Materials accounting in nissei electric hanoi company

Materials accounting in nissei electric hanoi company

in Vietnam and supply to domestic market They have better characteristics

by far than Vietnam such as: technology, capital, manufacture experiences,etc If we do not research promptly to improve for higher quality, lower cost

of products…, definitely our market share will be reduced right in thedomestic market

Recently, I have an opportunity of practicing in Nissei Electric HanoiCompany, studying their management system, enterprise culture and goinginto the details of materials accounting at accounting department This is anexport-processing company in the Nissei group, with 100% investment capitalfrom Japan Materials in Nissei Electric Hanoi Company are various andimported regularly for production Materials play an important role and alsomake up a high cost in product price Therefore, managing materials well isone of the most important issues of company Nissei researched to createmodel management software has high integrated ability, together withconfidential managers and a prompt working environment, they can managecompany in general and materials in detail efficiently They are new featuresthat Vietnamese companies should follow and apply suitably to ourcompanies

Thanks to the thesis “MATERIALS ACCOUNTING IN NISSEI ELECTRIC HANOI COMPANY”, I would like to present my opinion on

materials accounting in Nissei and the model management system as well asNissei culture thence I inferred some lessons for Vietnamese companies

The thesis includes three chapters:

Chapter 1: General theory for materials accounting in productive enterprises.

Chapter 2: Materials accounting in Nissei Electric Hanoi Company.

Chapter 3: Suggestions to improve materials accounting in Nissei Electric Hanoi Company and lessons for Vietnamese companies.

Because of the limitation of time and knowledge, mistakes are notavoided; I would like to receive contribution from readers for improvement ofcontent as well as form for my thesis

Thanks a lot!

Author

Hoang Thi Lan Chi

CHAPTER 1

GENERAL THEORY FOR MATERIALS ACCOUNTING IN

PRODUCTION ENTERPRISES 1.1 Materials and accounting issues in materials:

1.1.1 Definition and characteristic of materials:

Merchandise inventory is an important factor in determining the cost ofgoods sold for retailers and wholesalers In a manufacturing enterprise,inventories are owned by the company and usually classified into threecategories: finished goods, work in process and raw materials

In there, raw materials are a major component to take shape of product.Effective material management is frequently the key to successful businessoperations Materials have two main characteristics:

- They participate in only one production cycle and their originalforms are changed;

- Their values are transferred into products’ value in the productionprocess

1.1.2 Classification of materials:

Materials in production enterprises are various and plentiful Each type

of materials has a different role, use and feature Therefore to managematerials effectively, businesses need to classify them

Depending on managing requirement, materials can be classified indifferent ways Following are three ways to classify materials [1]:

1.1.2.1 According to materials’ use:

- Raw materials: are main objects forming products and their value istransferred into products’ value entirely on production process

- Sub-materials: are materials supporting for production process,combining with raw materials to increase quality and design of product, used

to ensure that equipments run well or supporting for technical andmanagement demand

- Fuels: are used for production such as coal, oil, etc In essence,fuels are sub-materials which are separated to manage and used accountsmore conveniently because of their important role

- Spare-parts: are used for replacement and repair of machinery,equipment, etc

- Capital construction equipment: includes construction parts, fit andnon-fit equipment used in capital construction, industry

- Other materials: are materials not grouped into the above types.They mainly are scraps taking back from the production process or liquidation

of fixed tangible assets

By this classification way, businesses can know which type of materials

is needed to be managed more strictly, especially materials are used directlyfor production, materials have high values or materials are leaked easily

1.1.2.3 According to purpose of using :

- Materials directly used for manufacturing products

- Materials used for other demands like general manufacture, selling

to their original prices Where the net realizable value is lower than theoriginal price, they must be valued according to the net realizable value” Inthere:

- The original price of inventories consists of the purchasing cost,processing cost and other directly-related costs incurred for having theinventories stored in the present place and conditions;

- The net realizable value is estimated price of inventories in thenormal production cycle minus (-) estimated cost to finish product andestimated cost need to consume them

Therefore, in accordance with Inventory accounting standard, materials

in enterprises are determined according to real price

1.1.3.1 Determine cost of stored material:

Determining cost of stored materials conform to cost price principle.Enterprises store materials from many sources Depending on every source,the real value of materials is defined differently [7]

- Materials are provided from outside:

Non-refundable taxes - Trade discounts,price reductions

In there:

 Purchasing cost includes: cost of transportation, loading andunloading, loss in norm

- Materials are provided by hiring people to process

Real value of

materials = Real value of

material used + Hiring cost +

Transportation cost (if any)

- Materials are provided by enterprises themselves:

Real value of materials

= Cost price of materials used + Transportation cost (if any)

- Materials are provided by issuing:

Real value of materials = Price according to receiving report

- Materials are provided from join-venture partners’ contribution:

Real value of materials = Value of capital due to join-venture assembly defines

- Materials are provided by presenting:

Real value of materials

= Market price at receiving time

- Wasted materials are taken back from production:

Real value of materials

= Reusing price or selling price of materials

1.1.3.2 Determine cost of materials used:

Choosing the determine cost of materials used method is based on thecharacteristics of each business regarding quantity of materials; time ofstoring and using materials; ability of accountant, stockman and materialcondition Provision No 13 of VAS 02, there are four methods to determinecost of materials used:

- Specific identification method:

To this method, costs of materials used from which lot will be definedfollow the price of that lot This method requires that each unit on hand beidentified with a specific purchase invoice To do this, enterprise must usesome form of identification such as serial numbers, or stock tags, or bar codescontaining the cost recorded in some appropriate coding system, which areattached to the item Application of the specific identification method is agreater possibility when using a computerized inventory system, where thecost of each item may be identified in the bar code for that item When theitem is used, the cost of that item is readily obtained from the computer’sreading of the bar code This method is applied to enterprises having a fewgood items or stable and identifiable good items

 Advantages: define exactly cost of materials used, certain cost issuitable for certain revenue

 Disadvantages: when business has a lot of material items,materials move continuously, controlling materials will be very difficult and

detail materials accounting will be very complex For most entities, thismethod is not practical and is too costly to apply.

- Average method: the cost of materials used is equal to quantity ofmaterials used multiply with average unit price The average unit price can bedefined according to two ways below:

per unit is calculated by dividing the total cost of beginning materials andmaterials stored in period by the total number of units at the beginning andstored in period

 Advantages: simple, possible to cut down materials accountingworks, not depending on materials movement

 Disadvantages: materials accounting is driven into the late period,therefore it affects the progress of other accounting

 Moving average method: a new average cost per unit iscalculated after each purchase The average is called a moving averagebecause a new weighted average cost is calculated after each purchase ratherthan simply calculating a weighted average at the end of the period Themoving average cost, calculated after a purchase, is used to calculate the cost

of materials on hand until additional units are acquired at a different unitprice The moving average cost of materials is calculated as follows:

Uninterrupted

Average unit price =

Materials value before n storing time + Materials value at n storing time Quantity of materials before n storing time + Quantity of materials at

n storing time

This method should be applied in enterprise which has few types ofmaterials and where materials movement is not high; and is used withsynthetic accounting by perpetual inventory system

 Advantages: gains the most accurate cost of materials used whenthe accountant uses this method; reflects fluctuation of price timely;determination cost of materials is implemented regularly.

 Disadvantages: accounting work is numerous and complex Thismethod is suitable for enterprises using accounting software only

- First in first out (FIFO):

The FIFO method assumes that the earliest materials purchased are thefirst to be used FIFO is widely used because it is easy to apply FIFO oftenparallels the actual physical flow of merchandise because it generally is goodbusiness management to sell the oldest units first [12]

This method is suitable for inflationary period and applied forenterprises which have a few of materials items and movement of materials isnot high

 Advantages: accountants can define cost of materials usedtimely This method supplies a logical estimation on material value at the end

of the period

 Disadvantages: current cost is not suitable current revenue Thecurrent revenue achieved since cost of materials in detail and inventories ingeneral stored previously Therefore, the business cost of an enterprise doesnot react timely with market prices of materials

- Last in first out (LIFO):

Under the LIFO method, the cost of last unit purchased is assumed to

be the cost of first unit sold The cost of the most recent purchases istransferred to cost of materials used The cost of the ending materials consists

of the cost of the earliest purchase [12]

This method is suitable in deflationary periods and applied toenterprises which have a few of materials items and movement of materials isnot high

 Advantages: current revenue is suitable current cost Costs ofenterprises’ products react timely with market prices of materials Therefore,the information about enterprises becomes more reliable

 Disadvantages: reduce enterprise’s net income in deflationperiods and material values on the balance sheet can be smaller than their realvalue.

The selection of a cost method to use for a particular type of inventorydepends on many factors such as the effect that each method has on theentity’s financial statement, Income tax laws, information needs for managersand financial statement users, the clerical cost of applying a costing method,and requirements of accounting standards In practice, more than one of themethods may be considered appropriate in accounting for the same type ofinventory That is, accounting standards do not prescribe the use of a specificcosting method as being “best” for a particular set of inventory conditions It

is up to managers and the accountant to decide which method provides themost useful information to financial statement users

However, when using materials, accountant must calculate, determinereal cost of materials used according to method registered and must ensureconsistence in a finance year [13]

1.1.4 Managing requirement and accounting duty for materials:

1.1.4.1 Managing requirement for materials:

In our economy, profit becomes the last aim of business The inverseratio relation between cost and profit is more and more interested in Soenterprises always find the way to minimize production cost, reduce costprice Therefore, with the ratio is about 60-70% in total cost, materials must

be managed more effectively

If business uses materials economically and suitably, they will makeproducts of high quality; in addition, the cost price of products will bereduced The business will have more advantages in the market Morescientific management of materials more economical effect businesses gains.These roles require materials management to be close in all stages frompurchasing, reserving and maintaining to using them

In the purchasing stage: enterprises usually buy materials to satisfytimely for production process and other demands In this stage, materials must

be managed closely on quantity, specification, sort and price

In the reserve and maintenance stage: to keep production processcontinuously, enterprise must reserve materials sufficiently; however, avoidstoring materials exceeding the required level because it will lead to capitalstagnant; maintaining materials according to their physicochemical properties.

In the using stage: enterprises must determine cost of materials inproducts sufficiently, correctly, timely Therefore, in this stage, business mustrecord and reflect using materials for production process, ensure using themeffectively

1.1.4.2 Accounting duty for materials:

To meet managing requirement, materials accounting must include thefollowing tasks and functions:

- Organize the voucher system: obey rules of form, time of makingvouchers, rotation of vouchers, reserve and maintenance of vouchers of theMinistry of Finance Rotation of vouchers must ensure that supplyinformation sufficiently to materials managers, safety for vouchers; recordinto accounting books sufficiently, timely; avoid tautology and shouldminimize the rotation time of vouchers

- Accounts system: ensure the rules of unity and accommodation Thegeneral accounts of business are due to accounting regulation and the detailaccounts are due to business’s characteristic

rules: unity and accommodation Business must apply all obligatory booksstipulated by the Ministry of Finance and create books supporting for materialmanagement to supply information sufficiently and timely

Reports on materials need to be created according to accountingregulations on time and transported to the functional section managingmaterials

1.2 Materials accounting:

1.2.1 Detail accounting for materials:

Materials voucher system in enterprises is applied according toaccounting regulation promulgated on Decision 15/2006 of the Ministry ofFinance on the 20th March 2006

- Storing materials voucher (Form 01 – VT);

- Using materials voucher (Form 02 – VT);

- Inventories test report (Form 03 – VT);

- Remaining materials at the end of period report (Form 04 – VT);

- Stock-taking report (Form 05 – VT);

The process of making and rotating materials vouchers is taken asshown by this diagram:

Diagram 1: Rotation of materials vouchers

Detail accounting for materials is monitoring and recording thefluctuation of storing, using and remaining of each material in productionprocess to supply detail information for managing every material item

Detail accounting for materials must ensure controllable storing, usingand remaining situation in quantity and value of each material item;synthesize the information above according to each warehouse, stand andfield

Enterprises can use one of the three methods below to accountmaterials in details:

- Parallel inventory cards method;

- Balance books recording method;

- Rotation collation books recording method

The thesis imitates three methods by diagrams and presents their

advantages, disadvantages and applying conditions

Materials Accountant Stockman

Supplying section

Research

demand of

materials

Sign contract/

approve using stock

Record materials books

Store materials, use materials

Create storing/

using voucher

Note:

1.2.1.1 Parallel inventory cards method:

Represent this method according to the diagram below:

Diagram 2: Parallel inventory cards method

Advantages: This method is simple in recording, controlling, collatingand supply information on storing, using and remaining of materials itemtimely, correctly

Disadvantages: recording by both stockman and accountant so taking alot of time and effort

This method is suitable to apply for businesses using accountingsoftware and business with a few material items

1.2.1.2 Balance books recording method:

Represent this method according to the diagram below:

Daily recordingPeriodically recordingCollating daily

Remaining report

Storing-Using-Detail accounting book Stock

card

Diagram 3: Balance books recording method

Advantages: avoid recording many times, works are arranged for allperiod so not accumulated to the late period

Disadvantages: have much difficulty in controlling, collating anddetecting mistakes

This method is suitable to apply for businesses which have a lot ofmaterials items and materials movement is high; accountant and stockman has

a good ability

1.2.1.3 Rotation collation books recording method:

Represent this method according to the diagram below:

Diagram 4: Rotation collation books recording method

General accounting book

Remaining report

Storing-Using-Balance books

Voucher (1) Transferring note

Using inventory

voucher (2)

General accounting book

List of inventory used

Rotation collation book

List of inventory stored

Advantages: makes fewer accounting books than parallel cards method,reducing accountants’ recording work.

Disadvantages: controlling, collation and mistake detection meet withmuch difficulty Works are accumulated to the late period so it affects theprogress of other accounting

This method is suitable to apply for businesses have a lot of materialitems but materials movement is not high; organizing materials accountant tofollow storing and using materials everyday is unimplemented

1.2.2 Synthetic accounting for materials:

There are two methods to synthetic accounting for materials

- Periodic inventory system;

- Perpetual inventory system

1.2.2.1 Periodic inventory system:

When the periodic inventory system is used, the cost of materialspurchased during the period is recorded in the Purchase account Throughoutthe period, the balance of the Materials account presents the cost of materials

on hand at the beginning of the period To determine the cost of the endingmaterials, the units on hand at the end of the period must be counted andevaluated The cost of ending materials is then reported usually as apart ofcurrent asset in the balance sheet

Due to the result of stocktaking at the end of period, accountants canreflect the value of materials remaining on the general accounting book and cost of materials using during the period.

Cost of materials

used = Cost of beginningmaterials + stored in the periodCost of materials - Cost of endingmaterials

All movements of materials are not reflected on the Materials account,cost of materials stored is reflected on the Purchasing account

This method is suitable for enterprises with various categories ofmaterials, low value and often used

The advantage of the periodic materials method is simple and reducesgreatly the amount of daily accounting work However, the accuracy of

materials used during the period is based on how well manager performs theirjob in the warehouse and at the counter.

- Transfer cost of ending materials

- Transfer cost of materials used

- Materials account - 152 and Goods in transit account - 151

Structure:

Purchase account – 611 (Goods in transit account – 151)

- Cost of beginning materials

(beginning materials in transit

- Transfer cost of beginningmaterials (beginning materials intransit)

materials (ending materials in

transit)

Accounting method:

611

133 111,112,331,

(12)

(13)

(14) (1)

Diagram 5: Accounting method according to periodic inventory system

(1) Transfer cost of ending materials

(2) Purchase materials from domestic suppliers

(3) Purchase materials from foreign suppliers

(4) Receive materials provided by the enterprise itself

(5) Receive materials from Joint-venture partners’ contribution

(6) Receive materials from the enterprise’s joint-venture contribution

(7) Receive materials by presenting

(8) Move unused materials to warehouse

(9) Use materials for production or administration

(10) Receive trade discount from suppliers

(11) Return materials purchased or materials rebates from suppliers

(12) Use materials for construction or extra-ordinary repair of fixed assets(13) Use materials for self-production

(14) Use materials for contribution

(15) Transfer the beginning balance

1.2.2.2 Perpetual inventory system:

When perpetual inventory system is used, although the materials onhand are available in the materials account at all times, a physical stock-take

is still taken at least once a year to verify the balance recorded in theaccounting record In this way, any discrepancies from loss, theft ordeterioration can be accounted for

Applying this method business can follow continuously all movements

of materials on the accounting books, determine cost of materials stored, used

or remained at any time

This method is suitable for enterprises have materials with high value.Account used:

- Materials account: 152

Account No 152 is used in order to control remaining cost andmovement of materials according to real price

Materials account – 152

- Cost of materials stored by

providing from outside, inside,

presentation or other sources

- Cost of redundant materials

detected from stocktaking

- Cost of materials used forproduction, sale, etc

- Cost of materials rebated,discount or return to suppliers

- Cost of deficient materialsdetected from stocktaking

- Balance: Cost of remaining

materials at the end of period

Account No 152 can be divided into following sub-accounts follow toeach type of materials depending on managing requirement of enterprise.According to materials’ use, they can be divided into five following sub-accounts:

- Materials in transit account: 151

Account No 151 is used in order to reflect cost of materials thatbusiness bought or accepted to pay for suppliers but not yet stored at the end

of period

Structure:

Materials in transit account – 151

stored or transferred to othersections used

- Balance: Cost of materials in

transit have not stored at the end

of period

Besides, synthetic accounting for materials uses some other accountsinvolved such as: 111, 112, 133, 141, 331, 515…

Accounting method:

Accounting method for transactions related to materials according toperpetual inventory system is presented in the diagram 6 (when businessapplies the VAT deduction method)

152 133

(1) Purchase materials from domestic suppliers.

(2) Purchase materials from foreign suppliers

(3) Receive materials produced by the enterprise itself

(4) Receive materials from joint-venture partners’ contribution

(5) Receive materials from the enterprise’s joint-venture contribution (6) Receive materials in transit last month

(7) Receive materials from presentation

(8) Move unused materials to warehouse

(9) Use materials for production or administration

(10)Receive trade discount, purchase returns or purchase rebates fromsuppliers

(11) Use materials for construction or extra-ordinary repair of fixed assets.(12) Use materials for self-production

(13) Use materials for contribution

(14) Use materials for consignment or directly consume

1.2.3 Accounting for stock taking and revaluating of materials:

Inventory management has been researched and developed for manyyears, and stocktaking management is an important part of inventorymanagement Many companies consider stocktaking an aid to stockmanagement, allowing forecasting, planning and budgeting to be as easy aspossible

Enterprises often inventory materials to define the remains of eachmaterial item in warehouse; then collate with data on accounting books,specify the differences and the treatments

Depending on enterprise’s condition and managing requirement,enterprise can take stock of the whole of materials, parts of materials or bychoosing samples Stock-taking can be implemented at the end of months,quarters, years or at anytime according to management requirement andapplied in both periodic and perpetual inventory systems of enterprise

However with enterprise applying periodic materials system, inventory

at the end of a period is obligatory These enterprises usually have a lot oftypes of material; therefore, inventory must be planned carefully andimplemented by many involved sections in company to have an exact result

on amount of materials at the end of period.

Revaluation is carried out in some following cases:

- Being required by the Government

- Ownership being transferred

- Other cases such as materials being contributed to joint-venture orcorporate company, the price of materials having changed greatly…

Journal entries for the stocktaking and revaluation materials arepresented in the diagram 7:

152

Surplus materials pending resolutions

Deficient materials pending resolutions

Revalued cost >

the book value Revalued cost <

book value

When enterprise has solutions:

Debit Acc 111, 112, 334, 3388: personals’ compensation

Debit Acc 632: enterprise compensates for the damage

Credit Acc 3381: cost of deficient materials is pending

Surplus materials are defined belong to enterprise:

Debit Acc 152: cost of surplus materials belong to enterprise

Credit Acc 711: cost of surplus materials belong to enterprise

After definition, if surplus materials are not belong to enterprise andmust return to other business, accountant records singly to Acc 002; ifenterprise buy back these materials, they must report to suppliers andimplement these entries:

Debit Acc 152: cost of surplus materials buy back

Credit Acc 338: cost of surplus materials buy back

Diagram 7: Taking stock of materials and revaluation of materials

1.2.4 Provision for decline in materials:

At the end of the period, if the net realizable value of materials is lessthan the historical cost value of materials, enterprises must provide againstthis decline.The materials provision is used to compensate for the decline due

to the reduction in the value of materials as well as to give a true picture aboutthe company assets on the financial statement at the late year Provision fordecline in materials is the difference between the historical cost of materialsand the net realizable value of materials Provision for decline in materials isdefined for each materials item, then synthesizes them to provision formaterials

Provision for decline in inventory Account: 159

This account is to record the setting up and using the provision fordecline in inventory

Account No 159 – Provision for decline in materials

- Balance: Current materials provision

Accounting for provision for decline in materials:

159

Materials provision carried back

Materials provision recognized

1.2.5 Forms of accounting books:

According to the Decision 15/QD-BTC on the 20th of March 2006 ofthe Ministry of Finance, enterprises apply one of the five forms of accountingbooks below:

- General journal

- Ledger – Journal

- General journal voucher

- Voucher – Journal

- Accounting by software (is presented in the next section 1.2.6)

Each form of accounting books follows concrete regulations onquantity, structure, form of books, rotation, recording method and relationshipbetween accounting books

Enterprises must refer to the scale, production and business characters,managing requirement, accountant ability and the conditions of enterprise tochoose a suitable form of accounting books

1.2.5.1 General Journal accounting form:

The main feature of the general journal accounting form is alltransactions must be recorded in journals, focusing on general journals,following the time and content of transactions Then, the data in journals istransferred to ledgers according to transactions

The general journal accounting form includes books below:

- General journal, Special journal;

Diagram 8: Provision for decline in materials

- Detail accounting books and cards.

1.2.5.2 Ledger - Journal accounting form:

The main feature of the Ledger - Journal accounting form is alltransactions must be recorded in Ledger – Journal according to the time andcontent of transactions Due to list of vouchers, accountant synthesizes them

to record to Ledger – Journal

The Ledger - Journal accounting form includes books below:

- Ledger - Journal;

- Detail accounting books and cards

1.2.5.3 General journal voucher accounting form:

The main feature of the general journal voucher accounting form: due

to “general journal voucher” or list of vouchers, accountant synthesizes them

to record to synthetic accounting book according to:

- Time on the general journal voucher registered book;

- Content on the ledgers

The general journal voucher accounting form includes books below:

- General journal voucher;

- General journal voucher registered book;

- Detail accounting books and cards

1.2.5.4 Voucher – Journal accounting books:

The main feature of the voucher journal accounting form:

- Collect and systematize transactions according to credit accountscombine with analyzing those transactions according to debit correspondingaccounts

- Combine recording transactions follow to the time withsystematizing those transactions follow to the economic content (account)

- Co-ordinate synthetic and detail accounting in the same accountingbook and the same recording process

- Use forms printed the corresponding accounts, norms of financial,economic management and financial statements

The Voucher - Journal accounting form includes books below:

- Voucher - Journal;

- Lists;

- Detail accounting books and cards

1.2.6 Accounting software for materials accounting:

Accounting software is application software that records and processesaccounting transactions within functional modules such as accounts payable,accounts receivable, inventory, payroll, and trial balance It functions as anaccounting information system

As the business is growing and expanding the need of the business isalso growing with the expansions The accounting software has become aneed for the business in order to maintain and sustain in the business for thelonger period of time There are many advantages of the accounting softwarefor the business

First of all it helps the users to save their precious time when they usespecial accounting software

The second, it provides a smooth and systematical process of managingday to day records of the business so that the business can easily handle Itdecreases the complications of the business when the proper use ofaccounting software is in process

There are many benefits of using accounting software It helps theauditors to conduct the audit more quickly and easily So the accountants areunable to frauds in the accounting system and this helps the business tomonitor all the activities of the business

However, to get better results from applying software in accounting,enterprises need to be good at management the original document system andthe applied accounting software also has to be flexible with each enterprise’scondition In addition, the accounting software needs to be complied withcurrent regulations and principles of the State

Accountant’s responsibility in using the accounting software:

In order to organize materials accounting in enterprise to satisfy fullyand quickly the demands for materials information, accountants need to carryout their duties as follows:

- Encoding each materials

- Organize involved documents to input data into the system

- Building up the voucher system and account system

- Organizing accounting book system

Nowadays, many foreign companies and some Vietnamese companiesare applying a model management system for whole company includingaccounting works This system has being mentioned a lot in newspapers aswell as conferences as ERP system (Enterprise Resources Planning system).ERP has many advantages not only for accounting but also for companymanagement Nissei Electric Company is one of the companies applying ERPsystem; therefore, in two Chapters after, the thesis presents more clearly aboutaction and advantages of ERP and lessons for Vietnamese companies indeploying this management system

In summary, in chapter 1, I present some issues about characteristic

and position of materials, some ways to classify materials, measurement ofmaterials, managing requirement and accounting duty for materials The mainpurpose of this part is to analyze deeply some issues on detail accounting andsynthetic accounting of materials… The content of chapter 1 will be atheoretically basis for studying materials accounting materials in details andaccounting system in general as well as making a proposal for development ofNissei Electric Hanoi Co.,Ltd

CHAPTER 2MATERIALS ACCOUNTING

IN NISSEI ELECTRIC HANOI COMPANY 2.1. Nissei group and Nissei Electric Hanoi Co.,Ltd:

Nissei Electric Hanoi Co.,Ltd is a company of Nissei group To helpyou have an overview of Nissei Electric Hanoi, the thesis would like torepresents about Nissei group the first

2.1.1 Nissei group:

Forerunner of Nissei group is Nissei Electric Co.,Ltd (N.E.J) N.E.Jwas found on 26th May 1969, their head office is at 1509 Okubo-cho,Hamamatsu-city, Shizuoka-pref.432-8006 Japan with the legal capital is1,776.66 million yen (approximate 15,545,775 USD)

N.E.J’s establishment pertains to era’s necessaries, era of development

of science and technology, model machineries and equipments With theirpotentiality and human resources, N.E.J has been developing and controllingthe world market gradually

Lines of business of N.E.J are Sales, Production and R&D:

- Silicone rubber insulated wire, cable & tubing;

- Fluorocarbon polymer insulated wire, cable & tubing;

- Optical cable, bundles & variations;

- Silicone rubber extruded products-packing; rubber conductors &EMI parts, etc;

- Heating element wire & heating assembly units;

- Units & parts for OA equipments;

- Related products for communication equipments, etc

While many companies move their production bases to "world factory"China or the East Asia region, Nissei reconsiders "Japan's role" and places thedevelopment block in Japan They always think of customer satisfaction sothat they maintain the thorough education of employees in any region Theyhave been achieving "cost reduction" and "reduced delivery time" Since theymake Japan as their home base for research, develop technologies and

eliminating production bottleneck, and then they move their productionoverseas, they can make the best use of the regional advantages and promotethe global-scale development.

Development history:

1969 May Established the company, capitalized at 10 million yen

1970 Sep Started to produce glass-braid tubing

1971 May Started to produce silicone rubber electric wire 　　　

1971 Nov Registered as a production establishment based on Section 3 of

Electrical Appliance and Material Control law

1976 Oct Started to produce fluorocarbon electric wires

1982 Jul Started to produce high-frequency coax cable

1983 Nov Started to produce fluoric rubber electric wires 　　　

1983 Jun Started to produce optical fiber components

1985 Jun Started to produce fluorocarbon rolls

1989 Dec Started to produce fixing units

1995 Dec Started to produce multi-component optical fiber

1996 Nov Obtained the ISO 9001 certification

2000 May Established the customer service center

2000 Nov Obtained the ISO 14001 certification

CO., LTD

Nissei uses software BPCS to manage whole group BPCS is anacronym for Business Planning and Control System, BPCS was developed bySystem Software Associates (SSA), BPCS is used to control the operations ofmanufacturing companies and is in the category of Enterprise ResourcePlanning (ERP) software BPCS of Nissei runs on the IBM system Thisdiagram describes functions of BPCS Application suite:

Diagram 2.1: Functions of BPCS software

They researched to design this software very carefully to make itsuitable for each company in the group before operating With this modelmanagement system and their endeavor, their products are various andprofessional Nissei has been developing techniques for a wide range of areasand introducing a number of products They read the trend of the times andhave all the time to try out new opportunities to expand to become the top

Manufacturing Data management

Inventory Shop floor control Master scheduling Capacity planning

Laboratory management Just in time Quality control Repetitive manufacturing

Advance process Performance measurement

Materials requirement planning (MRP)

Forecasting Master scheduling

Simulations Planner’s assistant

Capacity planning MRP

Distribution resource planning

Inventory Purchasing Billing Sale analysis

Promotions and deals Performance measurement

Customer order processing

Cost accounting Account payable

Account receivable Billing

General ledger Cash management

Multiple currencies Currency translation

Financial assistant Fixed assets

Payroll Business molding

firm in the field by acquiring innovative ideas and advanced technologies.Besides, they flexibly meet the diversified needs of customers Nissei hasbeen leading to a heightening in response time and cost-effectiveness Theycontinue to have an international perspective and redouble their efforts tomake themselves necessary to the society in the 21st century.

Therefore, it is not surprising if you see Nissei’s slogan:

DO OUR BEST, SOMETHING ONLY WE CAN DO

And their guideline is:

GENERATE IN ASIA - DISTRIBUTE TO THE WORLD

2.1.2 Nissei Electric Hanoi Company:

2.1.2.1 The foundation and development process of the company:

- Basic information:

Hanoi

Form of enterprise: Exporting - processing enterprise

Contributory capital: 100% foreign-invested capital from Japan

Number of employee: 3.200 people (until December 30, 2007)

- Functions and tasks:

Thang Long, Brother industry company and companies in Nissei group;always tries to improve for higher product quality with on-time delivery atcompetitive price;

 Updates model technology for product;

 Imports materials, spare parts and accessories used formanufacture;

 Contributes and maintains enterprise culture; creates the bestenvironment for the company and the individual (training for new comers,training on the job, training management level, etc) One of the mostnecessary activities for company is “5S activities” for working environment

- Some great landmarks of N.E.H:

2006 Jan Received the Investment license and started the 1st and 2nd

factory construction

2006 Sep The legal capital increased to 12,000,000 USD

2006 Oct Started the 1st factory operation

2006 Dec The legal capital increased to 16,000,000 USD

2007 Jun Started the 2nd factory operation

2007 Jul The legal capital increased to 30,000,000 USD

2008 Jan Started the 3rd factory operation

N.E.H deals in various products so that they can meet their customers’demand in a wide range of industry

2.1.2.2 The characteristic of product organization

N.E.H’s products can be divided into

three types: HIFLON, LIKAL and LICOM

HIFLON is a generic name of Nissei

fluorocarbon polymer insulated products

Since HIFLON is excellent at thermal

resistance (withstands temperatures of from

-200 to 250 degrees centigrade) and

chemical resistance, it is often used in

diverse fields such as industrial equipments, OA equipments, etc Products ofHIFLON are:Insulated electric wire, Coaxial cable, Piping tubing: hose, Heatshrinking tubing, Roller tube for copying machines or printers; Antenna forwireless LAN, Fluid level sensor, Medical tubing

LIKAL is a generic name of Nissei silicone rubber insulated products.

LIKAL is the synthetic rubber which has outstanding stability and withstandstemperatures from -60 to 200 degrees centigrade Since LIKAL is excellent atcompression set and weather resistant, it is often used for products, whichmust be reliable for a prolonged period, such as automobile equipments, homeelectric appliances, or moldings of building materials, etc Products of LIKALare: Insulated electric wire, Shielded cable, Piping tubing: hose, Heatshrinking tubing, Bladed tubing, Roller tube for copying machines or printers,Heaters components, Extrusive molding

LICOM is a trademark of Nissei optical fiber products Commencing

with silica glass fiber products, various products are made of compound glassfiber or plastic fiber Also, by using of these fibers, N.E.H produces lightsensors, light guides for illuminations, various light source boxes, etc Products of LICOM are: Light guide, Sensor fiber, Light source box, Lightcompound communication cable

Among these products, Antenna, a

product of HIFLON line, is the one of main

products of N.E.H Antenna is one of the

products brought back the highest revenue to

N.E.H With specialization in electrical

equipments, N.E.H has been continuously

developing the quality of antenna It is used in many products such as:mobile, PC, automobile, etc…

Antenna manufacturing workshop is divided in many small sectionsspecialize in different stages of manufacturing process Code of this shop is9662

After surveying the Antenna workshop, manufacturing process can bedescribed as follows:

Diagram 2.2: Antenna manufacturing process

To manufacture antenna, N.E.H implements fourteen main steps Italways determines allowed rate of waste and the deadline for every mass-production N.E.H produces many kinds of antenna depending on customers’orders

Cables

Cut (2-3mm) Pull off the outer sheath Dip in solder

Pull off the inner sheath Dip in solder

Treated Cables

Stic k to

Cables had bankin Stick shrinkable tube

Weld, Clean and Glue label Press bankin

Press ABS (electric isulated block)

Control connector Stick protected tube and Lot No

Object Process Effect

Antenna

2.1.2.3 The characteristic of management of the company:

Due to a large scale of production, large number of labors, lots ofdepartments, workshops and kinds of products, arranging sections suitably inN.E.H is very necessary

Being 100% foreign capital company with the model managing system

by Japanese, N.E.H applies ERP system, for managing the whole company.Their BPCS software is designed suitably to characteristic of the companyand integrates data for the whole company All departments from warehouse,shops to offices in company use this software for necessary information butnot all users can control or repair it In fact, it is usually calleddecentralization system BPCS has many special automatic functions such asautomatically determining suitable type and quantity of materials forproduction and transforming data to involved sections Each department has aprivate code and users have their own passwords to enter BPCS Afterrecruitment, employee must be trained carefully to use this system BPCSlinks all sections together Therefore, they can reduce many phases and savetime as well as effort Managers can control all data of sections on the system,detect faults from users or errors of the system and give methods to deal withthese problems before it happens BPCS software is like the life-line ofN.E.H, it helps the company operating fluently and effectively In partsbelow, BPCS will be introduced more detailed in accounting department

With this management software, all works must be done in accordancewith the process and obligate to all staves in company to manage efficiently.This is the structure of N.E.H

Diagram 2.3: Structure of N.E.H

- General Director (GD): the authorized respective of the company.

Decides all issues related to daily activities of the Company base on deputy

General affairs department

Accounting

IT department

Exporting-Importing Production Managing Purchase Department Engineering department

Quality control Information engineering

Production department 4 Production department 1

Production department 5 Production department 2

Production department 6 Production department 7 Production engineering

DGD GD

DGD

GD

Section Manager

Section Manager

Section Manager

general directors’ opinion even staffs’ and labors’ reflection The GD usuallykeeps in touch with other general directors in Nissei group GD monitorsdirectly Export - Import, Production Managing and Purchase - SaleDepartment.

GD DGD monitors directly General Affair, Accounting and IT Department

- Section Manager: there are three section heads monitor directly

Engineering, Production and Production Engineering section They plan,coordinate directly and supervise actions of the sections in general

- General affairs department: offers a safe and healthy working

environment and chances of learning by training both in and outside of thecompany as well as training in Japan, provides sufficient welfare and promptsalary; duties on recruitment, personnel management, updating new lawpolicy and other administrative works

- Accounting department: collects and records all economic

transactions involved, draws financial statements monthly and suppliesaccounting information for managers, etc…

- IT department: is in large of installing, repairing and settling

information and technology problems for the company like installingcomputer and other machinery ensuring to work fluently

procedures timely and legally

- Production managing department: controls the quantity of

products according to orders on the system and the completing level thoseorders of workshops; gives solutions timely if necessary; deal with thedifferences on quantity of materials, goods…between invoice and reality orthe system

- Purchase department: contacts to customers and suppliers;

implements purchasing process suitably and legally

- Engineering section: make samples according to customers’ design

and experiments with new products that are requested from N.E.J engineeringDept; test samples and appraise trial manufacture result before massproduction; improve production process and educate for machine operators

They must be good at Japanese because they often contact to Japaneseexperts.

- Production section: manages and controls production of

workshops, quality and quantity of products

- Production engineering: deals with problems occurred in the

production process

2.1.2.4 The characteristic of accounting system of N.E.H:

Structure of accounting system of N.E.H:

Due to the requirement of the operative organization and the managingability, N.E.H accounting system is organized according to the concentrationform that has only one central accounting department

Diagram 2.4: Structure of the accounting department

At present, the accounting department of N.E.H includes:

- Chief accountant and general accountant: supplies directly all

accounting information to the director, gives suggestions of developmentalstrategy of the company such as mobilizing capital policy, investing policy;assumes general responsibility for information supplied by the accountingdepartment as well as is the general accountant who synthesizes data,assemble costs… to make financial statements

- Accountant for receivable amounts and revenue (AR): monitors and

records all receivable amounts in detail, ensures fully receiving debts; recordstimely every amount of revenue and makes detailed revenue reports;

Accountant

of bank deposit

Cashier Accountant of

salary and amounts withhold from salary

- Accountant for payable amounts, fixed assets and inventories (AP):

monitors and records all payable amounts in detail; records increasing andreducing of fixed assets timely as well as reflects their depreciation; recordsand monitors store and using materials and tool quantity, adjusts theirquantity if there is any difference between invoice and practice, etc

- Accountant for bank deposit: determines payable amounts become

due and implements transfer procedures for suppliers as well as customers (ifany)

- Accountant for bank deposit, salary and amounts withhold from employee’s salary: gives salary to employees through accounts basing on the

basic salary and the actual salary, calculates social and health insuranceamount as well as trade union fee, tabulates Board of salary settlement andchecks Board of timekeeping

- Cashier: pays cash to the domestic suppliers basing on approved

payable vouchers, daily balances the accounts everyday; makes the report ofbalance of the budget at the end of day, makes the report of cash balance atthe end of month

The accounting policy:

- Fiscal year starts on Jan 1st and ends on Dec 31st The accountingperiod is month

- N.E.H is an exporting-processing enterprise in the industry zone so

it applies VAT rate: 0% (according to the circular 32/2007/BTC-TT); theymust not pay for custom duties (according to the degree 149/2005/ND-CP)

- Tangible fixed assets accounting method:

 Evaluation principle: according to historical cost anddepreciation amount;

 Depreciation method: Straight-line method

- Inventories accounting method:

 Applying periodic raw materials system;

 Applying perpetual tools, spare-parts system and other materials;

 Determining cost of used material according to average method;

 Spare-parts are allocated for twelve months

Form of accounting books:

N.E.H applies General Journal accounting form and uses accountingsoftware BPCS for accounting process

Diagram 2.5: Accounting process

BPCS software is used for all accounting parts Some accounting partssuch as materials, revenue accounting are implemented entirely on BPCS.Other accounting parts such as settlement over bank accounts, fix assets orspare-parts accounting; the accountant must input the data by hand into theBPCS

Screen 1 of BPCS software:

Original documents

General Ledger

General Journal

Subsidiary accounting cards and books

Financial Statement

Trial balance statement

BPCS software