How to Account for Promotional Goods and Free Samples in 2022

Vũ Khôi

Author at Wotech Electronics Blog

Today, promotional activity is receiving increasing attention from business managers because it is a highly effective way to attract customers to their products. For that reason, accounting for promotional goods is an indispensable task for managing the company's sales promotion activities well. So let's join SimERP and take a closer look at accounting for promotional goods under Circular 200 in the article below.

Distinguishing "Khuyến Mại" and "Khuyến Mãi"

Before diving into the basic types of promotional goods accounting, we need to distinguish between two terms that are frequently confused: khuyến mại (sales promotion) and khuyến mãi (trade discounts/commissions).

Khuyến mại (sales promotion) is an activity in which a business provides benefits to consumers to encourage them to buy and use its goods and products. The purpose of sales promotion is to boost purchasing power, increase revenue, reduce inventory, and stimulate consumer demand. Today's sales promotion formats include discounts, point accumulation, trade-in programs, and more.

Khuyến mãi (trade incentives) is an activity that benefits the business in terms of sales. The more the seller sells, the more commission they receive from the company.

How to Account for Promotional Goods

For the Party Issuing Promotional Goods

Case 1: Promotional and advertising goods registered with the Department of Industry and Trade (under commercial law), divided into 2 forms:

For the form where promotional goods are given with no conditions attached, the accountant records the value of the goods as selling expenses, as follows:

• Debit Account 641 – Selling expenses (including product production costs and cost of goods sold)

• Credit Accounts 155, 156

For the form where promotional goods are given with conditions attached

Under this form, customers only receive promotional or advertising goods subject to other conditions — such as having to buy the product (for example, buy 3 get 1 free) — the accountant must allocate the amount received to recognize revenue for both the goods sold and the promotional goods; the value of the promotional goods is recorded in cost of goods sold, as follows:

• Debit Account 632 – Cost of goods sold (product production costs, cost of goods sold)

• Credit Accounts 155, 156

Recognizing the revenue of promotional goods based on allocating the amount received across both the products sold for payment and the promotional or advertising products, as follows:

• Debit Accounts 111, 112, 131, etc.

• Credit Account 511 – Revenue from sales of goods and service provision

• Credit Account 3331 – VAT payable (33311) (if any)

Case 2: Promotional and advertising goods not registered with the Department of Industry and Trade (not under commercial law), divided into two forms:

For the form where promotional goods are given with no conditions attached, the accountant records, as follows:

• Debit Account 641 – Selling expenses

• Credit Accounts 155, 156

• Credit Account 3331 – VAT payable

For the form where promotional goods are given with conditions attached, when issuing the promotional goods, the accountant records the value of the promotional goods in the cost of the products, as follows:

• Debit Account 632 – Cost of goods sold

• Credit Accounts 155, 156

• Credit Account 3331 – VAT payable

Recognizing the revenue of promotional goods based on allocating the amount received across both the products sold and the promotional or advertising products, as follows:

• Debit Accounts 111, 112, 131, etc.

• Credit Account 511 – Revenue from sales of goods and service provision

• Credit Account 3331 – VAT payable (33311) (if any).

For the Party Receiving Promotional Goods:

Case 1: Receiving promotional goods, divided into two forms:

• When receiving promotional goods given unconditionally, record:

• Debit Accounts 152, 153, 156, 211, etc. (at fair value)

• Credit Account 711 – Other income

When receiving promotional goods given with conditions attached, record:

In the case of purchased goods received together with products, spare parts, or replacement components (held against damage), the accountant must collect information and separately identify and record the products, goods, equipment, and spare parts.

• Debit Accounts 152, 153, 156, 211, etc. for the purchased value minus the promotional goods value

• Debit Accounts 152, 153, 156, 211 for the promotional goods value (at fair value)

• Debit 1331 (if any)

• Credit 111, 112, 331

Case 2: Receiving promotional goods for customers (merely holding them on behalf)

In the case where a business engaged in commerce receives goods from a manufacturer or distributor for the purpose of advertising or promoting to customers who buy from that manufacturer or distributor:

When receiving goods from the manufacturer (free of charge) to use as promotions or advertising for customers, the distributor needs to track in detail and specifically the quantities of goods in its internal management system, and disclose in the Notes to the Financial Statements both the goods received and the goods used for promotions to buyers (as goods held on behalf).

Note: Under Clause 1, Article 29 of Circular 200, goods received for sale on behalf or held on behalf of other companies are not reflected in Account 156 "Merchandise"; therefore, the receiving party's accountant does not record such goods in the accounting books.

When the promotion ends, if the unused promotional goods do not have to be returned to the manufacturer, the accountant records other income for the value of the goods that do not need to be returned, as follows:

• Debit Account 156 – Merchandise (at fair value)

• Credit Account 711 – Other income.

Example:

A company sells a car for 1 billion VND, excluding 10% VAT, and will give the customer 1 tire when they buy the car. The market price of one tire is 30 million VND. The cost of the car is 700 million, and the cost of a tire when the company buys it is 30 million VND.

– Accounting for the selling company

• When issuing goods for promotion.

Debit Account 632: 730,000,000

Credit Account 156: 730,000,000

156 – car: 700,000,000

156 – tire: 30,000,000

• Recognizing the revenue of promotional goods, we have:

Debit Account 131: 1,100,000,000

Credit Account 511: 1,000,000,000

511 – car: 970,000,000

511 – tire: 30,000,000

Credit Account 3331: 100,000,000

– Accounting for the buying company

Debit Account 211: 970,000,000

Debit Account 1534: 30,000,000

Debit Account 133: 100,000,000

Credit Account 331: 1,100,000,000

Accounting for Free Samples

Accounting for free samples includes two types: accounting for domestic samples and non-trade goods. The accounting method for these two types is regulated as follows:

Accounting for Domestic Samples

Typically, when a company wants to introduce a new product, it gives away sample products and promotions for customers to try free of charge, with no other conditions attached (such as being required to buy the product or goods). In that case, the accountant records:

• Debit Account 641: Product production costs, cost of goods sold (under Circular 200)

• Credit Accounts 155, 156: The value of the products and goods used as samples and promotional goods.

Accounting for Imported Samples (Non-Trade Goods)

In reality, samples are not always domestic goods; in many cases, samples are imported goods (also known as non-trade goods). Below, we would like to cover how to account for imported samples as follows:

• Paying tax, record: Debit Account 3333, Debit Account 333312, Credit Account 1111 (or Account 1121)

• Recording expenses, record: Debit Account 642, Credit Account 3333, Credit Account 33312, Credit Account 1111 (or 1121)

• Recording income, record: Debit Account 211 (Accounts 152, 156, etc.), Credit Account 711

Accounting for Gifted Goods

Accounting for Gifted Goods on the Giver's Side

Businesses often give their goods and products to customers or employees on special occasions, etc., to show appreciation. When accounting for gifts given free of charge, the following cases can occur: goods purchased and given directly to the company's customers (without going through the warehouse); goods purchased, received into the warehouse, and then gifted; and goods gifted to employees using the reward and welfare fund. The accountant records each specific case as follows:

Case 1: Goods purchased and given directly to the company's customers (without going through the warehouse).

When purchasing goods to give directly to customers (without going through the warehouse), the accountant records:

• Debit Account 641: The cost of the gifted goods.

• Debit Account 133: Input VAT (if any)

• Credit Accounts 331, 111, 112: The value payable when purchasing the gift.

• Credit Account 3331: Output VAT.

Case 2: Purchasing goods into the warehouse to be gifted.

When the company purchases goods for gifting into the warehouse, based on the purchase invoice, the accountant records:

• Debit Accounts 152, 153, 156, etc.: The value of the materials, goods, etc. purchased to be gifted.

• Debit Account 1331: Deductible input VAT.

• Credit Accounts 331, 111, 112, etc.: The total value payable when purchasing the gift.

When the company issues the gifted goods from the warehouse, based on the issue invoice, the accountant records:

• Debit Account 641: The cost of the goods given away.

• Credit Accounts 152, 153, 156: The value of the materials, goods, etc. purchased to be gifted.

• Credit Account 3331: Output VAT.

Case 3: Goods gifted to employees using the reward and welfare fund.

When goods are gifted to employees using the company's reward and welfare fund, the accountant records:

• Debit Account 353: The total payment value.

• Credit Account 511: The value of the goods given away.

• Credit Account 33311: Output VAT.

The accountant records the cost of goods, as follows:

• Debit Account 632: The cost of the goods given away.

• Credit Accounts 152, 153, 156, etc.: The cost of the goods given away.

Accounting for Gifted Goods on the Recipient's Side

When receiving gifted goods, the accountant records as follows:

• Debit Accounts 156, 242, etc.: The total value of the goods including VAT.

• Credit Account 711: The total value of the goods including VAT.

SimERP Software — An Accounting Solution for Every Business

In the Industry 4.0 era, nearly all management activities tend to be carried out through technology software. Accounting for promotional goods in particular — and accounting in general — becomes easier when using such technology products. At the same time, social distancing and reduced contact due to Covid-19 are further pushing businesses to reduce manual accounting, because to do the accounting, staff have to gather information from many sources and meet with different departments, making pandemic-prevention work increasingly complicated. One of the most popular software products that can help businesses with their accounting work today is SimERP.

SimERP is an enterprise resource planning software with accounting functions, built on Odoo — the world's most popular ERP software — with the following advantages:

• Accounting solution compliant with Vietnamese standards

The Accounting module is adjusted and updated according to the decisions and circulars issued by the Ministry of Finance. Therefore, any business in Vietnam can use this software.

• Powerful permission system

Information being integrated on a single system doesn't mean everyone can access it freely — it requires the administrator's consent and authorization, giving administrators the ability to control and manage the activities of their subordinates.

• Flexible number of users

Accounting for promotional goods, like all other types of accounting, involves large volumes of information collected from many sources, so SimERP allows an unlimited number of users to access it while still ensuring high security and accuracy.

• Diverse deployment models

There are different models for deployment to suit a company's system: on-premise (deployed immediately on the company's own server with a dedicated IT operations team), on-cloud (deployed on a cloud platform, non-customizable), or Hybrid (a combination of on-cloud and on-premise) for application development.

Conclusion

Accounting for promotional goods given free of charge, accounting for conditional promotions, and accounting for other items all become easier with help from software and applications. And we believe SimERP is the optimal choice for your business.

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