How to Prepare Financial Statements Under Circular 200

Vũ Khôi

Author at Wotech Electronics Blog

Financial statements are a crucial basis that helps managers assess and evaluate a company's financial position, business performance, and capabilities. Financial statements must be prepared accurately, with consistent content and in the correct forms prescribed by the State, so that readers can easily compare and evaluate a company's performance across periods or against other companies. Preparing financial statements is therefore an important task that requires the preparer to have solid experience and expertise. So what exactly is a financial statement? Who prepares it? And how? All of these questions will be clearly and fully answered in the financial statement preparation methods presented in the article below.

An Overview of Financial Statement Preparation

What Is a Financial Statement?

A financial statement is a presentation of financial data in tabular form, providing information about a company's financial and business position as well as its cash flows. Through financial statements, managers can easily grasp the company's internal operations and make sound, more effective economic decisions. In addition, financial statements serve as a basis for regulatory authorities to inspect, supervise, guide, and advise the company on implementing economic policies consistent with the State's orientation and regulations. For customers and investors, financial statements are an important part of a company's capability profile, allowing them to assess financial strength, capital efficiency, growth, risk level, and payback period in order to consider, select, and make appropriate decisions.

A complete, reliable financial statement must provide full information about the company's: assets, liabilities, owners' equity, revenue, expenses, business results (profit or loss), and cash flows. As a key document in corporate management, the financial statement must be prepared by an experienced accountant and confirmed by the preparer, the chief accountant, and the legal representative.

What Does Preparing Financial Statements Involve?

When preparing financial statements, a company needs to assemble the following complete sets of documents to submit to the State authorities as required:

• Tax finalization declarations

• Corporate income tax finalization declaration

• Personal income tax finalization declaration

• The financial statement package

• Balance sheet

• Income statement

• Cash flow statement

• Notes to the financial statements, attached in the appendix to explain in detail the line items listed in the consolidated financial statements as well as the accounting policies applied when recording the financial transactions that arose.

Financial Statement Reporting Periods

• Annual financial statement period

Under the Accounting Law, companies must prepare annual financial statements based on the calendar year or the fiscal year, equivalent to 12 months, after notifying the tax authority. In special cases (for example, a newly established, newly merged, or dissolved company, etc.), the company may change the end date of its fiscal year. By regulation, financial statements for the first or last fiscal year may cover fewer or more than 12 months, but no more than 15 months.

• Interim financial statement periods

These are quarterly financial statement periods within the fiscal year (excluding Q4).

• Other financial statement periods

As required by law, by the parent company, or by the business owner, other accounting periods for which the company must prepare financial statements include weekly, monthly, or semi-annual (6-month) reports, etc.

• A note on the first annual reporting period

Whether a company is a long-established business or newly founded, all are obligated to prepare financial statements and submit them to the Tax Authority. Under Article 13 of Accounting Law No. 03/2003/QH11: "If the first or last fiscal year is shorter than 90 days, it may be combined with one accounting period of the following or previous year and merged into a single accounting period."

Thus, if a company is established before October 1 — meaning more than 90 days remain in the year — it must close its fiscal year within that year and is not permitted to merge its financial statements with those of the following year. For companies established after October 1 — meaning fewer than 90 days remain before the fiscal year ends in the current year (the valid window for merging financial statements under the regulations) — the company is allowed to merge its financial statements with those of the following year.

Principles of Preparing Financial Statements Under Circular 200

Based on Circular 200/2014/TT-BTC as the foundation for preparing financial statements, companies must comply with the following principles:

The Accrual Principle

A company must prepare its financial statements on the accrual accounting basis, except for information related to cash flows. On the accrual basis, events and transactions must be recognized at the time they occur, not when cash is actually received or paid, and must be recorded in the accounting books and financial statements of the relevant accounting periods.

The Going Concern Principle

The underlying assumption for preparing financial statements is that the company is operating normally and continuously in the near future, unless the company intends — or is forced — to cease operations or scale down its activities. If the financial statements are not prepared on a going-concern basis, this fact must be disclosed, along with the basis on which the statements were prepared and the reasons the company cannot be considered a going concern.

The Materiality and Aggregation Principle

Each material item must be presented separately in the financial statements. Immaterial items do not need to be presented separately and may be aggregated into items of a similar nature. Under this principle, a company does not necessarily have to follow the financial statement presentation rules exactly as prescribed by the accounting standards if the information to be presented is not material.

The Consistency Principle

In the financial statements, the presentation and classification of items must be consistent from one period to the next, except in the following cases:

• There is a change in the nature of the company's operations, or a change is needed so that transactions and events can be presented in a more intuitive and reasonable way.

• A different accounting standard has been issued that requires a change in the presentation format.

The Offsetting Principle

• Assets and liabilities must be presented separately; offsetting is only allowed when the assets and liabilities relate to the same entity, turn over quickly, and arise from transactions and events of the same type.

• When preparing the consolidated balance sheet between a higher-level unit and its subordinate units without legal-entity status, the higher-level unit must eliminate all balances of items arising from internal transactions between the higher-level unit and the subordinate units, and among the subordinate units themselves (offsetting revenue, other income, and expenses).

The Comparability Principle

Figures in the financial statements must be presented on a basis that allows comparison across reporting periods.

• Material information must be explained in detail and clearly so that readers correctly understand the company's actual financial position.

• For line items with no figures, the company does not need to present them on the balance sheet. In addition, the company may proactively renumber the items but must not change the code numbers of the reporting line items.

Besides the financial statement preparation principles above, conglomerates with subsidiaries can also refer to the set of principles for preparing consolidated financial statements here. [link to the consolidated financial statement article].

Steps to Prepare Corporate Financial Statements Under Circular 200

Step 1: Collect and Reconcile Documents

Based on all invoices issued and the tax returns already filed, the accountant preparing the financial statements needs to compare and reconcile them to check whether the company has declared correctly and completely, and whether any invoices or documents are missing. From there, they can propose appropriate methods to handle and correct the information.

Step 2: Convert Opening Balances

At this step, the accountant needs to convert balances in accordance with Article 126 of Circular 200/2014/TT-BTC as follows:

• Detailed balances of gold, silver, precious metals, and gemstones currently reflected in accounts 1113 and 1123.

• Bonds, treasury bills, and promissory notes in account 1212.

• Loans and long-term term deposits in account 228.

• The value of real estate goods built or produced by the company, tracked in account 1567.

• Balances of accounts 142, 144; balances of accounts 311, 315, 342.

• Provisions in accounts 129, 139, 159.

• The value of real estate invested in and built by the company (not held for sale as merchandise) in account 1567.

• Investments in associates in account 223.

• Provisions for repair and maintenance costs of fixed assets, environmental restoration costs, site handover costs, and similar items in account 335 – Payables.

• Balance of account 415 – Financial reserve fund.

Step 3: Recheck Monthly Journal Entries

The accountant needs to review all transactions recorded each month, taking care to clearly distinguish the different types of revenue and expenses from sales activities, financial activities, and other activities of the company.

Step 4: Classify Assets and Liabilities as Current and Non-Current

Under the regulations, assets and liabilities with maturities of less than 12 months are classified as current; the rest are classified as non-current assets and liabilities. This classification helps ensure that information about assets and liabilities is presented accurately in the financial statements.

Step 5: Prepare the Financial Statements

After all journal entries and asset/liability classifications have been checked, the accountant proceeds to prepare the financial statements following this analysis process:

• Define the objective of the analysis.

• Define the content to be analyzed.

• Collect the analysis data.

• Process the analysis data.

• Summarize the analysis results.

Once prepared, the financial statements should be audited before being submitted to the tax authority as required.

Key Notes When Preparing Financial Statements

Companies in general, and accountants in particular, should keep the following in mind when preparing financial statements:

• Year-end expenses that are paid early the following year must be recognized as expenses of the prior year. Among these, expenses incurred in the previous year for which invoices are not yet complete need to be accrued to ensure that revenue and expenses are properly matched.

• Year-end asset inventory: Assets including raw materials, merchandise, tools and supplies, etc., must be counted and an inventory report prepared as of December 31 of the year. Any discrepancies must be handled and recorded in the year-end financial statements.

• Year-end debt reconciliation: This includes receivables (131), payables (331), loans (341), advances (141), other receivables (138), and other payables (3388). The accountant must prepare reconciliation records for each counterparty to confirm and sign, ensuring the reliability of the outstanding balances and avoiding omissions of expenses or revenue during the year.

• Year-end cash fund inventory: Based on the cash fund inventory report as of December 31, along with statements of transactions for the whole year and closing balances of bank accounts.

• Reconciling tax debts with the tax authority and social insurance debts with the social insurance agency: The accountant needs to contact the relevant authorities to confirm the accuracy of amounts payable for taxes and social insurance.

Summary

We hope this article has provided a comprehensive overview of how to prepare corporate financial statements effectively and accurately under Circular 200. To simplify the accounting and financial management process at the company, businesses can also integrate specialized software into their enterprise resource planning solution to manage and track information more effectively. If you have any questions about choosing accounting and corporate financial management software, contact us right away for advice and answers.

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