Financial Revenue: Definition, Classification and Correct Accounting
In the modern business context, financial revenue plays an important role in the income structure of enterprises. Correctly understanding and accurately accounting for these revenues not only ensures compliance with accounting regulations but also helps enterprises have a comprehensive view of capital efficiency. This article will provide you with complete knowledge about financial revenue from definition, classification to principles and accurate accounting methods.
1. What is financial revenue?
According to Vietnamese Accounting Standards (VAS 01) and Circular 200/2014/TT-BTC, financial revenue is defined as income arising from financial investment activities, from loans, from capital contributions to joint ventures, associations, and from capital transfers.
The nature of financial revenue is income that does not arise from the main business activities of the enterprise. This is a fundamental difference compared to sales and service revenue - which is the main and regular source of income of the enterprise.
The basic characteristics to identify an income as financial revenue include:
- Not arising from main production and business activities
- Related to financial investment activities, lending capital, contributing capital
- Usually irregular or intermittent in nature
- Value may fluctuate according to market factors such as interest rates, exchange rates.
- Accounted in account 515 according to the Vietnamese accounting system
Compared with revenue from core business activities, financial revenue does not directly reflect the core competencies of the enterprise, but shows the efficiency in capital use and financial management.
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2. Types of financial revenue
Under current regulations, many different types of income are recognized as financial revenue. Each type has its own characteristics and methods of recognition that accountants need to master.
Interest on deposits and loans
This is the income from interest when a business deposits money at a bank or lends capital to partners. For example: Company A deposits 1 billion VND in a bank with an interest rate of 5%/year, after 1 year it will receive 50 million VND in interest, recorded as financial revenue.
Interest on sales on installments
Interest arising from the delayed collection of sales or service revenue. For example: Company B sells equipment worth VND 200 million with a 12-month installment payment, earning an additional VND 20 million in interest, this is recorded as financial revenue.
Dividends and profits distributed
Income from capital investment in other enterprises. For example: Company C invests in buying 10,000 shares of Company D, receives dividends of 1,500 VND/share, a total of 15 million VND is recorded as financial revenue.
Exchange rate differential profit
Profit arises when there is a difference between the actual exchange rate and the recorded exchange rate in foreign currency transactions. For example: A business has a receivable of 10,000 USD, when initially recorded the exchange rate is 23,000 VND/USD, when collecting the money the exchange rate is 23,500 VND/USD, the difference of 5 million VND is recorded as financial revenue.
Profit from sale and liquidation of financial investments
Income from selling financial investments at a price higher than the original cost. For example: Company E buys bonds for VND 100 million, then resells them for VND 110 million, the profit of VND 10 million is recorded as financial revenue.
Other financial revenue
Including other income related to financial activities such as payment discounts received, financial activity revenue of investment trust units...
For a revenue to be recognized as financial revenue, the following conditions must be met: it is probable that economic benefits will flow to the transaction and it can be reliably determined.
3. Principles of recording financial revenue
The recognition of financial revenue must comply with some basic principles to ensure accuracy and transparency in financial statements.
The Basics
- Matching principle : Revenue and expenses incurred should be recorded in the same accounting period.
- Principle of prudence : Only record revenue when it is certain to receive economic benefits, do not record before there is valid evidence.
- Consistency principle : Apply the method of recording financial revenue consistently between accounting periods.
- Materiality principle : Do not omit material financial revenues that may influence the decisions of users of financial statements.
Time of recording
Financial revenue is recognized when:
- It is probable that the economic benefits associated with the transaction will flow to the entity;
- Revenue is determined with relative certainty.
Financial revenue is not recognized when:
- Uncertainty of benefits;
- Cannot be reliably determined.
Conditions of recognition
For each type of financial revenue, the specific recognition conditions are as follows:
- Interest on deposits : Recorded on an accrual basis, determined based on the deposit account balance and applicable interest rate.
- Dividends distributed : Recorded when the right to receive dividends is established.
- Profit from securities trading : Recorded upon completion of the transaction (for listed securities) or upon completion of the transfer contract (for unlisted securities).
Valuation method
The value of financial revenue is determined at the fair value of the amounts received or to be received. In case the transaction arises in foreign currency, the revenue is converted at the actual exchange rate at the time of occurrence.
Accountants need to pay special attention to the principle of prudence, avoiding recording financial revenues too early when they do not meet the conditions, which can lead to distorting the business results of the enterprise.
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4. How to account for financial revenue
To account for financial revenue, accountants use account 515 - "Financial revenue" as prescribed in Circular 200/2014/TT-BTC. Below is the general accounting process and detailed accounting for each type of financial revenue.
Accounting for dividends and profits distributed
When a business is notified of its right to receive dividends or profits:
Debit account 131 - Receivables from customers (if not received yet)
Debit account 111, 112 - Cash, Bank deposit (if received)
Credit account 515 - Financial activity revenue
For example: A business is notified to receive dividends from its investment in company B of 20 million VND:
Debit account 131 - Accounts receivable from customers: 20,000,000
Credit account 515 - Financial activity revenue: 20,000,000
When receiving dividends:
Debit account 112 - Bank deposits: 20,000,000
Credit account 131 - Accounts receivable from customers: 20,000,000
Accounting for exchange rate difference profit
When interest arises from revaluation of foreign currency monetary items:
Debit account 111, 112, 131... (Cash, Bank deposits, Customer receivables)
Credit account 515 - Financial activity revenue
For example: A business has a receivable of 10,000 USD, the exchange rate when recording is 23,000 VND/USD, when collecting the money the exchange rate is 23,500 VND/USD:
Debit account 112 - Bank deposits: 235,000,000
Credit account 131 - Customer receivables: 230,000,000
Credit account 515 - Financial activity revenue: 5,000,000
Accounting for profits from securities trading activities
When profit arises from the sale of securities:
Debit account 111, 112 - Cash, Bank deposits (at selling price)
Credit account 121, 221 - Trading securities, Long-term securities investment (at original price)
Credit account 515 - Financial activity revenue (interest difference)
For example: A business sells 1,000 shares purchased at an original price of VND 100,000/share, selling price of VND 120,000/share:
Debit account 112 - Bank deposits: 120,000,000
Credit account 121 - Trading securities: 100,000,000
Credit account 515 - Financial activity revenue: 20,000,000
When accounting for complex cases, it is important to consider issues such as provisional corporate income tax on income from financial activities, investment depreciation provisions, and the treatment of financial revenue deductions.
5. Practical example of accounting for financial activity revenue
Example 1: Accounting for bank deposit interest
Situation: ABC Company Limited has a savings deposit at BIDV bank of 500 million VND, 6-month term, interest rate 6%/year. After 6 months, the company receives interest.
Calculation: Interest = 500,000,000 × 6% × (6/12) = 15,000,000 VND
Entry: When interest is received:
Debit account 112 - Bank deposits: 15,000,000
Credit account 515 - Financial activity revenue: 15,000,000
Explanation: The company records the interest received from the bank in financial income. The principal of VND 500 million is still recorded in the deposit account and remains unchanged.
Example 2: Accounting for dividends
Situation: XYZ Joint Stock Company invested in buying 20,000 shares of Vinamilk Joint Stock Company at the price of 100,000 VND/share. After 1 year, Vinamilk announced to pay a dividend of 15% in cash.
Calculation: Dividend received = 20,000 × 10,000 × 15% = 30,000,000 VND
Entry: Upon receipt of dividend notice:
Debit account 138 - Other receivables: 30,000,000
Credit account 515 - Financial activity revenue: 30,000,000
When receiving dividends:
Debit account 112 - Bank deposits: 30,000,000
Credit account 138 - Other receivables: 30,000,000
Explanation: The company records the dividend payment in financial income as soon as it is officially announced, without waiting until it receives the money.
Example 3: Accounting for exchange rate difference profit
Situation: DEF Company has a receivable from a foreign customer of USD 50,000. At the time of recording the receivable, the exchange rate was VND 23,000/USD. When collecting the money, the exchange rate was VND 23,500/USD.
Calculation:
- Initial recorded value: 50,000 USD × 23,000 = 1,150,000,000 VND
- Value when collected: 50,000 USD × 23,500 = 1,175,000,000 VND
- Exchange rate difference: 1,175,000,000 - 1,150,000,000 = 25,000,000 VND
Accounting entry: When collecting money from customers:
Debit account 112 - Bank deposits: 1,175,000,000
Credit account 131 - Accounts receivable from customers: 1,150,000,000
Credit account 515 - Financial activity revenue: 25,000,000
Explanation: The exchange rate difference arising from the exchange rate increase between the time of recording the receivable and the time of collecting the money is recorded in financial income.
Example 4: Accounting for profit from sale of securities
Situation: GHI Company bought 10,000 shares of FPT Corporation at VND 60,000/share. After 8 months, the company sold 5,000 shares at VND 75,000/share.
Calculation:
- Original price of 5,000 shares: 5,000 × 60,000 = 300,000,000 VND
- Selling price of 5,000 shares: 5,000 × 75,000 = 375,000,000 VND
- Profit from selling shares: 375,000,000 - 300,000,000 = 75,000,000 VND
Entry:
Debit account 112 - Bank deposits: 375,000,000
Credit account 121 - Trading securities: 300,000,000
Credit account 515 - Financial activity revenue: 75,000,000
Explanation: The company records the difference between the selling price and the original cost of the shares as financial income. It should be noted that the remaining number of shares (5,000 shares) is still recorded at the original cost.
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6. Notes When Accounting for Financial Activity Revenue
When accounting for financial revenue, accountants need to pay attention to a number of issues to ensure accuracy and transparency in financial statements.
Common mistakes
- Wrong timing of recognition : Recording revenue when conditions are not met or delaying recognition when conditions are met.
- Incorrect classification : Recording non-financial revenue income into account 515 or vice versa.
- Miscalculation of value : Applying the wrong exchange rate, interest rate or calculation method leads to a deviation in value.
- Incomplete documents : Lack of valid documents as a basis for recording financial revenue.
- Failure to comply with the principle of prudence : Recording revenue when it is not certain that economic benefits will be obtained.
Principle of caution
When applying the prudence principle in recording financial revenue, accountants need to:
- Revenue is only recognized when it is certain that economic benefits will be obtained.
- Do not recognize potential or high-risk revenue
- Regularly evaluate the recoverability of financial investments
- Full provisioning for investments showing signs of decline in value
Ensuring accuracy and transparency
To ensure accuracy and transparency in accounting for financial revenue, businesses should:
- Build a strong internal control process
- Clearly define responsibilities among relevant departments
- Organize complete and scientific storage of documents
- Regularly compare data between accounting and related departments
Special cases to note
- Financial revenue from related parties : It is necessary to ensure the principle of market transaction price and fully disclose information according to regulations.
- Foreign Financial Income : Pay attention to international tax regulations and exchange rate differences.
- Conditional financial revenue : For revenue that depends on future conditions, it is only recognized when the condition has been met.
- Financial income from derivative financial instruments : Expertise and in-depth knowledge of these instruments are required for accurate accounting.
Control and reconciliation measures
- Conduct regular reconciliation with relevant parties (banks, securities companies...)
- Cross-checking between departments within the business
- Establish an early warning system for unusual fluctuations
- Regularly update changes in accounting and tax policies
Financial revenue is an important part of the income structure of a business, reflecting the efficiency of capital use and financial management. Understanding the definition, classification, recognition principles and accounting methods of these revenues not only helps ensure compliance with accounting regulations but also provides accurate information for management decision making.