Circular No. 40-TC/CĐKT guides accounting for foreign currency receipts and payments transactions.

CIRCULAR

NUMBER 40-TC/CĐKT OF JULY 12, 1991 ISSUED BY THE MINISTRY OF FINANCE GUIDING ACCOUNTING FOR FOREIGN CURRENCY RECEIPTS AND EXPENDITURES

Since the State announced the abolition of the internal exchange rate for converting foreign currency to Vietnamese dong for bookkeeping and preparing financial reports at units with foreign currency receipts and expenditures, these activities have been carried out differently without consistency, and in many cases, they have not reflected accurately and violated accounting principles. To address this situation, the Ministry of Finance guides the accounting methods for foreign currency transactions at economic units as follows:

I. GENERAL PROVISIONS

1. Production and business units must conduct bookkeeping and prepare financial reports using a unified monetary unit, which is the Vietnamese Dong issued by the Bank.

Foreign currency transactions that occur must be recorded in their original currency and converted to Vietnamese Dong according to the principles set forth in this Circular.

2. Principles for converting to Vietnamese Dong for bookkeeping purposes are as follows:

- The value of fixed assets, raw materials, small tools, goods purchased in foreign currency shall be recorded in the books in Vietnamese Dong based on the buying exchange rate published by the Bank (hereinafter referred to as the Bank's buying rate) at the time of increasing such assets. In subsequent usage, revaluation of assets purchased in foreign currency shall be conducted similarly to those purchased in Vietnamese Dong.

- Direct foreign currency expenses and revenues (cash) shall be recorded in the books in Vietnamese Dong based on the Bank's buying rate at the time of occurrence of such expenses and revenues.

- To simplify cash accounting for both Vietnamese Dong and foreign currency (cash on hand, bank deposits, funds in transit) and foreign currency receivables and payables arising daily, entries shall be made in the original currency and in Vietnamese Dong based on the accounting exchange rate. The accounting exchange rate is the Bank's buying rate at the beginning of each month (or quarter if there is little fluctuation). At the end of the month (or quarter), the accounting exchange rate shall be adjusted to the Bank's buying rate at that time and used as the accounting exchange rate for the next month (or quarter). For units with few foreign currency transactions, entries shall be made based on the Bank's buying rate at the time of occurrence.

3. The difference between the accounting exchange rate applied during the month (or quarter) and the Bank's buying rate at each occurrence of foreign currency, and the difference due to adjusting the exchange rate at the beginning of the month (or quarter) shall be reflected on Account 65 "Exchange Rate Differences and Price Indexes" (651 - Exchange Rate Differences). At year-end, the balance of Account 65 shall be determined and handled according to the state capital preservation regime.

4. For units handling multiple types of foreign currencies, the Bank's buying rate shall be used to determine the separate accounting exchange rate for each type. For foreign currencies without a Bank's buying rate, they must first be converted to US dollars based on the exchange rate between that foreign currency and the US dollar as reported by the Bank before converting to Vietnamese Dong.

II. METHODS OF ACCOUNTING FOR SOME KEY TRANSACTIONS

1. When purchasing assets, materials, goods, etc., record:

Debit Accounts 10, 21, 22, 23 - based on the Bank's buying rate

Credit Account 60 - "Settlement with Sellers" - based on the accounting exchange rate.

Credit Account 65 - Exchange Rate Differences and Price Indexes (651)

(or debit Account 65 - 651 when the accounting exchange rate is higher than the Bank's buying rate)

2. When expenses arise, record:

Debit Accounts 30, 31, 34... based on the Bank's buying rate

Credit Account 60 - Settlement with Sellers - based on the accounting exchange rate.

Credit Account 65 - Exchange Rate Differences and Price Indexes (651)

(or debit Account 65 - 651 when the accounting exchange rate is higher than the Bank's buying rate).

3. Payment to sellers, record:

Debit Account 60 - Settlement with Sellers - based on the accounting exchange rate.

Credit Accounts 50, 51, 90, 91, 92 - based on the accounting exchange rate (simultaneously record the original currency).

4. Repayment of loans, record:

Debit Accounts 90, 91, 92 - based on the accounting exchange rate

Credit Accounts 50, 51 - based on the accounting exchange rate (simultaneously record the original currency).

5. When revenue arises, record:

Debit Account 61 - Settlement with Buyers - based on the accounting exchange rate (simultaneously record the original currency).

Credit Account 40 - Consumption and Results - based on the Bank's buying rate.

Credit Account 65 - Exchange Rate Differences and Price Indexes (651)

(or debit Account 65 (651) when the accounting exchange rate is lower than the Bank's buying rate).

6. When receiving foreign currency, record:

Debit Accounts 50, 51 - based on the accounting exchange rate.

Credit Account 61 - Settlement with Buyers - based on the accounting exchange rate (simultaneously record the original currency).

In cases where units have receivables or payables in foreign currency but actually settle in Vietnamese Dong according to the agreed exchange rate, the accountant shall reduce the foreign currency receivable or payable based on the accounting exchange rate, record the actual amount received or paid in Vietnamese Dong based on the agreed exchange rate, and reflect the difference between the accounting exchange rate and the agreed exchange rate on Account 65 "Exchange Rate Differences and Price Indexes": (651).

7. When purchasing foreign currency, record:

Debit Accounts 50, 51, (503, 512) - based on the accounting exchange rate (simultaneously record the original currency)

Credit Accounts 50, 51, (501, 511) - based on the actual purchase rate.

Credit Account 65 - Exchange Rate Differences and Price Indexes (651)

(or debit Account 65 (651) when the accounting exchange rate is lower than the actual purchase rate).

8. When selling foreign currency, record:

Debit Accounts 50, 51, (501, 511) - based on the actual sale rate

Credit Accounts 50, 51, (503, 512) - based on the accounting exchange rate (simultaneously record the original currency).

Credit Account 65 - Exchange Rate Differences and Price Indexes (651).

(or debit Account 65 (651) when the accounting exchange rate is higher than the actual sale rate).

9. At the end of the month (or quarter) when adjusting the accounting exchange rate, the accountant must determine the balances of cash and foreign currency receivables and payables to handle them.

- If the Bank's buying rate is higher than the current accounting exchange rate, based on the difference, record:

Debit Accounts 50, 51, 52 and debit Accounts 60, 61, 62... (if there is a debit balance)

Credit Account 65 - Exchange Rate Differences and Price Indexes (651)

And:

Debit Account 65 - Exchange Rate Differences and Price Indexes (651)

Credit Accounts 60, 61... 90, 91, 92 (if there is a credit balance)

- If the Bank's buying rate is lower than the current accounting exchange rate, based on the difference, record:

Debit Account 65 - Exchange Rate Differences and Price Indexes (615)

Credit Accounts 50, 51, 52 and credit Accounts 60, 61, 62... (if there is a debit balance)

And:

Debit Accounts 60, 61... 90, 91, 92 (if there is a credit balance)

Credit Account 65 - Exchange Rate Differences and Price Indexes (651).

10. At year-end, the foreign exchange rate difference arising (the balance of sub-item 651 - foreign exchange rate difference) if large shall be settled separately, if small shall be combined with the price index difference arising (the balance of sub-item 652 - price index) to determine the total foreign exchange rate and price index difference (the balance of account 65) that needs to be addressed.

The handling of foreign exchange rate differences in both cases above shall be carried out as follows:

- If sub-items 651, 652 or account 65 have a credit balance, meaning the current asset value is greater than the source capital value, therefore, it must rely on the capital preservation value according to the State's regulations. If the current capital value is insufficient compared to the amount required for preservation, the entity uses the foreign exchange rate and price index difference to preserve the capital. The remaining difference after sufficient capital preservation is considered as income within the accounting period of the entity.

When using the foreign exchange rate and price index difference to preserve capital, record:

Debit Account 65 - Foreign Exchange Rate and Price Index Difference.

Credit Accounts 80, 81.

When transferring the remaining difference into income, record:

Debit Account 65 - Foreign Exchange Rate and Price Index Difference.

Credit Account 70 - "income".

- If sub-items 651, 652 or account 65 have a debit balance, meaning the current asset value of the entity is less than the source capital value, therefore, the entity must calculate and make up the difference according to the capital preservation regime. The foreign exchange rate and price index difference (debit balance of account 65) is transferred to account 70, considered as a loss within the accounting period.

Accounting records:

Debit Account 70 "Income"

Credit Account 65 "Foreign Exchange Rate and Price Index Difference".

The above are some guidelines for accounting for foreign currency receipts and payments transactions. The Ministry of Finance requests all Ministries, People's Committees of provinces, cities, and centrally-administered municipalities to guide and supervise subordinate units to implement uniformly from the date of issuance. During implementation, if there are difficulties, please promptly report to the Ministry of Finance for further research and guidance.