Chapter 5:

Accounting for Liabilities

MAc. Phuong Dung Le
FINANCIAL ACCOUNTING 1

CHAPTER
1:
• OVERIEW OF FA1
CHAPTER
2:
• CASH AND RECEIVABLES
CHAPTER
3:
• INVENTORY
CHAPTER
4:
• LONG-TERM ASSETS
CHAPTER
5:
• LIABILTIES
CHAPTER
6:
• EQUITY
CHAPTER
7:
• INCOME STATEMENT
2
Learning objectives

• Definition and Classification

1.

• Source Documents
2.

• Account and rules

3.

• Practice several major transactions

4.

• Disclosure
5.

3
Key term

1. Special consumption tax 1. Trade union fees

2. Import and export tax 2. Social insurance
3. Corporate income tax 3. Health insurance
4. Personal income tax 4. Unemployment insurance
5. Payables to staff 5. Bonus and welfare fund
6. Internal payables 6. Provisions payable
7. Borrowings/loan

4
5
 1.1 Definition

Asset

A present obligation of the entity to transfer an

Liability
economic resource as a result of past events.

Equity Exp: trade payable,

Staff payable,
Income amounts owed to a bank,
a bank overdraft,
Expenses
amounts owed to tax…

6
 1.1 Definition

The
Because of a company . . . For future
past event . . . has a sacrifices
present
obligation

Past Present Future

7
9-7
 1.2 Classification

Current Long-Term
Liabilities Liabilities

Expected to be Expected not to be

paid within one paid within one
year or the year or the
company’s company’s
operating cycle, operating cycle,
whichever is whichever is
longer. longer.
8
 1.2 Uncertainty in Liabilities

Uncertainty in
Whom to Pay

Uncertainty in
When to Pay

Uncertainty in How
Much to Pay
9
1.2 Classification
Trade Payable - 331

Taxes payable - 333

Staff payable – 334

Accrued payable – 335

Internal payable – 336

Unearned revenue – 3387

Other payable – 338……

10
2. Accounting Documents

Contract VAT invoice

Delivery
Debit note
Note

Money
transiting
certificate

11
 3. Accounts using and rules

Debit 33X Credit

xxx Beginning balance

Total debit Total Credit

xxx Ending balance

12
4. Practice several major transactions
4.1 Accounting for Trade Payable (331)

331 – Trade payable

15*,611(133)
111,112,341 (1)
(2) 211,213,2411 (133)
(3)

711
242

2412,2413(133)
515
627,641,642..(133)
NOT STORE

13
 4. Practice several major transactions
4.1 Accounting for Trade Payable (331)
When purchased materials and goods are returned or eligible for
sales rebates because they do not meet specification and
quality, they shall be deducted from trade payables and the
following accounts shall be recorded:
a. Purchased:

b. Returned:

14
 4. Practice several major transactions
4.1 Accounting for Trade Payable (331)
When receiving payment discounts on sale of materials or goods
due to prepayment and deducting trade payables, the following
accounts shall be recorded:
Dr 331 – Trade payables 3%
Cr 515 – Financial income.

In case liabilities paid to sellers (creditors) who were not found

out or they did not call loans, the debts shall be recorded as an
increase in enterprises’ income as follows:
Dr 331 – Trade payables
Cr 711 – Other income.

15
 4. Practice several major transactions
4.1 Accounting for Trade Payable (331)
Exp1:
1. On May 1, ABC company purchases 100 units goods from XYZ
Supplier for 30 each; VAT 10%, invoice date Jul 1, with no discount
terms.
2. On May 5, ABC Pay Cash for the debt on May 1.
3. On May 18, ABC company purchases 200kg materials for direct
using in factory without to be stored, The buying price for 20 each,
VAT 10%, unpaid supplier N with the credit terms of 2/10 net 30.
4. On May 25, ABC pay Cash for purchasing transactions on May 18.

16
 4. Practice several major transactions
4.1 Accounting for Trade Payable (331)
Exp1:

17
 4. Practice several major transactions
4.1 Accounting for Trade Payable (331)
Exp2: Lamplight Plus sells lamps to consumers. The company contracts with a
supplier who provides them with lamp fixtures. There is an agreement that Lamplight
Plus is not required to provide cash payment immediately and instead will provide
payment within thirty days of the invoice date.
Additional information:
1. Lamplight purchases thirty light fixtures for $20 each on August 1, invoice date
August 1, with no discount terms, VAT 10%
2. Lamplight returns ten light fixtures (receiving a credit amount for the total
purchase price per fixture of $20 each) on August 3.
3. Lamplight purchases an additional fifteen light fixtures for $15 each on August 19,
invoice date August 19, with the credit terms of 3/10 net 30.
4. August 22, Lamplight full pays its on August 19.
Require:
1- Identify the source documents and record the transaction arising above.
2- What amount does Lamplight Plus still owe to the supplier on August 30?
(assuming all debts are short-term)
18
4. Practice several major transactions
4.1 Accounting for Trade Payable (331)

Exp2:

19
 4. Practice several major transactions
4.2 Accounting for Taxes and other payables to the State (333)
This account is used to record relation between enterprises and State about
taxes, fees, charges and other payables, payment and outstanding payables to
State budget in the fiscal year.
333
Deductible VAT during a period;
- Taxes, fees, charges and other - Output VAT and VAT on import goods
amounts payable or paid amount to the payable;
government budget; - Taxes, fees, charges and other
- Taxes deducted from taxes payables; payables to the government budget;
- VAT of sales returns and sales
rebates.

Debit balance (if any) of Account 333 reflects Taxes, fees, charges and other
tax payments and other payments greater payables to the government budget;
than taxes and payables to State, or may
reflect the paid taxes eligible for exemption,
deduction or refund, but the refund has not
been made.

20
4.2 Accounting for Taxes and other payables to the State (333)
4.2.1. Accounting for output VAT (Account 33311)
VAT Output Input
payable = VAT - VAT
Case 1: Input VAT < Output VAT: (a<b):
133 33311
VAT
a a a b payable
b-a
Case 2: Input VAT > Output VAT: (a>b):
133 33311
Deductive
VAT - a b b b
refund of a- b
input VAT
Case 3: Input VAT = Output VAT
21
4.2 Accounting for Taxes and other payables to the State (333)
4.2.1. Accounting for output VAT (Account 33311)
VAT Output Input
payable = VAT - VAT
Case 1: Input VAT < Output VAT: (a<b):
133 33311
VAT
a a a b payable
b-a
Case 2: Input VAT > Output VAT: (a>b):
133 33311
Deductive
VAT - a b b b
refund of a- b
input VAT
Case 3: Input VAT = Output VAT
22
4.2 Accounting for Taxes and other payables to the State (333)
4.2.1. Accounting for output VAT (Account 33311)

a) Credit-invoice method:
When issuing a VAT invoice and paying VAT using credit-invoice
method, the income shall be recorded according to VAT-exclusive
prices (VAT payable shall be recorded separately at the issuing time)
as follows:
Dr 111, 112, 131 (total payment)
Cr 511, 515, 711 (VAT-exclusive prices)
Cr 3331 - VAT payable (33311).

23
4.2 Accounting for Taxes and other payables to the State (333)
4.2.1. Accounting for output VAT (Account 33311)
b) Subtraction method:
One of two methods bellow shall be chosen:
- Method 1: VAT payable is recorded separately when issuing invoices in
accordance with above Point a;
- Method 2: Recording income including VAT payable using subtraction, when
determining VAT payable periodically, a decrease in income shall be
recorded:
Dr 511, 515, 711
Cr 3331 - VAT payable (33311).
c) When paying VAT to the government budget, the following accounts
shall be recorded as follows:
Dr 3331 - VAT payable 18-10=8
Cr 111, 112.
24
4. Practice several major transactions
4.3 Accounting for Salaries Payable

334 622,627,641,642
111,112

335

141, 138, 3335

338

512,3331 3531

25
Notes about: Social insurance; health insurance; unemployment insurance
and trade union fees.

Items Enterprises Staff

Trade union fees 2%
Social insurance 17.5% 8%
Health insurance 3% 1.5%
Unemployment 1% 1%
insurance
Total 23.5% 10.5%
Recording Reflect in expense Deducing from salaries and
accounts income of staff

26
 4. Practice several major transactions
4.3 Accounting for Salaries payable (334)
Exp1:
1. On April 25, The total payables to employees for 40.000.000 VND, including,
• Employees working at Selling department: 10.000.000 VND
• Employees working at Administrative department: 20.000.000 VND
• Employees making directly products at factory: 10.000.000 VND
2. Deducing from Salaries and income of staff some items: social insurance
(8%); Health insurance (1.5%) and unemployment insurance (1%).
3. Deducing from salaries and income of staff a personal income tax for
1.000.000VND.
4. Pay cash for payables to staff and other employees of the enterprise.
Require: Recording the journal entries

27
4. Practice several major transactions
4.4 Accounting for other payable (338)

3381
• Assets in surplus awaiting resolution

3382
• Trade union fees

3383
• Social insurance

3384
• Health insurance

3386
• Unemployment insurance

3387
• Unearned revenues

28
 4. Practice several major transactions
4.4 Accounting for other payable (338)
Exp 1:
1. On April 30. The company discovered a goods in surplus without
reasons and awaiting resolution for $200.
2. On Dec 31. Due to not finding the cause of the surplus goods, the
company decided to supplement its business capital.
3. On Jul 1. Receiving cash from rents for lease of fixed assets in advance
for 4 years with total $4000. VAT 10%. The company allocates prepaid
revenue for each year from this year.

Require: Recording the journal entries

29
4. Practice several major transactions
4.5 Accounting for loans and finance lease (341)

341
111,112 111; 112
1

331
635

338

30
 4. Practice several major transactions
4.5 Accounting for loans and finance lease (341)
Exp1:
On March 1, ABC Company borrowed from Dong A Bank for
200.000.000 VND in 2 years, the interests rate was fixed 6% during
borrowing period. The principle and interest will be paid at the end of
borrowing period.
Require: Calculate and record the journal entries

31
 4. Practice several major transactions
4.5 Accounting for loans and finance lease (341)
Exp2:
On March 1, ABC Company borrowed from Dong A Bank for
200.000.000 VND in 1 years to pay for debts to supplier, the
interests rate was fixed 6% during borrowing period. The principle
and interest will be paid at the end of borrowing period.
Require: Calculate and record the journal entries

32
 4. Practice several major transactions
4.5 Accounting for loans and finance lease (341)
Exp3: Halep Inc. borrowed $30,000 from ANZ Bank and signed a 4-year
note payable stating the interest rate was 4% annually. Halep Inc. will
make payments for principle and interest at the end of each year.
Require:
a. Calculate the principle and interest payments at the end of each year?
b. Record the journal entries

33
5. Disclosure in financial statement

Balance sheet Income statement Cash flows

Current Liabilities Interest

expense Cash increases
from
borrowing
Long term
Liabilities

Notes of statement Cash

decreases

34
 Q&A

35