How to account for business management expenses - Account 642

Accurate accounting of business management costs is an important factor that allows controlling budgets, improving operational efficiency and maximizing profits. In the article below, 1C Vietnam will provide businesses with specific information on how to account for professional and accurate management costs.

1. What are business management costs?

Business management costs are all expenses serving business management and operations, including employee management costs such as salaries, bonuses, allowances, insurance, training or expenses. Office rental, equipment purchase, advertising and marketing costs, legal costs, etc.

Business management costs have 3 main characteristics:

• Irrespective of object: Business management costs are of a general nature, not related to a specific business unit or function.
• Can be fixed: Part of business management costs are fixed, meaning they do not change with the level of production or sales.
• Needs to be optimized: Business management costs need to be optimized to ensure effective production and business activities.

Note, general management expenses of the business are not included in corporate income tax. In case there are complete documents and invoices accounted for according to the accounting regime, the enterprise can only make adjustments in the income tax settlement to increase the tax amount payable, and cannot record a decrease in accounting expenses.

2. What do business management costs include?

According to regulations in Circular 133/2016/TT-BTC, enterprise management costs include the following 8 main components:

• Management staff costs: These are costs related to recruitment, salary calculation, insurance and benefits for management staff, including the board of directors, department heads and management departments.
• Management material costs: Includes costs related to the purchase of materials and tools necessary for management work, including documents, books, stationery, etc. .
• Office supplies costs: This is a financial amount related to the purchase and maintenance of office supplies, equipment, furniture, and utilities in the working environment.
• Fixed asset depreciation expense: Is an amount calculated based on the value of fixed assets (fixed assets) that the business owns including machinery, equipment, means of transportation,...
• Taxes, fees and charges: These are budget items that must be paid according to the provisions of law such as personal income tax, value added tax (VAT), accounting, auditing, and business registration fees. and some other fees.
• Contingency expense: An amount of money set aside to deal with unexpected or difficult to predict situations. This cost helps businesses have financial resources available to deal with unexpected challenges.
• Outsourced service costs: Are amounts related to the purchase of services from outside the business such as expert consulting, legal consulting, financial consulting, marketing, auditing, technical support. technology and many other types of services.
• Other monetary expenses: Are unexpected, irregular financial expenses that are not included in the above categories, including conference, reception, business, transportation, etc.

3. Accounting for business management costs

3.1. Accounting account 642

In Vietnam, business management costs are recorded and accounted for in a separate account, depending on each applicable accounting circular.

According to Circular No. 200/2014/TT-BTC, enterprise management expenses are recorded and accounted for in level 1 account: Account 642 – Enterprise management expenses.

According to Circular No. 133/2016/TT-BTC, enterprise management expenses are recorded and accounted into level 2 account: Account 6422 – Enterprise management expenses.

Structure and content of account 642 (account according to Circular No. 200/2014/TT-BTC):

3.2. 8 levels of 642 account

Account 642 includes the following 8 levels:

• 6421 - Management staff costs: Reflects costs of salaries, bonuses, allowances, social insurance, health care, union fees, other salary deductions and other costs related to salaries and wages of enterprise managers.
• 6422 - Management material costs: Reflects costs of raw materials, tools, stationery, electricity, water, telephone, post office,... serving business management activities Karma.
• 6423 - Office supplies costs: Reflects the costs of purchasing, repairing, maintaining, relocating, etc. office supplies to serve business management activities.
• 6424 - Depreciation costs of fixed assets: Reflects depreciation costs of fixed assets such as houses, machinery and equipment,... used for business management activities.
• 6425 - Taxes, fees and charges: Reflects taxes, fees and charges payable arising during business management activities.
• 6426 - Contingency expenses: Reflects expenses used in some emergency, unexpected, and difficult to predict cases that must be established in the period in which they arise.
• 6427 - Costs of services purchased from outside: Reflects costs of services purchased from outside to serve business management activities including advertising, marketing, consulting services,...
• 6428 - Other cash expenses: Reflects other cash expenses incurred during business management activities such as transportation, receiving guests, etc.

4. Accounting for business management costs 642

Enterprise management costs 642 are accounted for according to the provisions of Article 31 of Circular 177/2015/TT-BTC.

Debit side:

• Business service expenses incurred during the reporting period.
• The number of provisions for doubtful receivables and payables (the number of provisions that must be made in this period is greater than the number of provisions set up and not used in the previous period).

Credit Party:

• The amount is recorded as a reduction in operating expenses.
• Reversal of provision for bad debts and provision for trade payables (the amount of provision to be made this period is smaller than the amount of provision made in the previous period but not fully used).

Specific business management cost accounting operations:

• Salaries, wages, benefits and other payments to employees, department managers, and some other supports such as social security, health insurance, unemployment insurance, accident compensation insurance labor, union dues, life insurance, voluntary pension insurance,... record:

• Debit account 642 – Business expenses (6421)
• There are accounts 338, 334
• The value of supplies, tools, and supplies purchased for immediate use without needing preservation such as gasoline, vehicle oil, and materials used to repair the company's common assets are recorded:
• Debit account 642 – Operating expenses (Corresponding level 2 account)
• Debit account 133 – Deductible VAT (1331) (if deducted)
• There is account 152 - Raw materials account 111, 112, 242, 331,...
• The value of tools and office supplies purchased for immediate use without inventory is recorded directly in selling expenses, management and administrative expenses and is recorded as follows:
• Debit account 642 – Management expenses (6423)
• There is account 153 – Tools and accessories
• There are accounts 111, 112, 331,...

5. Impact of business management costs on product/service prices

Business management costs can affect product or service prices in two ways:

• Direct impact: Some management costs such as office costs, employee salaries and advertising costs can be calculated directly into the price of products and services. As management costs increase, the price of the product or service will also increase.
• Indirect effects: Some other management costs such as research and development costs, customer support costs and administrative costs cannot be directly included in the product or service price. However, this is still a financial amount that affects the total costs or profits of the business, thereby having a certain impact on the price of the product or service.

In addition, management costs also affect product or service prices through:

• Business efficiency: Low management costs help improve business efficiency, allowing businesses to provide products or services at more competitive prices, attract customers and increase sales. .
• Competitors: If management costs are lower, businesses can provide products or services at lower prices, thereby putting competitive pressure on competitors.

6. How to effectively optimize business management costs

Business management costs are one of the important amounts of money, accounting for a large proportion of the total business budget. Effective management cost optimization will help businesses save resources, increase operational efficiency and improve competitiveness.

Here are some ways to effectively optimize business management costs:

• Optimize management activities: Businesses can optimize management costs by building a quality management system, controlling work activities according to correct procedures and eliminating unimportant tasks. This can help businesses save time, resources and operating costs.
• Using modern technology: Modern technology can help businesses save costs on data management, human resources, finance, etc. Businesses can also use technology to automate processes manually, helping to minimize errors and increase operational efficiency.
• Choosing the best supplier: This is an effective way to save costs on purchasing raw materials and services. Businesses need to compare prices, product/service quality and policies of suppliers to choose the most suitable supplier. In addition, businesses can also negotiate with suppliers to receive preferential prices.

In short, accounting for business management costs is a complex job and requires high accuracy. Businesses need to clearly understand financial accounting regulations to perform this job effectively. To not miss useful information about business operations, please follow other articles on 1C Vietnam's website