MAXIMOVA V.F., SAGAREVA D. A.

THEORY OF ACCOUNTING

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 U.D.C. 656.13:657(075.8)
L.B.C. 65.052я73
М 17

Is recommended by the Academic Council of the Odessa National Economic

University (protocol № 3 from 27th of November 2013)

Reviewers:
Lohanova N.A., Doctor of Economics, Professor
Volkova N.A., PhD in Economics, associate professor

Maximova V.F., Sagareva D.A.

Theoty of accounting: Study Guide – Odessa: ОNEU, offset duplicator,
2013. – 182 p.

The guide presents lectures to key issues with compulsory regard to the
Regulations (standards) of accounting as well as with reference to other current
regulations.
Tutorial is written in accordance with the program of the course
"Accounting". In the study guide the theoretical position of the object, method,
technique and organization of accounting in the enterprises are highlighted. In
addition to basic issues the features of financial accounting in enterprises are
considered. Certain themes are devoted to accounting of cash transactions,
inventory, fixed assets, labor and wages, owners’ equity, expenses, revenues,
results of operations. Tutorial contains English-Ukrainian dictionary of terms and
tests for each theme under consideration.
The purpose of the study guide is to form for the student’s system of thorough,
theoretical knowledge and practical skills about an accounting in general and use of
accounting information in the managerial activity.

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 TABLE OF CONTENTS
page
INTRODUCTION ……………………………………………………………. 6
THEME 1. ESSENCE OF ACCOUNTING. THE SUBJECT, OBJECT, 8
METHOD OF ACCOUNTING AND ITS ELEMENTS
Dictionary 8
1.1. Influence of accounting at the activity of economic entities 10
1.2. Types of economic accounting 11
1.3. Subject of accounting and its basic elements 12
1.4. The fundamental accounting equation. Types of business transactions
and their impact on the assets and liabilities of the enterprise 15
1.5. Method of accounting and its elements 19
Tests for self-control 21
THEME 2. ACCOUNTS AND DOUBLE ENTRY AS ELEMENTS OF
25
ACCOUNTING METHOD
Dictionary 25
2.1. Appointment and structure of accounts 26
2.2. Content and appointment of double entry 29
2.3. Accounting entries. Journal of business transactions registration 31
Tests for self-control 32
THEME 3. SYNTHETIC AND ANALYTICAL ACCOUNTING. CHART
36
OF ACCOUNTS
Dictionary 36
3.1. The concept of synthetic and analytical accounting, their
connection 37
3.2. Generalization of current accounting data 39
3.3. Classification of accounts. Appointment and structure of the
Chart of accounts 42
Tests for self-control 47
THEME 4. ACCOUNTING DOCUMENTS AND REGISTERS. FORMS
OF ACCOUNTING ORGANIZATION 51
Dictionary 51
4.1. Documentation of accounting: its essence and appointment 52
Accounting registers and their significance in generalization of
4.2. 54
information
4.3. Forms of accounting organization 56
Tests for self-control 58
THEME 5. ACCOUNTING OF NON-CURRENT ASSETS 61
Dictionary 61
5.1. The concept of fixed assets, their classification and evaluation 62
5.2. Accounting for proceeds of fixed assets and capital investments 67
5.3. Accounting for depreciation of fixed assets 69
5.4. Accounting of expenditures on fixed assets improvement and
their repair 73
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 5.5. Accounting for disposals of fixed assets 75
5.6. Features of accounting for other non-current tangible assets and
intangible assets 78
Tests for self-control 81
THEME 6. ACCOUNTING OF INVENTORIES 85
Dictionary 85
6.1. The concept, evaluation and classification of inventories at their
receipt 86
6.2. Documentation of the movement and using of inventories
Analytical accounting of inventories 87
6.3. Evaluation of inventories at their outflow. Transportation and
procurement costs 89
6.4. Synthetic accounting of receipts and using inventories 93
Tests for self-control 96
THEME 7. ACCOUNTING FOR SETTLEMENTS OF WAGES AND
STATE INSURANCE 101
Dictionary 101
7.1. The composition of wage fund. Forms, types and payroll
systems 102
7.2. . Source documents for payroll accounting 103
7.3. Procedure of salaries calculation. Compulsory withholding from
salaries 104
7.4. Analytical and synthetic accounting for settlements of wages 107
Tests for self-control 109
THEME 8. ACCOUNTING FOR CASH FLOW 113
Dictionary 113
8.1. Accounting for cash on hand 114
8.2. Accounting for cash on checking accounts in banks. Accounting
of funds in other bank accounts 116
8.3. Accounting for other monetary funds 119
Tests for self-control 120
THEME 9. ACCOUNTING FOR PRODUCTION COSTS OF
ENTERPRISES 124
Dictionary 124
9.1. Recognition and classification of production costs 125
9.2. Accounting for direct costs 128
9.3. Accounting for indirect costs. The procedure of general
manufacturing expenses distribution 129
9.4. Accounting for losses caused by shortages 131
Tests for self-control 132
THEME 10. ACCOUNTING OF FINISHED PRODUCTS AND ITS
REALIZATION 136
Dictionary 136
10.1. Documentation of the goods movement 137
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 10.2. Analytical and synthetic accounting of finished products 138
10.3. Characteristics of accounts, which reflect the process of finished
products realization 139
10.4. Determination of financial results from sales of products 141
Tests for self-control 145
THEME 11. ACCOUNTING FOR THE PROCESS OF CAPITAL
FORMATION 149
Dictionary 149
11.1. Concept and structure of owners’ equity. Accounting for
authorized capital 150
11.2. Accounting for additional and reserve capital 152
11.3. Accounting for withdrawn and unpaid capital 154
11.4. Accounting for retained profits (uncovered losses) 155
Tests for self-control 156
THEME 12. ACCOUNTING FOR LIABILITIES OF THE COMPANY 160
Dictionary 160
12.1. Definition and classification of liabilities 161
12.2. Accounting for current liabilities 162
12.3. Accounting for long-term liabilities 166
12.4. Evaluation and accounting for ensuring 169
Tests for self-control 170
REFERENCES 174
APPENDIX 1 177
APPENDIX 2 179

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 INTRODUCTION

Accounting is a set of concepts and techniques that are used to measure and
report financial information about an economic unit. The economic unit is
generally considered to be a separate enterprise. The information is reported to the
variety of interested parties. These include business managers, owners, creditors,
governmental units, financial analysts, and even employees. In one way or another,
these users of accounting information tend to be concerned about their own
interests in the entity.
Business managers need accounting information to make sound leadership
decisions. Investors hope for profits that may eventually lead to distributions from
the business. Creditors are always concerned about the entity’s ability to repay its
obligations. Governmental units need information to tax and regulate. Analysts use
accounting data to form opinions on which they base investment
recommendations. Employees want to work for successful companies to further
individual careers, and they often have bonuses or options tied to enterprise
performance. Accounting information about specific entities helps to satisfy the
needs of all these interested parties.
In today's increasingly competitive and uncertain business environment,
organizations fighting for customers face a number of factors and issues which
they may not be able to control and which affect performance. Professional
accountants have a vital role to play in commercial success, by using their
increasingly valuable knowledge in a way which gives their organizations or
clients a competitive advantage.
Accountants operate at many levels and in several different roles within all
types of organizations. Although some accountants operate in an advisory role to
management, others go on to managerial positions, within firms of accountants
which they themselves may own, on the board of public limited companies, or in
the public or voluntary sector. An accounting background has proved invaluable to
many people who have progressed to be directors and chief executives of large
multi-national companies or their own companies, as it provides them with crucial
knowledge and insight into business.
The textbook is developed for self-study course of students of speciality
6.030503 «International economy». Development of the world economy and
globalization processes requires from specialists the proper economic preparation
on questions of accounting organization to make economic decisions. The
discipline “Accounting” is included in a cycle of normative disciplines of
professional preparation of bachelors on speciality 6.030503 the "International
economy".
The purpose of the discipline is to form for the student’s system of thorough,
theoretical knowledge and practical skills about an accounting in general and use
of accounting information in the managerial activity.
Having studied this material the students will know:
−methods and techniques of accounting, its organization and information
base;
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 −composition of economic resources and business processes that are
reflected in the accounting system;
−composition of the Balance sheet;
−application of the main method – double entry while displaying business
transactions.
Students will be able to:
− use system of knowledge about accounting principles for the
development and justification of accounting policies;
− organize and implement accounting in organizations of all ownership
patterns;
− use advanced forms and methods of accounting and economic work,
provide accounting implementation process;
− monitor compliance with legality of using such resourced as cash,
material, financial instruments;
− draw up financial statements, ensuring compliance with the prescribed
form and reliability of information;
− develop instructional guides and other regulations of accounting,
control and analysis to regulate financial and economic activities of the
organization;
− make independent decisions on matters related with accounting and
economic activity, spread their opinion in any form, work with reports and
presentations.

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 THEME 1. ESSENCE OF ACCOUNTING. THE SUBJECT, OBJECT,
METHOD OF ACCOUNTING AND ITS ELEMENTS
1.1. Influence of accounting at the activity of economic entities.
1.2. Types of economic accounting.
1.3. Subject of accounting and its basic elements.
1.4. The fundamental accounting equation. Types of business transactions
and their impact on the assets and liabilities of an enterprise.
1.5. Method of accounting and its elements.

Dictionary

Account Рахунок
Accounting Бухгалтерський облік
Accounting concept Концепція бухгалтерського обліку
Accounting entry Бухгалтерська проводка
Accounting method Метод обліку
Accounting record Бухгалтерський, обліковий запис
Аccounts receivable Дебіторська заборгованість
Accounting reports Бухгалтерська звітність
Аctive Актив
Аdditional capital Додатковий капітал
Assets Aктиви
Attracted sources Залучені джерела
Balance sheet Баланс
Bookkeeping Бухгалтерський облік, рахівництво
Вorrowings under the commitment Позики під зобов'язання
Business transaction Ділова операція, угода
Сalculation Калькуляція, розрахунок
Capital assets Основні активи
Cash Гроші, готівка
Сharter capital Статутний капітал
Compilation Підготовка інформації
Current assets Оборотні активи
Debenture holders Власники облігацій
Deferred income Доходи майбутніх періодів
Documentation Документація
Double entry Подвійний запис
Еxternal users Зовнішні користувачі
Financial statements Фінансова звітність
Fixed assets Основні засоби
Fundamental accounting equation Основне бухгалтерське рівняння
Identifying Ідентифікувати, визначати
Internal users Внутрішні користувачі

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Intangible assets Нематеріальні активи
Inventories Запаси
Liabilities Зобов'язання
Liquidity Ліквідність
Мanufacturing Виробництво
Monetary valuation Грошова оцінка
Operational cycle Операційний цикл
Owners’ equity Статутний фонд, власний капітал
Рassive Пасив
Рayables Кредиторська заборгованість
Posting Бухгалтерська проводка
Property Власність, майно
Reserve capital Резервний капітал
Retained earnings Hерозподілений прибуток
Sources of assets Джерела активів
Share capital Пайовий капітал
Stocktaking Інвентаризація
System of accounts Система рахунків
Tangible assets Mатеріальні активи
1.1. Influence of accounting at the activity of economic entities

In all activities (whether business activities or non-business activities) and in

all organizations (whether business organizations like a manufacturing entity or
trading entity or non-business organizations like schools, colleges, hospitals,
libraries, clubs, temples, political parties) which require money and other
economic resources, accounting is required to account for these resources.
«The significance of the facts is more important than the facts themselves,
and if we know the significance, we may even forget the facts». This thought
expressed by Oliver Wendell Holmes (an American jurist and economist who
served as an Associate Justice of the Supreme Court of the United States) seems
pertinent when appraising the relation of accounting to management.
An understanding of the principles of bookkeeping and accounting is
essential for anyone who is interested in a successful career in business. The
purpose of bookkeeping and accounting is to provide information concerning the
financial affairs of a business. This information is essential for owners, managers,
creditors, governmental agencies, financial analysts, and even employees. But
there are significant differences between book-keeping and accounting and it is
very important to know it.
A person who earns a living by recording the financial activities of a
business is known as a bookkeeper, while the process of classifying and
summarizing business transactions and interpreting their effects is accomplished by
the accountant. The bookkeeper is concerned with techniques involving the
recording transactions, and the accountant's objective is the use of data for
interpretation. American Institute of Certified Public Accountants (AICPA) defines

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accounting as “the art of recording, classifying and summarizing in a significant
manner and in terms of money, transactions and events, which are, in part at least,
of a financial character and interpreting the results thereof”.
The difference between book- keeping and accounting can be summarized in
the table 1.1.
Table 1.1
Distinction between book-keeping and accounting
Basis of
Book-keeping Accounting
difference
To examine these recorded
Recording of transactions in transactions in order to find
Transactions
books of original entry out their accuracy
To examine this posting in
Posting To make posting in ledger order to ascertain its accuracy
To make total of the amount in To prepare trial balance with
Total and journal and accounts of ledger. the help of balances of ledger
Balance To ascertain balance in all the accounts
accounts
Income Preparation of Financial Preparation of Financial
Statement and Results Report and Balance Results Report and Balance
Balance Sheet Sheet is not book-keeping Sheet is included in it
Rectification of These are not included in book- These are included in
errors keeping accounting
It does not require any special It requires special skill and
Special skill and skill and knowledge as in knowledge
knowledge advanced countries this work is
done by machines
A book- keeper is not liable for An accountant is liable for the
Liability
accountancy work work of book-keeper

1.2. Types of economic accounting

Economic accounting – is a quantitative reflection and qualitative

characteristics of economic activity in order to identify abnormalities in the plans
of industrial and business enterprises and their elimination.
Continuous development of market relations and complication of economic
life caused the separation of economic accounting by types:
– operational records;
– statistical records;
– accounting.
Operational records – is a way of monitoring, display and control of certain
business and technical operations directly in the process of their implementation or
operational management. For example, by using of operational accounting
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displayed such processes as the output, the registration of contracts signed for the
month and so on.
Statistical records conducted the purpose of studying and monitoring of
mass phenomena, as well as regularities of their development. The subject of this
accounting is not only the processes taking place in the workplace, but also other
phenomena of social life, such as labor productivity, the average age of employees
and so on.
Business management requires continuous, uninterrupted, reliable and
legally confirmed records of business transactions, covering all activities of the
company. This is accounting. According to the Law of Ukraine “On Accounting
and Financial Reporting in Ukraine” № 996-XIV of July 16, 1999: "Accounting -
process of identifying, measuring, recording, accumulation, compilation, storage
and transmission of information about the company activity for internal and
external users to make decisions".
The changing business scenario over the centuries gave rise to specialized
branches of accounting which could cater to the changing requirements. The
branches of accounting are financial accounting and managerial accounting.
The accounting system concerned with the financial state of affairs and
financial results of operations is known as financial accounting. It is mainly
concerned with the preparation of financial statements for the use of outsiders like
creditors, debenture holders, investors and financial institutions. The financial
statements i.e., the profit and loss account and the balance sheet, show them the
manner in which operations of the business have been conducted during a specified
period.
In sharp contrast to financial accounting, managerial accounting
information is intended to serve the specific needs of management. Business
managers are charged with business planning, controlling, and decision making. As
such, they may desire specialized reports, budgets, product costing data, and other
details that are generally not reported on an external basis. Further, management
may dictate the parameters under which such information is to be accumulated and
presented.
From the above it can be concluded that financial accounting is concerned
with external reporting of information to parties outside the firm. In contrast,
managerial accounting is primarily concerned with providing information for
internal management.
Types of economic accounting are presented in Figure 1.1.

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 Operational records

Economic
Statistical records
accounting
Financial
accounting
Accounting
Managerial
accounting

Fig. 1.1. Types of economic accounting

1.3. Subject of accounting and its basic elements

In broad sense subject of accounting is all that is connected with obtaining

the necessary information about the entity, its business and resources. In a narrow
sense, the subject of accounting is a set of procedures for identifying, measuring,
recording, accumulation, compilation, storage and transmission of information
about economic activities for the users to make decisions.
But in national economic literature interpretation the subject of accounting is
different. Such a variety is caused by the situation that the business activities of the
company, its resources, facts, actions and events within it, studied by
representatives of various sciences, including economists, lawyers, managers,
statisticians, financiers, but each for their part.
Business entity generally has the facilities, property, carries out business
directed to obtaining financial results and in accordance with current legislation
has to maintain accounting records and prepare statements. Object of accounting
represents a specific tool (property), the source of its formation and movement of
this property in the process of reproduction.
Objects that are recorded by the economic content and purpose can be
grouped into three categories:
 assets (property);
 sources of assets;
 business processes.
Every owned physical thing or right that has a money value is an asset. In
other words, assets are the economic resources of the entity, and include such items
as cash, accounts receivable (amounts owed to a firm by its customers),
inventories, land, buildings, equipment, and even intangible assets like patents and
other legal rights and claims. Assets are presumed to entail probable future
economic benefits to the owner.
Assets divided into many classifications, among which are the following.

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 1. By type of operation:
1.1. tangible assets (means of enterprises which have material form: fixed
assets, uncompleted construction, inventories etc.);
1.2. intangible assets (objects of long-term investments with the valuation,
but not real property: right to use natural resources, property, rights for trademarks
and service, copyright, goodwill etc.);
1.3. financial assets (group of business assets of the company in the form of
cash or other financial instruments: cash in national and foreign currencies,
financial investments, receivables of various individuals and businesses for
delivered products, goods or services).
2. By the nature of participation in turnover:
2.1. capital assets (a collection of property values that are repeatedly
involved in the business of enterprise, for example capital investment, intangible
assets, long-term financial investments, long-term receivables and others);
2.2. current assets (a collection of property values that serve the ongoing
business activities of the enterprise and completely consumed during the operating
cycle: inventories, goods, receivables, cash etc.).
3. By the degree of liquidity:
3.1. completely liquid (cash and cash equivalents, including cash in national
and foreign currencies in banks account and on hand, stocks, etc.);
3.2. liquid (current investments and receivables, inventory, goods);
3.3. less liquid (fixed assets, uncompleted construction, intangible assets,
long-term financial investments, long-term receivables, prepaid expenses).
Liquidity of assets – is the extent of possibility to convert them into
monetary form in order to ensure prompt payment of company’s current financial
liabilities. The concept of liquidity is widely used in assessing of the enterprise’s
financial condition and financial analysis.
Classification of assets is presented in figure 1.2.

Assets

By the type of By the nature of By the degree of

operation participation in turnover liquidity

tangible assets capital assets completely

liquid

intangible current assets liquid

assets

financial less liquid

assets

Fig. 1.2. Classification of enterprise’s assets

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 There are own and attracted sources of assets formation. Own sources of
economic resources formation include funds of charter and share capital (funds
deposited by the founders at the time of the company registration), additional and
reserve capital, income (received by the results of activity).
The structure of owners’ equity includes:
 share capital;
 additional capital;
 reserve capital;
 retained earnings;
 ensuring of future payments and targeted financing;
 deferred income.
Attracted sources of economic resources are those that are in temporary
using by enterprises, and then returned to their owners on agreed between them
and enterprise conditions. These sources include: bank credits, borrowings under
the commitment, payables. Borrowings may be long-term and current (short-term)
and have the form of commitments.
During the business activities, economic tools are in constant movement, carry
out constant circulation, changing the forms and values and passing operation cycle.
Operational cycle is a period of time between the inventory acquisition to
carry out activities and receipt the funds generated from the sale of the products,
goods and services. The basic stages of the economic circulation are the following
processes: supply (purchasing), manufacturing (expenditure / storage), realization
(sale). Commercial process as part of the economic cycle consists of the primary
elements – business transactions. Business transaction – is an event that causes
changes in the assets, liabilities and equity of the enterprise.
Thus, business transactions together constitute business processes, which
generally form a circulation of the capital. Interconnection of business processes is
shown in Fig. 1.3.
F

Production

Supply Realization
(purchasing) (sale)

ig. 1.3. Interconnection of business processes

Process of supplying (purchasing) – stage of circulation in which money are
converted into means of production and labor resources. As a result, the company
is ensured by material and labor resources. Herewith the objects of the account are

16
the cost of funds and resources acquiring, the volume of procurement, settlements
with suppliers.
The production process – stage of the cycle, at which benefits are created by
combining the means of production with labor force (production of goods, works,
and services). Here objects of accounting are: means of labor in the amount of
worn parts, raw materials, fuel, energy, labor and its payment, cost of production,
the presence and movement of finished goods.
Realization – the stage of the cycle on which the products are sold, and the
last takes the form of money, enabling the continuation of the next operating cycle
of capital. As objects of accounting appear costs associated with shipment and
sales, volume of shipment and sales, the calculation of income and profit from
sales, payments with customers and settlement for liabilities of tax and other
authorities. Thus, the processes of supplying, production and sales are important
objects of accounting.

1.4. The fundamental accounting equation. Types of business

transactions and their impact on the assets and liabilities of the enterprise

The basic features of the accounting model we use today trace their roots
back over 500 years. Luca Pacioli, a Renaissance era monk, developed a method
for tracking the success or failure of trading ventures. The foundation of that
system continues to serve the modern business world well, and is the entrenched
cornerstone of even the most elaborate computerized systems. The nucleus of that
system is the notion that a business entity can be described as a collection of assets
and the corresponding claims against those assets. The claims can be divided into
the claims of creditors and owners (i.e., liabilities and owners’ equity). It gives rise
to the fundamental accounting equation:

Assets = Liabilities + Owners’ equity

The notion of assets, liabilities and equity, we have learned earlier. The
properties owned by a business are called assets and the rights to properties are
known as liabilities or equities of the business. Equities can be subdivided into
equity of the owners which is known as capital and equity of creditors that
represent the debts of the business know as liabilities.
Above equation is fundamental in the sense that it gives a foundation to the
double entry book- keeping system. This equation holds good for all transaction
and events and at all periods of time since every transaction and events has two
aspects. That's why the fundamental accounting equation is the backbone of the
accounting and reporting system. It is central to understanding a key financial
statement known as the Balance sheet.
The form of Balance sheet – table on the left side of which represent the
structure and distribution of economic resources (called asset), and the right side is
called passive, reflecting the sources of economic resources formation (Appendix 1).

17
 In the Balance sheet means of all business enterprises and the source of their
formation are combined in economically homogeneous groups, which are called
balance sheet items. Items of balance sheet have a common name, separate code, they
recorded by individual amounts. Balance sheet items are divided into active (those that
represent the asset) and passive (those that represent liabilities and owners equity).
Active items are always characterized by economic assets: fixed assets,
inventories, accounts, debtors and others. Passive items always characterize
sources of equity and borrowed capital: charter capital, profit, bank loans,
payments to suppliers and others. Overall results of the asset and liability balance
is always equal to each other, this is obligatory condition for the correctness of its
compilation. Lack of equality of asset and liability totals in Balance sheet indicates
the presence of errors in its compiling.
Form of the current in Ukraine Balance sheet and order of its filling is
regulated by National principles (standards) of accounting 1 "General
Requirements for Financial Reporting".
An example of enterprises’ fragment of Balance is presented in Fig. 1.4.

Fig. 1.4. Fragment of the enterprise’s Balance sheet

Each passing transaction or event brings about a change in the overall
financial condition of enterprise. Business activity will impact various asset,
liability, and/or equity accounts, but they will not disturb the equality of the
accounting equation. To understand how this happens let’s look at four specific
transactions for Edelweiss Corporation. We will see how each transaction impacts
the individual asset, liability, and equity accounts, without upsetting the basic
equality of the overall Balance sheet.
The first type of business transactions - changes occur only in the asset of Balance.
If Edelweiss Company collected 10000 UAH from the customer on an
existing account receivable (i.e., not a new sale, just the collection of an amount
that is due from some previous transaction), then the Balance sheet would be
revised as follows (fig. 1.5).

18
 Fig. 1.5. Changes in Balance sheet as a result of the first type of economic
operations
The illustration plainly shows that cash (an asset) increased from
25000 UAH to 35000 UAH and accounts receivable (an asset) decreased from
50000 UAH to 40000 UAH. As a result total assets did not change, and liabilities
and equity accounts were unaffected. Thus, assets still equal liabilities plus owners’
equity.
The second type of business transactions - changes occur only in the
liabilities of Balance.
By decision of the founders profit share in the amount of 25000 UAH was
allocated to increase the capital stock. Then the Balance sheet would be further
revised as follows (fig.1.6).

19
 Fig. 1.6. Changes in Balance sheet as a result of the second type of
economic operations
This illustration shows that capital stock (an equity) increased from
120000 UAH to 145000 UAH, and retained earnings (an equity) decreased from
600000 UAH to 575000 UAH.
As a result changes occur only in the liabilities of Balance, but total
liabilities and equity accounts did not change, and assets were unaffected. Thus,
assets still equal liabilities plus stockholders’ equity.
The third type of business transactions - changes in assets and liabilities
occur on the Balance of the same amount towards increase.
If Edelweiss Corporation purchased 30000 UAH of equipment, agreeing to
pay for it later (i.e. taking out a loan), then the Balance sheet would be further
revised as follows (fig.1.7).

Fig. 1.7. Changes in Balance sheet as a result of the third type of economic
operations
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 This illustration shows that equipment (an asset) increased from 250000 UAH to
280000 UAH, and loans payable (a liability) increased from 125000 UAH to
155000 UAH. As a result, both total assets and total liabilities increased by
30000 UAH, but assets still equal liabilities plus equity.
The fourth type of business transactions - changes in assets and liabilities
occur on the Balance of the same amount towards decrease.
The company transferred from the bank account the amount repayment of
previously received loan – 15000 UAH, then the Balance sheet would be revised as
follows (fig. 1.8).

Fig. 1.7. Changes in Balance sheet as a result of the fourth type of economic
operations
It can be seen in the illustration that cash (an asset) decreased from
35000 UAH to 20000 UAH, and loans payable (a liability) decreased from
155000 UAH to 140000 UAH. As a result, both total assets and total liabilities
decreased by 15000 UAH, but assets still equal liabilities plus equity.
Thereby there are countless types of transactions that can occur, and every
transaction can be described in terms of its impact on assets, liabilities, and equity.
It is important to know that no transaction will upset the fundamental accounting
equation.

1.5. Method of accounting and its elements

Accounting as every science has its own method. For disclosure of the
nature of accounting it is widely used general scientific methods: dialectical,
historical and systematic approaches, the method of induction and deduction.
Dialectical method allows to study accounting in the set of processes that are
modified and interdependent; historical approach considers the record as a product
21
of historical formation and development of human needs and society; systematic
approach identifies the record as internally structured and organized object. In the
process of business reflection economic entity used methods of induction (from
private to general, from specific facts to generalization) and deduction (from the
general to the particular, from the general to the specific judgments or other
reports). In practice of accounting increasingly used induction because business
transactions initially reveal the content of microproces and only they are grouped
and summarized in the report.
Along with scientific methods and theoretical basis, accounting has its own
specific methods (techniques) that are caused by the essence of the subject,
technology, accounting, objectives and requirements.
Method of accounting – a set of special techniques that provide a receipt,
processing and issuance of accounting information for the purpose of its using in
the management process. Separate technique of account called element of the
method, these includes:
 documentation;
 stocktaking;
 monetary valuation;
 calculation;
 system of accounts;
 double entry;
 Balance sheet;
 accounting reports.
Documentation – method of observation and reflection of economic
transactions in the primary accounting documents (invoices, bills, checks, orders,
etc.). This is the beginning and basis of accounting process, without which
accounting is impossible. Each business transaction is recorded by a document
completed in compliance with certain requirements, giving it legal force.
Stocktaking – method of confirmation of accounting data reliability. It is
conducted by describing, counting, measuring, weighing and evaluating of all
assets and funds balances in nature, revealing the actual presence of property
residues and comparing them with the accounting data.
Using the method of evaluation, natural and labor measures (characteristics)
of economic resources are transferred into the value form. Estimation of objects in
accounting is based mainly on the observed costs for their creation or acquisition
(historical cost). Calculation – a method of calculating the cost of production or the
work performed and services rendered. Using this method costs that belong to an
object of calculation are substantiated, determined and allocated (product, process,
order, etc.). Accounting of capital circulation is based on three calculations: cost of
acquisition (supply procurement), production cost and total cost of sales.
Accounts – the method of current accounting and control over the
availability and movement of assets and liabilities of the company. Account
represents a local information system for economically similar objects grouping.

22
 Every business transaction has a two fold effect of benefits giving and
benefits receiving aspects. The recording is made on the basis of both these
aspects. Double entry is an accounting system that records the effects of
transactions and other events on at least two accounts with equal debits and credits.
Balance sheet – is a method of data generalization across accounts and
double entry. The balance shows the composition of the subject property by types
(structure and usage) and sources of their formation on a specific date in a
generalized value meter. In the previous issue balance was examined more
detailed.
Accounting reports – a method of summarizing and final receiving of totals
for the reporting period. This is orderly system of economic indicators interrelation
to business enterprises for the period.
Methodological techniques of accounting are interrelated, complemented
each other and in the aggregate constitute a single unit – method of accounting
(fig. 1.8).

Method of accounting

General scientific Elements of accounting

methods method
Analysis Documentation
Synthesis Stocktaking
Induction Monetary valuation
Deduction Calculation
Analogy System of accounts
Modeling Double entry
Abstraction Balance sheet
Concretization Accounting reports
Fig. 1.8. Method of accounting

Tests for self-control

Each question contains one correct answer.

1. There are the following types of economic accounting:

1) Managerial accounting, statistical records, operational records
2) Operational records, statistical records, accounting;
3) Financial accounting, managerial accounting, accounting;
4) Statistical records, tax records, operational records.

2. Accounting system concerned with the financial state of affairs and financial
results of operations is known as:
1) Budget accounting;
23
2) Economic accounting;
3) Managerial accounting;
4) Financial accounting.

3. This type of accounting is linked with business planning, controlling, and

decision making:
1) Internal business accounting;
2) Planned accounting;
3) Managerial accounting;
4) Business accounting.

4. Resources owned by a company (such as cash, accounts receivable, vehicles) are

reported on the Balance sheet and are referred to as:
1) Liabilities;
2) Net income;
3) Owners’ equity;
4) Assets.

5. Obligations (amounts owed) are reported on the balance sheet and are referred to:
1) Liabilities;
2) Assets;
3) Expenses’
4) Owners’ equity.

6. Objects of long-term investments with the valuation, but not real property are:
1) Current assets;
2) Intangible assets;
3) Financial assets;
4) Tangible assets.

7. Extent of possibility to convert assets into monetary form in order to ensure

prompt payment of current financial liabilities of the company is called:
1) Convertibility;
2) Reversibility;
3) Liquidity;
4) Profitableness.

8. The financial statement that reports the assets, liabilities, and stockholders'
(owner's) equity at a specific date is the:
1) Balance sheet;
2) Income statement;
3) Statement of cash flows;
4) All of listed.

24
9. The accounting equation should remain in balance because every transaction
affects:
1) Only one account;
2) Only two accounts;
3) Two or more accounts;
4) It does not affect the balance.

10. The essence of the basic accounting equation consists of:

1) Assets equal liabilities plus owners’ equity;
2) Owners’ equity equal liabilities plus assets;
3) Assets equal liabilities minus owners’ equity;
4) Financial results equal the sum of assets, liabilities and owners’ equity.

11. Which of the following objects refers to liability?

1) Finished products;
2) Cash;
3) Receivables;
4) Payables.

12. Which of the following objects are not included in liability?

1) Commitment to budget;
2) Cash;
3) Profits;
4) Obligation to payroll.

13. The car refers to the following group of accounting objects:

1) Current assets;
2) Own capital;
3) Non-current assets;
4) Intangible assets.

14. Stocktaking is the method of accounting that represents:

1) Comparison of accounting data with the actual availability of accounting
objects;
2) Initial registration of business transactions;
3) Detecting of shortages;
4) Determining the cost of inventories.

15. Method of summarizing and final receiving totals for the reporting period:
1) Calculation;
2) Balance Sheet;
3) Accounting reports;
4) Evaluation.

25
16. Documentation is:
1) The method of current accounting and control over the availability and
movement of assets and liabilities of the company;
2) The method of observation and reflection of economic transactions in the
primary accounting documents;
3) The method of data generalization across accounts and double entry;
4) The method by which natural and labor measurer (characteristics) of economic
resources are transferred into the value form.

17. What is the subject of accounting?

1) Circulation of capital in the process of playback;
2) Assets of the company;
3) Production process;
4) Business processes;

18. An event that causes changes in the assets, liabilities and equity of the
enterprise is called:
1) Accounting entry;
2) Production activity;
3) Business transaction;
4) Non-productive activity.

19. There are the following numbers of business transaction type:

1) Two;
2) Three;
3) Four;
4) Five.

20. The basic stages of the economic circulation are the following processes:
1) Purchasing, manufacturing, realization;
2) Manufacturing, storage, realization;
3) Purchasing, manufacturing, storage, realization;
4) Planning, production, realization.

26
 THEME 2. ACCOUNTS AND DOUBLE ENTRY AS ELEMENTS OF
ACCOUNTING METHOD

2.1. Appointment and structure of accounts.

2.2. Content and appointment of double entry.
2.3. Accounting entries. Journal of business transactions registration.

Dictionary

Account Бухгалтерський рахунок

Accountable person Підзвітна особа
Accounting entry Бухгалтерська проводка
Аctive accounts Активні рахунки
Assets Активи
Administrative costs Адміністративні витрати
Bank loan Банківський кредит
Вusiness processes Бізнес-процеси
Correspondence of accounts Кореспонденція рахунків
Credit Кредит
Double entry Подвійний запис
Debit Дебет
Dividends Дивіденди
Expenses Витрати
Gains Доходи, заробіток
Income Дохід, прибуток
Initial residue Початковий залишок
Journal of business transactions Журнал реєстрації господарських
registration операцій
Ledger Головна книга
Liabilities Зобов'язання
Розрахунки з постачальниками та
Payments to suppliers and contractors
підрядниками
Passive accounts Пасивні рахунки
Revenues Дохід, прибуток
Stockholders' еquity Акціонерний капітал
Turnover Оборот
Wages Заробітна плата

2.1. Appointment and structure of accounts

The records that are kept for the individual asset, liability, equity, revenue,
expense, and dividend components are known as accounts. In other words, a
business would maintain an account for cash, another account for inventory, and so
27
forth for every other financial statement element. Thus, for accounting of assets
opened account "Fixed Assets", to account for goods – "Goods", to account for the
production process – "Production", etc.
So account is a means of assets, liabilities and business processes grouping
(generalization) and also it is intended for the monitoring of their condition and
movement in the economic activity of enterprises. As a result, business assets and
their sources may increase or decrease. Such increase or decrease in accounts
shown separately. Therefore accounts represent as bilateral table left side of which
denote the term “debit” and right – “credit”.
The term "debit" is derived from Latin. debet, which means "he is guilty"
and "credit" – from the Latin. credit, which means "he believes". This method is
again traced to Pacioli, the Franciscan monk, who is given credit for the
development of our enduring accounting model.
Debits (abbreviated “dr”) and credits (abbreviated “cr”) are unique
accounting tools to describe the change in a particular account that is necessitated
by a transaction. This form is still used and understood by accountants worldwide.
Each party appointed for separate display increasing or decreasing amounts.
Schematically account has such form (fig. 2.1).

Dr Account name Cr

Fig. 2.1. The scheme of account

Because the object of accounting it is characterized by a certain state, i.e. the
presence of a certain moment of time, money and sources, primarily this state is
fixed on account what is called an initial residue, or the balance of the initial.
Having information about the initial balance of the accounting object and
changes during the reporting period, it’s easy to determine the balance at the end of
the reporting period. Accumulated information about the movement of accounting
objects, reflected in the debit and credit, called turnover. Results of recordings in
the debit of account are called debit turnover, results of recording in credited –
credit turnover.
Depending on the accounting of assets or sources of their formation
accounts are divided into active and passive. Active accounts are intended to
account for the presence and movement of assets, expenses, dividends. Debits
increase these accounts and credits decrease these accounts. Active accounts
normally carry a debit balance (fig. 2.2).

28
 Increased with Decreased with
debits credits

Assets
Expenses
Dividends

Normal balance in debit

Fig. 2.2. Features of active accounts

You might think of D – E – A – L when recalling the accounts that are
increased with a debit (Dividends, Expenses, Assets, Losses).
To determine the balance at end of an active account it is necessary: to the
initial debit balance add debit turnover and subtract credit turnover.
Let's look at an example and illustrate it. The company has on account "Cash
in hand" balance at the beginning of the month in amount 5000 UAH. During the
month to cash desk were received money from the bank in the amount
23500 UAH, for the services – 10000 UAH, were issued salary from the cash deck
of 22000 UAH, for business trips – 7500 UAH, deposited in the bank – 5000 UAH
(fig. 2.3).

Fig. 2.3. Illustration for example

In the example above, the beginning balance is 5000 UAH. During the
month receipts and debit turnover amounted to 33500 (23000 + 10000) UAH,
spending and, accordingly, credit turnovers – 34500 (22000 + 7500 + 5000) UAH.
Balance at the end of the month equals 4000 UAH (5000 + 33500 - 34500).
Passive accounts are intended to account availability and changes in the
sources of assets creation: liabilities, revenues, equities. Credits increase liabilities,
revenues, and equity, while debits result in decreases. These accounts normally
carry a credit balance (fig. 2.4).

29
 Decreased with Increased with
debits credits

Liabilities
Revenues
Equity

Normal balance in credit

Fig. 2.4. Features of passive accounts

You might think of G – I – R – L – S when recalling the accounts that are
increased with a credit (Gains, Income, Revenues, Liabilities, Stockholders'
(Owner's) Equity). In passive accounts to determine the balance at end of the
month it is necessary to the initial credit balances add credit turnover and subtract
debit turnover.
Let us consider an example and illustrate it (fig. 2.5). At the enterprise on
account "Payments to suppliers and contractors" balance of payables was
120000 UAH. During the month following business transactions occurred:
transferred money to suppliers for materials received in the amount 250000 UAH,
came from another party of goods from suppliers worth – 150000 UAH, accepted
for payment account of the contractor for work done in the amount 75000 UAH.

Fig. 2.5. Illustration for example

In this example, the initial credit balance was 120000 UAH. During the
reporting period, debt has increased and, consequently, the turnover of credit
amounted 225000 (150000 + 75000) UAH, accounts were paid and accordingly
debit turnover amounted to 250000 UAH. Balance at the end of the month will be
95000 (120000 + 225000 – 250000) UAH.

2.2. Content and appointment of double entry

30
 Economic essence of business operations is that it causes double and equal
changes in assets and sources of their formation. The dual nature of business
operations makes it necessary to reflect it in the accounts by double entry.
Under the double-entry system every business transaction is recorded in at
least two accounts. One account will receive a "debit" entry, meaning the amount
will be entered on the left side of that account. Another account will receive a
"credit" entry, meaning the amount will be entered on the right side of that account.
The initial challenge with double-entry is to know which account should be debited
and which account should be credited. Although the system is referred to as
double-entry, a transaction may involve more than two accounts.
To understand the double entry method advisable to take into accounts two
very important observations:

This relationship between the accounts arising by double entry is called the
correspondence of accounts. As a synonym the terms accounting entries are used.
In order to understand the principles of double-entry, lets consider an
example. We will begin with two accounts: Cash and Notes Payable. Let us recall
the features of these accounts (fig. 2.6.)

Fig. 2.6. Illustration of accounts “Cash” and “Notes Payable”

Transaction 1. On June 1, 2012 a company borrows 5000 UAH from its
bank. It causes the company's asset Cash to increase by 5000 UAH and its liability
Notes Payable to increase also by 5000 UAH. To increase the asset Cash the
account needs to be debited. To increase the company's liability “Notes Payable”
account needs to be credited. After entering the debits and credits the accounts look
like this (fig. 2.6.):

31
 Fig. 2.7. Illustration of transaction 1
Transaction 2. On June 2, 2012 the company repaid 2000 UAH of the debt
for notes. This causes the company's asset “Cash” to decrease by 2000 UAH and
its liability Notes Payable also to decrease by 2000 UAH. To reduce the asset Cash
account will need to be credited for 2000 UAH. To decrease the liability Notes
Payable that account will need to be debited. The accounts will look like this
(fig. 2.7).

Fig. 2.8. Illustration of transaction 2

Because cash is involved in many transactions, it is helpful to memorize the
following:
 Whenever cash is received, debit Cash.
 Whenever cash is paid out, credit Cash.
Having reviewed the features of double entry can be identified such
advantages of this system:
32
 – It is possible to keep a full record of dual aspect of each transaction.
– Transactions are recorded in a scientific and systematic manner and thus
the books of accounts provide the most reliable information for controlling the
organization efficiently and effectively.

– Since the total debit under this system be equal to total credit,
arithmetical accuracy of the books can be tested by means of a trial balance.

– An income and expenditure accounts can be prepared to know the excess

income/expenditure during a particular period and to know how such excess
income/expenditure has arisen.

– The financial position of the organization can be readily ascertained by

preparing a Balance sheet.

– Frauds are prevented, because alteration in accounts becomes difficult

and discovery of irregularities is facilitated.

2.3. Accounting entries. Journal of business transactions registration

Depending on the number of corresponding accounts distinguish simple and

complex accounting entries. Simply calls such accounting entries in which one
account is debited and the other credited for the same amount that corresponds
with each other when only two accounts. Considered in the above examples of
accounting entries were simple:
Dr “Cash” Cr “Notes Payable” 5000 UAH
Dr “Notes Payable” Cr “Cash” 2000 UAH
In complex entries one account is debited, some credited to the total amount,
or vice versa – one credited and several debited for the total amount. Let's consider
the example of complex accounting entries.
Transaction 3. From the cash office of enterprise were given wages in the
amount of 25000 UAH, in accountability for business travel – 3500 UAH, for
payment of administrative expenses – 500 UAH. Accounting entries for this
transaction will be as follows:
Dr “Payments for wages” 25000
Dr “Receivable of accountable persons” 3500 Cr “Cash” 29000
Dr “Administrative expenses” 500
In complex accounting entries not violated the principle of double entry
because interconnected reflection of business operations persists by various debit
and credit accounts on the same amount. Each complex accounting entries can be
decomposed into several simple ones. However, the application in practice of
complex accounting transactions prevails because it reduces the number of records,
making them more visible.
Business transactions occur and are registered in a particular chronological
33
order, and information about the status and movement of objects systematized in
accounts. Therefore, accounting entries are chronological and systematic.
Registration of business transactions occur the journal – simple book of
accounts in which all business transactions are originally recorded in chronological
order and from which they are posted to the ledger accounts at any convenient
time.
The following are the inherent advantages of using journal, though the
transactions can also be directly recorded in the respective ledger accounts:
1. As all the transactions are entered in the journal chronologically, a date
wise record can easily be maintained.
2. All the necessary information and the required explanations regarding all
transactions can be obtained from the journal.
3. Errors can be easily located and prevented by the use of journal or book
of prime entry.
The specimen journal can be shown as follows (table 2.1).
Table 2.1
The journal of business transactions registration

№ Date Particulars Dr Cr Sum

The journal has six columns: Number, Data, Particulars, Debit, Credit and
Sum. In column “Particulars” summary of business operations and its grounds are
recorded.
The illustrated journal was referred to as a “general” journal. All transactions
and events can be recorded in the general journal. However, a business may
sometimes use “special journals.” Special journals are totally optional; they are
typically employed when there are many redundant transactions. Thus, a company
could have special journals for each of the following: cash receipts, cash payments,
sales, purchases, and/or payroll. These special journals do not replace the general
journal. Instead, they just strip out recurring type transactions and place them into
their own separate journal.

Tests for self-control

Each question contains one correct answer.

1. Account represents a:
1) Means of grouping (generalization) of accounting objects and monitoring of
their condition and movement in the economic activity of enterprises;
2) Method of the current accounting for companies’ assets movement;
3) Method of payment documenting;
34
4) Method of accounting for movement of companies’ sources of assets.

2. Accumulated information about the movement of accounting objects, reflected

in the debit and credit is called:
1) Initial balance;
2) Balance at end;
3) Turnover;
4) Trial balance.

3. Active accounts are intended to account for the presence and movement of:
1) Assets, expenses, dividends, losses;
2) Liabilities, owners’ equity, expenses;
3) Assets, expenses, liabilities, losses;
4) Liabilities, owners’ equity, dividends, losses.

4. Active accounts normally carry:

1) Debit balances;
2) Credit balances;
3) Debit turnover;
4) Credit turnover.

5. Passive accounts are intended to account availability and changes in the:

1) Liabilities, owners’ equity, expenses;
2) Assets, expenses, liabilities, revenues;
3) Assets, expenses, dividends, losses;
4) Liabilities, revenues, owners’ equities.

6. Liability accounts will normally have:

1) Debit balances;
2) Credit balances;
3) Debit turnover;
4) Credit turnover.

7. The following contention is correct:

1) A debit entry increases an expense. A credit entry reduces the capital. A debit
entry increases the sales;
2) A credit entry increases a liability. A debit entry increases an asset. A credit
entry increases profit;
3) A debit entry increases a loss. A credit entry reduces the sales. A debit entry
increase the receivables;
4) A debit entry reduces an asset. A credit entry increases a liability. A debit
balance increases the drawings.

8. The following contention is correct:

35
1) A debit entry increases an expense. A credit entry reduces the capital. A debit
entry increases the sales;
2) A debit entry increases a loss. A credit entry reduces the sales. A debit entry
reduces the receivables;
3) A credit entry increases a liability. A debit entry increases an asset. A credit
entry increases profit;
4) A debit entry reduces an asset. A credit entry increases a liability. A debit
balance increases the drawings.

9. Accounting entries involve a minimum:

1) One account;
2) Two accounts;
3) Three accounts;
4) Four accounts.

10. Accounting entries in which one account is debited and the other credited for
the same amount that corresponds with each other are called:
1) Complex entries;
2) Usual entries;
3) Common entries;
4) Simply entries;

11. The book of original entry is the definition of the:

1) Journal;
2) Ledger;
3) Balance sheet;
4) Recorder.

12. Determine the balance in the active account “Inventories”, knowing that the
balance at the beginning of the month – 7000 UAH, receipt per month –30000
UAH, used– 15000 UAH:
1) 8000 (credit);
2) 22000 (debit);
3) 8000 (debit);
4) 22000 (credit).

13. Determine the balance in the active account “Production” if the balance at the
beginning of the month was 100000 UAH, the cost per month – 75000 UAH,
output – 150000 UAH:
1) 25000 (credit);
2) 25000 (debit);
3) 175000 (credit);
4) 175000 (debit).

36
14. Determine the balance of the passive account “Payments for employee
benefits” if payable to workers at the beginning of the month – 60000 UAH,
accrued – 45000 UAH, paid – 50000 UAH:
1) 55000 (credit);
2) 65000 (credit);
3) 55000 (debit);
4) 65000 (credit).

15. Determine the balance on the passive account “Short-term loans” knowing that
the balance at the beginning of the month – 50000 UAH, company received loan in
the amount 30000 UAH and partially repaid the debt on the loan – 20000 UAH:
1) 40000 (credit);
2) 60000 (debit);
3) 40000 (debit);
4) 60000 (credit).

16. Control value of double entry lies in the following assertion:

1) Total entries of debits equals the sum of entries in each credit account;
2) Debit and credit are displaying the same amount;
3) The sum of debit turnovers equals the sum of credit turnovers of all accounts;
4) Debit turnovers equal credit turnovers.

17. One of the following accounts is not active:

1) Cash;
2) Inventories;
3) Authorized capital;
4) Production.

18. One of the following is not a type of active account:

1) Land;
2) Mortgage payable;
3) Cash;
4) Accounts receivable.

19. One of the following accounts is not increased by a credit:

1) Liability;
2) Owners’ equity;
3) Assets;
4) Revenue.

20. One of the following accounts is not increased by a debit:

1) Revenue;
2) Asset;
3) Expense;
4) Losses.
37
 THEME 3. SYNTHETIC AND ANALYTICAL ACCOUNTING.
CHART OF ACCOUNTS

3.1. The concept of synthetic and analytical accounting, their connection.

3.2. Generalization of current accounting data.
3.3. Classification of accounts. Appointment and structure of the Chart of
accounts.

Dictionary

Additional capital Додатковий капітал

Аnalytical accounts Аналітичні рахунки
Authorized capital Статутний капітал
Сash offices Каса
Cash in hand Готівка в касі
Chart of Accounts План рахунків
Сhess statement Шахова відомість
Checking account Поточний рахунок
Current liabilities Поточні зобов’язання
Short-term notes receivable Короткострокові векселя отримані
Depreciation of non-current assets Амортизація необоротних активів
Financial statements Фінансова звітність
Finished products Готова продукція
Fixed assets Основні засоби
Inventories Виробничі запаси
Intangible assets Нематеріальні активи
Long-term liabilities Довгострокові зобов’язання
Low-value wear items Малоцінні швидкозношувані
предмети
Negotiable statement Оборотно-сальдова відомість
Non-current assets Необоротні активи
Off-balance sheet accounts Позабалансові рахунки
Payments to suppliers and contractors Розрахунки з постачальниками та
підрядниками
Payments to wage Розрахунки з оплати праці
Retained profit or uncovered loss Нерозподілений прибуток або
непокритий збиток
Reserves for doubtful debts Резерв сумнівних боргів
Reserve capital Резервний капітал
Settlements with buyers and customers Розрахунки з покупцями і
замовниками
Share capital Пайовий капітал
Sub-accounts Субрахунки
Supplies Запаси
38
Synthetic accounts Синтетичні рахунки
Target-oriented financing Цільове фінансування

3.1. The concept of synthetic and analytical accounting, their connection

Depending on the volume of information and the level of generalization

accounting records are divided into synthetic and analytic.
Accounts, which are opened on the basis of Balance sheet for accounting of
economic resources and their sources, contain general (synthetic) indicators in
monetary valuation. Thus, account "Fixed Assets" reflects the presence and
movement of fixed assets of the company (land, buildings and structures,
machinery and equipment, vehicles, etc.); account "Inventories" – the presence and
movement of material assets of this group (raw materials, fuel, building materials,
spare parts, etc.); account "Payments to suppliers and contractors" – the total
amount of payable to all suppliers and contractors for material derived from them,
works and services rendered, and changes of this debts as a result of payment.
Such accounts are called synthetic.
The term "synthetic" is derived from Latin. syntesis, which means
combined, generalized, unification into whole individual elements. Synthetic
accounts are intended for accounting of economically homogeneous groups of
assets, their sources and business processes in the money measure. Accounting,
which is conducted on the basis of these accounts, called synthetic accounting.
Data of synthetic accounting used in the preparation of Balance sheet and other
financial reporting.
However, for operational management, control over maintenance and
utilization of resources, it is not enough getting only summarized information, it is
need detailed information about specific types of assets, their sources and business
processes. This information is obtained through the analytical accounts.
The term "analytical" comes from the Latin analysis – decomposition, the
whole division of the components (elements). Accounting that carried out on the
basis of analytical accounts is called analytic. This is accounting, which, in
addition to money, use natural and labor meters. For example, synthetic account
"Payments for employee benefits" open up analytical accounts for the names of the
personnel; "Administrative expenses" – by costs, "Finished products" – by the
kinds of finished products and so on. Number of analytic accounts determined by
corresponding synthetic account, it is depending on the availability of facilities and
accounting tasks on detail.
Synthetic accounts are concretized in the analytical accounts. There is
inextricably relationship between synthetic and analytical accounts, as on the basis
of the same documents they show the same operation, but with varying degrees of
detail: on synthetic account shows the total amount, and on analytical accounts –
partial amounts.
Relationship between synthetic and analytical accounts turns out as follows:
1. On the synthetic and analytical accounts balance is located on the same
side of the account.
39
 2. If synthetic account is debited or credited, it still debited or credited to its
analytical accounts.
3. Each transaction in the synthetic account record total amount and on the
corresponding analytical accounts – partial sums.
4. Total balances and turnovers for all analytical accounts should equal the
balance and turnover, respectively, of synthetic account. Absence of such equality
indicates the presence of errors in accounting records that should be founded and
promptly corrected.
For the purposes of economic analysis and operational management it is
necessary to have more extensive information about assets, their sources and
business processes than it can be provided by synthetic account. In this case,
resorted to additional grouping of similar analytical accounts within a synthetic
account to get generalized indicators. This grouping is carried out by sub-accounts.
Schematically, relationship between synthetic accounts, sub-accounts and
analytic accounts is shown on figure 3.1.

1 level A Synthetic
account

2 level A1 A2 Sub-accounts

3 A A A A A A Analytical
11 12 13 21 22 23
level accounts

Fig. 3.1. Relationship between synthetic accounts, sub-accounts and analytic

accounts

Lets consider the above scheme on example: synthetic account –

“Inventories”; sub-account – “Raw materials and materials”; analytical accounts –
“Materials”, “Ferrous metals”, “Non-ferrous metals”, “Varnishes, paints” etc. To
each analytic account can also be opened detailing accounts. For example, account
“Ferrous metals” can be divided into “Steel”, “Pig iron”, “Ferroalloy” and so on.

3.2. Generalization of current accounting data

The process of displaying of business transactions on synthetic and

analytical accounts is called current accounting. Since the balance is always
describes the existence and status of economic resources and their sources in value
measuring on a certain date, then for current reflection of changes in assets and
their sources accounts are intended. Accounts are opened on the basis of Balance
sheet, whose balances on the beginning of the month in form of the opening

40
balance are recorded in such way: on active accounts – in the debit, on passive
accounts – in the credit.
Within a month accounting entries are transferred from the journal of
business transactions to open synthetic and analytical accounts. At the end of the
month turnovers on the debit and credit of each synthetic and analytical account
are counted and the ending balance (balance at end of month) is compiled. Data of
synthetic and analytical accounts compiled by negotiable statements that presented
separately for synthetic and analytical accounts.
Current generalization of the changes that occurs in the assets and their
sources is carried out by the negotiable statements. Negotiable statements
summarize turnovers and balances for the period (month), and set the relationship
between balance and accounts, that is important for the control of accounts
correctness.
Thus negotiable statements made on synthetic as well as on analytical
accounts. They reflect the turnover of debit and credit accounts and balances
(deficit) at beginning and at the end of the reporting period (month).
Negotiable statement on synthetic accounts is based in a table that includes
sequentially: name of synthetic accounts, beginning balance on the debit or credit,
turnover for the month on debit and credit, and the ending balance on the debit or
credit. For each graph shows the results of negotiable statement (table. 3.1).
Table 3.1
Example of negotiable statement on synthetic accounts
Balance at the
Turnover for the Balance at the
beginning of the
The name of accounts month end of the month
month
Debit Credit Debit Credit Debit Credit
Fixed assets 270 000 50 000 320 000
Inventories 50 000 80 000 100 000 30 000
Production 25 000 120 000 145 000
Cash in hand 2 000 40 000 40 000 2 000
Checking account 90 000 20 000 90 000 20 000
Authorized capital 87 000 55 000 142 000
Retained earnings 160 000 30 000 60 000 190 000
Short-term loans 35 000 30 000 5 000
Calculation of wages 155 000 35 000 120 000
Payments to suppliers and
110 000 170 000 60 000
contractors
Total 437 000 437 000 525 000 525 000 517 000 517 000
If the initial balance of the accounts is written correctly, all the
correspondence of accounts (accounting entries) are separated, turnovers are
counted and final balance is derived, there will be three pairs of equations in
negotiable statement:

41
 1. Equality totals of the first pair columns due to equality totals of assets
and liabilities, which are the basis for recording balance at the beginning on
synthetic accounts.
2. Equality totals of the second pair columns due to double-entry
operations, under which each business operation in the same amount is reflected in
the debit and credit of the various accounts.
3. Equality totals of the third pair columns due to the previous two
equalities: if the initial balance on synthetic accounts equal to each other (initial
balance), and amounts of turnover on debit and credit (negotiable balance) are
equal, then the balances at the end of the reporting period as a result should be
equal each other (final balance).
Violation of these equations shows the errors that have been made in the
correspondence of accounts or in the preparation of negotiable statement.
Analytical accounts are opened to the most of synthetic accounts, therefore
compilation of negotiable statement for analytical accounts facilitates detailed
information about the movement and balance of certain assets and their sources,
necessary for the evaluation, monitoring and economic analysis for effective
management.
Consider procedure of negotiable statement for analytical accounts preparing
on the example of synthetic account “Payments to suppliers and contractors”
(table. 3.2).
Table 3.2
Example of negotiable statement on analytical accounts to account
“Payments to suppliers and contractors”
Balance at the
The name of Turnover for the Balance at the end
beginning of the
№ analytical month of the month
month
accounts
Debit Credit Debit Credit Debit Credit
1 PSC "Rainbow" 65 000 90 000 25 000
2 JSC "Spring" 45 000 80 000 35 000
Total – – 110 000 170 000 – 60 000
When accounts are correct, totals turnover and balance in negotiable
statement on analytical accounts equals to amounts of turnovers and balance of
appropriate synthetic account. This is the control meaning of negotiable statement
on analytical accounts.
Negotiable statements on synthetic accounts are used for the preparation of
the Balance sheet and for the filling of the other financial statements. Thus, the
negotiable statement on synthetic accounts is a way to generalize of the current
accounting data to verify the completeness and correctness of the accounts and
characteristics of the assets and liabilities movement for the reporting period.
Negotiable statement gives an overview of the status and movement of economic
resources and their sources, but insufficient reveals the economic content of turns,
their structure by assets as well as by sources. Chess statement is more effective in
this respect. It is built on the principle of chessboard.
42
 All accounts in chess statement recorded twice in the same sequence:
vertically and horizontally, on the debit and on the credit. Amount in cell of chess
statement shows which account debited and which credited. Turnovers of each
account are detailed according to correspondence. Comparatively with a simple
negotiable statement it gives a broader picture of changes in economic resources
and processes that have occurred. In chess statement can be given balances at the
beginning and at the end of the month, that significantly improves its accounting
and analytical capabilities.
Having examined the peculiarities of the accounting information we can
schematically show the process of accounting information generalization (fid. 3.1).

Fig. 3.2. Process of accounting information generalization

Where:
1. Balance sheet at the beginning of the month;
2. Accounts;
3. Journal of business transactions;
4. Negotiable statement;
5. Balance sheet at the end of the month.

3.3. Classification of accounts. Appointment and structure of the Chart

of accounts

Depending on the economic content of accounting objects accounts are

divided into three groups:
– accounts of economic resources (assets);
– accounts of sources of economic resources (liabilities);
– accounts of business processes.
On account of economic resources (assets) shows the presence (state) and
the movement of means. Depending on the functions performed in the economy,
they are divided into: non-current assets, inventories, cash funds in the
calculations.
Classification of accounts by the economic content shown in Fig. 3.3.

43
 Accounts by the economic
content

Accounts of funds in settlements

Accounts of monetary funds

Accounts of long-term liabilities

Accounts of liabilities ensuring

Accounts of current liabilities

Accounts of inventories

Accounts of the acquisition

Accounts of the production

Accounts of economic Accounts of sources Account of business

Accounts of sales
of assets

Equity accounts
resources processes

process

process
Accounts of Accounts of
own sources involved sources
Accounts of of non-current assets

10, 20, 30, 34, 40, 41, 47, 48 50, 51, 60, 62. 15, 23, 70, 71, 72, 73,
11, 22, 31, 36, 42, 43, 52, 53. 63, 64, 74, 79, 90, 91, 92, 93,
12, 23, 33 37, 44 54, 66 94, 95, 96. 97
13. 26, 38
15 28

Fig. 3.3. Classification of accounts by the economic content

The accounts of non-current assets are intended for the generalization of
information about the presence and movement of the organization’s assets, which
in accordance with the rules for accounting relate to fixed and intangible assets and
other extra-budgetary assets, and also about transactions associated with their
construction, acquisition and retirement. These include accounts: 10 “Fixed
assets”, 11 “Other non-current tangible assets”, 12 “Intangible assets”, 13
“Depreciation of non-current assets”, 15 “Capital investments”.
The accounts of inventories are designed for the generalization of
information about the presence and movement of materials, intended for
processing, treatment or use in production or for meeting economic needs; finished
products and goods, which in accordance with the established order are included in
the composition of means in turnover. These include accounts: 20 “Inventories”, 22
“Low-value wear items”, 23 “Production”, 26 “Finished products”, 28 “Goods”.
The accounts of monetary funds are designed to generalize information
about the presence and movement of monetary funds in national and foreign
currencies in cash offices and on settlement and other accounts that have been
opened with credit organizations on the territory of country and beyond its borders,

44
and also of securities, payment and monetary documents. These include accounts:
30 “Cash in hand”, 31 “Checking accounts” and 33 “Other monetary funds”.
The accounts of funds in settlements are designed to generalize information
about all types of settlements of the organization with different juridical and
natural persons, and also of intra-economic settlements. These include accounts: 34
“Short-term notes receivable”, 36 “Settlements with buyers and customers”, 37
“Settlements with various debtors” and 38 “Reserves for doubtful debts”.
All examined above accounts are active. On the debit of these accounts are
displayed revenues (increase) of economic resources (assets) and on credit –
decrease (outflow) of assets. Balance on active accounts always indicates the
presence of economic resources at the beginning and at the end of accounting period.
On account of the sources of economic recourses the presence and
movement of equity and liabilities are displayed. By the nature of these sources
accounts of this group are divided into accounts of own sources and accounts of
involved sources.
Equity accounts are intended for the generalization of information about the
state and movement of the organization’s capital. This group included such
accounts: 40 “Authorized capital”, 41 “Share capital”, 42 “Additional capital”,
43 “Reserve capital”, 44 “Retained profit or uncovered loss”, 45 “Withdrawn
capital” and 46 “Unpaid capital”.
Accounts of liabilities ensuring are used to obtain information about the
status and movement of various ensuring, target financing and other targeted
receipts. These include accounts: 47 “Ensuring future expenses and payments”,
48 “Target-oriented financing” and 49 “Insurance reserves”.
Accounts of long-term liabilities used to recording and generalization of
information about the status and movement of enterprises liabilities for received
bank loans, for bonds issued, for issued promissory notes and other long-term
debts, i.e. arrears that are not repayable during the operational cycle of an
enterprise or over twelve months after the Balance sheet date. These include the
accounts 50 “Long-term loans”, 51 “Long-term promissory notes issued”, 52
“Long-term liabilities for bonds”, 53 “Long-term liabilities of rent”, 54 “Deferred
tax liabilities”, 55 “Other long-term liabilities”.
Accounts of current liabilities used for accounting and generalization of
information about the status and movement of current liabilities of the enterprises
for received bank loans, for issued promissory notes and other liabilities,
repayment of which occurs in the normal course of business and operating cycle or
over twelve months from the Balance sheet date. This group included such
accounts: 60 “Short-term loans”, 62 “Short-term promissory notes issued”, 63
“Settlements with suppliers and contractors”, 64 “Payments of taxes and fees”, 65
“Payments of insurance”, 66 “Payments for employee benefits” and other.
Accounts reflecting the formation of assets’ sources are passive. On the
credited of these accounts reflects an increase in sources of funds, and on the
debit – their decrease, debiting. Balance of these accounts is always characterized
by the presence of sources for economic resources at the beginning and at end of
the accounting period.
45
 As noted in the previous themes, circulation of enterprises’ capital is carried
out through business processes: supply (purchasing), production and realization
(sale). Economic meaning of these operations reflects the accounts of economic
processes. On these accounts business transactions of the resources supplying and
purchasing, production of goods (works and services) and its realization are
reflected. Accounts of economic processes include: 15 “Capital investments”, 23
“Production”, 90 “Cost of sales”, “Revenues from sales” and others.
Classification of accounts by the purpose and structure answers the question
how exactly these or other means, their sources and business processes are
recorded, how they are reflected in the debit and credit of account and what
describes the balance of the account. The general classification of accounts by the
purpose and structure is presented in fig. 3.4.
Accounts by the purpose and structure

Basic Regulatory Operating Accounts of Off-balance

accounts accounts accounts result sheet
accounts
material contrary distribution accounts of property
accounts; accounts; accounts; operational accounts;
cash complemen- calculation result; liability
accounts; tary accounts. accounts. accounts of accounts.
settlement financial
accounts; result.
capital
accounts.

Fig. 3.3. General classification of accounts by the purpose and structure

Basic accounts are intended for accounting of condition and movement of
economic resources and their sources. They are combined to characterize the
property of the companies and they are the basis for the preparation of the Balance
sheet. Basic accounts are divided into material (“Fixed assets”, “Inventories”,
“Goods” etc.), cash (“Cash in hand”, “Checking account” est.), settlement
(“Settlements with buyers and customers”, “Settlements with suppliers and
contractors” est.) and capital accounts (40 “Authorized capital”, 42 “Additional capital”,
43 “Reserve capital” etc.).
Regulatory accounts are intended to adjustment basic indicators of
individual accounts and Balance sheet items. Regulatory accounts may reduce or
increase the assessment means on the basic accounts. Depending on this they are
divided on the contrary and complementary. Contrary accounts are used to regulate
the results of active and passive basic accounts, as they are called contrastive and
contrpassive accordingly. Regulatory accounts at Balance sheet reflected in lines
after the main account and are not included to the total of Balance sheet. Thus, the
sub-account "Depreciation of fixed assets" is a regulatory to account "Fixed
46
Assets", which assets are carried at initial cost. During the operation of fixed assets
wear out their residual value decreases. The latter take into account as the
difference between the balance of the account "Fixed Assets" and balance of sub-
account "Depreciation of fixed assets".
Complementary regulatory accounts always increase the balance of
accounts, which is adjustable. An example of active complementary accounts is
analytical account "Transportation and procurement costs," which is a part of
synthetic account "Inventories" in sub-accounts "Raw Materials", "Fuel", "Spare
parts", etc. The actual cost of inventories in this case is determined by adding up
the value of their purchase price and the amount of transportation, procurement
and other costs directly attributable to the acquisition of inventories and bringing
them to a state suitable for use as shown on the analytical accounts “Transportation and
procurement casts”.
Operating accounts are intended to reflect the business processes, i.e.
processes of supplying, production and sales, as well as the results of the
enterprise. These accounts are designed to collect information about the costs,
revenues and financial results, and most of them have no balance. Distribution
accounts intended for cost accounting, which by their nature can not be classified
to the appropriate accounts and requiring distribution according to certain criteria
(for example, account 91 “General manufacturing expenses”).
Calculation accounts are intended to account for costs associated with the
production of goods, works and services for the purpose of calculating their cost.
Accounts "Production", "Capital investments" and others are included to
calculation.
Accounts of result are used to display and compare the costs and revenues.
Depending on the degree of comparison (at the level of incomes and the level of
net incomes) they are divided into: accounts of operational result and accounts of
financial result. First kind of these accounts are intended to identify the economic
performance of enterprises by comparing gross income and gross expenses and
determine the outcome: gains or losses (79 “Financial Results”). Second kind of
these accounts are intended to account and control of net financial results of the
company – profits or losses (44 “Retained profit or uncovered loss”).
Considered accounts – basic, regulatory, operating constitute system that
covers all economic means, source of their formation, business processes and its
results. These accounts are mutually corresponds to each other and are shown in
the Balance sheet. Along with the Balance sheet accounts, accounts that do not
appear in the Balance sheet are used. These are called off-balance sheet accounts.
Off-balance sheet accounts are intended for the generalization of
information about the presence and movement of values temporarily used or
disposed by the respective organization (leased fixed assets, material values in safe
custody and processing, etc.), of conditional rights and obligations, and also for the
exercise of control over individual economic operations. The accounting records of
said objects shall be kept according to a simple system (without double-entry).
To ensure unity, comparing and summarizing of accounting data, business
transactions are still displayed on company’s accounts regardless of their
47
organizational forms. Such unity is achieved by a single system of accounts and
uniform requirements for it. In Ukraine had been applied a special list of accounts,
called the Chart of accounts of assets, capital, liabilities and business operations of
enterprises and organizations (Appendix 2). It was approved by order of the
Ministry of Finance of Ukraine N 1591 from 09.12.2011.
Chart of accounts – a systematic list of accounts on which business
transactions are reflected and accounting information about the activities of the
company, which needed by users to make decisions, are accumulated. Chart of
accounts of assets, capital, liabilities and business operations of enterprises and
organizations structurally consists of 10 classes, which include balance, nominal
and off-balance sheet accounts (table 3.3).
Table 3.3
The structure of Chart of accounts
Class Name Characteristic
Includes accounts for generalization information about the presence and
Non-current movement of fixed assets and other non-current tangible assets,
1
assets intangible assets, long-term receivables and other non-current assets and
depreciation of fixed assets.
United accounts to compile information about the presence and
2 Supplies movement of enterprises’ items of work for processing, using in
production and for household needs as well as low value wear items.
Monetary Includes accounts to compile information about the presence and
funds, movement of funds (in national and foreign currency on hand, checking
3 settlements accounts in banks), bank documents, notes receivable and short-term
and other financial investments, accounts receivable, reserve for doubtful
assets receivables and prepaid expenses.
Includes accounts to summarize the information about the condition and
Equity and
movement of funds for varieties equity - share, additional, reserve,
4 ensuring of
unpaid capital and retained earnings (accumulated losses), target-oriented
liabilities
financing, ensuring of future expenses and payments, insurance reserves.
Combines accounts for recording and summarizing enterprise’s data for
Long-term debt to banks loans obtained, for issued promissory notes, other debt that
5
liabilities is not repayable within enterprises operating cycle or within twelve
months after the Balance sheet date.
Includes accounts for records and compile information on commitments
for short-term bank loans, issued bills, payments to suppliers and
Current
6 contractors, for taxes, insurance, for other transactions to be repaid in the
liabilities
normal course of operating cycle or within twelve months from the
Balance sheet date.
Revenues Includes accounts intended to summarize information about income from
7 and results operating, investing and financing activities of the enterprise, as well as
of activities emergencies.
United accounts to compile information about costs of the company
Expenses by during the year under the cost elements: material costs, labor costs,
8
the elements contributions to social programs, amortization and other operating
expenses.
9 Expenses of Includes accounts that are used to summarize information about the costs
activity of operating, investing and financial activities of the enterprise and the

48
 cost of accidents preventing.
Off-balance Includes accounts designed to account for assets and liabilities that are
0 sheet not reflected in the Balance sheet.
accounts
The methodological bases of the existing in Ukraine Chart of accounts are:
– Generally accepted principles of accounting and financial reporting.
– International Accounting Standards (IAS) and national regulations
(standards) of accounting.
– Law of Ukraine "On Accounting and Financial Reporting in Ukraine".
The current Chart of accounts contains 99 accounts of the first order. Sub-
accounts to synthetic are entered by enterprises independently based on the needs
of management, monitoring, analysis and statements.
To ensure proper use of accounts, simultaneously with the adoption of the
Chart of accounts, Ministry of Finance of Ukraine has developed and approved
Instructions for its application. It includes characteristic of economic content,
purpose and structure of each account, a typical correspondence of accounts, also
instructions concerning the order of analytical accounting are given.
Chart of Accounts and Instructions for its application are an important
means of state regulation of accounting and financial reporting that are carried out
to establish common rules of accounting and financial reporting, that are
compulsory for all companies, guarantees and protects the interests of the users of
accounting information.

Tests for self-control

Each question contains one correct answer.

1. Accounts intended for accounting of economically homogeneous groups of

assets, their sources and business processes in the money measure are called:
1) Synthetic accounts;
2) Sub-accounts;
3) Analytical accounts;
4) Collective accounts.

2. Analytical accounts contain the following information:

1) Data used in the preparation of Balance sheet and other financial reporting;
2) Detailed information about specific types of assets, their sources and business
processes;
3) General information about specific types of assets, their sources and business
processes;
4) All of the listed answers are correct.

49
3. Sub-account “Raw materials and materials” can be opened to detail information
on synthetic account:
1) “Fixed assets”;
2) “Non-current assets”;
3) “Inventories”;
4) “Finished goods”.

4. Following measures are used in synthetic accounting:

1) Natural;
2) Labor;
3) Monetary;
4) All of the listed.

5. Following measures are used in analytical accounting:

1) Natural;
2) Labor;
3) Monetary;
4) All of the listed.

6. What analytical accounts are maintained to account “Payments to suppliers and

contractors”?
1) By specific suppliers;
2) By types of material and services supplied;
3) By composition of materials;
4) By payables to providers.

7. On which of the following analytical accounts will be displayed receipt of the

material from the supplier:
1) On account of the supplier;
2) On account of the specific type of material;
3) On account of the type of product to which materials will be used;
4) On account of the customer.

8. On which of the following analytical accounts receivable for goods shipped will
be displayed:
1) On account of the individual customer;
2) On account of the type of product;
3) On account of the supplier;
4) On a personal account.

9. Account of the single company’ employee refers to:

1) Synthetic account;
2) Sub-account account;
3) Analytical account;
4) Second order accounts.
50
10. Which analytical accounts are maintained to account “Materials”?
1) By specific types of materials;
2) By responsible persons;
3) By workshops that use materials;
4) By types of products for which materials are used.

11. Which document summarizes turnovers and balances for the period (month),
and sets the relationship between balance and accounts:
1) Income statement;
2) Balance Sheet;
3) Ledger;
4) Negotiable statement.

12. Which of the following statements is correct?

1) Negotiable statements made only on synthetic accounts;
2) Negotiable statements made only on analytical accounts;
3) Negotiable statements made on synthetic as well as on analytical accounts;
4) Negotiable statements made only on sub-accounts.

13. There is the following number of pairs of equations in negotiable statement:

1) One;
2) Two;
3) Three;
4) Four.

14. The control meaning of negotiable statement on analytical accounts is that:

1) Totals turnover and balance in negotiable statement on analytical accounts
equal amounts of turnovers and balance of appropriate synthetic account;
2) Totals turnover and balance in negotiable statement on synthetic account equal
amounts of turnovers and balance of analytical accounts;
3) Totals turnover and balance in negotiable statement on analytical accounts
equal amounts of turnovers and balance of all synthetic accounts;
4) Totals turnover and balance in negotiable statement on analytical accounts
equal to the sum of turnovers and balance of synthetic account.

15. Which of the following statements is correct?

1) Analytical accounts are independent of synthetic account;
2) Analytical accounts are only degree of detail for synthetic accounts;
3) Accounting entries can be made between the analytical accounts;
4) There is no relationship between synthetic and analytical accounts.

16. A detailed listing of accounts is called:

1) Account groups;
2) Chart of accounts;
51
3) T-accounts;
4) None of the listed answer is correct.

17. An account in the Chart of accounts normally has:

1) The account’s number;
2) A brief description of account;
3) The account’s name;
4) All of the listed answers are correct.

18. Chart of Accounts structurally consists of

1) 5 classes;
2) 8 classes;
3) 10 classes;
4) 12 classes.

19. Which of accounts are intended for the generalization of information about the
presence and movement of values temporarily used or disposed by the respective
organization?
1) Calculation accounts;
2) Operating accounts;
3) Off-balance accounts;
4) Regulatory accounts.

20. Which of accounts are intended to accounting condition and movement of

economic resources and their sources?
1) Basic accounts;
2) Accounts of result;
3) Regulatory accounts;
4) Off-balance accounts.

THEME 4. ACCOUNTING DOCUMENTS AND REGISTERS.

FORMS OF ACCOUNTING ORGANIZATION

4.1. Documentation of accounting: its essence and appointment.

4.2. Accounting registers and their significance in generalization of
information.
4.3. Forms of accounting organization.

Dictionary

Аccounting records Бухгалтерські записи

Accounting register Регістр бухгалтерського обліку
Advance report of accountable person Авансовий звіт підзвітної особи
Balance sheet Бухгалтерський баланс
52
Bank statement Виписка банку
Вusiness transaction Господарська операція
Сashier report Звіт касира
Correcting method Коректурний спосіб
Credit slip Прибутковий ордер
Debit memo Дебетове авізо
Demand-waybill Вимога-накладна
Documentation Документація
Form of accounting Форма бухгалтерського обліку
Inventory card Інвентарна картка
Invoice Рахунок, рахунок-фактура
Journal-order form of accounting Журнально-ордерна форма
бухгалтерського обліку
Ledger Головна книга
Limit-fence card Лімітно-забірна картка
Memorial order accounting form Меморіально-ордерна форма
бухгалтерського обліку
Method of additional of records Спосіб додаткових записів
Payment order Платіжне доручення
"Red reversal" method Спосіб «червоне сторно»
Responsibilities Відповідальність, обов’язки
Simplified form of accounting Спрощена форма бухгалтерського
обліку
Source documents Первинні документи
Subsidiary sheets Допоміжні відомості
Tables records of working time Табель обліку робочого часу

4.1. Documentation of accounting: its essence and appointment

An essential element of an effective financial management system is

maintaining of adequate accounting records and source documents. Accounting
documents and records are the physical objects upon which transactions are
entered and summarized. Examples include such items as cancelled checks, paid
bills, payrolls, ledgers, bank reconciliations, etc.
Documentation is an important link in the chain functioning of accounting.
This is the beginning and basis of accounting. Without a properly executed
document can’t be accounting records, from it depends completeness and accuracy
of accounting information for users.
Accounting document –is a written evidence of some form and content,
which includes information about business operations and is proof of its
implementation. Method of business transactions registration by documents is
called documentation. Documentation is an important element of accounting
method because it is used for the primary observation of business transactions, and
it is a prerequisite for their reflection in accounting.

53
 Source documents, which record the facts of economic operations, are the
basis for the accounting of these transactions. Source documents shall be made
during the business transaction.
To ensure that an entity's accounting system effectively meets the needs of
fiscal control and financial reporting, the entity's accounting records and source
documents should have:
– an established form and contain all the necessary requisites (name of the
document, its number, date and place of issue, signature etc.);
– name of the company on whose behalf the document is drawn up;
– the content and scope of business operations;
– the measure of business operations;
– the persons responsible for the economic operation and its correctness;
– prepared at the time of the transaction or as soon as possible afterward in
order to reduce the likelihood of error;
– sufficiently simply form so that they can be readily understood;
– designed for multiple use whenever its possible, that can help to
minimize the number of different forms and reduce the duplication of effort;
– constructed in a manner that encourages for correct preparation and
transfer of information through internal checks within the form or record, for
example including instructions for proper routing, spaces for authorizations and
approvals, footing and cross-footing and pre-printed data.
Source documents shall be drawn up on paper or machine (electronic)
medium. Accordingly, there are requirements for the content and design of
documents. Procedure of source documents creation and recording in the
accounting registers is set by the Regulations about documentation ensuring of
accounting records, approved by the Ministry of Finance of Ukraine of 24 May
1995 № 88.
The procedures for proper recordkeeping should be spelled out in an
accounting procedures manual to assist personnel in understanding and applying of
appropriate procedures. The manual should describe the flow of documents
throughout the organization, the responsibilities of each person involved in the
process, and instructions for appropriately preparing of documents and records.
The manual should be periodically updated to reflect conditions that are changing.
Complete essence of documents and their place in the economic activity of
the enterprise is displayed in their classification, division into groups according to
certain criteria. Documents are classified by place of drawing up, by appointment,
by the procedure of drawing up, by the method of using and by the content (fig.
4.1).

54
 Classification of accounting

Of accounting clearance
documents by the:

Accumulative
Summarized
Prescriptive

Settlement
Combined
Executive

Monetary
External

Material
Primary

One-off
Internal

Place of Procedure
drawing of drawing Method of
Appointment Content
up up using

Fig. 4.1. Classification of accounting documents

By the place of drawing up accounting documents are divided into internal
and external. Internal documents are drawn at the company and are used right
there. These include advance reports of accountable persons, tables of working
time records, fixed assets inventory cards, credit slip, etc. External documents are
drawing up on the side, they are received from other companies and organizations.
This includes invoices, payment orders, bank statements, resolutions, letters,
contracts, etc.
By appointment documents are divided into prescriptive, executive,
documents of accounting clearance and combined. Prescriptive documents contain
orders (tasks) for a particular business transaction. These include orders for
acceptance and dismissal from work, orders to bank for money transfer, etc.
Executive documents confirm the fact of the business operations and its execution
to some person who filed the document. These include advance reports, bank
statements, statements, receipts, etc. Documents of accounting clearance are
prepared on the basis of executive and administrative documents by staff
accountants. These documents include: debit memo, various calculations
(amortization, cost-sharing) and others. Combined documents unite functions of
the above documents. An example of a combined document may be spending cash
order, which contains order of the head about cash delivery and confirmation of its
actual issuance and obtaining by signatures of the cashier and recipient of money.
By procedure of drawing up documents are divided into primary and
summarized. Primary documents make up at the time of the business transaction
(profit and expense cash orders, invoices, etc.). Summary documents are based on
the homogeneous primary documents by grouping and summarizing of their
indicator (cashier reports, expense reports, trade reports, payroll, etc.).

55
 By the way of using documents are divided into one-off and accumulative.
One-off documents simultaneously record one or more business transactions
(orders, requirements, statements, etc.). Accumulative documents form
information about business transactions over a certain period of time (day, ten
days, month). Such documents are used repeatedly. These include timesheets,
limit-fence card and so on.
By the content documents are divided into monetary documents (profit and
expense cash orders, bank checks, etc.), settlement documents (invoices, receipts,
etc.) and material documents (demand-waybill, invoices, limit-fence card etc.).

4.2. Accounting registers and their significance in generalization of

information

All business transactions after registration by source documents are recorded

in the accounting registers. Accounting register – a special table designed for
displaying of documented business transactions in the system of accounts,
accumulation and storage of accounting information.
Accounting registers – documents of special format (paper and machine) in
the form of statements, magazines, books, journals, orders, etc., they are intended
for chronological, systematic or combined savings, grouping, and summarizing of
information from source documents which are taken into account. Writing to the
accounting registers is performed on the basis of source accounting documents
which record the facts of business transactions execution. Information is
transferred to the accounting registers after checking of source documents in form
and content.
Information about business transactions that were made by enterprise for the
period is transferred in grouped form from accounting registers to the financial
statements. In accounting various accounting registers are used according to the
form, content and method of information displaying (fig. 4.2).

Accounting registers

By the By the volume of By the types of By the structure

appearance content accounting records

Books Synthetic Chronological Unilateral

Cards Analytical Systematic Bilateral

Separate Combined Combined With many

sheets column

Chess

56
 Fig. 4.2. Classification of accounting registers
Forms of accounting registers are recommended by the Ministry of Finance
of Ukraine or developed by the ministries and agencies in compliance with the
general methodological principles. So, now the issues of using of accounting
registers are regulated by the Law of Ukraine "About accounting and Financial
Reporting in Ukraine" dated July 16, 1999 p. № 966-XIV and methodological
recommendations on the application of accounting registers approved by the
Ministry of Finance of Ukraine of 29 December 2000 № 356. But display order of
business transactions in accounting registers depends from the form of accounting
that is used in the enterprise.
At the end of each month accounting registers are closed. This procedure
includes the calculations of results on the debit, credit and balance for each
synthetic and analytical accounts. The final information is transferred to the
registers on which the statements are made up. System of records monitoring that
is usually based on relationships and mutual control of data accounting registers is
important. Thus, the overall result of turnovers on synthetic accounts for the
reporting period that has been shown in accounting register on synthetic accounts
should match the total of Journal of business transactions registration.
While completing of the accounting registers errors are possible. Error
correction procedure depends on their nature and time of detection. There are three
ways to correct errors: correcting method, "red reversal" method and method of
additional records. Correcting method consists in the fact that incorrect record
crossed out one slash so that you can read the crossed out, and write at the top
correct value or text. Correction of errors should be reserved by title "Corrected"
and confirmed by the signature.
Method "red reversal" is that incorrect accounting records makes in the same
correspondence of accounts that false account, but in red, which means that
negative numbers. In this case, the amount which was written in red ink, is
subtracted (canceled). In computing data processing amount of "red reversal"
should be taken in brackets or frame.
Method of additional records used in cases when accounting correspondence
is drawn up correctly, but in a smaller amount than business operation is actually
done. For correct such error it is necessary to additionally conduct operation on the
difference between right and wrong (drawn) value.

4.3. Forms of accounting organization

Form of accounting – is a system of accounting registers, that includes the

order and method of registration and summarizing of the information in these
registers by using uniform accounting principles.
Each company chooses the appropriate form of accounting, based on the
specific characteristics of economic activities and accounting data processing
technology. Choice of accounting form is predetermined also by the volume of
accounting procedures, their complexity, the availability of qualified accountants,

57
features of using automated data processing systems, computing.
The basic distinctive features that define characteristics of individual
accounting forms are: appearance, structure and quantity of accounting registers;
registers combination of chronological and systematic recording, synthetic and
analytical accounting; consistency and equipment of accounting registration.
Form of accounting as a reflection of a certain level of technology of
accounting process must meet the following requirements:
– ensuring full and real reflection of economic operations in accounting
registers;
– ensuring reasonable distribution of work between individual accounting
staff for their prompt implementation;
– providing managers by information on the implementation of business
plans for the company as a whole and for each subdivision;
– provision by necessary data processes of reporting, monitoring and
economic analysis;
– providing efficiency of accounting process through its automation and
scientific organization of accountants’ labor.
At present in Ukraine there are four main forms of accounting: memorial-
order, journal-order, simplified and computerized.
Journal-order form of accounting based on the wide application of
cumulative accounting registers – journals and subsidiary sheets to them. Journal-
order – a table, it records maintained by credit of one or more accounts, indicating
debit accounts.
Complete and abbreviated journal-order forms are produced. Complete
journal-order form has 17 log-orders and sheets to them. This form is used in large
enterprises. Abbreviated journal-order form consists of seven log-orders used on
medium-sized enterprises. The scheme of journal-orders form of accounting is
shown in Fig. 4.3.
Registers of Journal-
Source orders, sheets Balance sheet
analytical Ledger
documents
accounting

Fig. 4.3. Scheme of journal-orders form of accounting

Since the journal-order form is most common in use by enterprises and
organizations of Ukraine, let’s look more detailed the system of registers of
journal-order accounting forms:
– Journal 1 “Accounting for cash and monetary instruments” and sheets to it;
– Journal 2 “Accounting for long-term and short term loans” and sheets to it;
– Journal 3 “Accounting for settlements, long-term and current liabilities”
and sheets to it;
– Journal 4 “Accounting for non-current assets and financial investments”
and sheets to it;
– Journals 5, 5A “Accounting for expenditures” and sheets to it;
– Journal 6 “Accounting for incomes and results of activity”;
58
 – Journal 7 “Accounting for equity and commitments ensuring”
Memorial order accounting form is characterized by the using of accounting
books to conduct ensuring of synthetic accounting and cards – for analytical. The
essence of the memorial-order forms consists in the fact that memorial orders are
made up on the basis of issued and verified documents. In the memorial orders
indicates summary and basis of economic transactions, corresponding accounts for
the operation and amount. Compared with journal-order this form is more detailed,
but contains a lot of duplicate information.
A simplified form of accounting is used for small businesses. Order of the
Ministry of Finance of Ukraine from 15.06.2011, № 720 approved Methodical
recommendations on the application of accounting registers by small businesses.
Simplified accounting form provides the use of journals from 1 ms to 4 ms and
sheets to them [10].
Small businesses with the negligible quantity of business transactions can
perform a simple form of accounting – Journal of business transactions.
At this stage of accounting development in Ukraine an important place
occupies automation of collection and processing of accounting information. Using
of the automated accounting enables fully insure against many errors, since, as a
rule, in an automated accounting is only one accounting registers and all other
generated automatically, that’s why the risk of errors when transferring data
between registers equal zero. In Ukraine significant amounts of software for
automation of accounting are consumed, the most popular among them – “1C -
Accounting”, “Parus”, “Finance without problems”, “Fin Expert” and others.

Tests for self-control

Each question contains one correct answer.

1. Cancelled checks, paid bills, payrolls, ledgers, bank reconciliations are an

example of:
1) Accounting documents;
2) Accounting transactions;
3) Management documents;
4) Financial statements.

2. By appointment accounting documents are divided into:

1) Internal and external;
2) Primary and summarized;
3) Prescriptive, executive, of accounting clearance and combined;
4) Monetary, settlement and material.

3. Invoices, payment orders, bank statements, resolutions, letters, contracts are:

1) Accumulative documents;
2) External documents;

59
3) Monetary documents;
4) Internal documents.

4 The credit notes are issued with the purpose:

1) To record the total number of creditors;
2) To record a sale;
3) To record the delivery of goods;
4) To reduce the amount of payables.

5. Which of the following is a source document?

1) Journals;
2) Bank statement;
3) Ledger;
4) Cash book.

6. Which of the following statement about invoice is correct?

1) It is issued for cash sales;
2) It is issued when damaged goods are returned;
3) Issued by seller to a buyer;
4) Issued by buyer to the seller.

7. Which document contains the information about sales, returns, goods supplied?
1) Statement of account;
2) Invoice;
3) Bank statement;
4) Credit note.

8. Identify the correct order of documents used when goods are purchased on
credit:
1) Delivery note, purchase order, payment by cheque;
2) Invoice, purchase order, payment by cheque;
3) Purchase order, invoice, payment by cheque;
4) Statement of account, invoice, delivery note.

9. Special table designed for displaying documented business transactions in the

system of accounts, accumulation and storage of accounting information is called:
1) Balance sheet;
2) Statement of account;
3) Trial balance;
4) Accounting register.

10. Information to accounting registers is transferred from:

1) Source documents;
2) Ledger;
3) Negotiable statement;
60
4) Income statement.

11. Information about business transactions is transferred in grouped form from

accounting registers to:
1) Journal of business transactions;
2) Financial statements;
3) Bank statement;
4) All of the listed.

12. Display order of business transactions in accounting registers depends on:

1) The form of accounting that is used in the enterprise;
2) Organizational form of the enterprise;
3) Shares of the enterprise on market;
4) Organizational structure of accounting department.

13. The procedure of registers closing includes the following activities:

1) Calculations of results on the debit, credit and balance for each synthetic
accounts;
2) Calculations of results on the debit and credit for each synthetic and analytical
accounts;
3) Calculations of results on the debit, credit and balance for each synthetic and
analytical accounts;
4) Calculations of results on the debit, credit and balance for each analytical
accounts.

14. Overall result of turnovers on synthetic accounts for the reporting period
shown in accounting register should match the total of:
1) Bank statement;
2) Journal of business transactions registration;
3) Cash book;
4) Invoices.

15. Which way to correct errors in accounting registers does not exist?
1) Correcting method
2) "Red reversal" method;
3) Method of additional records;
4) Canceling method.

16. System of accounting registers, that includes the order and method of
registration and summarizing the information in these registers by using uniform
accounting principles is:
1) Accounting book;
2) Form of accounting;
3) Organization of accounting;
4) Accounting documentation.
61
17. What is the process of accounting forms selection?
1) Form of accounting is set by the tax authorities;
2) Each company chooses the appropriate form of accounting;
3) All companies have the same form of accounting.
4) There is no correct answer.

18. Which form of accounting should be used for small businesses?

1) Simplified form;
2) Journal-order form;
3) Memorial order form;
4) Computerized form.

19. At present in Ukraine there are:

1) Three main forms of accounting;
2) Four main forms of accounting;
3) Five main forms of accounting;
4) Six main forms of accounting.

20. Form of accounting must meet the following requirements:

1) Provision by necessary data processes of reporting, monitoring and economic analysis;
2) Providing managers information on the implementation of business plans for
the company as a whole and for each subdivision;
3) Ensuring full and real reflection of economic operations in accounting registers;
4) All of the listed answers are correct.
THEME 5. ACCOUNTING OF NON-CURRENT ASSETS

5.1. The concept of fixed assets, their classification and evaluation.

5.2. Accounting for proceeds of fixed assets and capital investments.
5.3. Accounting for depreciation of fixed assets.
5.4. Accounting of expenditures on fixed assets improvement and their repair.
5.5. Accounting for disposals of fixed assets.
5.6. Features of accounting for other non-current tangible assets and
intangible assets.

Dictionary

Acquisition Придбання
Administrative expenses Адміністративні витрати
Assets Активи
За собівартістю, за первісною
At cost
вартістю
Capital investments Капітальні інвестиції
Copyright and allied rights Авторське право та суміжні права
Cost that is depreciated Вартість, що амортизується
62
Cumulative method Кумулятивний метод
Depreciation of non-current assets Амортизація нематеріальних активів
Distribution expenses Витрати на збут
Fair value Справедлива вартість
Fixed assets Основні засоби
Fixed assets improvement Поліпшення основних засобів
Future economic benefit Майбутня економічна вигода
General manufacturing expenses Загальновиробничі витрати
Goodwill Гудвіл
Первісна вартість, фактична вартість
Historical cost
придбання
Initial cost Первісна вартість
Intangible assets Нематеріальні активи
Inventory card of fixed assets Інвентарна картка обліку основних
засобів
Liquidation value Ліквідаційна вартість
Manufacturing method Виробничий метод
Market value Ринкова вартість
Метод зменшення залишкової
Method of reducing the residual value
вартості
Method of accelerated reduction of Метод прискореного зменшення
residual value залишкової вартості
Non-current assets Необоротні активи
Other non-current tangible assets Інші необоротні матеріальні активи
Положення (стандарт)
Regulation (standard) of accounting
бухгалтерського обліку
Repair of fixed assets Ремонт основних засобів
Residual value (book value) Залишкова вартість
Revalued cost Переоцінена вартість
Right to use property Право користування майном
Rights for commercial designations Право на комерційні позначення
Rights of industrial property Право на промислову власність
Право користування природними
Rights of natural resources use
ресурсами
Straight-line method Прямолінійний метод
Tax Code of Ukraine Податковий кодекс України
Строк корисного використання
Useful life of a fixed asset
об'єкта основних засобів

5.1. The concept of fixed assets, their classification and evaluation

Methodological bases of formation of the information about fixed assets in

accounting and disclosure of this information in the financial statements of
63
companies, organizations and other entities of all forms of ownership are governed
by Regulation (standard) of Accounting (R(s)A) 7 “Fixed Assets” [14].
According to abovementioned Regulation, fixed assets – tangible assets that
are held by enterprise for use in the production or supply of goods, services, lease
to others or to carry out of administrative, social and cultural functions; their
expected useful life (exploitation) is more than one year (or operating cycle, if
longer than a year).
There are many classifications of fixed assets used in the accounting in order
to create the necessary management information: by the functional purpose, by the
participation in economic activities, by belonging, by the degree of use, by term of
exploitation, etc. Let us consider the most common of them.
For accounting purposes, non-current assets are classified into the following
groups:
1. Fixed Assets
1.1. Land
1.2. Capital expenditures for land improvement
1.3. Buildings, structures and transmission devices
1.4. Machinery and equipment
1.5. Vehicles
1.6. Tools, instruments, equipment (furniture)
1.7. Animals
1.8. Perennial plantings
1.9. Other fixed assets.
2. Other non-current assets
2.1. Library funds
2.2. Low-value non-current assets
2.3. Temporary (denotified) facilities
2.4. Natural resources
2.5. Inventory container
2.6. Subjects of rent
2.7. Other non-current assets
3. Uncompleted capital investments
According to the above classification non-current assets are considered in
the Tax Code of Ukraine and in R(s)A 7 “Fixed Assets”.
Depending on the nature of participation in economic activity fixed assets
are divided into productive (involved in production) and non-productive (not
involved in production, but intended to service, meet cultural and social needs of
workers).
On the criterion of belonging, fixed assets share to the own (belonging to the
enterprise and recognized in the Balance sheet) and leased (not owned by the
company and are not shown on the Balance sheet).
According to R(s)A 7 “Fixed Assets” object is recognized as asset when it is
probable that the company will receive future economic benefits from its use and
its cost can be reliably measured.
There are several types of evaluation of fixed assets in accounting (table 5.1).
64
 Table 5.1
Types of fixed assets' evaluation

№ Type of evaluation Characteristic

Historical (actual) cost of fixed assets in the amount of
1. The initial cost cash or the fair value of other assets paid (transferred)
for the acquisition (creation) of non-current assets.
The amount for which can be exchanged asset or
2. The fair value liability settled as a result of the transaction between
knowledgeable, interested and independent parties.
Price that was determined by assessing of professional
3. Market value
qualified valuers.
Initial value of fixed assets minus its depreciation. To
Residual value
4. the Balance sheet fixed assets are included according to
(book value)
residual value.
The cost that is Initial or revalued cost of fixed assets less their residual
5.
depreciated value.
6. Revalued cost Cost of fixed assets after revaluation.
Amount of money or value of other assets, which the
company expects to realize from the sale (liquidation) of
7. Liquidation value non-current assets at the end of their useful life
(exploitation), less expenses related to its sale
(liquidation).
Purchased (created) fixed assets are credited to the Balance sheet of the
enterprise at initial cost. The initial cost of fixed assets consists of the following
costs:
- amounts paid to suppliers and contractors for the execution of
construction works (excluding indirect taxes);
- registration fees, government duties and similar payments that are made
in connection with the purchase (receiving) of rights to fixed asset;
- the amount of import duties;
- the amount of indirect taxes in connection with the acquisition (creation)
of fixed assets (if they are not reimbursed to the company);
- cost of risks insurance of fixed assets delivery;
- costs of transportation, installation, assembly, adjustment of fixed assets;
- other costs that are directly related to the bringing of assets to the state in
which they are suitable for use with the planned purpose.
Financial costs are not included in the initial cost of fixed assets that were
acquired (created) in whole or in part by borrowing.
Initial cost of fixed assets that were received free of charge is equal to their
fair value on the date of given above costs.
The original value of fixed assets tat were included in the charter capital of
the company is recognized as fair value, which should be agreed between the

65
founders (participants) of the company.
The initial value of the fixed assets that were received in exchange for such
an object is equal to the residual value of the transferred asset. The initial cost of
fixed asset that were acquired in exchange (or partial exchange) for dissimilar asset
is equal to the fair value of the transferred asset.
The initial value of fixed assets is increased by the expenses related with
improving of the object (modernization, modification, finishing, further equipping,
reconstruction, etc.), which leads to increasing of future economic benefits that are
expected from the using of the object.
To account of fixed assets movement a relatively small number of primary
documents is using. The list of such documents was ratified by the Ministry of
Statistics of Ukraine of 12.29.1995, № 352 "On approval of typical forms of
primary accounting" [9].
The most common primary documents that are used to record the fixed
assets include:
- Typical form № OZ - 1 “Protocol of acceptance-transfer (internal
moving) of fixed assets” composed in the event of objects receiving, transfer to
other companies, displacement between the units of the enterprise;
- Performing of repair work and other activities of fixed assets
improvement are issued by “Protocol of reception and transmission of repaired,
reconstructed and modernized facilities” typical form № OZ – 2;
- Typical form № OZ - 3 “Protocol of writing off of fixed assets” is used
for processing of fixed assets liquidation;
- Elimination of vehicles is arranged by the typical form № OZ - 4
“Protocol of writing off of motor vehicles”.
For synthetic accounting of fixed assets account 10 “Fixed assets” is
provided by Chart of Accounts. It is recommended to use the following sub-
accounts (accounts of second order) to account 10 “Fixed Assets”:
100. Investment Property
101. Land
102. Capital expenditures for land improvement
103. Buildings, structures and transmission devices
104. Machinery and equipment
105. Vehicles
106. Tools, instruments, equipment (furniture)
107. Animals
108. Perennial plantings
109. Other fixed assets
Account 10 “Fixed assets” is active, basic, inventory. Initial balance on this
account reflects the initial or revalued cost of fixed assets, which are recorded on
the Balance sheet of enterprise. Turnover on the debit of account – it is the
amounts of the receipts of objects at initial cost and the amount of revaluation or
surplus of fixed assets. Turnover on credit – is initial or revalued cost of objects
that are eliminated for various reasons (liquidation, realization, free transfer,
mismatch of criteria for asset, shortage) and the amount of spent devaluation of
66
objects’ value.
Also to show the presence and movement of non-current assets the
following accounts are used: 11 “Other non-current tangible assets” 13
“Depreciation of non-current assets”, 15 “Capital investments” and others.
Account 11 “Other non-current tangible assets” – active, basic, inventory.
On the debit of account initial value of the arrived other non-current assets is
displayed as well as the amount of costs related to improvements of objects and the
amount of revaluation. On the credit of account 11 cancellation of object for
various reasons and the amount of reduction are displayed. The following sub-
accounts to the account 11 “Other non-current tangible assets” can be used:
111. Library funds
112. Low-value non-current assets
113. Temporary (denotified) facilities
114. Natural resources
115. Inventory containers
116. Subjects of rent
117. Other non-current assets
Account 13 “Depreciation of non-current assets” – passive, control to
account 10 “Fixed Assets”, 11 “Other non-current assets”, 12 “Intangible Assets”.
Balance on this account represents the amount of depreciation of objects that are
recorded on the Balance sheet. Turnover on credit shows the increase of
depreciation. On credit of this account an increase of depreciation in connection
with the revaluation of initial value also displayed. Turnover on debit shows the
reduction of the amount of depreciation due to impairment or disposals of objects.
To account 13 “Depreciation of non-current assets” can be opened such sub-
accounts:
131. Depreciation of fixed assets
132. Depreciation of other tangible non-current assets
133. Accumulated amortization of intangible assets
134. Accumulated amortization of long-term biological assets
135. Depreciation of investment property
Account 15 “Capital investments” – basic, active, inventory, is intended to
account the cost of acquisition or creation of tangible and intangible non-current
assets. On the debit of account reflects an increase in costs that were incurred on
the acquisition or creation of fixed assets, on credit – their cancellation
(commissioning of acquired or created objects). Balance of this account reflects the
cost of unfinished capital investments. It is recommended to use the following sub-
accounts (accounts of second order) to account 15 “Capital investments”:
151. Capital construction
152. Acquisition (manufacturing) of fixed assets
153. Acquisition (manufacturing) of other non-current tangible assets
154. Acquisition (creation) of intangible assets
155. Acquisition (growing) of long-term biological assets
Synthetic accounting of fixed assets movement conducted in the journal 4
that shows turnover on credit of accounts 10 “Fixed assets”, 13 “Depreciation of
67
non-current assets” and 15 “Capital investments”.
Analytical accounting on account 10 “Fixed assets” shall be kept per
separate inventory facilities of fixed assets. The system of analytical accounting
shall make possible the reception of data about existence and movement of fixed
assets (according to types, location, etc.).
For analytical accounting of fixed assets the following registers are
appointed:
– “Inventory card of fixed assets", typical form № OZ - 6;
– “Description of the inventory cards of fixed assets accounting”, typical
form № OZ - 7;
– “Card of the movement of fixed assets”, typical form № OZ - 8;
– “Inventory list of fixed assets”, typical form № OZ - 9.

5.2. Accounting for proceeds of fixed assets and capital investments

Proceeds of fixed assets can be carried out by the different ways: acquisition
for fee, construction (by contractors and commercial methods), as contributions of
founders to the authorized capital, free reception, receiving in exchange for
dissimilar objects.
In accounting formation of total expenditures for capital investments on
individual objects is carried out. This amount is the initial value of fixed assets, the
composition of which is given in R(s)A 7 “Fixed Assets”. Collection of costs
associated with the capital investments in non-current assets occurs on account 15
“Capital investments”, which was discussed above.
Operations of proceeds of fixed assets and formation of initial value are
considered in Example 1.
Example 1. The company purchased equipment of the price 4800 UAH,
including VAT. In addition, it paid the shipping costs of equipment in the amount
of 360 UAH, including VAT and cost of assembly and equipment installation in the
amount of 350 UAH (table 5.2).
Table 5.2
The journal of business transactions registration to Example 1
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
1. Equipment were received by supply agreement 152 631 4000
The amount of VAT that is included in the cost of
2. 641 631 800
equipment was displayed
3. Paid to supplier from the checking account 631 311 4800
4. Transportation costs were displayed 152 631 300
The amount of VAT that was included in the
5. 641 631 60
transportation costs was displayed
6. Paid for transport services from the checking
631 311 360
account
7. The costs for the assembly and installation of 152 66,65 350

68
 equipment were reflected
8. Equipment was accepted to objects of fixed assets 104 152 4650

Example 2. Acquisition of fixed assets for cash.

The company acquired in LLC "Delta" new car of “Nissan” under a purchase
contract № 25 on 31.03.2013 at a price of 168 000 UAH. The account of supplier №
72 and tax invoice № 8 on 01.04.2013 was received. Account of the supplier has been
paid 05.04.2013 by bank transfer (table 5.3).
Table 5.3
The journal of business transactions registration to Example 2
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
Capital investment on the basis of account for
1. 152 631 140000
received car was increased
The amount of VAT that was included in the cost of
2. 641 631 28000
the car is displayed
3. Account of the supplier LLC "Delta" was paid 631 311 168000
Fee at the mandatory pension insurance was
4. 152 651 4200
accrued (3% from initial cost)
The fee for the first registration of the vehicle was
5. 152 642 382,22
accrued
6. Fee at the mandatory pension insurance was paid 651 311 4200
7. The fee for the first registration of the vehicle was
642 311 382,22
paid
8. Car was commissioned 105 152 144582,22
Example 3. Receipts of fixed assets in order of free transfer.
10.08.2013 the company received free from LLC "Sail" computer, initial
cost of which is 4500 UAH. Accumulated depreciation is 1200 UAH. Market value
of fixed asset is 3700 UAH. The computer was commissioning to the accounting
department.
Enrollment of computer to enterprises’ balance is displayed as follows:
Debit 104 “Machinery and equipment” – 3700 UAH
Credit 424 “Non-current assets received free of charge” – 3700 UAH
According to the Tax Code of Ukraine, fixed assets that were received free
of charge should be recognized in the tax revenues. And since in operations with
obtained free of charge fixed assets there are no expenses, depreciation for tax
purposes is not made.
Example 4. Receipts of fixed assets as a contribution of founders to the
authorized capital of the company.
The company has received factory building as contribution to the authorized
capital from LLC “South”. Agreed value of the building was 240000 UAH.
Company “South” is a VAT payer. In accounting this operation is shown as
follows:
1) Building was transferred to the enterprises’ balance at the fair value:
Debit 103 “Buildings, structures and transmission devices” – 20000 UAH
69
 Credit 46 “Unpaid capital” – 200000 UAH.
2) The tax credit under the tax invoice was shown:
Debit 641 "Payments for taxes" – 40000 UAH
Credit 46 "Unpaid capital" – 40000 UAH.
In accordance with paragraphs 136.1.3 of the Tax Code of Ukraine receiving
of property in the form of contributions to the authorized capital will not result to
increasing of income in tax accounting. Such objects are shown as non-current
assets in the respective groups.
Example 5. Manufacturing of fixed assets by commercial method.
In September 2013 the company carried out the construction of office room
through its own construction crews. To build it the company purchased materials.
Account № 51 for the amount of 1200 UAH and tax invoice № 43 on 11.09.2013
was received from the supplier. Account of the supplier was paid by bank transfer.
In September, all purchased building materials were completely spent for building
purposes. Wages for builders amounted 5600 UAH, all required deductions from
wages on social measures were conducted. Building was commissioned.
Accounting entries for transactions effected are shown in the table 5.4.
Table 5.4
The journal of business transactions registration to Example 5
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
Construction materials from the supplier were
1. 205 631 10000
received
Tax credit according to the tax invoice was
2. 641 631 2000
reflected
3. Account of the supplier was paid from checking
631 311 12000
account
Materials for the construction of the office were
4. 151 205 10000
spent
5. Wages for builders were accrued 151 661 5600
6. Deductions on social measures from wages (total
151 651 2128
amount of contributions - 38%) were carried out
7. Building of office was commissioned 103 151 17728

5.3. Accounting for depreciation of fixed assets

Though it may be long, the useful life of a fixed asset is limited. Eventually
the asset will lose all productive worth and will possess only salvage value or scrap
value. The accrual basis of accounting demands a period- by-period matching of
costs against derived revenues. Hence the cost of a fixed asset (over its residual
value) is distributed over the asset's entire estimated lifetime. This spreading of the
cost over the periods that receive benefits is known as depreciation.
According to R(s)A 7 “Fixed Assets” depreciation – a systematic allocation

70
of the cost of fixed assets that is depreciable over their useful life (exploitation).
Also, this document establishes general rules for accounting of depreciation of
fixed assets:
– Depreciation is carried during the term of useful life, which is set by
enterprise in the time of object enrolling to the balance;
– Companies themselves select the depreciation method based on the
expected method of obtaining economic benefits from its use;
– Depreciation is calculated monthly;
– Depreciation begins from the month that is following the month in which
the fixed asset was suitable for use;
– Depreciation calculating ends, beginning with the month that is following
the month of fixed assets disposals;
– The amount of accumulated depreciation all enterprises reflect by growing
of company’s costs and depreciation of fixed assets;
Also these rules accompany depreciation in terms of taxation. As by the Tax
Code, and R(s)A 7 “Fixed Assets” five methods of depreciation are identified:
1. Straight-line method under which annual depreciation is determined by
dividing the cost that is depreciated on the useful life of fixed assets;
2. Method of reducing of the residual value, on which annual depreciation
is calculated by multiplying the residual value of the object at the beginning of the
year or the initial value for the start date of depreciation and annual depreciation
rate. Annual depreciation rate (percentage) is calculated as the difference between
one and the result of root level of years of object’s useful life from the result of
dividing the liquidation value of its initial value;
3. Method of accelerated reduction of residual value, on which annual
depreciation is calculated by multiplying the residual value of the property at the
beginning of the year or the initial value for the start date of depreciation and
annual depreciation rate, which is calculated based on the useful life of the object
and doubles;
4. Cumulative method by which annual depreciation is calculated by
multiplying the cost, that is depreciated, and the cumulative coefficient.
Cumulative coefficient is calculated by dividing the number of years remaining
until the end of useful life of the fixed assets, amounting to the number of years of
its useful life;
5. Manufacturing method by which monthly depreciation is calculated by
multiplying the actual monthly amount of goods (works, services) and production
rate of depreciation. The production rate of depreciation is calculated by dividing
the value that is depreciated on the total amount of goods (works, services), which
the company expects to produce (perform) using the assets.
Depreciation in accounting is recorded at credit of account 13 “Depreciation
of non-current assets” and debit of expenses accounts:
23 “Production” – for the fixed assets that are used in the production
process;
91 “General manufacturing expenses” – for the objects that are used in
production units (equipment, buildings of workshops, etc.)
71
 92 “Administrative expenses” – for the objects of general business purpose
(office buildings, office equipment, motor vehicles and others.)
93 “Distribution expenses” – for the objects that prove sales process.
94 “Other operating expenses” – for the objects of social infrastructure of
the enterprise.
Amounts of accumulated depreciation are also displayed on the debit of off-
balance sheet account 09 “Depreciation”. With further acquisition of fixed assets
and carrying out capital expenditure of their improvement on credit of account 09
shows the use of depreciation.
Calculation and displaying of depreciation in accounting by various methods
are considered in examples.
Example 6. In September 2010, the company purchased a melting machine.
Cost of machine – 50000 UAH, the term of its useful life – 4 years, the expected
liquidation value – 2000 UAH. Total production of melting machine is 36000 pcs.
Machine will be used in machine workshop. Calculate the annual depreciation of
machine, using different methods.
Straight-line method is the simplest and most widely used depreciation
method. Under this method, an equal portion of the cost of the asset is allocated to
each period of using (table 5.5).
Annual depreciation is equal to:
The cos t that is depreciate d
Annual deprisiation 
Term of useful life (1)

Table 5.5
Calculation of depreciation by straight-line method
Annual Residual Amount of
Initial
The amount of value on the accumulated
value, Calculation
year depreciation, end of the depreciation,
UAH
UAH year, UAH UAH
1 50000 12000 38000 12000
2 50000 12000 26000 24000
(50000-2000) / 4 = 12000 UAH
3 50000 12000 14000 36000
4 50000 12000 2000 48000

Method of reducing of the residual value is an accelerated method of

depreciation because a greater amount of depreciation is taken in the early years of
an asset's useful life. This method is preferred for the following reasons:
- technology can make an asset obsolete or inadequate before the asset
wears out;
- most plant assets decline in value more quickly in their early years than
in later years;
- often, an asset contributes most to a business during its first years;
- the expenditure for equipment is made at the beginning of the asset's life.
- it is good accounting practice to charge more depreciation in the early
years of an asset's useful life.

72
 According to this method, annual depreciation rate is equal to:
Liquidation value 2000
Annual depreciati on rate 1  n * 100% 1  4 * 100% 55.3% , (2)
Initial value 50000

where n – is the term of useful life

The annual depreciation is calculated as follows:
Annual depreciati on Re sidual value * Annual depreciati onr rate (3)

Calculation of depreciation by method of reducing of the residual value is

presented in table 5.6.
Table 5.6
Calculation of depreciation by method of reducing of the residual value
Annual Amount of
Initial Residual value
The amount of accumulated
value, Calculation on the end of
year depreciation, depreciation,
UAH the year, UAH
UAH UAH
1 50000 27650 50000 х 0,553 = 27650 22350 27650
2 50000 12360 22350 х 0,553 = 12360 9990 40010
3 50000 5524 9990 х 0,553 = 5524 4456 45534
4 50000 2456 4456-2000 = 2456 2000 48000

Method of accelerated reduction of residual value produces the highest

amount of depreciation in earlier years. Many companies prefer this method
because of the faster write-off in the earlier years when asset contributes to the
business in most part and when the expenditure was actually made.
The annual depreciation rate is equal to:
100% 100%
Annual depreciati on rate 
Term of useful life

4
25% (4)

The annual depreciation is calculated as follows:

Annual depreciati on Re sidual value * Annual depreciati on rate * 2 (5)
Calculation of depreciation by method of accelerated reducing of the
residual value is presented in table 5.7.
Table 5.7
Calculation of depreciation by method of accelerated reduction of residual value
Annual Residual Amount of
The Initial value, amount of value on the accumulated
Calculation
year UAH depreciation, end of the depreciation,
UAH year, UAH UAH
1 50000 25000 50000 х 0,25 = 25000 25000 25000
2 50000 12500 25000 х 0,25 = 12500 12500 37500
3 50000 6250 12500 х 0,25 = 6250 6250 43750
4 50000 4250 6250-2000 = 4250 2000 48000

73
 The fourth method of depreciation is cumulative method (table 5.8). It is an
accelerated method that allows more depreciation expense to be recorded in the
early years of an asset's life and less in the later years. To determine depreciation
expense under this method, the cost that is depreciated is multiplied by a
cumulative coefficient. Cumulative coefficient is a fraction, in the numerator of
this fraction is the years remaining in the asset's life, but in reverse order. It
changes each year. The denominator is the sum of all the digits making up the life
of the asset, it remains constant (in our example 1+2+3+4 = 10).
Table 5.8
Calculation of depreciation by cumulative method
Residual
The cost Annual Amount of
Initial value on
The that is Cumulative amount of accumulated
value, Calculation the end of
year depreciated, coefficient depreciation, depreciation,
UAH the year,
UAH UAH UAH
UAH
48000 х 0,4 =
1 50000 48000 4/10 = 0,4 19200 30800 19200
19200
48000 х 0,3 =
2 50000 48000 3/10 = 0,3 14400 16400 33600
14400
48000 х 0,2 =
3 50000 48000 2/10 = 0,2 9600 6800 43200
9600
6800-2000 =
4 50000 48000 1/10 = 0,1 4800 2000 48000
4800
Under the manufacturing method, a fixed amount of depreciation is
allocated to each unit of output that was produced by the machine. The per-unit
depreciation expense is multiplied by the number of units that were produced in
each accounting period. This depreciation method accurately reflects the
depreciation expense for the asset because it is based on the number of units that
were produced in each period. Depreciation per unit is computed in two steps:
The cos t that is depreciat ed
Pr oduction rate 
Total ammount of product that company exp ects to produse
(6)

Monthly depreciati on  Actual monthly output * Pr oduction rate of depreciati on (7)

5.4. Accounting of expenditures on fixed assets improvement and their

repair

Maintenance of fixed assets in condition suitable for use needs their periodic
repair. Repairs of fixed assets are classified:
1) by type – current and capital;
2) as belonging – repair of own and leased fixed assets;
3) by the method of conducting – by own forces and contracting process;

74
 4) in relation to economic activity – reparation of production or non-
production assets and more.
Current repair involves performing of minor works: correct or partial
replacement of individual parts of fixed assets, maintaining them in good working
order. This repair does not increase the benefits that were planned to get from
repaired asset. Thus, the costs of current repair are not included to the cost of fixed
asset (not capitalized) and are included to expenses of the current period (Debit of
accounts 91, 92, 93, 94 depending on spheres of using). Current repair can be
carried out on their own and by contractors.
Current repair of fixed assets by economic means was considered at below
example.
Example 7. In October 2012 machine tool was renovated by the company’s
workers of subsidiary repair shop. For repair were spent supporting materials in
amount of 1150 UAH and spare parts in amount of 800 UAH. Wages to workers
for repairs were 3700 UAH. All required contributions from wages on social
measures (38%) were conducted.
Accounting records of transactions are presented in table 5.9.
Table 5.9
Accounting of expenditures on current repair by own forces of enterprise
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
1. Supporting materials for repair were realized 23.1* 201 1150
2. Spare parts for repair were realized 23.1 207 800
3. Wages for workers were accrued 23.1 661 3700
Deductions on social measures from wages (total
4. 23.1 651 1406
amount of contributions - 38%) were carried out
Repair costs were included into the general
5. 91 23.1 7056
production expenses
* sub-account 23.1. “Repair workshop”
In case of contracting method, payments are carried out for work performed
according to accounts that were issued by supplier (contractor). Repair of fixed
assets by service of contractors can be displayed by the following accounting
entities:
1. Services on current repair were performed by contractor:
Dr 91,92,93,94 Cr 63
2. Tax credit under the tax invoice was reflected:
Dr 641 Cr 631
3. Account of contractors for work performed was paid:
Dr 63 Cr 31
When the capital repair of fixed assets is carried out at the company,
replacement of worn designs and components and their renewal (upgrade, retrofit,
modification, completion, reconstruction) took place. Such events lead to increase
in those benefits that the company originally planned to get from the use of fixed
assets. Therefore, the cost of capital repair increases the initial value of fixed assets
75
(in the debit account 15 “Capital investments”).
Correspondence of accounts for transactions with improvement of fixed
assets is represented in table 5.10.

Table 5.10
Transactions of fixed assets improvement
№ Particulars Dr Cr
1 2 3 4
Capital repair is done directly by the enterprise
1. Materials to capital repair were used 15 20
Salary for works of capital repair were accrued and
2. contributions to social measures were made 15 66, 65
3. Capital expenditures were attributed to increase the initial 10 15
cost of fixed assets
Capital repair performs by contracting organization
Current repair works performed by the contracting entity
4. were adopted 15 63
5. Account of contractors for work performed was paid 63 31
Capital expenditures were attributed to increase the initial
6. cost of fixed assets 10 15

Displaying of repair costs in tax accounting has certain peculiarities. The initial
cost of fixed asset is increased by the costs associated with the repair and
improvement of fixed assets (modernization, modification, completion, retrofit,
renovation), which leads to increase in the future economic benefits of the expected
use of objects in amount that exceeds 10% of the book value of all groups of fixed
assets at the beginning of the tax year.
Amount of costs associated with the repairs and improvement of fixed assets
(including leased) in amount not exceeding 10% of the aggregate book value of all
groups of fixed assets at the beginning of the year, refers to the cost of the tax
period in which such repairs and improvements was conducted. Should be noted
that in tax accounting to the improvement of fixed assets are included both current
and capital repairs, the cost of which is within the limit of the repair can be
included in tax expense.
Under the rules of the Tax Code repair limit applies to the aggregate book
value of all groups of assets that are depreciated at the beginning of the tax year.
Procedure for calculating of repair limit is considered an example.
Example 8. As of 01.01.2013, the carrying value of fixed assets of the
company is amounted 600000 UAH. Repair limit on 2012 year – 60000 UAH
(600000* 10%). In I quarter of this year, the cost of repairs was 10000 UAH.
In II quarter company spent on repairing 70000 UAH. Thus, in the II quarter
of the year the company is entitled to carry in the costs only 50 000 UAH (60000 -
10000), and the remaining 10000 UAH refers to increase book value of the
relevant group proportionally to the costs that were incurred.

5.5. Accounting for disposals of fixed assets

76
 Fixed assets can be written off from the balance of the company as a result
of liquidation, sales, free transfer and inconsistencies criteria of asset. In any case,
writing off of depreciation and residual value of withdrawn object takes place.
These operations are also associated with the receipt of income and expenditure,
which is reflected in the accounts of 7 and 9 classes and affects financial results.
According to R(s)A 27 “Non-current assets held for sale and termination of
activity”, fixed assets that are recognized as held for sale shall should be
transferred to the current assets if they will be sold within one year. If the residual
value of the object exceeds its fair value, the excess amount is recognized as other
operating expenses.
Example 9. Sales of fixed assets for cash.
LLC "Spring" sells industrial equipment on contractual value 150 000 UAH,
including VAT under the contract № 25 from 05.12.2008. There are account № 85
and tax invoice № 65 from 07.12.2008. Account was paid by bank transfer. Initial
cost of the object is 112000 UAH, amount of depreciation at the time of
retirement – 54000 UAH. Wages of workers for removal of plant and machinery
was 5200 UAH. All required deductions from wages for social events were
conducted in amount of 2000 UAH.
The following entries were compiled in table 5.11.
Table 5.11
Accounting for sale of fixed assets
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
The object was transferred to the non-current assets
1. 286 104 58000
held for sale
2. Depreciation of fixed asset was written off 131 104 54000
3. Revenue from the sale of equipment was displayed 377 712 150000
4. Value added tax was reflected 712 641 25000
Equipment was written off from the balance of the
5. 943 286 58000
enterprise
6. Wages to factory workers were accrued 943 66 5200
Contributions on social measures from wages were
7. 943 66 2000
made
Contributions to the charter capital of other companies are regarded as long-
term financial investments. To summarize the information about the presence and
movement of long-term investments in the authorized capital of other enterprises that
are established in the territory of Ukraine or abroad, active account 14 “Long-term
financial investments” is designed.
According to the paragraph 146.17 article 146 of the Tax Code of Ukraine
transactions with contributions of fixed and intangible assets to the authorized
capital to another person are equal to the sale or other alienation of fixed assets and
intangible assets and is taxed by value added tax.
Example 10. Retire of fixed assets due to a contribution to the authorized
77
capital of another company.
LLC "Orchid" transferred to the authorized capital of LLC “Autumn”
factory building. Initial value of building was defined at 135000 UAH,
depreciation – 36000 UAH. By agreement of the parties the cost of building was
estimated at 180000 UAH, including VAT.
Table 5.12
Accounting for the contribution of fixed assets to the authorized capital
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
1. Depreciation of building was written off 131 103 36000
2. Residual value of building was written off 14 103 99000
3. The difference between the cost of investments and
14 746 81000
residual value was displayed
4. Tax liability of VAT was reflected 746 641 13500
5. Income was shown in the financial result 746 793 67500

Free transfer of assets in accounting is not recognized as income: capital is

not growing, assets are not increasing and liabilities are not decreasing. In addition,
in result of operations of the free transfer of assets enterprise does not expect any
economic benefits. Free transfer of assets is costly (unprofitable) operation,
because while assets were withdrawn from the balance sheet, therefore, equity was
reduced by the book value of assets withdrew (after which they cease to be assets).
The amount of VAT charged as a liability to the budget due to the free transfer
based on normal prices for such assets.
Operations with free transfer of assets to other entities (both legal entities
and individuals), including non-profit organizations and institutions, are inherently
operations of alienation of fixed assets and are recognized in tax accounting in
accordance with paragraph 146.13 article 146 of the Tax Code of Ukraine. In this
case, income from the alienation of fixed assets is determined on the basis of
normal price for such objects.
Example 11. Disposals of fixed assets in order of free transfer.
LLC "Sana" carries free transfer of car that was bought for cash. Initial value
of the car is 68000 UAH, depreciation is 23500 UAH. In accounting shall be made
the following entries:
1) Residual value of the car was written-off:
Dr 976 "Write-off of fixed assets" 44500
Cr 105 "Vehicles" 44500
2) Depreciation of the car was written-off:
Dr 131 "Depreciation" 23500
Cr 105 "Vehicles" 23500
3) Liability of VAT becomes chargeable from the residual value of fixed
asset (44500*0,2= 8900):
Dr 976 "Write-off of fixed assets" 8900
Cr 641 "Payments for taxes" 8900
78
 To determine the profit or loss from liquidation of fixed assets it is necessary
to compare income that will be received from such liquidation with the costs.
According to the paragraph 146.16 article 146 of the Tax Code in the case of
liquidation of fixed assets by the decision of taxpayer or in case of independent
from the taxpayer circumstances, property (part of them) are destroyed, stolen or
liquidated, or the taxpayer is forced to stop using such fixed assets as a result of the
threat or imminence of change, destruction or elimination, taxpayer in the
accounting period in which there are such circumstances, should increase costs in
the amount of value that is depreciated, net of accumulated depreciation of
individual assets. If in the case of liquidation of fixed assets the company gets
inventories that can be used in economic activities and realized, in accordance with
paragraphs 135.5.14. article 135 of Tax Code, this inventories recognizes such
assets in the reporting period and their value is included into the taxable income.
Example 12. Accounting for liquidation of fixed assets
The company “Happiness” decided to liquidate the asset (building structure).
Initial cost and accumulated depreciation is 150 000 UAH and 60000 UAH
respectively, liquidation value is set at zero. As a result of the object’s liquidation,
building materials for the total amount of 10000 UAH were obtained. In the
process of liquidation were employed workers, their wages amounts 1500 UAH.
Rate calculation of a single social contribution (conventionally) is 37.26%. The
results of this operation are given in the table 5.13.
Table 5.13
Accounting for liquidation of fixed assets
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
1. The amount of accumulated depreciation was written off 131 103 60000
2. The amount of residual value was written-off 976 103 90000
3. Building materials from liquidation were received 205 746 10000
4. Wages to employees for liquidation were accrued 976 661 1500
5. Single social contribution from wages was displayed 976 651 558,90

5.6. Features of accounting for other non-current tangible assets and

intangible assets

Other non-current tangible assets include objects, working lifetime of which

is more than 12 months, but which does not included as part of fixed assets. The
basic list of these objects corresponds to account 11 “Other non-current tangible
assets” and is shown in R(s)A 7. These include library funds, low-value non-
current assets, natural resources, inventory containers, subjects of rent and other
non-current assets.
On the debit of account 11 “Other non-current assets” reflects receipt at
initial value of purchased, created or received free of charge other non-current
tangible assets and the amount of expenses associated with improved of this object
(reconstruction, modernization); and the amount of revaluated cost of non-current
79
intangible assets. On the credit of account 11 “Other non-current assets” reflects
disposal of other tangible fixed assets as a result of the sale, free transfer or
inconsistency the criteria for recognition of assets; in the case of a partial
liquidation of the object; the amount of their markdown.
Other non-current assets are recorded at initial cost. Moreover, the process
of acquisition of such assets and their documentation is similar to capitalization of
fixed assets.
Method of depreciation for the other tangible non-current assets is
determined by enterprises independently on the basis of expected term of their use
(should be fixed in the order of the company's accounting policies). According to
R(s)A 7, depreciation is calculated over the term of use (operation) of facility that the
company must sets up while the recognition of this object as asset to recording in the
balance. This period may be terminated for a period of reconstruction, modernization,
completion, retrofit and conservation of specified asset.
When calculating the depreciation to other tangible fixed assets methods
defined by paragraph 27 R(s)A 7 are used: straight-line and manufacturing
methods. Depreciation of low value non-current tangible assets and library funds
may be charged by choice of the enterprise at the following methods:
1) in the first month of the facility using – at 50% of its value, which is
amortized and the remaining 50% – in the month of removal of assets (the
cancellation from the balance) due to inconsistencies criteria for recognition of an
asset or
2) in the first month of use of the facility in the amount of 100% of its value.
Depreciation is reflected on the credit of account 132 “Depreciation of other
non-current tangible assets” and debit of expenses’ accounts in accordance with the
directions of their using in the enterprise (for production, management and
administrative purposes, marketing, another operations).
Depreciation is reflected on the accounts of operations as follows:
– Accrued depreciation of assets that are used directly in the process of
production: Dr 23 Cr 132;
– Accrued depreciation of fixed assets that are used in the enterprise’s
office: Dr 92 Cr 132;
– Accrued depreciation of assets that are used in dining room of enterprise:
Dr 949 Cr 132 and other.
Typical operations with other non-current tangible assets and their
accounting are presented in table 5.14.
Table 5.14
Accounting for transactions with other non-current tangible assets
№ Particulars Dr Cr
1 2 3 4
Other non-current tangible assets were received in
1. 153 631
accordance with the sales contract
Other non-current tangible assets were purchased by the
2. 153 372
imprest

80
 3. Other non-current tangible assets were obtained as a
11 46
contribution to the share capital
Other non-current tangible assets were obtained free of
4. 11 42
charge
Other non-current tangible assets were transferred into
5. 11 153
the operation (were commissioned)
Depreciation for other non-current tangible assets was 23, 39, 91,
6. 132
accrued 93, 93, 94
7. Other non-current tangible assets were decommissioned 132 11

Intangible assets – non-monetary assets that have no physical form and can be
identified. Methodological principles of formation in accounting information about
intangible assets and disclosures in the financial statements are set out in Regulation
(standard) of accounting 8 “Intangible Assets” [15].
Purchased or obtained intangible assets are shown in the Balance sheet if it
is probable that future economic benefits associated with its use will be obtained
and its cost can be reliably determined.
The following is not recognized as an intangible asset and is recognized as
an expense of the period in which they were made:
– costs of research;
– the cost of training and retraining;
– expenditure on advertising and promotion of products on the market;
– costs of establishing, reorganizing and moving of the company or its part;
– costs of increasing of the enterprise’s reputation, the cost of publications
and the cost of creating brands (trademarks).
For recording and summarizing of information about presence and
movement of intangible assets account 12 “Intangible assets” is intended by Chart
of accounts. On debit of this account shows a purchase or receive of intangible
assets and the amount of their revaluation surplus, on credit – disposal of
intangible assets through sale, free transfer and the amount of reduction of
intangible assets.
Account 12 “Intangible assets” – active, balance, synthetic, has the
following sub-accounts that meet certain groups of intangible assets:
121 “Rights of natural resources use” (keeps records of the presence of
subsoil use rights and other resource of the environment, geological and other
information about them);
122 “Right to use property” (keeps records of the presence of use rights for
land plots, buildings, rights to premises etc.);
123 “Rights for commercial designations” (keeps records of the presence of
rights to trademarks (marks for goods and services), trade name (brand), etc.);
124 “Rights of industrial property” (keeps records of the presence of rights
to inventions, utility models, industrial designs, plant varieties, animal breeds,
layout (topographies) of integrated circuits, trade secrets, and so on);
125 “Copyright and allied rights” (keeps records of the presence of
copyright, literary, artistic, musical works, computer programs, compilations of
data (databases), performance, phonogram, etc.);
81
 126 “Goodwill” (keeps records of goodwill – the excess of the cost of
acquisition over the acquirer's interest in the fair value of the identifiable assets and
liabilities at the acquisition date);
127 “Other intangible assets” (keeps records of intangible assets that are
held by the company and are not reflected in the previous five sub-accounts: right
to operate, the use of economic and other privileges, etc.).
Sub-account 154 “Acquisition (creation) of intangible assets” is intended to
account for the costs that are associated with the acquisition (the creation) of
intangibles. On the debit of this account all expenses that compile the initial value
of intangible assets are shown, and on the credit – cancellation of their initial value
is shown.
Depreciation of intangible assets (other than the right to permanent use of
land) is carried out during the period of their useful life, which is set by the
enterprise (in the directive act). Intangible assets with indefinite useful life do not
belong to subjects of depreciation.
The method of depreciation of intangible assets is chosen by the company on
the basis of future economic benefits. If these conditions can not be determined,
depreciation is calculated by the straight-line method. Accrual of depreciation
begins in the month that follows the month in which the intangible asset was
available for use and stops from the month that follows the month in witch
intangible asset was disposal.
To summarize the information about accrued depreciation of intangible
assets account 13 “Depreciation of non-current assets” and sub-account 133
“Depreciation of intangible assets” is designed. On the credit of sub-account 133
amount of intangible assets depreciation is reflected, on the debit – amount of wear
reducing.

Tests for self-control

Each question contains one correct answer.

1. The book value (residual) of an asset is defined as:

1) Initial cost minus liquidation value;
2) Initial cost minus accumulated depreciation;
3) Initial cost minus liquidation value minus accumulated depreciation;
4) Estimated fair market value.

2. By which value fixed asset can be exchanged as a result of the transaction

between knowledgeable, interested and independent parties?
1) Initial cost;
2) Residual (book value);
3) Fair value;
4) Market value.

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3. Which costs are not included into the initial cost of fixed assets?
1) The amount of import duties;
2) Amounts that were paid to suppliers and contractors;
3) Registration fees and government duties;
4) Financial costs.

4. Which register is used for analytical accounting of fixed assets?

1) Card of stock control;
2) Inventory card of fixed assets;
3) Limit-taking card;
4) Protocol of acceptance-transfer (internal moving) of fixed assets.

5. Which of the following accounts are passive?

1) 10 “Fixed assets”;
2) 11 “Other non-current tangible assets”;
3) 13 “Depreciation of non-current assets”;
4) 15 “Capital investments”.

6. Which of the following objects is part of the intangible assets?

1) Computer;
2) Software;
3) Guide to the legal regulation of economic activity;
4) Office Furniture.

7. Systematic allocation of the cost of fixed assets over their useful life
(exploitation) is called:
1) Depreciation;
2) Proceeds;
3) Distribution;
4) Modernization.

8. What posting should be passed to the amount of production equipment repair by

contracting method?
1) Dr 91 “General manufacturing expenses”
Cr 63 “Settlements with suppliers and contractors”;
2) Dr 23 “Production”
Cr 63 “Settlements with suppliers and contractors”;
3) Dr 10 “Fixed assets”
Cr 23 “Production”;
4) Dr 91 “General manufacturing expenses”;
Cr 10 “Fixed assets”.

9. What document issues purchase of fixed assets?

1) The Act of implementation;
2) Protocol of acceptance-transfer (internal moving) of fixed assets;
83
3) Invoice;
4) Credit slip.

10. On which account records of intangible assets purchasing are kept?

1) 12 “Intangible assets”;
2) 14 “Long-term financial investments”;
3) 15 “Capital investments”;
4) 40 “Authorized capital”.

11. The meaning of such accounting entry: Dr 10 “Fixed Assets” Cr 15 “Capital

investment” is:
1) Displayed depreciation of fixed assets;
2) Accepted subject as a part of fixed assets;
3) Written off fixed assets;
4) Decommissioned depreciation of liquidated assets.

12. Which of the following depreciation method is not an accelerated method?

1) Method of reducing the residual value;
2) Straight-line method;
3) Method of accelerated reduction of residual value;
4) Cumulative method.

13. A company purchases equipment for 30000 UAH on June 15, 2012 (liquidation
value is 2000 UAH and its useful life is 7 years). Which amount of depreciation for
the 2012 year will be by straight-line method?
1) 2000 UAH;
2) 3000 UAH;
3) 4000 UAH;
4) 4500 UAH.

14. A company purchases equipment for 30000 UAH on June 15, 2012 (liquidation
value of 2000 UAH and its useful life will be 7 years). Which amount of
depreciation for the 2013 year will be by straight-line method?
5) 2000 UAH;
6) 3000 UAH;
7) 4000 UAH;
8) 4500 UAH.

15 The following synthetic account is intended to display library funds:

1) 10 “Fixed assets”;
2) 11 “Other non-current tangible assets”;
3) 12 “Intangible assets”;
4) 20 “Inventories”.

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16. Which accounting entries should be made according to the following business
transaction: “Depreciation of sold equipment was written off”:
1) Dr 10 “Fixed assets”
Cr 13 “Depreciation of non-current assets”;
2) Dr 13 “Depreciation of non-current assets”
Cr 972 “Cost of sold fixed assets”;
3) Dr 972 “Cost of sold fixed assets”
Cr 13 “Depreciation of non-current assets”;
4) Dr 13 “Depreciation of non-current assets”
Cr 10 “Fixed assets”.

17. What is meant by such accounting entry: Dr 14 “Long-term financial

investments” Cr 12 “Intangible Assets”?
1) Intangible assets were transferred as a contribution to the share capital;
2) Residual value of intangible assets that had been transferred to the charter of
another company was written off;
3) Payable to the share capital was displayed;
4) Intangible assets were donated.

18. Other non-current tangible assets include objects with following characteristic:
1) Working lifetime of which is less than 12 months, but which does not included
as part of fixed assets;
2) Working lifetime of which is more than 12 months, but which does not included
as part of fixed assets;
3) Working lifetime of which is more than 12 months, initial cost is less than
1000 UAH;
4) Working lifetime of which is less than 12 months, initial cost is more than
1000 UAH.

19. Non-monetary assets that have no physical form and can be identified are
called:
1) Goodwill;
2) Intangible assets;
3) Invisible assets;
4) Other non-current assets.

20. Which entry it is necessary to make during the write-off of intangible assets?
1) Dr 46 “Unpaid capital”
Cr 40 “Authorized capital”;
2) Dr 12 “Intangible assets”
Cr 23 “Production”;
3) Dr 12 “Intangible assets”
Cr 46 “Unpaid capital”;
4) Dr 13 “Depreciation of non-current assets”
Cr 12 “Intangible Assets”.
85
 THEME 6. ACCOUNTING OF INVENTORIES

6.1. The concept, evaluation and classification of inventories at their receipt.

6.2. Documentation of the movement and using of inventories. Analytical
accounting of inventories.
6.3. Evaluation of inventories at their outflow. Transportation and
procurement costs.
6.4. Synthetic accounting of receipts and using inventories.

Dictionary

Аct of receiving materials Акт про приймання матеріалів

Acquisition Придбання
Asset Актив
Consignment note Товарно-транспортна накладна
Containers and packaging materials Тара й тарні матеріали
Credit slip Прибутковий ордер
Current biological assets Поточні біологічні активи
Finished goods Готова продукція
General manufacturing expenses Загальновиробничі витрати
Initial cost Первісна вартість
Inventories Виробничі запаси
Journal of receipt cargoes Журнал обліку вантажів, що
надійшли
Limit-fence card Лімітно-забірна картка
Low value items Малоцінні та швидкозношувані
предмети
Method of identified cost Метод ідентифікованої собівартості
Method of weighted average cost Метод середньозваженої собівартості
Method of selling price Метод ціни продажу
Method of regulatory costs Нормативний метод
Net realizable value Чиста реалізаційна вартість
Nomenclature number Номенклатурний номер
Proxy Довіреність
Purchased components and semi- Покупні комплектуючі вироби та
finished products напівфабрикати
Raw materials Сировина
Stocks Запаси
Transport and procurement costs Транспортно-заготівельні витрати
Waybill-requirement Накладна-вимога
Work-in-process Незавершене виробництво

6.1. The concept, evaluation and classification of inventories at their

86
receipt

Methodological principles of formation of information about stocks and its

disclosures in the financial statements are regulated by Regulation (standard) of
accounting 9 “Stocks” [16].
Inventories are assets that:
– held for sale in the ordinary course of business;
– are in the process of production for such sale;
– held in the form of materials or supplies to be consumed in the
production process or in the rendering of services.
Items that may be included in inventory are those that are held for sale, are
being produced prior to sale, or consumed in the production of such items. The
main categories of inventory are:
- Raw materials, basic and supporting materials, components. Any
materials that are used in the production process, and that will become a part of
salable product, belong to this category.
- Work-in-process. Any materials, labor, and related overhead costs that are
used during the production process fall into this category.
- Finished goods. Any goods that have passed through the production
process, or which have been purchased for resale, fall into this category.
- Consignment inventory. Goods held at another location for sale by
another party (such as through a distributor agreement) fall into this category.
Consigned inventory is not owned by the secondary party, and should not be listed
on its books.
- Low value items. Any materials that are used for not more than one year
or the normal operating cycle if it is longer than one year.
- Current biological assets, if they are evaluated by Regulation (standard)
of accounting 9 as well as agricultural and forestry products after its initial
recognition.
Inventories recognized as an asset if it is probable that the company will
receive economic benefits associated with their use, and their cost can be reliably
measured.
Purchased (received) or produced inventories credited to the balance sheet at
the initial cost. The initial cost of inventory that was purchased for a fee is the cost
of inventories that consists of the following actual expenses:
- amounts payable under the contract to supplier (seller), net indirect taxes;
- amount of import duties;
- amount of indirect taxes in connection with the purchase of inventory
that are not reimbursed to the company;
- transport and procurement costs (the cost of procurement of inventory,
payment rates (freight) for handling and transportation of inventory by all kinds of
transport to the place of use, including costs of risk transporting insurance of
inventory);
- other costs those are directly attribute to the acquisition of inventories
and bring them to the condition in which they are suitable for use in the planned
87
purposes.
Initial cost of inventories that were produced by company is recognized as a
production cost, which is determined by the Regulations (standard) of accounting
16 “Expenses”. The initial value of stocks that were included in the authorized
capital of the company is recognized as fair value agreed upon founders
(participants) of the company. The initial value of inventories that were obtained
free is also recognized by the fair value. Initial cost of inventory that was acquired
in exchange for similar inventories is equal to the book value of transferred
inventory. If the book value of inventories that were transferred exceeds their fair
value, the initial value of the inventories is equal to their fair value. The difference
between the book value and the fair value of the stocks is included into the costs of
reporting period.
The following expenses are not included into the initial cost of inventory,
but belong to the costs of the period in which they were performed (installed):
- overtime losses and a lack of inventories;
- financial expenses;
- expenses for sale;
- general manufacturing expenses and other similar costs that are not
directly associated with the acquisition and delivery of inventories and bringing
them to a state that is suitable for use in the planned purposes.
Inventories are recorded by the lower of two costs: initial cost or net
realizable value. Net realizable value of inventories – is the expected price of
stocks in the normal course of business, less the costs for completion of its
production and sale. The amount by which the initial cost of inventories exceeds
their net realizable cost should be written off to the costs of reporting period.

6.2. Documentation of the movement and usage of inventories.

Analytical accounting of inventories

Materials, raw materials and fuel resources are the most important in the
company, therefore documentation of income, availability and consumption of
these resources is very responsible process, which should provide the necessary
information for registration, operational control and traffic management of material
assets. Source documents, which are often made out of inventory receipts, are
listed in table. 6.1.
Table 6.1
Source documents which issued receipts of inventories
Number of
Name of forms Appointment of the document
forms
Used for registration of documents that are
Journal of receipt of related to receipt of cargoes by railways,
M-1
cargoes waterways and posting them on the
warehouse of the enterprise
M-2 Proxy It is intended for registering the right of a

88
 particular official person to act as a trustee of
the enterprise while receiving of inventories
It is intended for posting of materials that
were received from suppliers or processed. It
is filled in case of the absence of qualitative
and quantitative differences with the
M-4 Credit slip documents of supplier as well as in the
posting of inventories processing. Credit slip
is used for operational accounting in
warehouses, analytical and synthetic
accounting of receipts of inventories
It is used for registration of inventories
acceptance when there are quantitative and
The act of receiving of qualitative differences with the data in
M-7
materials supporting documents of supplier, as well as
for inventories that were received without
documents
It is intended for accounting of delivery of
inventories. Consignment note is used for
1-TN Consignment note
quantitative and qualitative accounting of
inventories.
Inventories from the warehouses of enterprises are released to the workshops
for the manufacture of products and household needs, as well as are realized for
processing or sale as redundant or unnecessary. Materials should be dispensed into
the production according to the limits established on the basis of norms of
inventories costs per unit of product, and plan of production per month.
The main document that reflects the distribution of materials from the
warehouse for intraeconomic purposes is limit-fence card (typical form of M-8)
and false-claims and waybill-requirement (typical form of M-11). Waybill-
requirement represents unity of prescriptive and justificatory documents and is
used for one-time delivery of materials. Repetitive distribution of materials can be
drawn in limit-fence card that combines prescriptive document, which contains the
limit (maximum number) of release, and accumulation justificatory document,
which confirms reusable dispensing of material from the count of limit. Limit-
fence cards are discharged in two copies: one is transferred to the workshop –
consumer, and the second – to the storage. At the end of the month limit-fence
cards are handed to the accounting department.
Distribution of materials to the buyers is performed under the contracts,
orders and other documents and is carried out according to the written disposal of
the head of the enterprise.
Analytical accounting of inventory is carried out in the context of their
names or homogeneous groups. Each group of inventory is divided by the type,
grade, brand and size. A short numeric designation (nomenclature number) is
assigned to each name, grade and size of inventory. Analytical accounting of
inventory in warehouses is maintained by cards of stock control that are placed in
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the files by the technical groups of inventory in accordance with the nomenclature.
Document “Card of stock control of materials” is used to account for the
movement of materials in stock for each group, type and size. It is filled for each
nomenclature number and is carried out by financially responsible person
(storekeeper, head of the warehouse etc).

6.3. Evaluation of inventories at their outflow. Transportation and

procurement costs

Material resources are released from the storage, primarily for basic
operations, i.e. for the production of goods, works or further realization.
Enterprises can choose one of the variants of estimates that are proposed by
R(s)A 9 “Stocks”. So-called actual cost of inventories that are written off can be
calculated by the following methods:
1. identified cost;
2. weighted average cost;
3. first-in, first-out calculation (FIFO);
4. regulatory cost;
5. selling price.
The theoretical basis for valuing of inventories and cost of goods sold
requires assigning the production and/or acquisition costs to the specific goods
they relate to. For example, the cost of ending inventory for an entity in its first
year, during which it produced ten items (e.g., exclusive single family homes),
might be the actual production cost of the first, sixth, and eighth unit produced if
those are the actual units still on hand at the balance sheet date. This method of
inventory valuation is usually referred to as identified cost.
Specific identification is generally not a practical technique, as the product
will generally loose its separate identity as it passes through the production and
sales process. Exceptions to this would arise in situations invading small inventory
quantities with high unit value and low turnover rate. Specific identification must
be employed to cost of inventories that are not ordinarily interchangeable, and
goods and services produced and segregated for specific projects. For inventories
meeting either of these criteria the specific identification method is mandatory and
the other benchmark methods cannot be used.
The weighted-average method relies on average unit cost to calculate cost of
units sold and ending inventory. Average cost is determined by dividing total cost
of goods available for sale by total units available for sale.
To understand this method, let’s consider a simple example. Company
“Edelweiss” has a storage barrel full of nails. The barrel was restocked three times
with 100 kg of nails being added at each restocking. The first batch cost company
100 UAH (1,00 UAH per kg), the second batch cost 110 UAH (1,10 UAH per kg),
and the third batch cost 120 UAH (1,20 UAH per kg). At the end of the accounting
period, head of the stock weighs the barrel and decides that 140 kg of nails are on
hand (from the 300 kg available). Further, the barrel was never allowed to empty
completely and customers have picked all around in the barrel as they bought nails
90
from the company (and new nails were just dumped in on top of the remaining pile
at each restocking).
According to the weighted-average method: company paid 330 UAH for 300
kg of nails, producing an average cost of 1.10 UAH per kg (330 UAH/300). The
ending inventory consisted of 140 kg or 154 UAH. The cost of goods sold was 176
UAH (160 kg X 1.10 UAH). The illustration of weighted-average method of
estimation outflow inventories is presented in figure 6.1.

0 kg 100 kg for 100 kg for 100 kg for

Beginning 100 UAH 110 UAH 120 UAH
inventory

Total cost of goods available = 330 UAH

Total quantities of goods available = 300 kg
Average cost = 330 UAH/300 kg = 1,10 UAH

Cost of goods sold: Ending inventory:

160 kg*1,10 UAH = 140 kg*1,10 UAH =
176 UAH 154 UAH

Fig. 6.1. Illustration of weighted-average method of estimation outflow

inventories
The FIFO method of inventory valuation assumes that the first goods
purchased are the first goods used or sold, regardless of the actual physical flow.
This method is thought to parallel most closely the physical flow of the units for
most industries having moderate to rapid turnover of goods. The strength of this
cost flow assumption lies in the inventory amount reported on the Balance
sheet. Because the earliest goods purchased are the first ones removed from the
inventory account, the remaining balance consists of items acquired at more
recent costs.
However, the FIFO method does not necessarily reflect the most accurate
income figure when viewed from the perspective of underlying economic
performance, as older historical costs are being matched against current revenues.
Depending on the rate of inventory turnover and the speed general and specific
prices are changing with, this mismatching could potentially have a material

91
distorting effect on reported income. At the extreme, if reported earnings are fully
distributed to owners as dividends, the enterprise could be left without sufficient
resources to replenish its inventory stocks due to changing prices.
Illustration of FIFO method of inventories estimation is presented in figure 6.2.

0 kg 100 kg for 100 kg for 100 kg for

Beginning 100 UAH 110 UAH 120 UAH
inventory

Total cost of goods available = 330 UAH

Total quantities of goods available = 300 kg

+
100 kg for 60 kg for 66UAH 40 kg for 44 UAH 100 kg for
100 UAH (60 kg*1,1 UAH) (40 kg*1,1 UAH) 120 UAH

Cost of goods sold: Ending inventory:

100 UAH +66 UAH 44 UAH +120 UAH =
= 166 UAH 164 UAH

Fig. 6.1. Illustration of FIFO method of inventories estimation

Estimation by regulatory costs consists in application of norms for costs per
unit of production (works, services) that are installed by enterprise. In order to
ensure maximal approach of regulatory costs to actual cost and price, regulations
should be regularly checked in the normative base and reviewed. Evaluation of
production by the normative cost is adjusted to the actual production cost.
Method of evaluation by selling prices based on average percentage of trade
margin commodities. This method can be used (unless other outflow methods for
evaluating of inventories are not justified) by the companies with large and
variable range of products from approximately the same level of trade margin. Cost
of goods sold is determined as the difference between the retail cost of goods sold
and the amount of trade margins on these products.
As was noted earlier, transport and procurement costs include the cost of
procurement of inventory, payment rates (freight) for handling and transportation
of inventory by all kinds of transport to the place of use, including costs of
insurance of transporting risk. The sum of transport and procurement costs is
summarized in a separate sub-accounts of stocks, its is monthly shared between the

92
amount of stocks at the end of the month and the amount of stocks that were
withdrew (used, sold, donated, etc.) for the reporting month. The sum of
transportation and procurement costs, which refers to withdrew stocks, is
calculated by multiplying the average rate of transport and procurement costs and
the value of inventories that were withdrew.
The average percentage of transportation and procurement costs is
determined by dividing the balance of transport and procurement costs at the
beginning of the month and transportation and procurement costs for the reporting
month on the balance of stocks at the beginning of the month and stocks that were
received in the reporting month.
Let’s consider the calculation and allocation of transportation and
procurement costs (TPC) on example. The balance of transportation and
procurement costs at the beginning of the month is 300 UAH and balance of
inventories at the beginning of the month is 1200 UAH. Company's warehouse
received the following materials during the month:
– Paint - 1500 kg (for 5 UAH per item);
– Plywood - 50 sheets (for 10 UAH per item);
– Moldings - 500 meters (for 4 UAH per item).
Delivery of materials according to the agreement was carried out by car that
belongs to the transport company. At the end of month transportation company sent
an account for the total amount of 500 UAH (VAT is UAH 100). Salary of heave
and contributions from it to social insurance were amounted for 350 UAH.
Total TPC is 850 USD (500 + 350). For the distribution of this amount
between the types of materials one must perform the following statement:
1) To determine the average percentage of transportation and procurement costs=
300  500
= 1200  (1500 * 5  50 * 10  500 * 4)
* 100% = 7,14 %

2) Using the percentage, to determine the amount TPC that apply to each
type of material:
Paint – 7500 * 7.14% = 535,5 UAH
Plywood – 500 * 7.14% = 35.7 UAH
Moldings – 2000 * 7.14% = 142.8 UAH
3) To determine the initial value each type of material:
Paint – 7500 + 535.5 = 8035.5 UAH
Plywood – 500 + 35.7 = 535.7 UAH
Moldings – 2000 + 142.8 = 2142.8 UAH

6.4. Synthetic accounting of receipts and using inventories

Account 20 “Inventories” is designed for the generalization of information

about the presence and movement of raw and auxiliary materials, fuel, spare parts,
stock and household accessories, containers and other such valuables of the
organization The following sub-accounts may be opened for account 20

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“Inventories”:
– 201 “Raw Materials”. The presence and movement of the following
materials shall be accounted on this sub-account: the raw and basic materials,
which are a part of manufactured products by forming its basis or which are
essential components during their manufacture; auxiliary materials, which take part
in the output of products or consumed to meet economic needs, for technical
purposes, for promoting production process; farm products procured for
processing, etc.
– 202 “Purchased components and semi-finished products”. On this sub-
account it is necessary to account the presence and movement of purchased semi-
finished products, ready-made complimentary parts, acquired for completing
manufactured goods (construction), which require processing or assembly costs.
Items acquired for completing, whose cost is not included in the cost-price of
products, shall be accounted on account 28 (Goods).
– 203 “Fuel”. On this sub-account it is necessary to account the presence
and movement of oil products (oil, diesel fuel, paraffin oil, petrol, etc.) and
lubricants meant for the operation of motor transport vehicles, for meeting the
technological needs of production, generation of power and heating, solid fuel
(coal, peat, firewood, etc.) and gaseous fuel.
– 204 “Containers and packaging materials”. On this sub-account it is
necessary to account the presence and movement of all types of container (except
for that used as farm implements), and also of the materials and details intended
for the production of packaging and its repair (details for the assembly of boxes,
barrel riveting, band iron, etc.). Objects intended for the additional equipment of
goods wagons, barges, vessels and other transportation facilities, used for the
purpose of keeping safe shipped products shall be accounted on sub-account 201.
– 205 “Building materials” shall be used by organizations-developers. It is
necessary to keep a record on this sub-account of the presence and movement of
materials used directly in the process of construction and assembly works, for the
manufacture of building parts, for the erection and finishing of constructions and
parts of buildings and structures, steel sections and parts, and also other material
values needed to meet the needs of construction (explosives, etc.).
– 206 “Materials turned over for processing” On sub-account 206 it is
necessary to keep a record of the movement of materials turned for processing
elsewhere, whose cost shall be subsequently included in the costs of production of
the items received from them. Expenses on the processing of materials paid for
outside organizations and persons shall be directly charged in debit of the accounts
on which items received from processing are recorded.
– 207 “Spare parts”. On this sub-account it is necessary to keep a record of
the existence and movement of the spare parts acquired or manufactured to meet
the needs of production and intended for repairs, the replacement of worn-out parts
of machinery, equipment, transport vehicles, etc., and also of car tyres in reserve
and turnover. The movement of the exchange stock of fully complete machines,
equipment, engines, units and joints produced in the repair subdivisions of
organizations, in technical interchange points and repair works is also recorded on
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this account. Automobile tyres (outer types, inner tubes and rim bands) on wheels
and in reserve on a transport vehicle, included in its original cost shall be recorded
as part of fixed assets.
– 208 “Materials for agricultural purposes”. Accounted for fertilizers,
chemicals for pest and diseases of crops, medicines, chemicals that are used for
disease control of the agricultural animals. It is also displayed seedlings, seed and
feed that are used for planting, seeding and fattening of animals directly on the farm.
– 209 “Other materials” it is necessary to keep a record of the presence and
movement of production waste (chopping, cuttings, shavings, etc.) irreparable
spoilage; material values received from the retirement of fixed assets, which may
not be used as materials, fuel or spare parts in the given organization (metal scrap,
utility waste); worn-out tyres and scrap rubber, etc.
In the debit of such accounts are displaying: the cost of acquisition or
production of material resources and bring them to the state in which they can be
used for the planned purposes, amount of inventories that were received free of
charge, surplus of value that detected as a result of stocktaking, amount of
revaluation.
In the credit of these accounts are displayed the value of inventory that have
been spent on production and other business needs, and have been implemented or
withdrew from any other circumstances (shortage, price reduction, free transfer).
One of the major tasks of accounting for material resources is a reflection of
payments to suppliers. For this purpose such multiple accounts are used: 63
“Settlements with suppliers and contractors”, 37 “Settlements with various
debtors”, 64 “Payments of taxes and fees”.
Account 63 “Settlements with suppliers and contractors” are mostly passive.
Balance on credit represents the amount of debt of the company for materials that
were received but not paid at the end of the month. In the credit of account value of
the property and services that were obtained in accordance with the bills, invoices
and acts of suppliers and contractors is recorded. On the debit of account the
amount of money paid to suppliers is reflected. Analytical accounting on account
63 “Settlements with suppliers and contractors” conducted for each individual
supplier.
If there is an agreement between supplier and buyer to prepay for resources,
accounting of payments to suppliers is made in account 37 “Settlements with
various debtors”, sub-account 371 “Settlement of advances paid”. In relation to the
Balance sheet this account is active. Balance on the debit reflects the amount of
prepayments for tangible resources that have not been received by an enterprise.
Debit of account includes amount of prepayments that were made during the
month. On credited the amount of inventories that were previously paid and
received during the month is recorded. Analytical accounting to this account is
conducted for each supplier.
Companies have the right to pay for material resources in cash. In such
cases, money is given from the cash desk to the workers. Workers, which receive
money for this purpose, are called accountable persons. Settlements with
accountable persons are accounted on the same sub-account 372. In relation to the
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balance this is active-passive account. Debit balance shows the receivables of
accountable persons, credit balance – reflects the companies' debts to accountable
persons. On the debit of account the amount of money that was given to
accountable persons is displayed, on credit – the amount of the value of the
purchased property and returned unspent money are shown.
Typical accounting entries for accounting of inventories are given in table 6.2.

Table 6.2
Typical accounting entries for accounting of inventories
№ Particulars Dr Cr
1 2 3 4
Transactions with receipts of inventories

1. Inventories were received from the supplier 20 631

2. The amount of tax credit with VAT was reflected 641 631

3. Transport costs of inventory were displayed 20/TPC 631

Stocks that have been purchased by the accountable
4. 20 372
person for cash were received
Inventories were manufactured by own forces of an
5. 20 23
enterprise
Inventories were received as a contribution to the
6. 20 46
authorized capital
7. Inventories were received free of charge 20 718
8. Residues of inventory were identified 20 719

9. Prepayment to supplier for inventories was made 371 311

Amount of tax credit for VAT in the amount of
10. 641 644
prepayment was reflected
11. Purchased inventories were received from supplier 20 631
Previously recorded amount of the tax credit on VAT was
12. 644 631
written off while posting of inventories
13. Offset of debts were made 631 371

Transactions with disposals of inventories

Inventories were released from the warehouse for
14. 23 20
production
15. Inventories were written off for general production needs 91 20
16. Inventories were used or administrative purposes 92 20
Inventories were used for the cost of production
17. 93 20
distribution
Inventories were released from the warehouse for capital
18. 15 20
construction by enterprise

96
 19. Accounting value of the sold inventories was written off 943 20
The amount of shortage of inventories was displayed as
20. 947 20
expenses of the reporting period
Inventories were transferred in exchange for shares of the
21. 14 20
company (as contribution to the share capital)
22. Inventories were donated to another enterprise 949 20
Inventory that was used in case of incident were written
23. 99 20
off

Tests for self-control

Each question contains one correct answer.

1. Which objects are not included into the inventory?

1) Raw materials;
2) Work-in-process;
3) Equipment;
4) Finished goods.

2. Cost of inventory procurement, payment rates (freight) for handling and

transportation of inventory to the place of use are called:
1) Transport and procurement costs;
2) Installation and procurement costs;
3) Insurance costs;
4) Other costs.

3. The following expenses are not included into the initial cost of inventory, but
increase the costs of reporting period:
1) Overtime losses and a lack of inventories;
2) Financial expenses;
3) General manufacturing expenses;
4) All of the listed.

4. Inventories are recorded in the accounting and reporting for the lower of two
costs:
1) Market cost or initial cost;
2) Initial cost or net realizable value;
3) Book cost or net realizable value;
4) Initial cost or book cost.

5. Expected price of stocks in the normal course of business, less estimated costs of
completion of their production and sale is called:
1) Average realizable value;
2) Expert value;
3) Net realizable value;
97
4) Initial value.

6. Which document is intended for registering the right of a particular official

person to act as a trustee of the enterprise while inventories receiving?
1) Credit slip;
2) The act of receiving materials;
3) Consignment note;
4) Proxy.

7. Analytical accounting of inventory in warehouses is maintained by:

1) Inventory cards;
2) Journal of receipt cargoes;
3) The act of receiving materials;
4) Cards of stock control.

8. The inventory cost flow assumption where the cost of the most recent purchases
are likely to remain in inventory is called:
1) First-in, first-out calculation (FIFO);
2) Identified cost;
3) Weighted average cost;
4) Regulatory cost.

9. A company purchased inventories in 2013. The purchases were made in the

following way:
January 1, 2013 (carried over from 2012) 20 units at 10 UAH
January 25, 2013 purchase 40 units at 11 UAH
June 20, 2013 purchase 40 units at 12 UAH
September 10, 2013 purchase 50 units at 13 UAH.
Assuming the FIFO cost flow assumption, what will be the company's cost of
inventories used for the 120 items sold in 2013?
1) 1380;
2) 1386;
3) 1410;
4) 1460.

10. A company purchased inventories in 2013. The purchases were made in the
following way:
January 1, 2013 (carried over from 2012) 20 units at 10 UAH
January 25, 2013 purchase 40 units at 11 UAH
Assuming the perpetual weighted average cost flow assumption, what is the
company's cost of inventories used for the 50 items sold in January 2013?
1) 533,33;
2) 530;
3) 531,25;
4) 543, 17.
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11. Which accounting entries should be made to display the following business
operation: “Materials for maintenance of workshop are used”?
1) Dr 23 “Production”
Cr 20 “Inventories”;
2) Dr 91 “General manufacturing expenses”
Cr 20 “Inventories”;
3) Dr 92 “Administrative expenses”
Cr 20 “Inventories”;
4) Dr 20 “Inventories”
Cr 91 “General manufacturing expenses”.

12. Determine the average percentage of transportation and procurement costs

based on the following data:
- balance of material at the beginning of the month for contract prices – 9900 UAH
- balance of material at the beginning of the month for actual cost – 10296 UAH
- materials were purchased at contractual prices – 5300 UAH
- amount of transport and procurement costs per month – 212 UAH
1) 2%;
2) 4%;
3) 3%;
4) 6%.

13. Which accounting entries should be drawn if materials received from suppliers
with VAT and they are intended for production?
1) Dr 23 “Production”
Cr 20 “Inventories”;
2) Dr 20 “Inventories”
Dr 64 “Payments of taxes and fees”
Cr 63 “Settlements with suppliers and contractors”;
3) Dr 20 “Inventories”
Cr 63 “Settlements with suppliers and contractors”;
4) Dr 23 “Production”
Dr 64 “Payments of taxes and fees”
Cr 63 “Settlements with suppliers and contractors”.

14. Determine the actual cost of spending for the production materials, select the
necessary data:
- average percentage of transportation and procurement costs - 2%
- cost of received materials at contractual prices - 15800 UAH.
- cost of spent materials at contractual prices - 12400 UAH.
1. 248;
3. 12152;
2. 12648;
4. 16320.
99
15. What expenses are not included into the initial cost of purchased inventory, if
the company is a VAT payer?
1) Purchase price;
2) The cost of transport services;
3) Value Added Tax;
4) The cost of insurance against risks of transportation.

16. What is meant by such accounting entry: Dr 63 “Settlements with suppliers and
contractors” Cr 311 “Checking accounts”?
1) Received payment from suppliers;
2) Commitment to suppliers was repaid from checking account;
3) Payable to suppliers was displayed;
4) Payment for materials was received.

17. Which of the following costs are not included into the transportation and
procurement costs?
1) Costs on the insurance of risks on the road;
2) Salaries to movers of materials;
3) The cost of materials transportation;
4) Purchase price of materials.

18. Determine the actual cost of purchased materials, if the purchase price of
materials was 18000 UAH, including VAT – 3000 UAH. Transport costs – 500
UAH, payroll for company’s director – 15000 UAH.
1) 10500;
2) 18500;
3) 15500;
4) 14000.

19. What is meant by such accounting entry: Dr 20 “Inventories” Cr 66 “Payments

for employee benefits”?
1) Wages of production workers are accrued;
2) Wages for unloading of materials are accrued;
3) Displayed inventories obtained free;
4) Wages of movers of materials were paid.
20. The average percentage of transportation and procurement costs is determined
in following way:
1) By dividing the balance of transport and procurement costs at the beginning of
the month and transportation and procurement costs for the reporting month on the
balance of stocks at the beginning of the month and stocks received in the
reporting month;
2) By dividing the balance of stocks at the beginning of the month and stocks
received in the reporting month on the balance of transport and procurement costs

100
at the beginning of the month and transportation and procurement costs for the
reporting month;
3) By dividing the balance of stocks received in the reporting month on the
balance of transport and procurement costs at the beginning of the month and
transportation and procurement costs for the reporting month;
4) By dividing the balance of transport and procurement costs for the reporting
month on the balance of stocks at the beginning of the month and stocks received
in the reporting month.

THEME 7. ACCOUNTING FOR SETTLEMENTS OF WAGES AND

STATE INSURANCE

7.1. The composition of wage fund. Forms, types and payroll systems.
7.2. Source documents for payroll accounting.
7.3. Procedure of salaries calculation. Compulsory withholdings from salaries.
7.4. Analytical and synthetic accounting for settlements of wages.

Dictionary

Act of spoilage Акт про брак

Annual basic vacations Щорічна основна відпустка
Array Наряд
Basic wage fund Фонд основної заробітної плати
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Child support Аліменти
Disability sheet Лист непрацездатності
Employee benefit Винагорода працівникам
Fund of additional salary Фонд додаткової заробітної плати
Income tax of individuals Податок на доходи фізичних осіб
Labor resources Трудові ресурси
Labor discipline Трудова дисципліна
Оbligatory medical insurance Обов’язкове медичне страхування
Other incentive and compensation Інші стимулюючи та компенсаційні
payments виплати
Payments of insurance Розрахунки зі страхування
Payments from deposited amounts Розрахунки з депонентами
Payroll accounting Облік заробітної плати
Payroll system Система оплати праці
Рersonal card Особова картка
Piecework form of wage payment Відрядна форма оплати праці
Report on the output Рапортах про виробіток
Route sheet Маршрутний лист
Salary Заробітна плата
Settlements of wages Розрахунки з заробітної плати
Sheet of overpay Доплатний лист
Statement of account output Відомість облік виробітку
Stoppage sheet Простійний лист
Тemporary incapacity for work Тимчасова непрацездатності
Time-based form of wage payment Почасова форма оплати праці
Time-board number Табельний номер
Тimesheet Табель
Unified social contribution Єдиний соціальний внесок
Vacation Відпустка
Vacation pay Оплата відпустки, відпускні
Wages Заробітна плата
Wages payable Заборгованість по оплаті праці
Withholding from salaries Утримання із заробітної плати

7.1. The composition of wage fund. Forms, types and payroll systems

Payroll accounting – is one of the most important and complex areas of

accounting that requires accurate data about the number of employees, categories
of workers, staff time, cost items and using of labor resources.
In accordance with article 1 Law of Ukraine “On labor remuneration”,
wages – a reward that are usually calculated in monetary terms, which the owner
or its authorized body shall pay to the employee for work done by him under the
contract of employment [5].
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 The main levers of wage regulation are the forms and systems of salary. The
main forms of salary are time-based and piecework. Time-based form of payment
is a payment by the amount of calendar working time (in days or hours) that are
spent to certain qualifications. It is used in cases where the results of the work of
individual employees do not lend themselves to precise accounting and
standardization, such as the work in conditions of mechanization and automation
of production etc. This form of payment has its own varieties (systems):
1. simple time-based (labor of workers is paid only based on the number of
hours worked and wage rates in line with their qualification);
2. time basis – premium (premium is added to the rate, that increases the
material interest of workers in the achievement of specific indicators).
At piecework pay, wages of employees directly depends on the amount of
work performed and size of the rates. This form is used for payments to employees
whose work is lent to standardization. Piecework form is more conducive to the
growth of labor productivity, better utilization of equipment and materials and it
provides the most complete combination of personal interests of the workers with
the interests of the enterprise. Piece wage may be straight, progressive, chord and
premium. It can be an individual and the brigade.
Forms and system of wages in the enterprise are regulates by the head of the
company. Government regulates wages by establishing of minimum salary and
minimum non-taxable income.
The structure of labor costs in the company includes wages that are accrued
on the basis of piece rates, tariffs and salaries that are set according to the results of
labor, its quantity and quality; stimulating and compensating payments; systems of
bonuses to workers, managers, specialists, employees for production results; other
conditions according to the forms and systems of payroll.
According to Instruction on statistics of wage that was approved by the
Ministry of Statistics of Ukraine of 13.01.2004, № 114/8713, the cost of labor is
divided into the basic wage fund, the fund of additional salary and other incentive
and compensation payments [11].
Basic wage – a reward for work done under the established norms of labor
(time, output, maintenance), job commitment. It installs as a wage rates (salaries)
and corresponding rates for workers and salaries for employees.
Additional salary – is compensation for work over the established norm, for
labor achievements, inventiveness and for special working conditions. It includes
bonuses, allowances, warranties and compensation that are provided by applicable
law, the premium for the execution of production tasks and functions.
Other stimulating and compensation payments. These include payment in
the form of remuneration for the results of the year, award for special systems and
regulations, compensation and other monetary and material payments that are
unforeseen by the acts of legislation or implemented in excess of the norms of
law.

7.2. Source documents for payroll accounting

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 Accounting for the use of working time and monitoring of labor discipline in
enterprises is carried out by timecard. At the time of employee hiring, time-board
number is given to him, and record about his enrollment shall be made in the
workbook (located in the department of personnel) pursuant to the order of the
company’s head.
In the personnel department for each employee personal card is opened,
Personal card indicate the necessary personal data of the employee and the changes
that takes place in his work. Accounts department opens personal card to each
employee.
Accounting for the use of working time is carried out in the timesheet.
Timecard objectives are:
a) monitoring of attendance to work and its leaving;
b) identify the causes of delay or absence on the work;
c) obtaining information about the actually time worked by employees,
composition of work;
d) prepare reporting about presence of workers and their movement, about
the state of labor discipline.
To the timecard all names of employees are entered. Separate timesheet is
conducted for each workshop and department by timekeeper or foremen, craftsmen
and others. Number of working hours by each employee and absence at work
(using conditional tags - ciphers) is indicated in the timesheet.
To ensure proper payroll accounting it is necessary to accurately account for
the output of products or the amount of work performed by each employee.
Depending on the technology and organization of production different accounting
systems are used. Accounting of output by pieceworkers in manufacturing is
carried out on typical forms that depend from the production process, system of
organization and wages in the report on the output, route sheets, statements of
account output, arrays and other documents.
The main source document of labor accounting, output and basic wage of
pieceworker on individual manufactures is array. In serial production can be used
more advanced documentation for labor accounting of output and wages – route
sheets, combined with variable report.
Source documents of additional payments to pieceworkers are represented by:
– Sheet of overpay – is filled out in cases of independent from worker
conditions that occur deviation from the prescribed technological process and
cause support time costs in comparison with established standards;
– Stoppage sheet – a letter on payment of downtime that have arisen
through no fault of the worker;
– Act of spoilage – is filled out in the case when a partial defect of
production is occurred through the fault (or no fault) of worker;
– Timesheet – used to indicate the actual hours of overtime work for each
employee and work at night.
Each source document should contain the following information: the name
of the executors and their time-board numbers; place of work (department,
division, etc.); period of operation; type and quality of work performed; rate per
104
unit of output (per unit of work); hours, minutes (according to the norm) per unit of
work and on all work done.

7.3. Procedure of salaries calculation. Compulsory withholdings from

salaries

There is the following methodology of wages calculation for time-based

system: if it is a full working month, benefit should be counted in amount of salary
that was established according to the order for the company. When there are
incomplete work months – salary is divided by the number of working days in the
working month and multiplied by the number of working days (according to the
timesheet).
Procedure of payment for downtime, as well as for the development of new
manufacture (product) is regulated by the article 113 of the Labor Code of Ukraine
[2].
During the downtime that was caused by worker wages are not paid, but for
a downtime through no fault of employee (lack of energy, materials, etc.) on the
basis of stoppage sheets (which shall include the name, number of time-board of
worker, causes, perpetrators, the term of downtime) fee is accrued with a reduced
size, but not more than the half of the wage rate for time-based salary of worker
according to his qualifications.
Complete spoilage of products that occurred through the fault of the worker,
is not paid, in addition cost of defective materials should be withheld from him.
Partial shortage that was caused by the worker is paid with a reduced rate: less than
half of the wage rate per hour. Full spoilage that occurred through no fault of the
worker is paid at the rate of two-thirds of the wage rate of hourly wages per hour
that is set by the norm of given work.
Wages for work at night time are carried out according to article 108 of the
Labor Code of Ukraine. It is established by the general, sectoral (regional)
agreements, collective agreement, but not less than 20% of tariff rate (salary) for
each hour of the night.
The Law of Ukraine “On vacations” from 15.11.96 № 504/96-VR sets the
state guarantees of the right to leave, determines the conditions, duration, order of
granting vacations to employee [6].
The following types of vacations are established:
1) Annual vacation:
- The basic vacation;
- Additional leave for work in hazardous and difficult working conditions;
- Additional leave for special nature of work;
- Other additional leave under the law.
2) Additional leave for studying.
3) Creative vacation.
4) Social vacations:
- Leave due to pregnancy and childbirth;
- Leave to care for a child under the age of three years;
105
 - Additional leave to employees who have children.
Duration of annual basic vacations should be not less than 24 calendar days
per year for working year that is counted from the date of conclusion of the
employment contract. Vacation pay should be calculated by the formula:
Total earnings for the last 12 month
Vacation pay  * Number of calendar days of vacation
Number of calendar days of the year
(8)
It is reasonable to note that holidays and days off that are specified by law
(for today 10 days) are not taken into account while calculation of the number of
calendar days in the year.
For example, let’s calculate vacation pay for manager. Total earnings of
manager in the past 12 months (from 1.09.2012 to 31.08.2013) were 46860 UAH.
Calendar days without a holiday are 355 days (365-10). The average salary per
calendar day is 132 UAH (46860/355). Manager has a vacation from 19 to 30
September 2013 for 12 days. Amount of vacation pay will be 1584 UAH (132
UAH*12 days).
Besides the basic and additional wages to employees of the companies
compensation payments are accrued.
Payment of allowances for temporary incapacity for work is carried out on
the basis of piece of disability. Allowance for temporary disablement shall be
calculated on the basis of the general seniority of the employee, it is available in
the following sizes:
– 60% of average wage (income) – for persons with insurance experience
up to 5 years;
– 80% of average wage (income) – for persons with insurance experience
from 5 to 8 years;
– 100% of average wage (income) – for persons with insurance experience
over 8 years.
Average earnings are determined by dividing of actual earnings for the last 6
calendar months to the number that was actually worked by employee (hours) of in this
period.
The total amount of allowance for temporary disablement is calculated as
follows:
BD  ADW WD PD (9)
Where:
BD - amount of benefit for temporary disablement;
ADW - average daily (hourly) wage
WD - number of working days (hours) that were missed due to illness;
PD - percentage of disability sheet payment.
For example, let’s consider calculation for disability sheet of accountant for
September 2013. The data required for the calculation are listed in table 7.1.
Table 7.1
Calculation of payments for disability sheet
106
 Accumulated Amount of
Period
wage working days
March 2903.60 22
April 2892.40 20
May 2886.80 19
June 2920.40 20
July 3004.40 21
August 3018.40 22
Total 17626.00 124
Average daily wage 17626/124 = 142.15
Percentage of disability sheet
payment 100.0
(seniority 11 years)
Number of working days (hours)
missed due to illness 9
(from 6.09 to 18.09)
Amount of benefit for temporary 142.15*9*100% =
disablement 1279.35
To calculate the wages for all categories of workers payroll register or pay
sheet is used.
According to the Law of Ukraine “On the collection and accounting of
United contribution for obligatory state social insurance” from 08.07.10 № 2464 -
IV businesses and workers are payers of United contribution for obligatory social
insurance (further - USC (unified social contribution)) [7]. The basis for
calculating of USC is the sum of gross wages and salaries by type of payment.
United contribution is set as a percentage of the amount of gross wages and
salaries by type of payment, including basic, additional salary and other incentive
and compensation payments, according to the class of professional risk. The
amount of United contribution is attributed to the class of professional. Class of
professional risk depends from the types of economic activities. There are 67
classes of professional risk and amount of United contribution is ranging from
36.76% to 49.7% to the object of taxation.
The following withholdings can be made from the gross wages and salaries
of employees:
1. Income tax of individuals is deducted from wages according to the rate of
15% (17% if income is more than 10 minimum wages). If the total taxable income
is less than the minimum wage that is multiplied by a factor of 1.4, then the worker
is entitled to a tax credit. The amount of tax credit is equal to 50% of the minimum
wage on January 1 of current year.
2. Unified social contribution – in the amount 3.6% of gross wages and salaries;
3. Child support;
4. Union dues and others.
For example, let’s calculate salary of manager in January 2013. Employee
wages is 5000 UAH. At the enterprise the first class of professional risk with

107
percentage 36,76% is established.
Deduction of USC = 5000*3.6% = 180 UAH
Income tax of individuals = (5000 – 180)*15% = 723 UAH
Net salary that employee will receive = 5000 – 180 – 732 = 4088 UAH
Accruals of USC by the enterprise = 5000*36,76% = 1838 UAH.

7.4. Analytical and synthetic accounting for settlements of wages

According to the Cart of accounts synthetic account 66 “Payments for

employee benefits” is designed to generalize information about payroll settlements
with workers (for all types of labor remuneration, social benefits and other
payments), and also data about payments of incomes from shares and other
securities of an organization. It is advisable to open the following sub-accounts to
account 66 “Payments for employee benefits”:
661 “Payments for payroll”;
662 “Payments from deposited amounts”;
663 “Payments for other benefits”.
In credit of account 66 “Payments for employee benefits” it is necessary to
reflect the amounts of:
– remuneration of workers – in correspondence with the accounts of
production costs or sale costs and other sources;
– remunerations of workers according to reserves of vacation pay;
– social insurance benefits, pensions and other similar amounts;
– income from participation in the organization’s capital, etc.
In debit of account 66 “Payments for employee benefits” it is necessary to
reflect amounts of labor remuneration, bonuses, social benefits, pensions, incomes
from participation in the capital of the organization that were paid; amounts of
taxes, payments under executive documents that were accrued and other
deductions.
Amounts that were charged but were not paid out within the fixed period of
time – 3 days (due to the absence of recipients) shall be reflected on debit of sub-
account 661 “Payments for payroll” and on credit of sub-account 662 “Payments from
deposited amounts”.
Analytical accounting on account 66 “Payments for employee benefits” shall
be kept for each worker of the organization.
Account 65 “Payments of insurance” is designed to generalize information
about payments for social insurance, pensions and obligatory medical insurance of
the organization’s workers. Account 65 “Payments of insurance” shall be credited
to the amounts of payments on the social insurance and social security of workers,
and also on their obligatory medical insurance, these amounts being transferred to
the relevant funds. In this case records shall be made in correspondence with the
accounts which reflect the payroll charges.
Furthermore, on credit of account 65 “Payments of insurance” in
correspondence with the profit and loss account or settlements with workers in
other transactions (in respect of settlements with guilty persons) it is necessary to
108
reflect the accrued amount of penalty fees for the untimely contribution of
payments. In correspondence with account 31 “Checking accounts” it is necessary
to reflect the amounts that were received in cases of the excess of relevant
expenses over payments.
In debit of account 65 Payments for insurance” it is necessary to reflect the
transferred amounts of payments, and also amounts that were paid for social
insurance, pensions and obligatory medical insurance.
Typical correspondence of accounts for payroll is given in table 7.2.

Table 7.2
Typical entries for accounting of payroll
№ Particulars Dr Cr
1 2 3 4
Wages for workers of basic and auxiliary production
1. 23 661
were accrued
Wages for engineering and technical personnel of
2. 91 661
workshop were accrued
3. Salaries of administrative personnel were accrued 92 661
Salaries of workers that are engaged in sales and
4. 93 661
marketing were accrued
Fees related to the correction of products’ defect were
5. 24 661
accrued
Vacation pay due to the reserve of vacation payment was
6. 471 661
accrued
7. Unpaid salaries were deposited 661 662
8. Income tax of individuals was deducted from wages 661 641
9. Unified social contribution was deducted from wages 661 651
Contributions to the union dues were deducted from
10. 661 681
wages
11. Wages were paid from cash desk 661 301
12. The amount of child support was deducted from the wage 661 377

Tests for self-control

Each question contains one correct answer.

1. The form of payroll when payment is carried by the amount of calendar working
time (in days or hours) that was spent to certain qualifications is called:
1) Piecework form;
2) Time-based form;
3) Calendar form;
4) Time and attendance form.

2. Other stimulating and compensation payments don’t include:

109
1) Payment in form of remuneration for the results of the year;
2) Award for special systems and regulations;
3) Compensation and other monetary and material payments unforeseen by the
acts of legislation or implemented in excess of the norms of law;
4) Compensation for work over the established norm, for labor achievements and
inventiveness and for special working conditions.

3. In the personnel department for each employee should be opened:

1) Dossier;
2) Informational card;
3) Personal card;
4) All of listed.

4. Accounting of working time is carried out in:

1) Timesheet;
2) Personal card;
3) Statements of account output;
4) Route sheets.

5. This document is filled out in the case when a partial defect of production was
occurred through the fault (or no fault) of worker:
1) Stoppage sheet;
2) Sheet of overpay;
3) Act of spoilage;
4) Timesheet.

6. Sheet of overpay is filled out in the following cases:

1) When independent from worker conditions were occurred the deviation from
the prescribed technological process;
2) When there was a downtime that have arisen through no fault of the worker;
3) When a partial defect of production was occurred through the fault (or no fault)
of worker;
4) When it is necessary to indicate the actual hours of overtime work of each
employee and work at night.

7. What kind of vacations does not exist?

1) Creative vacation;
2) Unpredictable vacation;
3) Additional vacation for studying;
4) Social vacations.

8. In 2013 rate for the United contribution for obligatory state social insurance that
is withheld from employees' salaries and wages is:
1) 3%;
2) 15%;
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3) 3,6%;
4) 13%.

9. The amount of Unified social contribution that should be withheld from an

employee’s salary of 3500 UAH in September 2013 is:
1) 525 UAH;
2) 126 UAH;
3) 105 UAH;
4) 147 UAH.
10. Calculate Income tax from salary of accountant in October 2013. Employee
salary is 6000 UAH:
1) 216 UAH;
2) 812, 7 UAH;
3) 867,6 UAH;
4) 212, 6 UAH.

11. From gross wages and salaries of employees can’t be made such withholdings:
1) Income tax of individuals;
2) Unified social contribution;
3) Child support;
4) Communal tax.

12. On this account records of settlements with depositors are kept:

1) 66 “Payments for employee benefits”;
2) 64 “Payments of taxes and fees”;
3) 37 “Settlements with various debtors”;
4) 65 “Payments of insurance”.

13. On which accounts will be show deduction from the manager’s salary?
1) Dr 641 “Payments of taxes and fees”
Cr 661 “Payments for employee benefits”;
2) Dr 661 “Payments for employee benefits”
Cr 651 “Payments of insurance”;
3) Dr 641 “Payments of taxes and fees”
Cr 92 “Administrative expenses”;
4) Dr 92 “Administrative expenses”
Cr 641 “Payments of taxes and fees”

14. Calculate the amount of the company’s payables for payroll at the end of the
month (the balance on the account 66), if debt in the beginning of the month was
2300 UAH, salaries per month were accrued in the amount 19100 UAH, was
deducted from the salaries – 1700 UAH, salaries were paid for 13800 UAH:
1) Debit balance – 5900;
2) Credit balance – 3600;
3) Credit balance – 760;
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4) Credit balance – 5900.

15. In credit of account 66 “Payments for employee benefits” it is necessary to

reflect the following amounts:
1) Remuneration of workers – in correspondence with the accounts of production
costs or sale costs and other sources;
2) Remunerations of workers according to reserves of vacation pay;
3) Social insurance benefits, pensions and other similar amounts;
4) All of listed answers are correct.
16. Analytical accounting on account 66 “Payments for employee benefits” shall
be kept:
1) for each structural departments of enterprises;
2) for each employee of the organization;
3) for each type of wages;
4) for each period of payment.

17. What is the economic content of the following accounting entry: Dr 66

“Payments for employee benefits” Cr 65 “Payments of insurance”:
1) Wages of production workers were accrued;
2) Income tax was deducted from the employee’s salary;
3) Unified social contribution was deducted from the employee’s salary;
4) Wages were paid from the cash office.

18. What accounting entry should be made during the accrual of wages for
production workers?
1) Dr 91 “General manufacturing expenses”;
Cr 66 “Payments for employee benefits”
2) Dr 92 “Administrative expenses”
Cr 66 “Payments for employee benefits”;
3) Dr 66 “Payments for employee benefits”
Cr 23 “Production”;
4) Dr 23 “Production”
Cr 66 “Payments for employee benefits”.

19. What accounting entry should be made during the accrual of wages for the
head of the company?
5) Dr 91 “General manufacturing expenses”;
Cr 66 “Payments for employee benefits”
6) Dr 92 “Administrative expenses”
Cr 66 “Payments for employee benefits”;
7) Dr 66 “Payments for employee benefits”
Cr 23 “Production”;
8) Dr 23 “Production”
Cr 66 “Payments for employee benefits”.

112
20. What does the following correspondence of accounts mean: Dr 66 "“Payments
for employee benefits” Cr 64 “Payments of taxes and fees”?
1) Settlements with the budget were implemented;
2) Value added tax was accrued;
3) Income tax of individuals was retained;
4) Tax credit was accrued.

THEME 8. ACCOUNTING FOR CASH FLOW

8.1. Accounting for cash in hand.

8.2. Accounting for cash on checking accounts in banks. Accounting for
funds on other bank accounts.
8.3. Accounting for other monetary funds.

Dictionary

Аds by cash contribution Оголошення на внесок готівки

Applications for letters of credit Заява на відкриття акредитивe
Asset Актив
Вank statement Виписка банку
Cash Грошові кошти
Cash equivalents Еквіваленти грошових коштів
Cash in transit Грошові кошти в дорозі
Cash in hand Грошові кошти в касі, каса
Cash payments Грошові платежі, виплати, розрахунки
Сash book Касова книга
Cash desk Каса
Cash office Каса
Cash limit Ліміт каси
Сash inventory Інвентаризація каси
Сash check Грошовий чек
Сashiers’ report Звіт касира
Сhecking account Поточний рахунок
Compensation of previously written off Відшкодування раніше списаних
assets активів
Сonsumables cash order Видатковий касовий ордер
Forms of strict registration Бланки суворої звітності
Money orders Платіжне доручення
Мonetary funds Грошові кошти
Payment-requests orders Платіжна вимога-доручення
Receipts cash order Прибутковий касовий ордер
Settlement of reparation Розрахунки за відшкодуванням

113
 завданих збитків
Settlement check Розрахунковий чек
Shortages and losses from property Нестачі і втрати від псування
damage цінностей

8.1. Accounting for cash in hand

Cash includes those items that are acceptable to a bank for deposit and are
free from restrictions (i.e., available for use in satisfying of current debts). Cash
typically includes coins, currency, funds on deposit accounts, checks and money
orders. Such items like postdated checks, certificates of deposit, stamps and travel
advances are typically not classified as cash.
Accounting for the cash flow is very important to ensure sufficient cash
availability with the purpose to meet obligations and to make sure that idle cash is
appropriately invested to maximize the return to the company.
Enterprises and private entrepreneurs have the right to make payments both
in non-cash or cash form. Operations with cash are regulated by the Order of cash
transactions in the national currency of Ukraine, approved by the Resolution of the
Board National Bank of Ukraine 15.12.2004 № 637 [12].
To provide settlements by cash each company should have a cash desk (cash
office). Cash desk – is a specially equipped and isolated room, which is intended
for receipt, delivery and temporary storage of cash. Cash desk can also be
understood as the totality of cash, located in the company at a particular time. For
the safety of cash agreement on the full individual responsibility with the cashier
should be concluded.
In order to reduce cash circulation government regulates the limits for
residues of cash in hand. Cash limit is set by companies themselves on the basis of
calculation of cash balance on hand and signed by the chief accountant and head of
the company. Above the established limits enterprises have the right to keep in the
box office money that are intended for wages, bonuses, allowances for temporary
disability within 3 working days. If after this period money were not used for its
intended purpose they should be returned to the bank account.
Receipts and issues of money from cash desk are executed by receipts cash
order (form № KO-1) and consumables cash order (form № KO-2), which are
issued and registered by accountant in the log of incoming and outgoing of cash
documents. The numbering of incoming and outgoing cash orders is conducted in
order, starting from January 1 to the end of the year. The documents on the cash
issuance should be signed by director and chief accountant. No erasures or
corrections to the cash documents are allowed.
Cash that was given to accountable persons but not consumed by appointment
should be returned to the cash desk of the company on the following dates:
– for economic needs – no more than two working days, including the day
of cash receipt on account;
– for business trips – within five working days after the end of travel;
– for the purchase of agricultural products – within ten working days from
114
the date of issue.
Company have the right to keep in its cash desk money for wage payments,
pensions, scholarships, dividends over prescribed limit of cash within three
working days, including date of cash receipts.
Analytical accounting for cash transactions is conducted in the cash book
(form number KO-4). Sheets of cash book should be numbered, laced in and
stamped. The number of sheets in the cash book should be certified by the
signatures of the head and chief accountant of the company. Entries in the cash
book are maintained in two copies by carbon paper. The second one (the tear) piece
of the book serves as report of cashier, who at the end of the day sends it to
accountant together with attached documents (under signature in the cash book).
This procedure is necessary to validate entries and derive cash balances at the end
of the day.
Synthetic account 30 “Cash in hand” is intended for the generalization of
information about the presence and movement of monetary funds in the
organization’s cash offices. The following sub-accounts may be opened for account
30 “Cash in hand”:
301 “Cash in hand in national currency”
302 “Cash in hand in foreign currency”
In debit of account 30 “Cash n hand” it is necessary to reflect the receipt of
monetary funds by the organization's cash office. In credit of account 30 “Cash in
hand” it is necessary to reflect the payment of monetary funds from the
organization’s cash office.
Typical entries for accounting of cash are listed in the table 8.1.
Table 8.1
Typical entries for accounting of cash
№ Particulars Dr Cr
1 2 3 4
Money was received to cash office from the checking
1. 301 311
account in national currency
2. Payments from customers were received to cash desk 301 361
Unspent advances from accountable persons were
3. 301 372
returned
Contribution to the share capital in monetary form were
4. 301 46
received from founder
5. Excessive amount of issued wages was returned 301 661
Proceeds from the sale of goods in retail trade were
6. 301 702
received
Money was transferred from the cash office to the
7. 311 301
checking account
Money was issued to accountable persons for
8. 372 301
administrative needs or business trip
Employee's salary was paid from the cash office of the
9. 661 301
company
10. Previously deposited wages were paid from cash office 662 301

115
 At established by the head of company deadlines a special commission should
conduct the cash inventory. Results of inventory are drawn up in the act that is
showing the amounts of cash’s shortages or surpluses and their causes. Surplus of
cash increases the incomes of the company:
Dr 30 “Cash in hand” Cr 719 “Other revenues from operational activity”.
Shortage of cash is written off by the entity:
Dr 947 “Shortages and losses from property damage” Cr 30 “Cash in hand”
Further it is necessary to include the amount of slack to compensation by the
cashier:
Dr 375 “Settlement of reparation” Cr 716 “Compensation of previously
written off assets”
In consequence compensation of shortage by cashier is drawn in such entry:
Dr “Cash in hand” Cr 375 “Settlement of reparation”.

8.2. Accounting for cash on checking accounts in banks. Accounting of

funds in other bank accounts

Settlements between enterprises (organizations) in the course of their

business activities are carried out, usually, in cashless form, i.e., transfer of funds
from the account of enterprise-payer to the account of the company-recipient. In
this settlements bank plays the role of financial intermediary.
The order of payments through the banking system is regulated by the
Instruction “On the non-cash payments in Ukraine in national currency” approved
by resolution of the Board of the NBU № 22 from 21.01.2004 [25].
For storage of temporarily available cash and conduction of non-cash
settlement enterprises open checking accounts in banks in accordance with the
instructions “On the order of opening, using and closing of accounts in national
and foreign currencies” approved by resolution of the Board of the NBU № 492
from 12.11.2003 [26].
To open an account the company should submit to the bank the following
documents: account application, a copy of the state registration certificate, a copy
of the document that confirm registration of the enterprise in tax authorities and
statistics agencies, a copy of the statute, signature cards of manager, chief accountant
and stamp.
Reception and delivery of cash or non-cash transfer on bank accounts are
carried out by the instruments of fixed form. The most common of these are:
– ads by cash contribution;
– cash and settlement checks;
– money orders;
– payment-requests orders;
– applications for letters of credit etc.
Ad by cash contribution is used when company decides to transfer money to
the checking account. Together with ad by cash contribution should be filled
another supporting document – receipt.
Checks are used for making payments in cashless form between entities as
116
well as between individual and legal persons in order to reduce cash payments for
goods, works and services. Cash check is the order of issuance some sums from
checking account. It can be money to pay salaries, pensions, benefits, traveling
expenses, economic needs etc. Supporting document of check is a stub, which is
remained in the company checkbook. Check in settlement – a document that
contains written order of the owner of account (check issuer) to its bank to pay the
certain amount of money to the check holder. Validity of check book is one year.
By agreement with the bank validity of unused checkbook can be extended.
Settlements by money orders are one of the most common forms of
payment. Money order is a written order of enterprise to its bank to transfer money
from his account to the account of another enterprise (organization). Money orders
are conducted for settlements on payments as a commodity nature (for products,
goods, works, services) and non-commodity outputs (to the budget and extra-
budgetary funds, bank loan, etc.) are conducted.
Payment-requests orders are used for settlements between businesses for
material goods (works, services). Payment-requests order is filled by the supplier
and transferred to the buyer along with the shipped products (goods) or after the
provision of services. Also this document can be sent to the buyer's bank for
acceptance and payment collection.
Payment-requests order represents a payment document that consists of two
parts:
– upper part –is a requirement of the supplier to the customer to pay the
cost of delivered material assets (works, services) according to the agreement;
– lower part – is an order of the payer to his bank to transfer the amount of
money from his checking account to the supplier.
With letters of credit enterprise-customer transfers part of money to the bank
of the supplier for the upcoming pay of shipped goods under the conditions that are
set out in the applications for letter of credit. Specified funds are held on the letter
of credit to perform supplier’s obligations to the buyer. Letters of credit can be
opened as its own funds (covered letter of credit), and at the expense of bank loans
(outstanding letter of credit) and are intended for settlements with only one
supplier.
About the enrollment or retirement of money from a checking account, the
company learns from the bank statement. Documents on the basis of which money
were written off or credited to checking account must be attached. Bank statement
replaces a register of the analytical account to the checking account and it is the
basis for the accounting records. According to the bank statement correctness of
moving of money on bank accounts is verifying.
Account 31 “Checking accounts” is designed to generalize information
about the presence and movement of monetary funds in the national and foreign
currency on checking accounts of the respective organization, opened with credit
organizations. In debit of account 31 “Checking accounts” it is necessary to reflect
the receipt of monetary funds on the organisation's settlement accounts. In credit of
account 31 “Checking accounts” it is necessary to reflect the debiting of monetary
funds from the organisation's settlement accounts.
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 The following sub-accounts can be opened for account 31 “Checking
accounts”:
311 “Checking accounts in national currency”
312 “Checking accounts in foreign currency”
313 “Other bank accounts in national currency”
314 “Other bank accounts in foreign currency”
On bank accounts companies have the funds that are used for various
targeted operations. To account such funds sub-accounts 313 “Other bank accounts
in national currency” and 314 “Other bank accounts in foreign currency” are
designated. This sub-accounts are used to generalize information about the
presence and movement of monetary funds in the national and in foreign
currencies on the territory of Ukraine and beyond its borders in letters of credit,
checks and other payment documents (except bills), on current, special and other
special accounts.
Scheme of accounting entries for operations in banks accounts are presented
in table 8.2.
Table 8.2
Typical entries of accounting for operations in banks accounts
№ Particulars Dr Cr
1 2 3 4
Payment from customers was received on checking
1. 311 36
account
Money received from the enterprise’ cash office was
2. 311 301
credited on the checking account
Payment of other receivables was received on checking
3. 311 377
account
Money was transferred into a special account with
4. 313 311
purpose to open a letter of credit
Money from the letter of credit was written off as
5. 63 313
payment for goods, works and services
6. Money was transferred on deposit account 313 311
Money was paid from the checking account to the cash
7. 301 311
office of enterprise
8. Money was paid in advance to suppliers and contractors 371 311
9. Paid to suppliers and contractors from checking account 63 311
10. Paid taxes to the budget from checking account 64 311
Paid insurance contributions for social insurance from
11. 65 311
the checking account
Wages were paid by money transfer to personal accounts
12. 661 311
of employees
Debt on short-term loans was restated from checking
13. 601 311
account
8.3. Accounting for other monetary funds

In addition to funds in checking accounts at banks and cash in hand,

companies may have other funds: money in letters of credit, in the checkbooks, in

118
prepaid coupons for petrol, heating oil, food, etc., prepaid vouchers to home of
resorts, camp sites, reports on postal transfers, notes receivable and other financial
instruments. Listed values are usually stored in cash office of the enterprise.
For synthetic account of other monetary funds account 33 “Other monetary
funds” is provided by Chart of accounts. The following sub-accounts may be
opened for this account:
331 “Monetary documents in national currency”
332 “Monetary documents in foreign currency”
333 “Cash in transit in national currency”
334 “Cash in transit in foreign currency”
On the debit of account 33 “Other monetary funds” receipt of the monetary
documents to cash office and funds in transit are reflected, on the credit – disposal
of monetary documents and write-offs of cash in transit are displayed.
Monetary instruments include, in particular, shares, bonds, notes and other
securities, trips to rest homes and sanatoriums, postage stamps, state tax stamps,
tickets, etc. Receipt and issuance of the cash documents is carried out by receipts
and consumables cash orders. Analytical accounting of monetary documents is
conducted by their types.
The features for accounting of monetary documents can be considered on
the following example. The company bought a ticket to a rest home for 4200 UAH,
including VAT – 700 UAH, and gave it to employees of the administrative apparatus
as incentive payments. Rate of USC that was installed for enterprise is 37%.
Accounting entries for above example are presented in the table 8.3.
Table 8.3
Accounting entries for operations with monetary documents
№ Particulars Dr Cr Sum, UAH
1 2
Ticket to the rest home was paid from the
1. 685 311 4200
checking account
2. Tax credit for VAT was displayed
641 644 700
3. Ticket was received 331
685 3500
4. Tax credit with VAT was displayed 644 685 700
5. Cost of tour is displayed in the labor expanses 92 661 4200
6. USC from the cost of the tour accrued
92 65 1554 (4200*37%)

7. USC from the benefit was withheld 151,20

661 65
(4200*3,6%)
718,49
Income tax of individuals from the benefit was
8. 661 641 (4200*1,176471 –
withheld
151,20)*15%
9. Ticket was given to the employee 661 331 3500

119
10. Tax liability for VAT was accrued
661 641 700
1705,20
11. Liabilities from USC were paid 65 311
(1554+151,20)
Income tax of individuals was transferred to
12. 641 311 718,49
the budget
Forms of strict registration (proxy, check books, waybills, etc.) should be kept
in cash desk of the enterprise. They are accounted on the off-balance account 08
“Forms of strict registration”.
Sub-accounts 333 and 334 are designed to generalize information about the
movement of monetary funds (transfers) in the national and foreign currencies in
transit, that is, monetary sums (chiefly proceeds from the sale of goods by trading
organizations) brought to the cash offices of organizations, savings banks or cash
post offices for placing these funds into the organization’s settlement or any other
account without charge according to designation.
For example, delivery of revenue in national currency to collectors is
reflected by such entities:
Dr 333 “Cash in transit in national currency” Cr 301 “Cash in hand”
Enrolment of these funds on the current account will be reflected this way:
Dr 311 “Checking accounts in national currency” 333 “Cash in transit in
national currency”

Tests for self-control

Each question contains one correct answer.

1. Company have the right to keep in its cash desk money for wage payments,
pensions, scholarships, dividends over prescribed limit of cash within:
1) Two working days;
2) Three working days;
3) Two calendar days;
4) Three calendar days.

2. Analytical accounting of cash transactions is conducted in:

1) Cash book;
2) Receipts cash order;
3) Consumables cash order;
4) Journal of cash transactions.

3. What is the economic content of such accounting entry: Dr 30 “Cash in hand”

Cr 719 “Other revenues from operational activity”?
1) Shortage of cash is written off;
2) Payments from customers were received;
3) As a result of inventory was found surplus of cash;
4) Excessive amount of issued wages was returned.
120
4. What accounting entry must be made when money has been received to cash
office from the checking account in national currency?
1) Dr 301 “Cash in hand”
Cr 311 “Checking accounts”;
2) Dr 301 “Cash in hand”
Cr 36 “Settlements with buyers and customers”;
3) Cr 311 “Checking accounts”
Dr 301 “Cash in hand”;
4) Dr 301 “Cash in hand”
Cr 46 “Unpaid capital”.

5. What accounting entry must be made when founder’s contribution to the share
capital in monetary form was received?
1) Dr 301 “Cash in hand”
Cr 311 “Checking accounts”;
2) Dr 301 “Cash in hand”
Cr 36 “Settlements with buyers and customers”;
3) Cr 311 “Checking accounts”
Dr 301 “Cash in hand”;
4) Dr 301 “Cash in hand”
Cr 46 “Unpaid capital”.

6. What is the economic content of such accounting entries: Dr 311 “Checking

accounts” Cr 301 “Cash in hand”?
1) Payments from customers were received;
2) Money from the cash office was transferred to the checking account;
3) Unspent advances from accountable persons were returned;
4) Previously deposited wages were paid from cash office.

7. Which document company should submit to the bank to open checking account?
1) Account application;
2) Copy of the state registration certificate;
3) Signature cards of manager, chief accountant and stamp;
4) All of listed answers are correct.

8. Which document is provided when company decided to transfer money to the

bank account?
1) Payment-requests order;
2) Cash and settlement check;
3) Ads by cash contribution;
4) Money order.

9. Normal validity of check book is:

1) One month;
2) Three month;
121
3) Six months;
4) One year;

10. A written order of company to the bank for transferring from its account
amount of money to the account of another enterprise is called:
1) Payment-requests order;
2) Cash and settlement check;
3) Ads by cash contribution;
4) Money order.

11. Which document is filled by the supplier and transferred to the buyer along
with the shipped products and can be sent to the buyer's bank for acceptance and
payment collection?
1) Money order;
2) Payment-requests order;
3) Cash and settlement check;
4) Applications for letters of credit.

12. From which document does company learn about the enrollment or retirement
of money from the checking account?
1) Bank notification;
2) Consumables cash order;
3) Bank statement;
4) Cash flow statement.

13. The difference between the balance in a company's cash account and its bank
statement is documented in the:
1) Reconciliation of the bank statement;
2) Bank notification;
3) Cash flow statement;
4) Act of checking.

14. What does the following correspondence of accounts mean: Dr 64 “Payments

of taxes and fees” Cr 311 “Checking accounts”?
1) Tax incentives were received;
2) Taxes were paid to the budget;
3) Tax credit was compensated from the budget;
4) Unified social contribution was paid to the budget.

15. What accounting entry should be drawn if debt on short-term loans was repaid
from the checking account?
1) Dr 30 “Cash in hand”
Cr 31 “Checking accounts”;
2) Dr 60 “Short-term loans”
Cr 31 “Checking accounts”;
122
3) Dr 61 “Current indebtedness of long term liabilities”
Cr 31 “Checking accounts”;
4) Dr 31 “Checking accounts”;
Cr 60 “Short-term loans”.

16. What does the following correspondence of accounts mean: Dr 313 “Other bank
accounts in national currency” Cr 311“Checking accounts in national currency”?
1) Money from the letter of credit was written off;
2) Money from a checking account was transferred to the cash office;
3) Money was transferred into a special account to open a letter of credit;
4) Payment was received on checking account.

17. What accounting entry should be drawn if money were restated in advance to
suppliers and contractors?
1) Dr 37 “Settlements with various debtors”
Cr 31 “Checking accounts”;
2) Dr 30 “Cash in hand”
Cr 31 “Checking accounts”;
3) Dr 63 “Settlements with suppliers and contractors”
Cr 30 “Cash in hand”;
4) Dr 61 “Current indebtedness of long term liabilities”
Cr 31 “Checking accounts”.

18. Which items are not included into the monetary instruments?
1) Bonds;
2) Financial investments;
3) Notes;
4) All items are included into monetary instruments.

19. Analytical accounting of monetary documents is conducted:

1) By their types;
2) By their value;
3) By responsible persons;
4) By the period of using.

20. Enterprise has received postage stamps, which entry should be made for this
transaction?
1) Dr 68 “Settlement of other operations”
Cr 31 “Checking accounts”;
2) Dr 33 “Other monetary funds”
Cr 68 “Settlement of other operations”;
3) Dr 31 “Checking accounts”
Cr 68 “Settlement of other operations”;
4) Dr 63 “Settlements with suppliers and contractors”
Cr 33 “Other monetary funds”.
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 THEME 9. ACCOUNTING FOR PRODUCTION COSTS OF
ENTERPRISES

9.1. Recognition and classification of production costs.

9.2. Accounting for direct costs.
9.3. Accounting for indirect costs. The procedure of general manufacturing
expenses distribution.
9.4. Accounting for losses caused by spoilage.

Dictionary

Аctual capacity Фактична потужність

Allocation of general manufacturing
Розподіл загальновиробничих витрат
expenses
Assets Активи
Auxiliary services Допоміжні виробництва
Сost of production Собівартість продукції
Cost of sales Собівартість реалізації
Deferred expenses Витрати майбутніх періодів
Direct costs Прямі витрати
Economic Court Господарський суд
Expenses Витрати
Expenses of the period Витрати періоду
Finished products Готова продукція
Fixed costs Постійні витрати
General manufacturing expenses Загальновиробничі витрати
Indirect costs Непрямі витрати
Liabilities Зобов’язання
Losses caused by shortages Втрати від браку
Normal capacity Нормальна потужність
Overhead cost Накладні витрати
Payments under commission agreements Платежі за договорами комісії
Previous (advance) payment Попередній (авансовий) платіж
Production Виробництво
Production costs Виробничі витрати
Semi-finished products Напівфабрикати
Spoilage in production Брак у виробництві
Variable costs Змінні витрати
Workshop Майстерня, цех

9.1. Recognition and classification of production costs

Methodological and methodical bases of accounting for the costs of

companies are determined by R(s)A 16 “Expenses” [20].
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 Expenses of the reporting period are recognized as decrease of assets or
increase of liabilities that leads decreasing in equity of the enterprise (excluding
the reducing of equity due to its withdrawal or allocation by holders), if these costs
can be reliably estimated.
Accounting principles provide that expenses are recognized simultaneously
with the recognition of revenue, for which they were made. If it is impossible to
link costs directly with incomes of certain period, they should be recognized as an
expense in that period in which they were made.
If an asset provides reception of economic benefits over several periods, the
costs are recognized by the systematic distribution of its value between the relevant
reporting periods.
The following expenses aren’t recognized and aren’t included in the income
statement:
1. Payments under commission agency agreements and other similar
agreements in favor of consignor, the principal, and so on.
2. Previous (advance) payment for supplies.
3. Repayment of loans obtained.
4. Others decrease in assets or increase in liabilities that do not meet signs
of costs (contributions to the share capital, long-term and current financial
investments).
5. Costs that are displayed as a result of decreasing in equity of enterprise in
accordance with the regulations (standards) of accounting.
Classification of costs –is a grouping of costs according to certain criteria.
Classification helps to understand the essence of costs and to study order of their
formation and purpose of using. Production costs are grouped according to the
following criteria:
I. For elements (element – is a set of economically homogeneous costs):
– material costs;
– labor costs;
– contributions to social events;
– depreciation;
– other operating expenses (travel expenses, communication services,
payment for services of banks and others).
II. For relation to cost of products and services:
– the cost of production (costs that are associated with the output of
production and forms its production cost);
– expenses of the period (the costs that are not included into the cost of
production but increase costs of the period in which they had been arisen, such as
the cost of management, marketing etc.
III. By the order of inclusion into the cost of production (only the costs of
production are grouped):
– direct costs – costs that can be directly attributed to the cost of certain
types of products. Examples of direct costs are listed in the below classification for
directions;
– indirect costs – costs that can not be attributed directly to a particular
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type of product. They belong to several or all products. These include general
manufacturing expenses, the total of which shall be distributed among types of
products according to the rules described in R(S)A 16 “Expenses”.
IV. By direction of expenditure (only the costs of production are
grouped):
– direct material costs (include the cost of raw materials and basic materials,
purchased semi-manufactured goods and components, ancillary and other materials
that can be directly attributed to a particular type of goods (works, services));
– direct labor costs (include wages and benefits to workers who are engaged
in the production of goods, works or services, if they can be directly attributed to a
particular products);
– other direct costs (include all other production costs that are associated
with the production of specific products, such as contributions to social insurance,
rent and depreciation of special equipment and other expenses);
– general manufacturing expenses (include the costs of production
management (payroll of managers of workshops; social contributions from salaries
of this personnel; the cost of official business trips of workshops’ staff, etc.),
depreciation of fixed assets and intangible assets of general-purpose; costs for
repair, maintenance, operation, leasing of general-purpose fixed assets; the cost of
heating, lighting and other production facilities).
V. By the degree of influence on the level of production costs:
– fixed costs (amount of this costs does not change or changes slightly due
to changes in output. For example, the cost of heating and lighting, wages of
managers);
– variable costs (amount of this costs depends on the output. For example,
the cost of raw materials, which form the basis of production, wages of production
workers, fuel for the movement of production equipment and others).
VI. For the calendar periods:
– costs of the current period;
– deferred expenses.
Classification of production costs by the basic criteria is presented in
figure 9.1.

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 Classification of production costs

Material costs

Labor costs

For elements Contributions to social events

Depreciation

Other operating expenses

The cost of production

For relation to cost of
products and services
Expenses of the period

Direct costs
By order of inclusion in
the cost of production
Indirect costs

Direct material costs

Direct labor costs

By direction of
expenditure
Other direct costs

General manufacturing expenses

By the degree of Fixed costs

influence on the level of
production costs Variable costs

Costs of the current period

For the calendar
periods
Deferred expenses

Fig. 9.1. Classification of production costs by the basic criteria

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 9.2. Accounting for direct costs and general manufacturing expenses

To collect information about the costs of production account 23

“Production” is provided by Chart of accounts.
Account 23 “Production” is intended for the generalization of information
about the costs of production, this account shall be used to account outlays on:
– the output of industrial and agricultural products;
– the performance of building and assembly works, geological prospecting,
design and survey works;
– the rendering of services by transport and communication organizations;
– the performance of scientific, research and development works;
– the maintenance and repair of motor roads, etc.
In debit of account 23 “Production” it is necessary to reflect the direct
expenses on the output of products, the performance of works and the rendering of
services, and also the expenses of auxiliary production units, indirect expenses on
the management and service of basic industries, and losses from spoilage. Direct
expenses on the output of products, the performance of works and the provision of
services shall be written off to Account 23 “Production” from credit of accounts of
supplies, payroll settlements with workers, etc. Costs of auxiliary services shall be
written off to account 23 “Production” from credit of sub-account 23.1 “Auxiliary
services” (for example). Losses from spoilage shall be written off to account 23
“Production” from the credit of account 24 “Spoilage in production”.
In credit of account 23 “Production” it is necessary to reflect the amounts of
the actual prime cost of finished products, performed works and services. These
amounts may be written off from account 23 “Production” in debit of account 26
“Finished products”.
Balance on account 23 “Production” at the end of the period shows the value
of incomplete production.
Analytical accounting on account 23 “Production” shall be kept according to
the types of costs and types of the output (works, services). Analytical accounting
on this account also can be realized in the subdivisions of the organization.
Typical accounting entries for reflection of production costs are presented in
table 9.1.
Table 9.1
Typical entries of accounting for production costs
№ Particulars Dr Cr
1 2 3 4
Depreciation of fixed assets and intangible assets that are
1. 23 13
used in the production was accrued
Inventories were released from the warehouse for needs
2. 23 20
of production
Low-value wear items were rreleased and used in
3. 23 22
production
Contributions to reserve of vacation of production
4. 23 471
workers were conducted

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 Salaries of production workers were accrued and
5. contributions to social insurance from wages were 23 65,66
displayed
6. Cost of production spoilages was written off 23 24
7. Unused materials were returned to warehouse 20 23
8. Receipts of semi-finished goods were reflected 25 23
9. Finished products were issued from the production 26 23
10. Markdowns of work in progress were conducted 946 23

9.3. Accounting for indirect costs. The procedure of general

manufacturing expenses distribution

Account 91 “General manufacturing expenses” is intended for the

generalization of information about expenses for the servicing of basic and
auxiliary services of the organization. In particular, this account may reflect the
following expenses: on the maintenance and operation of machinery and
equipment; depreciation deductions and expenses on the repair of fixed assets and
other assets that are used in production; expenses on the insurance of fixed assets;
expenses on heating, lighting and the maintenance of workshops; rental of
premises, machines, equipment, etc. that are used in production; wages of workers
that provide management of workshop and other similar expenses.
General manufacturing expenses shall be reflected on account 91 “General
manufacturing expenses”, from credit of the account are recorded amounts of
productive supplies, payroll settlements with workers, etc. Expenses those are
accounted on account 91 “General manufacturing expenses” should be written off
on debit of account 23 “Production” or account 90 “Cost of sales”.
Analytical accounting on account 91 “General manufacturing expenses”
shall be kept by separate subdivision of the organization and by the items of
expenses.
General manufacturing expenses are divided into fixed and variable. Fixed –
general manufacturing expenses remain constant (or nearly constant) when volume
of activity is changing. Variable general manufacturing expenses – are the costs
that vary directly (or almost directly) in proportion to the changes in volume of
activity.
According to paragraph 16 of R(s)A 16 “Expenses” companies can
independently determine the list and composition of variable and fixed general
manufacturing expenses. This information should be included in the order of the
accounting policy.
Allocation of fixed and variable general manufacturing expenses of products,
works and services produced by an enterprise is carried out by the different ways:
– variable general manufacturing expenses are divided into each cost of
object, using a base of allocation based on the actual capacity of the reporting
period;
– fixed general manufacturing expenses are allocated to each cost of
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object, using a base of allocation based on the normal capacity.
Normal capacity is the expected average amount of activity that can be
achieved in the ordinary course of the enterprises’ activity for several years, or
operating cycles. Its also includes planned maintenance.
The following indexes can be used as a basis of general manufacturing
expenses allocation:
• hours of work;
• wages;
• volume of output;
• direct costs;
• others.
Businesses should choose the base of allocation that is most accurately
reflects the relationship between the expenditure and the amount of the finished
product. Accounting policy of enterprise should determine the list of fixed and
variable general manufacturing expenses of products, works and services.
Application of allocation that is based on normal capacity means that the
fixed general manufacturing expenses are included into the production cost in full
amount only if the actual output is equal or greater than normal capacity.
If actual production is lower than expected average level, only part of the
fixed general manufacturing expenses will be included into the cost of production.
Remaining costs which are called undivided will be displayed as expenses of that
period in which they have arisen and will be included in cost of sales. Approach to
the allocation of general manufacturing expenses is shown in figure 9.2.

General manufacturing expenses

Variable Fixed
Indirect costs of production that Indirect costs of production that
vary directly in proportion to remains constant when changing
changes in output of output

Allocation Allocation
Proportional to the basis of
distribution at the actual Undivided part Divided part
capacity
Account 90 Account 23
Account 23 “Production” “Cost of sales” “Production”

Figure 9.2. Approach to the allocation of general manufacturing expenses

9.4. Accounting for losses caused by spoilages

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 Spoilage of production – is a production, semi-finished products, parts,
components and works quality of which does not meet the established standards or
technical specifications. These assets could not be used for its intended purpose or
may be used only after additional costs for correction.
Depending on the location of detection, spoilage is divided into internal and
external. Internal spoilage of production – is a defect that was fount in the
production process. External shortage of production – is a defect that was detected
and presented by the consumer for compensation.
Depending on the nature of deviations from the standards, spoilage of
production is divided into correctional (can be corrected) and final (can not be
corrected).
For accounting and compilation of information about the losses from the
spoilage of production account 24 “Spoilage in production” is designed.
In debit of account 24 “Spoilage in production” it is necessary to collect
expenses on the revealed internal and external rejects (the value of irreparable or
definite spoilage, expenses on correction, etc.).
In credit of account 24 “Spoilage in production” it is necessary to reflect the
amounts that are attributed to the diminution of losses from spoilage:
– the value of rejected products at the price of possible use;
– amounts that can be deducted from guilty persons;
– amounts that can be recovered from suppliers for the delivery of
defective materials or semi-finished products, etc.
On credit of account 24 “Spoilage in production” amounts that are written
off into the production costs as losses from spoilage are also reflected.
Analytical account on account 24 “Spoilage in production” shall be kept by
separate subdivision of the organization, type of production, item of expenses,
reason for defects and person that are guilty of spoilage.
Typical accounting records that reflect spoilages in production are presented
in table 9.2.
Table 9.2
Typical accounting records that reflect spoilages in production

№ Particulars Dr Cr
1 2 3 4
1. Actual cost of final shortage was written off 24 23
2. Expenses for correction of spoilage were displayed:
2.1. inventories 24 20
2.2. semi-finished goods 24 25
2.3. salary 24 66
2.4. contributions to the social programs 24 65
2.5. costs of outside organizations’ services 24 63
Losses from a spoilage were writing off to the cost of
3. 23 24
production
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 4. Materials were obtained from spoilage production 20 24
Compensation for spoilage was accrued to the workers-
5. 375 24
causers
Amounts that will be compensated by suppliers of
6. 374 24
substandard materials were accrued
Spoilage of products is drawn by special reports or acts which indicate a
product’s defect based on laboratory analysis, complaints or peer review by experts;
operation on which spoilage was revealed; perpetrators; amount of direct costs that
attributes to the spoilage.
Costs of spoilage correction reflect the general procedure. For this procedure
should be used documents for payroll calculating, additional write-down of raw
materials that were consumed, reflection of spent energy, container and so on.
Posting of the amount of final spoilage of production is also carried out by
usual documents in which the value of received scrap or waste is noting. A special
calculation is made to write off the cost of correcting spoilages or to refer those to
the guilty persons. If there was spoilage because of the low quality of raw
materials and Economic Court has made a decision about compensation by
supplier, such amount will be also deducted in accounting.

Tests for self-control

Each question contains one correct answer.

1. Expenses of the reporting period are recognized as:

1) Increase of assets or decrease of liabilities that leads decreasing in equity of the
enterprise;
2) Decrease of assets or increase of liabilities that leads increasing in equity of the
enterprise;
3) Decrease of assets or increase of liabilities that leads decreasing in equity of the
enterprise;
4) Increase of assets or decrease of liabilities that leads increasing in equity of the
enterprise.

2. The following items are not recognized as expenses and are not included in the
income statement:
1) Advance payment for supplies and services;
2) Depreciation of fixed assets;
3) Payment for bank services;
4) All of listed.

3. Which costs are not included in the cost of production but increase costs of the
period in which they have been arisen?
1) Direct costs;
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2) General manufacturing expenses;
3) Expenses of the period;
4) Other operating expenses.

4. Which items are not included into direct cost?

1) Wages of workers who are engaged in the production of goods;
2) Depreciation of production equipment;
3) Rent for the machinery that is engaged in production process;
4) Cost of workshop heating.

5. Costs the value of which depends on the output are called:

1) Indirect costs;
2) Variable costs;
3) Periodical costs;
4) Deferred expenses.

6. By what posting the output of finished products and its transferring to the
warehouse can be reflected:
1) Dr 90 “Cost of sales” Cr 23 “Production”;
2) Dr 26 “Finished products” Cr 23 “Production”;
3) Dr 23 “Production” Cr 26 “Finished products”;
4) Dr 26 “Finished products” Cr 91 “General manufacturing expenses”;

7. Determine the balance on account 23 “Production” knowing that residue of

unfinished production at the beginning of the month was 100000 UAH, the
cost per month – 150000 UAH, products were released by the actual cost –
120000 UAH:
1) Credit balance – 130000 UAH;
2) Debit balance – 70000 UAH;
3) Debit balance – 130000 UAH;
4) Credit balance – 70000 UAH.

8. What is the content of the following accounting entry: Dr 23 “Production” Cr 20

“Inventories”?
1) Materials were received from the main production;
2) Materials were released for production;
3) Materials were released for administration purpose;
4) Materials were released for general manufacturing needs.

9. Determine the actual cost of output on the account 23 “Production”

knowing that the residue of unfinished production at the beginning of the
month is absent, the cost per month – 18000 UAH, the balance at the end of
the month – 3000 UAH.
1) 18000 UAH;
2) 3000 UAH;
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3) 15000 UAH;
4) 21000 UAH.

10. What is meant by the following accounting entry: Dr 23 “Production” Cr 66

“Payments for employee benefits”?
1) Salaries of production workers are accrued;
2) Salaries of general manufacturing workers are accrued;
3) Contributions to social insurance from wages of production workers are
accrued;
4) Contributions to reserve of vacation pay of production workers are conducted.

11. Account 91 “General manufacturing expenses” does not reflect the following
expenses:
1) Expenses on heating, lighting and the maintenance of premises;
2) Wages to workers that provide management of workshop;
3) Depreciation and expenses on the repair of fixed assets;
4) Cost of raw materials that were used for production.

12. Analytical accounting on account 91 “General manufacturing expenses” shall

be kept by:
1) Periods of manufacturing and type of expenses;
2) Separate subdivision of the organization and by item of expenses;
3) Type of manufactured products and costs;
4) Periods of manufacturing and separate subdivision of the organization.

13. Which figure represents the expected amount of activity that can be achieved in
the ordinary course of the enterprises’ activity for several years?
1) Planned output;
2) Volume of output;
3) Normal capacity;
4) Preferred capacity.

14. Cannot be used as a basis of general manufacturing expenses allocation:

1) Hours of work;
2) Wages;
3) Direct costs;
4) Depreciation of equipment.

15. Which posting can be made while the payroll to chief of workshops is accrued?
1) Dr 91 “General manufacturing expenses” Cr 66 “Payments for employee
benefits”;
2) Dr 92 “Administrative expenses” Cr 66 “Payments for employee benefits”;
3) Dr 66 “Payments for employee benefits” Cr 23 “Production”;
4) Dr 23 “Production” Cr 66 “Payments for employee benefits”.

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16. Which accounting posting should be made during the writing-off of variable
general manufacturing expenses to the cost of production?
1) Dr 23 “Production” Cr 91 “General manufacturing expenses”;
2) Dr 23 “Production” Cr 92 “Administrative expenses”;
3) Dr 91 “General manufacturing expenses” Cr 23 “Production”;
4) Dr 79 “Financial results” Cr 91 “General manufacturing expenses”.

17. How the depreciation of manufacturing equipment will be reflected on

accounts?
1) Dr 92 “Administrative expenses” Cr 13 “Depreciation of non-current assets”;
2) Dr 91 “General manufacturing expenses” Cr 13 “Depreciation of non-current
assets”;
3) Dr 13 “Depreciation of non-current assets” Cr 91 “General manufacturing
expenses”;
4) Dr 23 “Production” Cr 13 “Depreciation of non-current assets”.

18. On credit of account 24 “Spoilage in production” it is necessary to reflect the

following amounts:
1) The value of rejected products at the price of possible use;
2) Amounts that can be deducted from guilty persons;
3) Amounts that can be recovered from suppliers for the delivery of defective
materials or semi-finished products;
4) All of listed is right.

19. On which accounts will be shown the next transaction: “Displayed waste
obtained from shortage”?
1) Dr 23 “Production” Cr 24 “Spoilage in production”;
2) Dr 24 “Spoilage in production” Cr 20 “Inventories”;
3) Dr 24 “Spoilage in production” Cr 23 “Production”;
4) Dr 20 “Inventories” Cr 24 “Spoilage in production”.

20. What is meant by following accounting entries: Dr 24 “Spoilage in production”

Cr 23 “Production”?
1) Losses from a spoilages were written off to the cost of production;
2) Expenses for correction of spoilage were displayed;
3) The actual cost final shortage was written off;
4) Compensation for spoilage was accrued to workers-causers.

THEME 10. ACCOUNTING OF FINISHED PRODUCTS AND ITS

REALIZATION

10.1. Documentation of the goods movement.

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 10.2. Analytical and synthetic accounting of finished products.
10.3. Characteristics of accounts that reflect the process of finished products
realization.
10.4. Determination of financial results from the sales of products.

Dictionary

Аcceptance bill Приймально-здавальна накладна

Аcceptance act Приймально-здавальний акт
Administrative expenses Адміністративні витрати
Bill Накладна
Сard of stock control Картка складського обліку
Сontractual price Договірна ціна
Distribution expenses Витрати на збут
Expenses Витрати
Financial results Фінансові результати
Finished goods Готова продукція
Incomes from sales Доходи від реалізації
Incomes from principal operational Доходи від основної операційної
activity діяльності
Income from investments in capital Дохід від участі в капіталі
Other financial incomes Інші фінансові доходи
Other operational incomes Інші операційні витрати
Оrder Наказ
Payments of taxes and fees Розрахунки за податками й платежами
Profit tax Податок на прибуток
Нерозподілені прибутки (непокриті
Retained profit (uncovered loss)
збитки)
Revenues Доходи
Settlement of advances received Розрахунки за авансами одержаними
Розрахунки з покупцями та
Settlements with buyers and customers
замовниками
Stocks Запаси
Tax credit Податковий кредит
Тax invoice Податкова накладна
Tax liabilities Податкові зобов’язання
Warehouse Склад

10.1. Documentation of the goods movement

Finished goods – are such that were completely passed under all stages of
production technology and processes, tested in accordance with specifications and
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standards and transferred to the warehouse.
Finished goods refer to stocks that’s why their recognition and evaluation is
performed according to R(s)A 9 “Stocks”.
Issue of finished products from the production and its transferring to the
warehouse is made by acceptance bill or acceptance acts. Bills are normally issued
in quantitative measurement and then translated to accounting prices (planned cost
or the average, contract, selling price). Other documents such as accumulative
sheet on the delivery of finished products, sheet of delivery for change, acts of
acceptance of the finished product can be used.
Finished products are shipped to the customers under agreements,
contracts. In some cases, one-off deliveries can be issued by the application-
transaction (simplified form of the contract of sale). Transferring of ownership
to the goods shipped from the supplier to the buyer, and also procedure of
distribution of transportation costs, insurance are determined by the conditions
in the contract.
Shipment of finished products is carried out from the warehouse pursuant to
the order. In warehouse, after receiving the order for goods shipped, products for
the buyer are selected and bill is issued (in this case bill should be signed). Some
companies instead of orders and bill use one document – order-bill. Further these
documents should be sent to the accounting department for writing the bill and tax
invoice to the buyer.
Invoices are issued at contractual prices. Invoices contain the name of
consignee and consignor, addresses, contract number, date of shipment, costs,
excluding VAT, the VAT, the total sum of the bill and other necessary details. Trade
passes are issued to the consignee to take out of finished goods from the enterprise.
Supplying of products for their own needs is based on the order of the head
of the company and should be reflected by the bill-request for issue. If in the future
finished products will be used as fixed assets, it’s enroll as a part of fixed assets of
the enterprise must be executed by the typical form № OZ - 1 “Protocol of
acceptance-transfer (internal moving) of fixed assets”.
In warehouse finished goods are recorded in quantitative expression for its
types in the cards or in books of stock control. In the book or card of stock control
the following information is defined: name of products, their nomenclature
number, unit of measure, size, brand, price per unit, etc. Accounting of finished
product is conducted to the extent of its receipt to the warehouse and issuing from
the warehouse. Records in cards or books of stock control are made on the receipt
and delivery of finished products and daily leftovers are also displayed.

10.2. Analytical and synthetic accounting of finished products

To account for the movement of finished goods account 26 “Finished

products” is provided by the Chart of accounts.
Account 26 “Finished products” is designed to generalize information about
the presence and movement of finished products. This account shall be used by
organizations engaged in industrial, agricultural and other production activity. The
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acceptance for accounting of finished products manufactured for sale, including
products partially intended for meeting the organization’s own needs, shall be
reflected in debit of account 26 “Finished products” in correspondence with the
accounts of production costs.
Account 26 “Finished products” shows the following information:
– Cost of finished goods available at the beginning of an accounting period
(i.e. beginning balance as a debit because it is an asset account). The balance
represents finished goods available for sale at the beginning of the period.
– Cost of goods manufactured that were transferred from work-in-process
to finished goods during the accounting period (debit side).
– Cost of goods sold during the period (credit side).
– Cost of finished goods available at the end of the account period.
When finished products are accounted on synthetic account 26 “Finished
products”, at actual production costs in analytical accounting, the movement of
their individual denominations may be reflected at accounting prices (at planned
prime cost, release prices, etc.). Such deviations shall be accounted according to
homogenous groups of finished products, which are formed by the organization on
the basis of the level of the deviations of the actual production costs from the value
at the accounting prices.
The amounts of deviations in the actual production costs of finished, shipped
and sold products from their value at accounting prices shall be reflected in credit
of account 26 “Finished products” and in debit of relevant accounts by an
additional or reversed entry.
Analytical accounting on account 26 “Finished products” as noted shall be
kept by the places of storage and types of finished products.
Typical accounting records of the movement of finished goods are presented
in table 9.2.

Table 10.1
Typical accounting records of the movement of finished goods
№ Particulars Dr Cr
1 2 3 4
1. Finished products were released from production 26 23
Surpluses of finished products that were found during the
2. 26 719
inventory are displayed
Semi-finished goods for sale were received to the
3. 26 25
warehouse
4. The cost of goods sold was written off 901 26
Lack of finished goods that was determined as a result of
5. 947 26
inventory is identified and written off
Reduces of assessment of finished goods to the amount
6. 946 26
of net realizable value were conducted
7. The cost of donated finished product is written off 949 26
Losses of finished products as a result extraordinary
8. 99 26
events were write-off

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 10.3. Characteristics of accounts, which reflect the process of finished
products realization

In accounting department on basis of documents which have been submitted

to shipment of finished products, calculations of analytical accounting with buyers
are conducted. For synthetic accounting of calculations with buyers account 36
“Settlements with buyers and customers” is used.
Account 36 “Settlements with buyers and customers” is designed to
generalize information about settlements with buyers and customers. This account
shall be debited in correspondence with credit of account 70 “Incomes from sales”
to the amounts of which accounting documents are presented.
Account 36 “Settlements with buyers and customers” shall be credited in
correspondence with the accounts of monetary funds, settlements to the sums of
received payments (including amounts of received advances), and so on. The
amounts of received advances and preliminary payment shall be recorded
separately. For example:
– Finished products are shipped to the customers: Dr 361 Cr 701;
– Payments from customers were received on the checking account: Dr 311
Cr 361;
– Payment from customers was received on the cash desk: Dr 301 Cr 361;
– Offset of debts for barter was conducted: Dr 631 Cr 361.
All the companies should be registered in the government inspection as
value added tax (VAT) payers. Enterprise should issue tax invoice at the moment of
finished goods realization. The rate of VAT is established by the Tax Code of
Ukraine and amounts to 20% or 0% (for a certain transaction).
Account 64 “Payments of taxes and fees” is designed to generalize
information about the settlements with budgets in taxes and fees paid by the
organization and in taxes with the workers of the organization.
This account shall be credited to the amounts due under tax declarations
(calculations) in correspondence with account 98 “Profit tax” – to the amount of
profit tax, with account 66 “Payments for employee benefits” – to the amount of
income tax, etc. Amounts of money actually transferred to the budget, and also the
amounts of credit of value-added tax shall be reflected in debit of account 64
“Payments of taxes and fees”. It is recommended to open the following sub-
accounts to the account:
641 “Tax settlements”
642 “Settlement of obligatory payments”
643 “Tax liabilities”
644 “Tax credit”
Analytical accounting on account 64 “Payments of taxes and fees” shall be
kept by the type of taxes.
Accounting of tax liabilities for VAT is shown in table 10.2.

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 Table 10.2
Accounting of tax liabilities for value added tax
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4
I. The first event - prepayment from buyers (customers) was received
Prepayment (advance payment) from the buyer was
1. 311 681 6000
received on the checking account
2. Displaying tax liabilities for VAT 643 641 1000

3. Finished products were shipped to the buyer 361 701 6000

Tax payments for tax liabilities from VAT were
4. 701 643 1000
displayed
5. Offset of receivable and payable accounts was made 681 361 6000
II. The first event - delivery of goods (services)
6. Finished products were shipped to the buyer 361 701 6000
7. Tax liabilities for VAT were accrued 701 641 1000
Payment from the buyer was received on the
8. 311 361 6000
checking account
In this example was also used account 681 “Settlement of advances received”.
Account 681 is used when customers of goods are paying in the form of prepayment.
Balance of account 681 “Settlement of advances received” is passive. Balance on
credit of this account reflects prepayments that were received from the customers but
delivery has not yet been made. Turnover on credit shows the amount of prepayments
received during the month and recorded in the debit accounts 30 “Cash in hand” or 31
“Checking accounts”. In the debit of account 681 “Settlement of advances received”
the cost of products shipped to customers is displayed.
While finished products are sold to the customers, enterprise’ income arises.
The order of accounting for income is established by R(s)A 15 “Revenues” [19].
Revenues as well as expenses in the accounting and financial reporting are carried
by the types of activities.
According to R(s)A 15 “Revenues”, revenue is recognized when asset is
increasing or liability is decreasing that leads to the growth of equity (other than
capital growth by contributions from members of the enterprise), provided that the
estimate of revenue can be reliably measured.
Incomes from the principal operational activity of the enterprise include:
– Income (loss) from sales of products (sub-account 701);
– Income (loss) from sales of goods (sub-account 702);
– Income (loss) from sales of works and services (sub-account 703).
Revenue from the sales of products (goods) is recognized at the following
conditions:
1. The significant risks and benefits associated with the ownership of
products (goods) were transferred to the buyer.
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 2. Company does not carry further control and management of products
(goods, other assets).
3. The amount of income (loss) may be reliably measured.
4. There is the confidence that a transaction will increase economic benefits
of the enterprise.
5. Costs associated with the transaction can be reliably measured.
Revenue is not recognized if at least one of the above conditions was not
met. Revenue from sales is recognized at the time of shipment of the products,
goods and services. Revenue should be shown in the accounting records by the
amount of the fair value.
Account 70 “Incomes from sales” is intended to summarize the information
about incomes from the sale of finished products (goods and services). Account 70
“Incomes from sales” is passive. In the credit of account amounts of revenues, i.e.
sales value of finished goods shipped (provided services) are reflected in
correspondence with the debit of account 36 “Settlements with buyers and
customers” (as shown in table 10.2). The debit reflects the reduction of income on
the amount of indirect taxes charged on sales (records on the credit of account 64
“Payments of taxes and fees”). The final amount of income shall be written off on
credit of account 79 “Financial Results”.

10.4. Determination of financial results from sales of products

In addition to incomes (revenues) from the sale of goods (works, services),

incomes from ordinary activities also include:
– Other operational incomes. Its includes: income from sale of foreign
currency; revenues from the sale of other current assets (excluding financial
investments); income from operations of assets lease; income from operations
with foreign currency; the amount of mulcts, fines and other sanctions for
violations of commercial contracts, which are recognized or for which the
debtor obtained the decision of the court; income from writing off of payables
debt for which the limitation period has been expired; recoveries of amounts of
assets that were previously written-off; amounts of current assets and subsidies
that were received for free; and other operating income. Accounting of these
incomes is carried out on account 71 “Other operational income”.
– Income from investments in capital. It is includes: income from
investments that carried in associates, subsidiaries or joint ventures, and its
accounting is conducted by using the equity method. To summarize the above
information account 72 “Income from investments in capital” is intended.
– Other financial incomes. Its include incomes that arise in course of
financial activity of the enterprise, including dividends, interest and other incomes
from financial activities. All of these incomes are reflected on account 73 “Other
financial incomes”.
– Other incomes. Its includes: revenues that arise in the normal course of
business, but are not related to operational and financial activities of the company:
incomes from sale of financial investments; incomes from recovery of assets
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utility; income from non-operating difference of exchange rate; income from assets
that were received free of charge and others. Accounting of these incomes is
carried out on account 74 “Other incomes”.
To determine the financial result of the company it is necessary to compare
values of incomes and expenses. The list of expenses is defined in paragraphs 10-31
of R(s)A 16 “Expenses”. Costs that are related to operating activities and not included
in the cost of sold products (goods and services) are divided into administrative
expanses, distribution expanses and other operating expanses.
The administrative expenses include such general economic costs that are
focused on service and enterprise management:
– general corporate expenses (organizational costs, costs for holding of
annual meetings, representative costs, etc.);
– expenses for business trips and maintenance of enterprise management,
and other general business personnel;
– costs of fixed assets, other general business assets that are used in
management (operating leases, property insurance, depreciation, maintenance,
heating, lighting, water etc);
– remuneration for professional services (legal services, accounting,
property valuation etc.);
– communication costs (postage, telegraph, telephone, telex, fax, etc.);
– amortization of intangible assets of general business use;
– costs of dispute resolutions in the courts;
– taxes, fees and other obligatory that are stipulated by the legislation
charges (excluding taxes, fees and duties that are included to production cost of the
goods, works and services);
– fees for cash management services and other banking services as well as
costs that are associated with buying and selling of currencies;
– other costs of general business purposes.
Accounting for administrative expenses is carried out on account 92
“Administrative expenses”. On debit of this account amount of incurred costs is
displayed, on credit – amount of these costs is wrote off to the account 79
“Financial Results”.
Distribution expenses include costs that are related to marketing (sales) of
the products (goods and services):
– costs of packaging materials for pouring of finished goods in warehouse;
– cost of containers repair;
– wages and commissions to sellers, trading agent and employees of
departments that provide sales;
– expenditure on advertising and market research (marketing);
– costs for preselling preparation of goods;
– travel expenses of employees engaged in sales;
– costs of fixed assets, other tangible fixed assets that are associated with
the sale of products, goods and services (operating leases, insurance, depreciation,
maintenance, heating, lighting, security);
– costs of transportation, handling and insurance of finished goods,
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forwarding and other services that are related to transportation of goods in
accordance with the terms of the contract;
– warranty costs and warranty service;
– cost of insurance that is designed to further realization of finished
products (goods);
– transport costs of finished goods between of subdivisions of the
company;
– other costs that are associated with the sale of products, goods and
services.
Accounting for the cost of sales is reflected on account 93 “Distribution
expenses”. On debit of this account the amount of listed costs is displayed, on the
credit – these cost should be wrote off to the account 79 “Financial Results”.
Other operational costs include:
– expenditure on research and development;
– cost of inventories that had been sold;
– amount of uncollectible receivables and charges to reserves of doubtful debts;
– losses from the difference of operating rate;
– impairment losses on stocks;
– spoilages and losses from property damage;
– fines, wites, forfeits that have been recognized;
– maintenance costs of social and cultural purposes;
– other operating expenses.
Accounting for the listed above costs is reflected on the debit of account 94
“Other operating costs”. On credit of this account the amount of costs that were
wrote off to the account 79 “Financial Results” is displayed.
According to the Tax Code, income tax on profits of enterprises must be
charged, in 2013 it makes 19%. Income tax is displayed on active account 98
“Profit tax”. Accrual of income taxes is reflected in the accounting by such
accounting entries:
1. Income tax was accrued:
Dr 98 “Profit tax” Cr 64“Payments of taxes and fees”
2. Income tax was paid to the budget from checking account:
Dr 64 “Payments of taxes and fees” Cr 31 “Checking accounts”
3. At the end of the reporting period, the accrued amount of income tax is
deducted on financial results:
Dr 79 “Financial results” Cr 98 “Profit tax”
The financial result of enterprises’ activity is characterized by a profit or
loss. Profit earning is the primary goal of any business.
To account for the financial results accounts 79 “Financial Results” and 44
“Retained profit (uncovered loss)” are used. Account 79 “Financial Results” is
nominal, at the end of the reporting period it should be closed to account 44
“Retained profit (uncovered loss)” (account 79 has no residue). Account 44
“Retained profit (uncovered loss)” is passive and it is shown in the Balance sheet
of the enterprise.
Generalized model of the formation of financial results and its accounting
143
are shown on figure 10.1.

Fig. 10.1. Accounting model of financial results formation

On the credit of account 79 “Financial results” amounts of income
accounts are displayed, on the debit – the amounts of expenses accounts and
proper amount of accrued income tax are reflected. When account 79 “Financial
results” is closed its balance will be debited to the account 44 “Retained profit
(uncovered loss)”.
Turnovers on the debit and credit of account 79 “Financial results” are
compared, and if the credit turnover of account 79 “Financial Results” will be
more than debit turnover of the same account, the company has retained earnings
of the current period. If the debit turnover of account 79 “Financial results” is more
than the credit turnover of this account, the company has performed more expenses
than received incomes.

Tests for self-control

Each question contains one correct answer.

1. Shipment of finished products is carried out from the warehouse pursuant to the:
1) Order;
2) Bill;
3) Invoice;
4) Acceptance act.

2. Invoices are written by accounting department in such measuring:

144
1) Actual cost;
2) Book value;
3) Contractual prices;
4) Fair price.

3. Goods that are completely passed under all stages of production technology and
processes, tested in accordance with specifications and standards and transferred to
the warehouse are called:
1) Semi-finished goods;
2) Finished products;
3) Inventories;
4) Goodwill.

4. By which evaluation are finished products displayed on the Balance sheet?

1) For actual cost;
2) For contractual prices;
3) For the purchase price;
4) For fair price.

5. In warehouse finished goods are recorded:

1) In quantitative expression;
2) In qualitative expression;
3) In quantitative and qualitative expression;
4) In labor measuring.

6. What is the moment of product’s sale?

1) Moment of compiling of contract for shipment of goods;
2) Time of the shipment of products to the buyer;
3) Moment of products delivery to the customers;
4) Moment of products delivery to suppliers.

7. Which accounting entry should be made for the following transaction: “The cost
of goods sold was written off”:
1) Dr 36 “Settlements with buyers and customers” Cr 26 “Finished products”;
2) Dr 90 “Cost of sales” Cr 26 “Finished products”;
3) Dr 79 “Financial results” Cr 26 “Finished products;
4) Dr 26 “Finished products” Cr 901 “Cost of sales”.

8. How revenue from sales will be recorded by accounting entry?

1) Dr 31 “Checking accounts” Cr 36 “Settlements with buyers and customers”;
2) Dr 31 “Checking accounts” Cr 70 “Incomes from sales”;
3) Dr 36 “Settlements with buyers and customers” Cr 70 “Incomes from sales”;
4) Dr 441 “Retained profit (uncovered loss)” Cr 79 ‘Financial results”.

145
9. What is meant by the following accounting entry: Dr 31 “Checking accounts” Cr
36 “Settlements with buyers and customers”?
1) Finished products were shipped to the buyer;
2) Payment from the buyer were received;
3) Prepayment from the buyer were received on checking account;
4) The cost of goods sold was written off t.

10. Company S received money in advance of providing services to Company P.

The money received before it is earned is an increase to Company S's asset account
“Checking account”. The amount of unearned should also be reported as:
1) Another asset;
2) Liability;
3) Revenues;
4) Expenses.

11. During the reporting period the company received income from sales in the
amount 720000 UAH (including VAT). Cost of sales amounted to 98000 UAH,
distribution expenses – 15000 UAH. Identify financial results from sales of
products.
1) Profit - 998000 UAH;
2) Loss - 487 000 UAH;
3) Profit - 202000 UAH;
4) Profit - 487000 UAH.

12. Which entry will be made during the shipment of finished products from the
warehouse to customers at actual cost?
1) Dr 36 “Settlements with buyers and customers” Cr 26 “Finished products”;
2) Dr 90 “Cost of sales” Cr 26 “Finished products”;
3) Dr 79 “Financial results” Cr 26 “Finished products”;
4) Dr 26 “Finished products” Cr 901 “Cost of sales”.

13. What is meant by the following correspondence of accounts: Dr 70 “Incomes

from sales” Cr 64 “Payments of taxes and fees”?
1) Tax credit has been accrued;
2) VAT has been transferred to the budget;
3) Settlements with the budget were implemented;
4) Tax obligations of VAT were accrued.

14. At what account will be shown the writing off of incomes from sales at the end
of the reporting period?
1) 90 “Cost of sales”;
2) 70 “Incomes from sales”;
3) 79 “Financial results”;
4) 94 “Other operating expenses”.

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15. On what account administrative expenses are written off at the end of the
month?
1) On account 26 “Finished products”;
2) On account 23 “Production”;
3) On account 79 “Financial Results”;
4) On account 70 “Incomes from sales”.

16. Which posting it is necessary to make during the payroll to workers that are
employed in products realization?
1) Dr 91 “General manufacturing expenses” Cr 20 “Inventories”;
2) Dr 93 “Distribution expenses” Cr 66 “Payments for employee benefits”;
3) Dr 79 “Financial Results” Cr 93 “Distribution expenses”;
4) Dr 94 “Other operating expenses” Cr 66 “Payments for employee benefits”.

17. Which posting it is necessary to make during the depreciation of fixed assets
that are intended for sales?
1. Dr 93 “Distribution expenses” Cr 13 “Depreciation of non-current assets”;
2. Dr 23 “Production” Cr 13 “Depreciation of non-current assets”;
3. Dr 92 “Administrative expenses” Cr 13 “Depreciation of non-current assets”;
4. Dr 13 “Depreciation of non-current assets” Cr 91 “General manufacturing
expenses”.

18. The administrative expenses include the following costs:

1) Expenses for business trips and maintenance of enterprise management;
2) General corporate expenses (organizational costs, costs for holding of annual
meetings, representative costs, etc.);
3) Communication costs (postage, telegraph, telephone, telex, fax, etc.);
4) All of listed.

19. Which accounting entry should be made while administrative expenses are
written-off?
1) Dr 93 “Distribution expenses" Cr 20 “Inventories”;
2) Dr 93 “Distribution expenses” Cr 66 “Payments for employee benefits”;
3) Dr 79 “Financial results” Cr 92 “Administrative expenses”;
4) Dr 79 “Financial results” Cr 93 “Distribution expenses”.

20. On what account profits of the enterprise will be written off at the end of the
reporting period?
1) 70 “Incomes from sales”;
2) 79 “Financial results”;
3) 44 “Retained earnings (uncovered loss)”;
4) 73 “Other financial incomes”.

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 THEME 11. ACCOUNTING FOR THE PROCESS OF CAPITAL
FORMATION

11.1. Concept and structure of owners’ equity. Accounting for authorized

capital.
11.2. Accounting for additional and reserve capital.
11.3. Accounting for withdrawn and unpaid capital.
11.4. Accounting for retained profits (uncovered losses).

Dictionary

Additional capital Додатковий капітал

Additional valuation of assets Дооцінка активів
Authorized capital Статутний капітал
Chart of account План рахунків
Сonstituent documents Установчі документи
Сontributions of the founders Внески засновників
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Dividends Дивіденди
Financial results Фінансові результати
Free of charge Безкоштовно
General meeting of founders Загальні збори засновників
Joint-stock company Акціонерне товариство
Liabilities Зобов’язання
Net income Чистий прибуток
Nominal value Номінальна вартість
Безоплатно одержані необоротні
Non-current assets received free
активи
Other invested capital Інший вкладений капітал
Owners’ equity Власний капітал
Оwners’ equity formation Формування власного капіталу
Participant (founder) Учасник, засновник
Прибуток, використаний у звітному
Profit used in the reporting period
періоді
Profitable Прибутковий, рентабельний
Redemption price Викупна вартість
Redeemed capital Вилучений капітал
Reserve capital Резервний капітал
Retained profit Нерозподілені прибутки
Settlements with founders Розрахунки з учасниками
Share Акція, пай
Shareholder Акціонер, пайовик
Share capital Пайовий капітал
Shares emission Випуск акцій
Share premium Емісійний дохід
Uncovered loss Непокриті збитки
Unpaid capital Неоплачений капітал
Withdrawn capital Вилучений капітал
Withdrawn deposits and fund units Вилучені вклади й паї
Withdrawn shares Вилучені акції

11.1. Concept and structure of owner’s equity. Accounting for

authorized capital

According to the National regulations (standard) 1 “General requirements

for financial reporting”, owners’ equity – is a part of assets of an enterprise that
remains after deduction of its liabilities [13].
Owners’ equity is reflected in the first section of the passive of Balance
sheet and includes:
– Authorized capital;
– Share capital;
149
 – Additional capital;
– Reserve capital;
– Retained profit (uncovered loss);
– Withdrawn capital;
– Unpaid capital.
When the total amount of passive of the Balance sheet is determined,
amounts of the unpaid and withdrawn capital as well as uncovered loss should be
deducted. It provides a realistic assessment of equity. The ratio of equity and
liabilities is largely determined the possibility of loans obtaining. This indicator is
used to assess the financial state of the enterprise.
To summarize information about the status and changes in equity by the
Chart of accounts fourth class of accounts “Equity and ensuring of liabilities” are
provided, in particular: 40 “Authorized capital”, 41 “Share capital”, 42 “Additional
capital”, 43 “Reserve capital”, 44 “Retained profit (uncovered loss)”, 45
“Withdrawn capital” and 46 “Unpaid capital”.
One of the main components of the owners’ equity is authorized capital.
Authorized capital is recorded in the founding documents, it is presented as total
value of assets that were contributed by the owners (members) to the capital of the
company. The order of authorized capital formation is regulated by the Law of
Ukraine “On business associations” № 1576-XII of 01.19.91 [4].
At the time of registration, each of the participants (founders) is required to
make at least 30% of amount that is specified in the founding documents.
Outstanding debt of contributions to authorized capital must be repaid over the
next 12 months. In case of default of this obligation founders will pay a fine in
amount 10% per annum for the time delay, unless otherwise is provided by the
constituent documents.
The authorized capital of business entities is formed by the contributions of
the founders in form of money, tangible and intangible assets, supplies as well as
securities.
The order of evaluation of the property contributions of participants must be
defined in the founding documents. Fixed assets, tangible and intangible assets are
included in the authorized capital of the company at cost that was agreed by the
founders.
Account 40 “Authorized capital” is designed to generalize information about
the state and movement of authorized capital (pooled capital and chartered fund) of
the organization. The balance amount in account 40 “Authorized capital” shall
correspond to the amount of authorized capital fixed in the organization’s
constituent documents. Entries in this account shall be made during the formation
of authorized capital only after the introduction of appropriate amendments to the
organization’s constituent documents.
After the state registration of the organization its authorized capital in the
amount of contributions by founders (participants) provided by its constituent
documents, shall be reflected in credit of account 40 “Authorized capital”.
Analytical accounting in account 40 “Authorized capital” shall be organized
in such ways to ensure the formation of information per the founders of the
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organization, per the stages of the capital formation and types of shares.
Typical accounting records of owners’ equity formation are presented in
table 11.1.
Table 11.1
Typical accounting records of owners’ equity formation
№ Particulars Dr Cr
1 2 3 4
Size of the authorized was reflected at the time of enterprise
1. 46 40
registration
Amount of cash was shown as a contribution to the
2. 30 46
authorized capital
Amount of money on the checking account of the
3. company was displayed as a contribution to the 31 46
authorized capital
Value of fixed assets was displayed as a contribution to
4. 10 46
the authorized capital
Value of inventory was displayed as a contribution to the
5. 20 46
authorized capital
Business entities have the right to change (increase or decrease) the amount of
its authorized capital. Such changes are possible only if all contributions by the
participants will be made. Changes in authorized capital should be reflected in the
protocol of the general meeting of founders and fixed in the charter of business.

11.2. Accounting for additional and reserve capital

Additional capital of the company represents other capital invested by

participants in business entity (share premium, etc.), or obtained in the course of
the company as a result of increases in the value of assets, free receipt of non-
current assets and others.
Account 42 “Additional capital” is intended for the generalization of
information about the organization’s additional capital. On credited of this account
reflects increase of additional capital, on debit – decrease.
The following sun-accounts can be opened to account 42 “Additional
capital”:
421 “Share premium” – the amount of the difference between the sale value
and the nominal value of shares, received in the process of formation of the
authorized capital of a joint-stock company (during the establishment of a
company and in case of the subsequent growth of authorized capital) at the
expense of the sale of shares at a price that exceeds their nominal value.
422 “Other invested capital” – invested by the founders (other than joint
stock companies) capital that exceeds the authorized capital, other contributions of
the founders that are carried out without the decision to change the size of the
authorized capital.
423 “Additional valuation of assets” – is the amount of increment of the
value of extra-floating assets that was revealed according to the results of their
revaluation – in correspondence with the accounts of assets by which the increment
151
of value was determined.
424 “Non-current assets received for free” – is the value of non-current
assets that enterprise has received free of charge. Balance of additional capital on
this sub-account is reduced by the amount of recognized income for the useful
period of fixed assets that were obtained for free (except land).
425 “Other additional capital” –are other types of additional capital, which
may not be incorporated into the above sub-accounts, namely the cost of capital in
the amount of non-current assets by lease agreement.
Analytical accounting on account 42 “Additional capital” shall be organized
in a way to ensure the formation of information about the sources of its
establishment.
Typical entries for accounting of additional capital are presented in table
11.2.
Table 11.2
Typical entries for accounting of additional capital
№ Particulars Dr Cr
1 2 3 4
1. Accounting for share premium
Share capital of JSC it reflected based on the nominal value of the
1.1. 46 40
issued shares
1.2. Share premium on issued shares it reflected 46 421
2. Accounting for other invested capital
Additional contributions of participants were reflected without solutions
to increase the authorized capital of the company:
- in cash 30 (31) 422
2.1.
- of fixed assets 10 422
- of intangible assets 12 422
- of inventories 20 422
Repayment of losses of the enterprise due to its additional capital was
2.2. 422 442
recognized
3. Accounting for revaluation of non-current assets
3.1. Increases in the initial cost of fixed asset were carried out 10 443
3.2. Revaluation of depreciation was shown 423 131
Amount of reduction of the initial value of fixed assets that was
3.3. 423 10
previously revaluated is reflected
Reflected devaluation of fixed assets depreciation that were earlier
3.4. 131 423
revaluated
3.5. Revaluation of the fixed asset that was eliminated is written off 423 441
4. Accounting for non-current assets received free
4.1. Received free of charge non-current assets were capitalize 10,11,12 424
income from non-current assets received free of charge was reflected
4.2. 424 745
(in the amount of depreciation: Dr 91,92 ... Cr 13)
Reserve capital of business entity is created to cover possible future
unexpected losses, damages, as well as the payment of dividends at failure of retained

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earnings. According to the article 14 of the Law of Ukraine “ On business
associations”, reserve (insurance) funds are created by economic entities in the
amount that has been established by the founding documents, but not less than 25 per
cent of the authorized capital.
Account 43 “Reserve capital” is designed to generalize information about
the state and movement of reserve capital. Deductions to reserve capital from the
profit shall be reflected on credit of account 43 “Reserve capital” in
correspondence with sub-account 44 “Retained profit (uncovered loss)”.
Using of the resources of reserve capital should be accounted on debit of
account 43 “Reserve capital” in correspondence with the following accounts:
account 44 “Retained profit (uncovered loss)” – in respect of the amounts of the
reserve fund that were used to cover the organization’s losses over the reporting
year; account 67 “Settlements with founders” – in respect of the amounts that were
used to retire the dividends to participants.

11.3. Accounting for withdrawn and unpaid capital

Withdrawn capital is the amount by which the equity of enterprise decreases

as a result of coming out party, redemption or revocation of repurchased shares in
a joint stock company, reducing the nominal value of the shares or for other
reasons.
To summarize information about the redeemed capital of business entity
account 45 “Withdrawn capital” is provided by Chart of account.
In practice, account 45 “Withdrawn capital” is used by JSC with the purpose
to account of withdrawn capital in the case of redemption of shares from
shareholders. In the debit of account 45 “Withdrawn capital” reflects the actual
cost of shares that were repurchased by JSC from its shareholders, on the credit –
the cost of shares that were canceled or oversold.
The following sub-accounts can be opened to account 45 “Withdrawn
capital”:
451 “Withdrawn shares”
452 “Withdrawn deposits and units of fund”
453 “Other withdrawn capital”
Let us consider example about reflection by Joint Stock Company the
repurchase of shares of their own emissions. It is assumes that the nominal value of
500 shares that were repurchased by joint stock company is 50 UAH per share.
Redemption price of shares – 55 UAH. 300 shares from the number of repurchased
were annulled, 150 – sold at 60 UAH, and the other 50 – at 52 UAH (table 11.3).
Table 11.3
The scheme of accounting records for withdrawn capital
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4
1. 500 shares were purchased at the redemption price 451 31 27500

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 55 UAH per share
Reflecting a decrease in share capital of the nominal
2. value of the shares that were canceled (50 x 300 = 40 451 15000
15000)
Reduction of share premium for the difference
between the redemption and the nominal value of
3. 421 451 1500
the canceled shares was reflected (300 x (55 - 50) =
1500)
Realization of the 100 company's shares at their
4. 31 451 9000
redemption value was reflected (150 x 60 = 9000)
Share premium on the difference between the sale
5. and redemption value of shares was reflected (150 x 451 421 750
(60 - 55) = 750)
Realization of the 50 company's shares at a price
6. that is lower than the purchased was reflected (50 x 31 451 2600
52 = 2600)
Difference between the redemption and sale value
7. was attributed to the reduction of share premium (50 421 451 100
x (55 - 52) = 100)
If the share premium is not enough to "cover" the excess of redemption over
the nominal value of the shares, profit for the period will be used: Dr 443 “Profits
used in the reporting period”, Cr 451 “Withdrawn shares”.
Unpaid capital – is the amount of holders’ debts for contributions to the
authorized capital.
Accounting for unpaid capital is conducted on account 46 “Unpaid capital”.
On debit of this account debts of founders (participants) of the business entity for
contributions to the authorized capital of the company are displayed, on the
credit – repayment of contributions to the authorized capital of the enterprise are
shown.
Peculiarities of application of this account have been considered more detail
previously during the review of the process of authorized capital formation.

11.4. Accounting for retained profits (uncovered losses)

Over the life of a corporation it has two choices of what to do with its net
income: to pay it out as dividends to its stockholders, or to keep it and use for
business activities.
Retained profit refers to a corporation's cumulative net income (from the
date of incorporation to the current Balance sheet date) minus the cumulative
amount of dividends that were declared. An established corporation that has been
profitable for many years will often have a very large credit balance in its Retained
profits account, frequently exceeding the paid-in capital from investors. If, on the
other hand, a corporation has experienced significant net losses since it was
formed, it could have negative retained earnings (reported as a debit balance
instead of the normal credit balance in its Retained profits account).
Account 44 “Retained profit (uncovered loss)” is designed to generalize

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information about the presence and movement of the amounts of undistributed
profit or uncovered loss of the respective organization. This general ledger account
is a real or permanent account with a normal credit balance.
The amount of the net profit of the reporting year shall be written off from
credit of account 44 “Retained profit (uncovered loss)” in correspondence with
account 79 “Financial results”. The amount of the net loss of the reporting year
shall be written off r in debit of account 44 “Retained profit (uncovered loss)” in
correspondence with account 79 “Financial results”.
Using a part of the profit of the reporting year as payment of income to the
founders (participants) of the organization shall be reflected in debit of account 44
“Retained profit (uncovered loss)” and in credit of account 67 “Settlements with
founders”. A similar entry shall be made when interim incomes are paid out.
The write-off of the loss of the reporting year shall be reflected in credit of
account 44 “Retained profit or uncovered loss” in correspondence with:
– account 40 “Authorized capital”, when the size of authorized capital is
brought to the size of the organization’s net assets;
– account 43 “Reserve capital”, when the resources of reserve capital are
used to repay the loss;
– account 67 “Settlements with founders”, when the loss of a general
partnership is repaid by the contributions of participants of the company and so on.
The following sub-accounts can be opened to the account 44 “Retained
profit (uncovered loss)”:
441 “Retained profits”
442 “Uncovered losses”
443 “Profit that gas been used in the reporting period”
Analytical accounting on account 44 “Retained profit (uncovered loss)”
shall be organized in a way to ensure the formation of information about trends of
the using of monetary funds. The resources of undistributed profit, which are used
as financial security for the productive development of the organization and other
similar measures of acquiring or creating of new assets and which are not used,
may be divided in analytical accounting.
It's important to understand that a large credit balance in retained earnings
does not necessarily mean that corporation has a large cash balance. To determine
the amount of cash, one must look at the Cash account in the current asset section
of the Balance sheet. (For example, a public utility may have a huge retained
earnings balance, but it has reinvested those earnings in a new, expensive power
plant. Hence, it has relatively little cash in relationship to its retained earnings
balance.)

Tests for self-control

Each question contains one correct answer.

1. A part of enterprise’s assets that remains after deduction of its liabilities is:

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1) Owners’ equity;
2) Accounts receivable;
3) Unpaid capital;
4) Share capital.

2. At the time of registration, each of the participants (founders) should make at

least:
1) 15 % of amount that is specified in the founding documents;
2) 20 % of amount that is specified in the founding documents;
3) 30% of amount that is specified in the founding documents;
4) 50 % of amount that is specified in the founding documents.

3. In which form contributions of the founders to authorized capital of business

entities can be made?
1) Only in monetary form;
2) In form of money and securities;
3) In form of money, tangible and intangible assets;
4) In form of money, tangible and intangible assets and securities.

4. By which accounting entry the size of the authorized capital is reflected?

1) Dr 31 “Checking accounts” Cr 40 “Authorized capital”;
2) Dr 46 “Unpaid capital” Cr 40 “Authorized capital”;
3) Dr 31 “Checking accounts” Cr 46 “Unpaid capital”;
4) Dr 40 “Authorized capital” Cr 31 “Checking accounts”.

5. Do business entities have the right to change (increase or decrease) the amount
of its authorized capital?
1) Yes they do, after agreement with the tax authorities;
2) Yes they do, after they will make all contributions by the participants that are
reflected in the protocol of the general meeting of founders;
3) No they don’t, such changes cannot be made in any situation;
4) This issue must be resolved in the courts.

6. What is meant by the following correspondence of accounts: Dr 31 “Checking

accounts” Cr 46 “Unpaid capital”?
1) Amount of money on the checking account of the company was displayed as a
contribution to the authorized capital;
2) Value of inventory introduced as a contribution to the authorized capital is
displayed;
3) Amount of money made in cash as a contribution to the authorized capital is
displayed;
4) The size of the authorized capital in accordance with the constitutive documents
was reflected.

7. Which transactions will not lead changes in additional capital?

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1) Revaluation of non-current assets;
2) Accounting for non-current assets that were received for free;
3) Calculating of depreciation of non-current assets;
4) Accounting for share premium.

8. By which accounting entry capitalization of fixed assets received for free should
be shown?
1) Dr 10 “Fixed assets” Cr 71 “Other operational income”;
2) Dr 10 “Fixed assets” Cr 72 “Income from investment in capital”;
3) Dr 10 “Fixed assets” Cr 42 “Additional capital”;
4) Dr 10 “Fixed assets” Cr 44 “Retained profit (uncovered loss)”.

9. Whish capital is created to cover possible future unexpected losses, damages, as

well as the payment of dividends at failure of retained earnings?
1) Additional capital;
2) Reserve capital;
3) Withdrawn capital;
4) Emergency capital.

10. According to the legislation of Ukraine reserve fund of economic entities is

established by the founding documents but not less than:
1) 10 per cent of the authorized capital;
2) 25 per cent of the authorized capital;
3) 25 per cent of average annual income;
4) 10 per cent of average annual income.

11. What is the purpose of accounting of withdrawn capital?

1) It is used to cover possible future unexpected losses and damages;
2) It is used to display debts of founders for contributions to the authorized capital
of the company;
3) It is used in the case of redemption of shares from shareholders;
4) It is used to pay dividends to company’s stockholders.

12. By which accounting entry purchasing of shares at a redemption price should

be shown?
1) Dr 31 “Checking accounts” Cr 45 “Withdrawn capital”;
2) Dr 46 “Unpaid capital” Cr 31 “Checking accounts”;
3) Dr 40 “Authorized capital” Cr 45 “Withdrawn capital”;
4) Dr 45 “Withdrawn capital” Cr 31 “Checking accounts”.

13. The amount of holders’ debts for contributions to the authorized capital is
called:
1) Withdrawn capital;
2) Share capital;
3) Debt capital;
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4) Unpaid capital.

14. A corporation's net income is eventually recorded in the following

stockholders' equity account:
1) 44 “Retained profit (uncovered loss);
2) 70 “Incomes from sales”;
3) 79 “Financial results”;
4) 74 “Other incomes”.

15. The amount of the net loss of the reporting year shall be written off by the
following entry:
1) Dr 442 “Uncovered losses” Cr 79 “Financial Results”;
2) Dr 443 “Profit used in the reporting period” Cr 43 “Reserve capital”;
3) Dr 43 “Reserve capital” Cr 442 “Uncovered losses”;
4) Dr 79 “Financial results” Cr 441 “Retained earnings”.

16. The amount of the net profit of the reporting year shall be written off by the
following entry:
1) Dr 442 “Uncovered losses” Cr 79 “Financial Results”;
2) Dr 443 “Profit used in the reporting period” Cr 43 “Reserve capital”;
3) Dr 43 “Reserve capital” Cr 442 “Uncovered losses”;
4) Dr 79 “Financial results” Cr 441 “Retained earnings”.

17. Dividends that were declared by a corporation reduce:

1) The uncovered losses section of stockholders' equity;
2) The retained earnings section of stockholders' equity;
3) The payables section of liabilities;
4) The receivable section of current assets;

18. Which accounting entry should be made when the size of authorized capital is
brought to the size of the organization’s net assets?
1) Dr 40 “Authorized capital” Cr 44 “Retained profit or uncovered loss”;
2) Dr 43 “Reserve capital” Cr 44 “Retained profit or uncovered loss”;
3) Dr 79 “Financial results” Cr 44 “Retained earnings or uncovered loss”;
4) Dr 67 “Settlements with founders” Cr 44 “Retained earnings or uncovered
loss”.

19. Which accounting entry should be made when the resources of reserve capital
are used to repay the loss?
1) Dr 40 “Authorized capital” Cr 44 “Retained profit or uncovered loss”;
2) Dr 43 “Reserve capital” Cr 44 “Retained profit or uncovered loss”;
3) Dr 79 “Financial results” Cr 43 “Reserve capital”;
4) Dr 44 “Retained earnings or uncovered loss” Cr 43 “Reserve capital”.

20. Which accounting entry should be made when the loss of a general partnership
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is repaid by the contributions of participants of the company?
1) Dr 40 “Authorized capital” Cr 44 “Retained profit or uncovered loss”;
2) Dr 44 “Retained profit or uncovered loss” Cr 67 “Settlements with founders”;
3) Dr 79 “Financial results” Cr 67 “Settlements with founders”;
4) Dr 67 “Settlements with founders” Cr 44 “Retained earnings or uncovered
loss”.

THEME 12. ACCOUNTING FOR LIABILITIES OF THE COMPANY

12.1. Definition and classification of liabilities.

12.2. Accounting for current liabilities.
12.3. Accounting for long-term liabilities.
12.4. Evaluation and accounting for ensuring.

Dictionary

Аdvances received Аванси отримані

Bond Облігація
Current indebtedness of long term Поточна заборгованість за
liabilities довгостроковими зобов'язаннями
Current liabilities Поточні зобов’язання
Deferred tax liabilities Відстрочені податкові зобов’язання
Discount on issued bonds Дисконт за випущеними облігаціями
Dividends Дивіденди
Ensuring Забезпечення
Excise duty Акцизний податок
Face value Номінальна вартість
Financial assistance Фінансова допомога
Internal settlements Внутрішні розрахунки
Intra economic settlements Внутрішньогосподарські розрахунки
Lessor Oрендодавець
Liabilities Зобов’язання
Long-term liabilities Довгострокові зобов’язання
Кредиторська заборгованість за
Payables for goods, works and services
товари, роботи, послуги
Payments for employee benefits Розрахунки з оплати праці
Payments of insurance Розрахунки зі страхування
Payments of taxes and fees Розрахунки за податками й платежами
Рension insurance Пенсійне страхування
Premium for bonds issued Премія за випущеними облігаціями
Profit tax Податок на прибуток
Promissory note Вексель

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Rent Оренда
Repayment of one liabilities Погашення зобов’язань
Settlements with founders Розрахунки з учасниками
Settlements with suppliers and Розрахунки з постачальниками та
contractors підрядниками
Short-term bank loans Короткострокові позики банку
Short-term promissory notes issued Короткострокові векселі видані
Value added tax Податок на додану вартість
Warranty obligations Гарантійні зобов’язання

12.1. Definition and classification of liabilities

Methodological principles of accounting for liabilities and its disclosure in

the financial statements are specified by R(s)A 11 “Liabilities” [18].
Liabilities – are debts of the enterprise that have arose as a result of past
events and their repayment as expected will lead the reduction in enterprise’s
resources. Liabilities are recognized in the Balance sheet of the enterprise if their
assessment can be reliably measured and there is probable reduction of economic
benefits in the future because of their repayment.
Repayment of liabilities can be made by:
– cash payment to the creditor;
– shipment of finished products, goods or services on account of advances
received from the buyer or in the order of debts offset;
– transfer of liabilities in corporate law that belongs to the creditor (capital
items) and others.
As can be seen, in each case repayment of liabilities is associated with the
retirement of assets, and hence with decreasing of future economic benefits as a
result of outflow of economic resources of the companies. Sometimes repayment
of one liabilities leads to other liabilities. For example, company issued promissory
note to the supplier, to which there was a payable. In this case, one liability
(payable) is replaced by another (liabilities for promissory notes that were issued).
However, the final repayment of liabilities will be associated with the retirement of
resources (assets) in the future, i.e. with a decreasing in the future economic
benefit.
Classification of liabilities according to various criteria is presented in the
table 12.1.

Table 12.1
Classification of liabilities according to various criteria
Criteria of Type of
Brief description
classification liabilities
By complexity Simple Repaid by one payment
Complicated Includes primary liability and a set of secondary

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 liabilities
By definiteness Terminable Deadlines of liabilities are specified in the time
in the time Perpetual Deadlines of liabilities are not specified in the time
Ensured Performing of which is ensured by guarantee
By ensuring
Uninsured Performing of which is not ensured
Depending on Arise as a result of transaction, by the parties'
Contractual
reasons of agreement
occurrence Non-contractual Arise independently from wish of participants
Monetary Reflect the amount of cash payable to creditors
By the method of
Liabilities to creditors are specified qualitatively and
payment Non monetary
quantitatively
Arise from transactions and other events in the past
Present
By the time of period
occurrence Determined by the decision of management to
Future
acquire assets in the future
According to R(s)A 11 “Liabilities” for accounting purpose liabilities are divided into:
– long-term;
– current;
– ensuring;
– contingent liability;
– deferred revenue.

12.2. Accounting for current liabilities

The current liabilities section of the Balance sheet contains obligations that
are due to be satisfied in the near term, and includes amounts that are related to
accounts payable, salaries, utilities, taxes, short-term loans, and so on.
Current liabilities are debts that are due to be paid within one year or the
operating cycle, whichever is longer; further, such obligations will be typically
involved in using of current assets, creation of another current liability, or
providing of some services.
R(S)A 11 “Liabilities” distinguishes the following elements of current
liabilities:
– Short-term bank loans;
– Current indebtedness of long term liabilities;
– Short-term promissory notes that were issued;
– Payables for goods, works and services;
– Current liabilities of settlements on advances received, for payments to
the budget, payments for extrabudgetary funds, settlements of insurance, on
settlements of salaries, for calculations with participants, calculations on internal
settlements;
– Other current liabilities.
Current liabilities are reflected in the fourth section “Current liabilities” of
passive of Balance sheet. Current liabilities are shown in the Balance by the
statement amount.
Settlement amount represents an undiscounted amount of cash or cash

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equivalents, which, as expected, will be paid to settle the liability in the normal
course of business.
The table 12.2 describes the differences between classification of current
liabilities under R(s)A 11 and under Chart of accounts.
Table 12.2
Classification of current liabilities under R(s)A 11 and under Chart of
accounts
Grouping of current
Account of Chart of
liabilities according to Sub-accounts
accounts
R(s)A 11
601 "Short-term bank loans in
national currency"
602 "Short-term bank loans in
foreign currency”
Bank loans 60 “Short-term loans”
603 "Deferred short-term bank
loans in national currency"
604 "Deferred short-term bank
loans in foreign currency"
611 “Current indebtedness of
long term liabilities in national
Current indebtedness of long 61 “Current indebtedness currency”
term liabilities of long term liabilities” 612 “Current indebtedness of
long term liabilities in foreign
currency”
621 “Short-term promissory
Short-term promissory notes 62 “Short-term promissory notes issued in national currency”
issued notes issued” 622 “Short-term promissory
notes issued in foreign currency”
631 “Settlements with national
Payables for goods, works and 63 “Settlements with suppliers and contractors”
services suppliers and contractors” 632 “Settlements with foreign
suppliers and contractors”
64 “Payments of taxes and
641,642,643,644
fees”
Current liabilities of settlements 65 “Payments of
651
on advances received, for insurance”
payments to the budget, 66 “Payments for
661,662,663
payments for extrabudgetary employee benefits”
funds, settlements of insurance, 671 “Payments for accrued
on settlements of salaries, for 67 “Settlements with dividends”
calculations with participants, founders” 672 “Payments for other
calculations on internal benefits”
settlements 681 “Settlements on advances
68 “Settlement of other
received”
operations”
682 “Internal settlements”
Other current liabilities 60 “Short-term loans” 605 “Overdue loans in national
currency”
606 “Overdue loans in foreign
currency”

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 683 “Intra economic
settlements”
68 “Settlement of other
684 "Settlement of accrued interest"
operations
685 "Settlements with other
creditors"
Short-term bank loans – are the amount of current company’s obligations to banks for
loans that were received from them.
Short-term loans of banks can be provided in case of temporary financial
difficulties that arise from the cost of production and circulation and are not backed
by money flows in the same period.
Example: 02.01.2013 company received a bank loan of 50000 UAH for two
months at 18% per annum. 1.03.2013 the loan was repaid.
Interest amount per month = 50000 * 0,18 / 12 = 750 UAH
The amount of the loan and interests that will be repaid at the date of
completion: 50000 + 750*2 = 51500 UAH.
Accounting of the short-term loan is shown in table 12.3
Table 12.3
Accounting for the receipt and payment of short-term loan
Sum,
№ Particulars Dr Cr
UAH
1 2 3 4 5
1. The loan was received to the checking account 311 601 50000
2. Interest for loan was accrued 951 684 1500
Payable of the company by short-term loan was
3. 601 311 50000
redeemed
4. Interest on loan was paid 684 311 1500
On account 61 “Current indebtedness of long-term liabilities” payments for
current liabilities that are transferred from the long-term are fixed, upon the
occurrence of their maturity over twelve months from the Balance sheet date. On
credit of account amount of debt, which translated from the long-term is written, and
on the debit – debt repayment during the year.
Displaying of business transactions is issued by the following records:
– long-term loan is transferred to current debt: Dr 50 Cr 61;
– promissory note is reissued in current debt: Dr 51 Cr 61;
– bonds debt was reissued to the current debt: Dr 52 Cr 61;
– debts to lessor were reissued for current debt: Dr 53 Cr 61 and others.
In the credit of account 62 “Short-term promissory notes issued” issuance of
promissory notes in support of supplies, works or services to providers and various
creditors is displayed, and in the debit – debt repayment and cancellation of notes
are displayed. Business transactions are shown as follows:
– promissory note was issued to supplier: Dr 63 Cr 62;
– promissory note was issued in the amount of current debt: Dr 61 Cr 62;
– short-term promissory note was repaid from the checking account: Dr 62
Cr 31;

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 – debt for goods that were purchased from other organization is repaid by
promissory notes: Dr 62 Cr 36;
– issued promissory notes were paid by participants and reduced their debts
to the authorized capital: Dr 62 Cr 46 and others.
Taxes are obligatory payments of enterprises and individuals in state and
local budgets. In Ukraine national and local taxes and fees are listed in article 9
and 10 of the Tax Code of Ukraine.
To display in the accounting information about liabilities and settlements
with the budget account 64 “Payments of taxes and fees” is used. Features of the
accounting records and sub-accounts to this account were discussed in previous
themes.
Let us recall typical correspondence of accounting for taxes (table 12.4).
Table 12.4
Typical accounting records of taxes calculation
№ Particulars Dr Cr
1 2 3 4
1. Value added tax was accrued 70 641/1
Income tax from ordinary activities of the enterprise was
2. 98 641/2
accrued
3. Excise duty was accrued 70 641/3
4. Tax on personal income was deducted from wages 66 641/4
5. The appropriate taxes were paid to the budget 641 31
Payments to participants are maintained on the account 67 “Settlements with
founders”. Sub-account 671 is used to record dividends to holders of ordinary and
preferred shares (stakes in the authorized capital) or other sources if they are provided
by the charter of the company (reserve fund, retained earnings of previous periods).
Sub-account 672 is intended to account other expenses that were accrued by
participants for using property (land and property shares), payments in connection
with the disposal of the founder.
Sub-account 682 “Internal settlements” is designed for all types of current
payments to subsidiary company (transmit and receive of long-term financial
investments, capital investments, property, finished goods, works or services, cash,
financial support, etc.).
On sub-account 683 “Intra economic settlements" is conducted for
accounting of settlements with production units and farms that have an
independent (separate) balance. On this sub-account the following transactions are
reflected: reciprocal delivery of property, sale of products and services, transfer of
general costs of activities, payroll and more.

12.3. Accounting for long-term liabilities

Long-term liabilities are company obligations that extend beyond the current
year, or alternately, beyond the current operating cycle.

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 The emergence of long-term debt is usually determined by agreement that
approves schedule of repayment by the borrower commitment and the procedure
of payment of the interest, if it is stipulated in the agreement. These conditions and
amount of assets that the company receives in exchange for a commitment, define
indicators that are related to the existence and repayment of long-term debt.
All long-term liabilities according to the R(s)A 11, are divided into four
groups:
1) bank loans;
2) other financial liabilities;
3) deferred tax liabilities;
4) other liabilities.
Such grouping of long-term liabilities does not match grouping that is given
in the Chart of accounts. In the Chart of accounts the fifth chapter is intended to
reflect the long-term liabilities. It has six accounts and thirteen sub-accounts. Table
12.5 presents division of accounts and sub-accounts of the Chart of accounts in
accordance with the group of long-term liabilities of the enterprise that is proposed
by R(s)A 11.
Table 12.5
Classification of long-term liabilities under R(s)A 11 and under Chart of Accounts
Grouping of current
Account of Chart of
liabilities according to Sub-accounts
Accounts
R(s)A 11
501 "Long-term bank loans in
national currency"
502 "Long-term bank loans in
foreign currency”
Bank loans 50 “Long-term loans”
503 "Deferred long-term bank loans
in national currency"
504 "Deferred long-term bank loans
in foreign currency"
521 “Long-term promissory notes
51 “Long-term promissory that were issued in national currency”
notes issued” 522 “Long-term promissory notes
that were issued in foreign currency”
Other financial liabilities
521 “Commitments on bonds”
52 “Long-term liabilities 522 “Premium for bonds that were
for bonds” issued”
523 “Discount on issued bonds”
Deferred tax liabilities 54 “Deferred tax liabilities”
505 “Other long-term loans in
national currency”
50 “Long-term loans”
506 “Other long-term loans in
foreign currency”
Other liabilities 531 “Liabilities of financial lease”
53 “Long-term liabilities of
532 ”Liabilities of the lease of
rent”
integral property complexes”
55 “Other long-term liabilities”

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 Long-term liabilities of the bank loans are shown on account 50 “Long-term loans”. On
the credit of this account shows the amount of received long-term loans and deferred short-term
loans that were transferred to long-term loans.
Enrollment of long-term loans to the checking accounts is recorded on the
accounts: Dr 31 “Checking accounts” Cr 50 "Long-term loans". Transfer of short
term loans to long-term due to changes in credit conditions are recorded by entry:
Dr 60 “Short-term loans” Cr 50 “Long-term loans”.
For using a long-term bank loans interest is accrued similarly to interest on
short-term loan. On the debit of account 50 “Long-term loans” are shown
transactions with repayment of long-term loans and interests on them: Dr 50
“Long-term loans” Cr 31 “Checking accounts”.
On the account 51 “Long-term promissory notes issued” records of
payments to suppliers, contractors and other creditors for tangible assets, works
and services received and of other transactions are kept. Under these transactions
debt is secured by issued promissory notes and it is not a current liability.
On the credited of this account issuance of a note to ensuring for the material
assets, services, works and for other transactions is displayed. Corresponding
accounts in these cases are: 63 “Settlements with suppliers and contractors”, 64
“Payments of taxes and fees”, 65 “Payments of insurance”, 68 “Settlement of other
operations”. On the debit of account 51 “Long-term promissory notes issued”
repayment of debt for issued promissory notes is shown. Thus the following
accounts are corresponding: 30 “Cash in hand”, 31 “Checking accounts”, 36
“Settlements with buyers and customers”, 46 “Unpaid capital”, 50 “Long-term
loans”, 60 “Short-term loans”.
Bond – is a security that certifies the obligation to pay to the holder amount
(nominal value) that is specified in the bond at specific date and in the prescribed
rate of interest. Bonds are classified based on: the presence of ensuring, the order
of repayment, order of registration, procedure of interest payment and more.
Directly on the bond its value and interest rate are indicated. Interest rate is set for
the duration of bond action.
Bonds may be sold:
– at face value (if declared and market rates of bond are equal);
– with a premium (if declared rate is below than market rate);
– at discount (if declared rate is higher than the market rate).
To account for long-term bonds account 52 “Long-term liabilities for bonds”
is designated. Discount is reflected on the Balance sheet of the issuer by debit
residual in the account 523 “Discount on issued bonds”. Other words this account
is kontrpassive, because it’s reducing the nominal value to the current level.
Premium is shown on the Balance sheet of the issuer on the credit of account 522
“Premium for bonds issued”. Other words balance of this account is a surcharge to
the face value; it is increasing face value to the current level.
The above-mentioned accounts are shown in the Balance sheet of the issuer
as a result of coagulation residues of three accounts:
The residue of the account 521 “Commitments on bonds” + residue of
account 522 “Premium for bonds issued” – residue of account 523 “Discount on

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issued bonds”.
Long lease liabilities – the obligation of tenants to landlords for non-current
assets that were received under long-term lease. To summarize the information on
payments to lessors for non-current assets that were transferred under long-term
lease, account 53 “Long-term liabilities of rent” is designed. On the credit of this
account accrual of debts to the lessor for the objects received on long-term lease is
displayed, on the debit – its repayment, cancellation due to transfer into short-term
liabilities.
Deferred tax liabilities are the sum of income tax, which will be paid in the
next reporting periods from taxable temporary differences. In other words, the
deferred tax liability is a future tax for previous profit, i.e. the savings from the
reduction of tax payments.
As was noted earlier, the amount of accrued income tax for the reporting
period is shown in the following accounting records: Dr 98 “Profit tax” Cr 641
“Payments of taxes and fees”. Entries for reflection in the accounting the separate
calculations of deferred tax liabilities are carried based on the balance in the
account 54 “Deferred tax liabilities” at the beginning of reporting year. It is
necessary to make such accounting entry: Dr 98 “Profit tax” Cr 54 “Deferred tax
liabilities”.
According to R(S)A 35 “Tax differences”, taxable profit of the reporting
period, according to the financial result before tax, is determined by comparing
incomes with the costs of reporting period and this profit is adjusted for the amount
of permanent tax differences and the amount of temporary tax differences related
to the reporting period [24]. Temporary tax differences – are tax difference that
arises during the reporting period and is canceled in the next tax reporting period
(costs of fixed assets improvement, deferred expenses, amounts of repayable
financial assistance etc.). Permanent tax differences – are tax difference that arises
during the reporting period and is not canceled in the next tax reporting periods
(representation expenses, financial sanctions, fines, depreciation of non-production
assets etc.).
Accounting for other long-term liabilities, which are not shown on the above
accounts of fifth class “Long term liabilities”, is carried out on account 55 “Other
long-term liabilities”, typical correspondence of which is presented in table 12.6
Table 12.6
Typical accounting records of transactions with other liabilities
№ Particulars Dr Cr
1 2 3 4
1. Financial assistance was received to checking account 31 55
2. Long-term debt for obligations was repaid through cash 55 30,31
Indebtedness on which the limitation period has expired
3. 55 746
was written off to the income
Current liabilities on taxes were transfer to after the
4. 55 61
completion of postponement

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 12.4. Evaluation and accounting for ensuring

According to R(s)A 11 “Liabilities”, ensuring are liabilities of uncertain

amount or time of repayment on the balance date.
Ensuring – is a special kind of liabilities, they are created (funds reserved by
the decision of the company) to cover the next (future) operating expenses of:
– employee vacation pay;
– additional pension insurance;
– performance of warranty obligations;
– restructuring;
– fulfillment of obligations on the onerous contracts;
– providing other liabilities and charges (e.g. insurance payments of
insurance companies).
The amounts of created ensuring are simultaneously recognized as an
expense and therefore enterprise’s assets do not arise at their calculation. They
recognize for the accounting assessment of resources (excluding recoverable
amount) that are required in settlement of liability at the balance sheet date.
Provisions are recorded as operating expenses in the current period in which
such ensuring was formed and used to cover only those costs for which they were
created.
For accounting of ensuring account 47 “Ensuring of future expenses and
payments” is used. It is intended to summarize information about the movement of
funds that were reserved by the enterprise’s decision for future expenses and
payments and their inclusion in the cost of the current period. On the credit of this
account accrued ensuring are displayed, on the debit – its using is shown.
Account 47 “Ensuring of future expenses and payments” may have the
following sub-accounts:
– 471 “Ensuring of vacation payments”;
– 472 “Additional pension insurance”;
– 473 “Ensuring of warranty”;
– 474 “Ensuring of other expenses and payments”;
– 475 “Ensuring of prize pool (reserve of payments)”;
– 476 “Reserve for payment of the jackpot that is not ensured by payment
participation in a lottery”;
– 477 “Ensuring of material incentives”;
– 478 “Ensuring of land recovery”.
The most common in practice is the reserve for vacation payment to
employees. It ensures the availability of the source of payment for vacation
amounts and evenly their inclusion in the cost of production. Creation of ensuring
of vacation payments is especially necessary in seasonal industries and enterprises
with a long production cycle.
Reserve for vacation payment to employees is created in a percentage of
gross salary and depends on the duration of vacation period. Amount of accrued
reserve is recorded in the following accounts: Dr 23 “Production”, Dr 91 “General
168
manufacturing expenses”, Dr 92 “Administrative expenses”, Dr 93 “Distribution
expenses” and other accounts, on which wages were attributed and Cr 471
“Ensuring for payment of vacations”. Then wages that were accrued during the
vacations are written off against reserve and reflected on the accounts: Dr 471
“Ensuring for payment of vacations”, Cr 66 “Payments for employee benefits”.
Reserve for warranty ensuring that is accounted on account 473 “Ensuring
of warranty”, is created in manufacturing companies, which realize products with a
guarantee. The value of ensuring is determined by the calculation method and
reflected on the accounts: Dr 93 “Distribution expenses”, Cr 473 “Ensuring of
warranty”. The debit of account 473 includes the actual costs for repairs of finished
products that were sold with warranty.

Tests for self-control

Each question contains one correct answer.

1. Debts of the enterprise that arose as a result of past events and it is expected that
repayment of which will lead reduction in enterprise’s resources are called:
1) Liabilities;
2) Payables;
3) Assets;
4) Owners’ equity.

2. Deadlines of which kind of liabilities are not specified in the time?

1) Present liabilities;
2) Simple liabilities;
3) Perpetual liabilities;
4) Uninsured liabilities.

3. Which liabilities do not belong to the current?

1) Payables for goods, works and services;
2) Deferred tax liabilities;
3) Short-term bank loans;
4) Short-term promissory notes issued.

4. Which liabilities belong to the current?

1) Payables for goods, works and services;
2) Deferred tax liabilities;
3) Long-term loans;
4) Long-term promissory notes issued.

5. Current liabilities reflect in the:

1) Second section “Liabilities” in passive part of Balance sheet;
2) Fourth section “Current liabilities” in passive part of Balance sheet;

169
3) Second section “Current liabilities” in active part of Balance sheet;
4) Third section “Liabilities” in passive part of Balance sheet.

6. By which accounting entries will be shown the following transaction: “The loan
was received to the checking account”?
1) Dr 60 “Short-term loans” Cr 31 “Checking accounts”;
2) Dr 31 “Checking accounts” Cr 73 “Other financial incomes”;
3) Dr 33 “Other monetary funds” Cr 60 “Short-term loans”;
4) Dr 31 “Checking accounts” Cr 60 “Short-term loans”.

7. Which business transaction is displayed by the following records: Dr 51 “Long-

term promissory notes issued” Cr 61 “Current indebtedness of long term
liabilities”?
1) Bonds debt was reissued to the current debt;
2) Promissory note was reissued in current debt;
3) Long-term loan was transferred to current debt;
4) Debts to lessor were reissued in current debt.

8. Which accounting entry can be made if short-term promissory note is issued to

supplier?
1) Dr 63 “Settlements with suppliers and contractors” Cr 62 “Short-term
promissory notes issued”;
2) Dr 63 “Settlements with suppliers and contractors” Cr 31 “Checking accounts”;
3) Dr 62 “Short-term promissory notes issued” Cr 31 “Checking accounts”;
4) Dr 62 “Short-term promissory notes issued” Cr 63 “Settlements with suppliers
and contractors”.

9. Which business transaction is displayed by the following records: Dr 70

“Incomes from sales” Cr 64 “Payments of taxes and fees”?
1) Income tax from ordinary activities of the enterprise is accrued;
2) Value added tax was accrued in the process of products realization;
3) Tax on personal income was deducted from wages;
4) Value added tax was accrued in the process of inventories supplying.

10. Enrollment of long-term loans to the checking accounts is recorded by the

accounting entry:
1) Dr 50 “Long-term loans” Cr 31 “Checking accounts”;
2) Dr 73 “Other financial incomes” Cr 50 “Long-term loans”;
3) Dr 31 “Checking accounts” Cr 50 "Long-term loans";
4) 30 “Cash in hand” Cr 50 "Long-term loans".

11. Security that certifies the obligation to pay to the holder a specified amount
(nominal value) at specific date and in the prescribed rate of interest is called:
1) Promissory note;
2) Bond;
170
3) Share;
4) Investment certificate.

12. If declared rate is higher than the market rate, bonds may be sold:
1) With a premium;
2) At face value;
3) At nominal value;
4) At discount.

13. The sum of income tax, which will be paid in the next reporting periods from
the taxable temporary differences, is called:
1) Deferred tax liabilities;
2) Deferred tax assets;
3) Payments of taxes and fees;
4) Profit tax.

14. The amount of accrued income tax for the reporting period will be shown in the
following accounting records:
1) Dr 98 “Profit tax” Cr 54 “Deferred tax liabilities”;
2) Dr 98 “Profit tax” Cr 64 “Payments of taxes and fees”;
3) Dr 64 “Payments of taxes and fees” Cr 31 “Checking accounts”;
4) Dr 98 “Profit tax” Cr 79 “Financial results”.

15. Whish of the following items doesn’t belong to the temporary tax differences?
1) Amounts of repayable financial assistance;
2) Costs of fixed assets improvement;
3) Deferred expenses;
4) Depreciation of non-production facilities.

16. Whish of the following items doesn’t belong to permanent tax differences?
1) Financial sanctions and fines;
2) Amounts of repayable of financial assistance;
3) Representation expenses;
4) Depreciation of non-production facilities.

17. Which business transaction is displayed by the following records: Dr 31

“Checking accounts” Cr 55 “Other long-term liabilities”?
1) Long-term debt for obligations was repaid through cash;
2) Indebtedness on which the limitation period has expired was written off to the
income;
3) Financial assistance was received to the checking account;
4) Target financing was received to checking account at the bank.

18. The kind of liabilities that is created to cover the next (future) operating
expenses is called:
171
1) Ensuring;
2) Reserve capital;
3) Guarantee fund;
4) Alternate resources.

19. For which operating expenses is ensuring created?

1) For performance of warranty of obligations;
2) To provide employee vacation pay;
3) To fulfillment of obligations on the onerous contracts;
4) All of listed.

20. Creation of reserve for vacation payment to production worker will be shown
by the following entry:
1) Dr 92 “Administrative expenses” Cr 471 “Ensuring of vacation payments”;
2) Dr 471 “Ensuring of vacation payments” Cr 66 “Payments for employee
benefits”;
3) Dr 23 “Production” Cr 471 “Ensuring of vacation payments”;
4) Dr 471 “Ensuring of vacation payments” Cr 23 “Production”.

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Appendix 1

Balance Sheet (Statement of financial position)

for _______________ 20___
At the beginning At the end of
Line
Assets of the reporting the reporting
code
period period
1 2 3 4
I. Non-current assets

175
Intangible assets: 1000
- initial value 1001
- accumulated depreciation 1002
Incomplete capital investment 1005
Fixed assets: 1010
- initial value 1011
- depreciation 1012
Investment Property 1015
Long-term biological assets
1020
Long-term investments:
1030
- accounted for equity method
- other financial investments 1035
Long-term receivables 1040
Deferred tax assets 1045
Other non-current assets 1090
Total for Section I 1095
II. Current assets
Stocks 1100
Current biological assets 1110
Accounts receivable for goods,
products, works and services 1125
Accounts receivable for settlements:
1130
- on advances paid
- with the budget 1135
- including income tax 1136
Other current accounts receivable 1155
Current financial investments 1160
Money and cash equivalents 1165
Deferred expenses 1170
Other current assets 1190
Total for Section II 1195
III. Non-current assets held for
1200
sale and disposal groups
The balance 1300
At the beginning At the end of
Line
Liabilities and Owners’ Equity of the reporting the reporting
code
period period
1 2 3 4
I. Owners’ equity
Authorized (share) capital 1400
Capital in revaluation 1405
Additional capital 1410
Reserve capital 1415
176
Retained earnings (uncovered losses) 1420
Unpaid capital 1425
Withdrawn capital 1430
Total for Section I 1495
II. Long-term liabilities and
ensuring
Deferred tax liabilities 1500
Long-term bank loans 1510
Other long-term liabilities 1515
Long-term ensuring 1520
Targeted financing 1525
Total for Section II 1595
III. Current liabilities and
ensuring
Short-term bank loans 1600
Current accounts payable:
1610
- for long-term debt
- for goods, works, services 1615
- payments to the budget 1620
- including income tax 1621
- calculations of insurance 1625
- payroll settlements 1630
Current ensuring 1660
Deferred income 1665
Other current liabilities 1690
Total for Section III 1695
IV. Liabilities associated with non-
current assets held for sale and 1700
disposal groups
The balance 1900

Appendix 2

Approved
Order of the Ministry of
Finance
Ukraine
30.11.99 N 291
(Z0892-99)
(as amended by the order of
the Ministry of Finance
177
 Ukraine
09.12.2011 N 1591)
(Z1556-11)

Registered in the Ministry

of Justice of Ukraine
December 28, 2011
for N 1557/20295

Chart of accounts assets, capital, liabilities and business operations of enterprises

and organizations

Synthetic accounts
Scope of application
Code Name
1 2 3
Class 1. Non-current assets
10 Fixed assets All kinds of activities
11 Other non-current tangible assets All kinds of activities
12 Intangible assets All kinds of activities
Agricultural enterprises, enterprises of
13 Depreciation of non-current assets other sectors engaged in agricultural
activities
14 Long-term financial investments All kinds of activities
15 Capital investments All kinds of activities
16 Long-term biological assets All kinds of activities
17 Deferred tax assets All kinds of activities
Long-term receivables and other All kinds of activities
18
non-current assets
19 Goodwill All kinds of activities
Class 2. Supplies
20 Inventories All kinds of activities
Agricultural enterprises, enterprises of
21 Current biological assets other sectors engaged in agricultural
activities
22 Low-value wear items All kinds of activities
23 Production All kinds of activities
24 Spoilage in production All kinds of activities
25 Semi-finished goods All kinds of activities
26 Finished products All kinds of activities
Agriculture enterprises, companies of
27 Agricultural products other branches with subsidiary
agricultural production
28 Goods All kinds of activities
Class 3. Monetary funds, settlements and other assets
30 Cash in hand All kinds of activities

178
31 Checking accounts All kinds of activities
33 Other monetary funds All kinds of activities
34 Short-term notes receivable All kinds of activities
35 Current financial investments All kinds of activities
Settlements with buyers and All kinds of activities
36
customers
37 Settlements with various debtors All kinds of activities
38 Reserves for doubtful debts All kinds of activities
39 Deferred expenses All kinds of activities
Class 4. Equity and ensuring of liabilities
40 Authorized capital All kinds of activities
41 Share capital Cooperative organizations, credit unions
42 Additional capital All kinds of activities
43 Reserve capital All kinds of activities
44 Retained profit (uncovered loss) All kinds of activities
45 Withdrawn capital All kinds of activities
46 Unpaid capital All kinds of activities
Ensuring future expenses and All kinds of activities
47
payments
48 Target-oriented financing All kinds of activities
49 Insurance reserves Insurance activities
Class 5. Long-term liabilities
50 Long-term loans All kinds of activities
51 Long-term promissory notes issued All kinds of activities
52 Long-term liabilities for bonds All kinds of activities
53 Long-term liabilities of rent All kinds of activities
54 Deferred tax liabilities All kinds of activities
55 Other long-term liabilities All kinds of activities
Class 6. Current liabilities
60 Short-term loans All kinds of activities
Current indebtedness of long term All kinds of activities
61
liabilities
62 Short-term promissory notes issued All kinds of activities
Settlements with suppliers and All kinds of activities
63
contractors
64 Payments of taxes and fees All kinds of activities
65 Payments of insurance All kinds of activities
66 Payments for employee benefits All kinds of activities
67 Settlements with founders All kinds of activities
68 Settlement of other operations All kinds of activities
69 Deferred revenue All kinds of activities
Class 7. Revenues and results of activities
70 Incomes from sales All kinds of activities
71 Other operational income All kinds of activities
72 Income from investment in capital All kinds of activities

179
73 Other financial incomes All kinds of activities
74 Other incomes All kinds of activities
75 Extraordinary incomes All kinds of activities
76 Insurance payments Insurance activities
79 Financial results All kinds of activities
Class 8. Costs by the elements
80 Material expenses All kinds of activities
81 Labor expenses All kinds of activities
82 Deductions for social measures All kinds of activities
83 Depreciation All kinds of activities
84 Other operating expenses All kinds of activities
85 Other expenses All kinds of activities
Class 9. Expenses of activity
90 Cost of sales All kinds of activities
91 General manufacturing expenses All kinds of activities
92 Administrative expenses All kinds of activities
93 Distribution expenses All kinds of activities
94 Other operating expenses All kinds of activities
95 Financial expenses All kinds of activities
96 Losses from participation in capital All kinds of activities
97 Other expenses All kinds of activities
98 Profit tax All kinds of activities
99 Extraordinary expenses All kinds of activities
Class 0. Off-balance sheet accounts
01 Leased fixed assets All kinds of activities
02 Assets taken into safe custody All kinds of activities
03 Contractual obligations All kinds of activities
04 Unforeseen assets and liabilities All kinds of activities
05 Warranty and ensuring provided All kinds of activities
06 Warranty and ensuring received All kinds of activities
07 Withdraw assets All kinds of activities
08 Forms of strict accountancy All kinds of activities
09 Depreciation charges All kinds of activities

Educational edition
180
 Maximova V.F., Sagareva D.A.

THEORY OF ACCOUNTING

Study Guide

Proofreader: Kerekesha O.V.

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