
\n \u00d8 Overhead administrative expenses that are not related to transportation of inventory holdings to the given location and putting them in appropriate condition;
\n \u00d8 Selling costs
\n The term \u201cexpenditure\u201d is used in relation to assets. Sometimes expenditure may have the same content as costs and expenses, but this does not give grounds for their identification. For instance, the sum paid for buying of an asset is expenditure and not a cost or an expense; payment for services related to repairing of enterprise\u2019s fixed assets is expenditure and, at the same time, cost, but not an expense.
\n It may represent an expense in proportion to complete or partial sale volume.
\n For accounting purposes, compared selling and avail expenses can be grouped as follows:
\n \u00d8 Cost value of the sold inventory holdings;
\n \u00d8 General and administrative expenses;
\n \u00d8 Supply expenses.
\n General and administrative expenses are not included in the cost value and are considered as the period\u2019s expenses.
\n The accounting practice applies two methods of accounting of the cost value of the sold inventory holdings. They are related to the methods of presentation of profit and loss accounts and are mentioned in the accounting under the corresponding name. These are accounting of expenses in accordance with economic content and accounting of expenses in accordance with functional assignment. In the given case it will be more exact to use costs accounting, since both methods, first of all, accentuate accounting of costs and thus provide for both establishing of expenses and determination of the cost value of the stock remained in the form of assets.
\n Establishing of output\u2019s cost value is a direct subject of managed accounting. In fiscal accounting, our objective is not consideration of details of cost value calculation, but understanding of the content of the two aforementioned methods. In accordance with the economic content, accounting of costs implies reckoning of the bought stock as costs upon buying, which is adjusted to actual sale level at the end of the year. Let us consider an example in order to more clearly understand this process:
\n Let us suppose that at the beginning of the year the goods stock of an enterprise makes up 40 000 GEL. During the accounting period the enterprise bought 165 000 GEL worth of goods for cash. According to chronological order, purchasing will be booked as follows:
\n Debit \u2013 1610 goods 165 000 Credit \u2013 1110 cashin the national currency 165 000
\n Debit \u2013 7210 sold\/purchasedGoods 165 000Credit \u2013 1110 cash in the national currency 165000
\n (in the left part of the table there given accounting transaction in accordance with functional assignment, while in the right one \u2013 in accordance with economic content).
\n During the accounting period goods with cost value of 175 000 GEL were sold. In accordance with the economic content of the costs, the given operation does not require a separate accounting transaction, since the goods are considered as sold ones upon purchasing. In accounting in accordance with functional assignment, going out of goods will be transacted
\n Debit \u2013 7200 cost value of the sold goods 175 000 Credit \u2013 1610 goods 175 000
\n During the accounting period 4 000 worth of goods were returned to the supplier
\n Debit \u2013 1110 cash in the national currency 4 000Credit \u2013 1610 goods 4 000
\n Debit \u2013 1110 cash in the national currency 4 000Credit \u2013 7220 returning of the purchased goods 4 000
\n As it can be seen from the data of functional assignment accounting, the cost value of the goods makes up 175 000 GEL. It should be acknowledged as expense. However, from the viewpoint of economic content, we have only 165 GEL fixed in the form of the cost value. At the end of the year the enterprise carries out inventory-taking and establishes that the stock of goods makes up 6 000 GEL. Based on the above-mentioned, it introduces a correction in the stock account
\n Debit \u2013 7290 correction of the goods\u2019 stock 14 000 Credit \u2013 1610 goods 14 000
\n Before transferring of the cost value to profit and loss accounts, it is necessary to specify its amount. It is especially necessary in accounting of costs taking into account the economic content. For this purpose, the turnover of its regulatory accounts should be transferred to the sold goods\u2019 account.
\n Debit \u2013 7220 returning of the purchased goods 4 000Credit \u2013 7210 sold\/purchasedgoods 4 000
\n At the end of the year the cost value of the sold goods is compared to the obtained avail on the profit and loss account.
\n Accounting of general and administrative expenses
\n Taking into account the economic content of costs, the accounting method and functional assignment, the difference in relation to costs\u2019 accounting will become more evident if a parallel is drawn in relation to accounting of general and administrative costs as well. Let us draw administrative staff\u2019s salaries as an example. It is an administrative expense in accordance with functional assignment, while, according to economic content \u2013 labor force hiring expense, which may be related to indirect salaries account. With the purpose of larger self-descriptiveness of the accounting data, in accounting of expenses by both methods it is advisable to single out the administrative expense and carry out its accounting taking into account the economic elements of expenses. Proceeding from this, in any case justified is accounting of general and administrative expenses in separate groups of accounts of the accounts\u2019 plan.
\n Example
\n Salary for administrative stuff has been added on 2000 GEL
\n Debit \u2013 7410 remuneration of labor 2000
\n Credit \u2013 3130 salaries to be paid 2000
\n Social taxes have been added on 620 GEL
\n Debit \u2013 7415 social transfers 620
\n Credit \u2013 social liabilities\u2019 accounts 620
\n Telephone charge has been paid 215 GEL
\n Debit \u2013 7430 communication expenses 215
\n Credit \u2013 funds account 215
\n Deterioration of office building has been added on 2700 GEL
\n Debit \u2013 7455 deterioration and amortization 2700
\n Credit \u2013 2230 deterioration of the building 2700
\n Dubious claims have been adjusted 7 300 GEL
\n Debit \u2013 7460 expenses related to dubious claims 7300
\n (acknowledgment of dubious claims as general expenses is suggested by Paragraph 18 of the International Accounting Standards that points out that if the avail is already shown and then the withdrawal of the dubious sum will take place, the sum liable to withdrawing will be acknowledged in the form of expense, and not as correction of the already shown avail sum)
\n Credit \u2013 1415 correction of dubious claims 7300
\n The tax on economic activities has been added on 350 GEL
\n Debit \u2013 7465 other tax expenses 350
\n (all tax expenses except for excise, VAT, social and profit taxes are shown on the given account)
\n Credit \u2013 3390 other tax liabilities 350
\n Court fee in relation to the suit has been paid 1700 GEL
\n Debit \u2013 7490 other general expenses 1700
\n Credit \u2013 the funds account 1700
\n General and administrative expenses are summed up for transferring to the profit and loss account
\n Debit \u2013 7400 general and administrative expenses 14885
\n Credit \u2013 7410 remuneration of labor 2000
\n Credit \u2013 7415 social transfers 620
\n Credit \u2013 7430 communication expenses 215
\n Credit \u2013 7455 deterioration and amortization 2700
\n Credit \u2013 7460 expenses related to dubious claims 7300
\n Credit \u2013 7465 other tax expenses 350
\n Credit \u2013 7490 other general expenses 1700
\n If the enterprise applies the accounting method in accordance with economic content of expenses, then, with the purpose of closing of accounts, the annual turnover can be transferred from the group of general and administrative accounts to the profit and loss account.
\n Accounting of supply related expenses
\n According to International Accounting Standards, expenses related to supply of goods and services are considered as expenses of the accounting period. The pattern of accounting of supply related expenses is identical to the one of accounting of general and administrative expenses. Supply related expenses are considered as the period\u2019s expenses and, like general and administrative expenses, are fully shown of the accounting period\u2019s profit and loss account.
\n Accounting of the avail obtained from selling
\n Accounting of the avail obtained from selling includes accounting of incomes obtained from selling by the enterprise of products and services. At first sight, from the viewpoint of economic content of expenses, the incomes received out of selling of long term assets should also be included in the avail obtained from selling, however, for accounting purposes they are considered as a separate subject.
\n In consideration of acknowledgment of the avail obtained from selling of goods and services, general conditions were pointed out that, in concrete case, require taking into account the country\u2019s legislation and transaction terms. That is why in taking a decision whether to acknowledge the avail or not, an accountant should be guided by the legislation and International Accounting Standard 18 (it is advisable to become acquainted with enclosure 18 to the International Accounting Standards).
\n Selling process is often accompanied by receiving of sums belonging to third persons. Since the avail includes economic profit, appraised in accordance with the real cost, that was received or is to be received on the enterprise\u2019s account, it should accounted separately from the sums that are to be handed over to third persons. It concerns both the sums that were received (are to be received) by the enterprise in the form of indirect taxes and the sums raised on behalf of a principal.
\n Other expenses and incomes of ordinary activities
\n Loan related costs.
\n Along with repayment of the funds taken as a loan, the borrower also pays the interest. At the same time, taking and returning of a loan may be accompanied by other costs. These costs, along with interest on the loan, make up loan related costs that are liable to acknowledgement as either direct or indirect expenses. In accordance with the basic method of loan related costs accounting, the costs related to use of loan should be acknowledged as expenses of the period during which they were incurred (International Accounting Standards 23, Article 7). In applying of the given method, the costs related to loans of any kind, period and purpose are acknowledged as the period\u2019s expenses.
\n Costs that are not directly acknowledged as direct expenses, in applying of an alternative way of accounting of loan related costs, are referred to asset\u2019s value. These costs, in the form of either deterioration expenses or cost value of the sold output, are compared to the received income.
\n Profits and losses obtained from dropping out of long term assets. Fixed assets may drop out as a result of disablement or selling. A disabled asset becomes written off in accordance with the book value, which is a part of the profit to be presumably obtained by the enterprise that it had no time to receive. When an asset is sold an enterprise gets profits or losses, which has an effect on the enterprise\u2019s financial results and this sum will be acknowledged in profit or loss accounts as either income or expense (International Accounting Standards 16, Paragraph 62).
\n At the end of the period all operational accounts are closed with a counter accounting transaction, and the result is fixed on the accounting period\u2019s profit and loss account.
\n Example
\n During the period the enterprise received 50000 GEL in the form of income from selling, the cost value from selling of stocks made up 35000 GEL, supply related expenses made up 3000 GEL, general and administrative costs \u2013 6000 GEL, the loss from non-operational activities \u2013 1000 GEL.
\n Operation closing accounting transaction
\n Debit \u2013 6100 operational income 50 000
\n Credit \u2013 5330 the accounting period\u2019s profit 50000
\n Debit \u2013 5330 the accounting period\u2019s profit 45000
\n Credit \u2013 7100 cost value of the sold output 35000
\n Credit \u2013 7300 supply related expenses 3000
\n Credit \u2013 7400 general and administrative expenses 6000
\n Credit \u2013 8200 non-operational expenses 1000
\n After this taxation of the received profit will take place <\/p>\n","protected":false},"excerpt":{"rendered":"

FROM THE REDACTION The term \u201cexpenses\u201d is used in relation to the assets conversion process with the purpose of determination<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[36],"tags":[],"yoast_head":"\nAccounting of Avail and Expenses Related to it - Geoeconomics<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/geoeconomics.ge\/en\/?p=1655\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Accounting of Avail and Expenses Related to it - Geoeconomics\" \/>\n<meta name=\"twitter:description\" content=\"FROM THE REDACTION The term \u201cexpenses\u201d is used in relation to the assets conversion process with the purpose of determination\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\">\n\t<meta name=\"twitter:data1\" content=\"8 minutes\">\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"http:\/\/geoeconomics.ge\/en\/#website\",\"url\":\"http:\/\/geoeconomics.ge\/en\/\",\"name\":\"Geoeconomics\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":\"http:\/\/geoeconomics.ge\/en\/?s={search_term_string}\",\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/geoeconomics.ge\/en\/?p=1655#webpage\",\"url\":\"https:\/\/geoeconomics.ge\/en\/?p=1655\",\"name\":\"Accounting of Avail and Expenses Related to it - Geoeconomics\",\"isPartOf\":{\"@id\":\"http:\/\/geoeconomics.ge\/en\/#website\"},\"datePublished\":\"2006-03-11T12:34:56+00:00\",\"dateModified\":\"2013-03-11T12:35:55+00:00\",\"author\":{\"@id\":\"http:\/\/geoeconomics.ge\/en\/#\/schema\/person\/c8498c0ae03a66c87b59761fbd19b04c\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/geoeconomics.ge\/en\/?p=1655\"]}]},{\"@type\":\"Person\",\"@id\":\"http:\/\/geoeconomics.ge\/en\/#\/schema\/person\/c8498c0ae03a66c87b59761fbd19b04c\",\"name\":\"Admin\",\"image\":{\"@type\":\"ImageObject\",\"@id\":\"http:\/\/geoeconomics.ge\/en\/#personlogo\",\"inLanguage\":\"en-US\",\"url\":\"http:\/\/2.gravatar.com\/avatar\/bf2d8703d729f003d8905b57fcab5078?s=96&d=mm&r=g\",\"caption\":\"Admin\"}}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","_links":{"self":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts\/1655"}],"collection":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1655"}],"version-history":[{"count":1,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts\/1655\/revisions"}],"predecessor-version":[{"id":1656,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts\/1655\/revisions\/1656"}],"wp:attachment":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1655"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}