Export procedure (code 10): how are the revenue from goods shipped to a foreign buyer and the foreign-currency receivable recorded in the accounts?
The goods have crossed the border, but the dollars have not arrived yet. On which day and at which rate is revenue recorded, why is the receivable remeasured at month-end, and where does the exchange difference go when the money arrives: a full calculation using the example of a company exporting towels.
"Oqtepa Tekstil" LLC shipped towels worth 20 000 US dollars to a chain of shops in Almaty. The truck crossed the border, the declaration shows procedure code "10", but under the contract the money will arrive a month later. Chief accountant Zarina faced three questions: when to record the revenue, which rate to use, and what to do if the dollar rate changes before the money arrives.
What does the export procedure mean from the customs point of view?
Under Article 29 of the Customs Code, in export Uzbek goods are taken out of the customs territory without an obligation to bring them back. Once the goods actually leave across the border, they lose the status of Uzbek goods. In the cargo customs declaration this procedure is marked with code 10 (Instruction on the Procedure for Completing the CCD, Annex 3).
There are two main conditions for placing goods under the procedure: paying customs payments and complying with economic policy measures (Article 30). The same article contains another subtle requirement: the goods must leave in the condition they were in on the day the declaration was registered, except for natural wear or losses under normal transport and storage. The list of documents needed for clearance is set by the Cabinet of Ministers, and permits, if any, are checked by the customs authority independently in its own information system (Article 31).
The conclusion for the accountant: code "10" means the goods will not come back, that is, this is a sale. But the revenue date is decided not by the declaration but by the terms of the contract.
On which day is revenue recognised?
Paragraph 16 of NAS No. 2 sets five conditions for recognising revenue from the sale of goods. In export the one that causes the most disputes is the first: the significant part of the risks and rewards of ownership of the goods must have passed to the buyer. The others: the seller must have lost management and control over the goods, the amount of revenue and the costs of the transaction must be reliably measurable, and it must be probable that economic benefits will flow.
The point at which risk passes is stated by the delivery term in the contract. So Zarina first opens the contract: the "Oqtepa Tekstil" contract says risk passes when the cargo is handed over to the carrier at the border (the example is hypothetical). So revenue is recognised on 15 October, the day the cargo left across the border.
| Document | What it gives the accountant |
|---|---|
| Contract (delivery term) | When risk passes, i.e. the revenue date |
| Cargo customs declaration (procedure 10) | That the goods left for sale, on condition of not returning |
| Transport document | When and to whom the cargo was handed over |
| Invoice | Amount in foreign currency and payment term |
At which rate is it recorded and which journal entry is made?
A foreign-currency transaction is recognised at the Central Bank rate on the date the transaction is carried out (NAS No. 22, paragraph 7; the appendix gives the date for revenue: the date revenue is recognised). The hypothetical rates in the example:
| Date | Event | Rate (hypothetical), soum |
|---|---|---|
| 15 October | Cargo left, revenue recognised | 12 600 |
| 31 October | Month-end, remeasurement | 12 650 |
| 20 November | The buyer transferred the money | 12 580 |
15 October. Revenue: 20 000 × 12 600 = 252 000 000 soum. The production cost of the towels is 180 000 000 soum (hypothetical).
| Transaction | Debit | Credit | Amount, soum | Basis (NAS No. 21) |
|---|---|---|---|---|
| Settlement document presented to the buyer | 4010 | 9010 | 252 000 000 | Paragraph 383, line 1 |
| Cost of finished goods sold written off | 9110 | 2810 | 180 000 000 | Paragraph 390, line 1 |
What happens if the rate changes before the money arrives?
The buyer's dollar debt is a monetary item: there is a right to receive it in a fixed amount of currency (NAS No. 22, paragraph 9). Monetary items are remeasured every month at the rate on the last date of the month (paragraph 8), and the difference becomes income or expense from financial activities (paragraph 11).
31 October. 20 000 × (12 650 − 12 600) = +1 000 000 soum. The receivable increased in soum, this is a positive exchange difference.
20 November. 20 000 × 12 580 = 251 600 000 soum arrived at the bank. The balance on 4010, however, was 252 000 000 + 1 000 000 = 253 000 000 soum. Difference: 251 600 000 − 253 000 000 = −1 400 000 soum, this is a negative exchange difference.
| Transaction | Debit | Credit | Amount, soum | Basis (NAS No. 21) |
|---|---|---|---|---|
| 31 October: positive exchange difference | 4010 | 9540 | 1 000 000 | Paragraph 421, line 4 |
| 20 November: receipt to the foreign currency account | 5210 | 4010 | 251 600 000 | Paragraph 229, line 2 |
| 20 November: negative exchange difference | 9620 | 4010 | 1 400 000 | Paragraph 427, line 3 |
As a result the buyer's balance on 4010 fell to zero. The net exchange difference for the two months: 1 000 000 − 1 400 000 = −400 000 soum loss. Note: this loss does not reduce revenue. The 252 000 000 soum on 9010 does not change; the exchange difference appears separately, in the result of financial activities.
What if the buyer paid in advance?
Suppose the Almaty buyer transferred a 5 000 dollar advance before shipment. Under paragraph 12 of NAS No. 22, revenue for the part sold against an advance received in foreign currency is recognised at the rate on the date the advance was received. If the advance was received without an obligation to return it, it is a non-monetary item and is not remeasured. So:
- the 5 000 dollar part: at the rate on the advance date, not remeasured;
- the remaining 15 000 dollars: at the rate on the day the cargo left, remeasured at month-end.
Offsetting the advance at shipment is recorded with paragraph 174, line 5 of NAS No. 21: Dt 6310 – Ct 4010.
This article covers the accounting for exports. Check VAT and other tax issues of exports separately against the current version of the Tax Code.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
VAT payer "Nurafshon metall" made products from a foreign customer's raw material placed under the processing within the customs territory procedure. The service fee excluding VAT is 45,000,000 soums. The products were not taken out: the customer placed them under the release for free circulation (import) procedure. How much VAT is charged on the service fee?
Samarqand Quruq Meva LLC is due to receive USD 8,000 from a foreign buyer under an export contract: the receivable is carried at the hypothetical rate of 12,600 soums on the date of sale. Under another contract an advance of USD 3,000, with no obligation to refund, was received from another buyer and recorded at the rate of 12,500 soums. At the end of the month the Central Bank rate was a hypothetical 12,700 soums. How much exchange difference income is recognized at month end under NAS No. 22?
Sirdaryo Agro LLC imported a combine harvester belonging to a foreign lessor under the temporary import customs regime. Before the period expires it wants to hand the combine over for use to the Baxmal Dala farm. When is this permitted under Article 67 of the Customs Code?
A textile company placed its products under the export customs regime. Under the Customs Code, when do the goods lose the status of Uzbek goods?
An exporter placed a consignment under the customs warehouse procedure in order to ship it later in parts. Under Article 95 of the Customs Code, which of the following may be done in the warehouse with notice to the customs authority?
Answered: 0 / 50 of 5 correct
All tests →See also
- Import and export section
- What do the procedure, transport and delivery terms codes in a cargo customs declaration tell an accountant?
- When the exchange rate changes, where is the exchange difference recorded in the accounts?
- An advance was paid to a foreign supplier in foreign currency and the goods arrived later: at which rate are they recorded?
- Customs procedure
- Exchange difference
- Monetary items
- 4010 Receivables from buyers and customers
Sources
- Customs Code of the Republic of Uzbekistan (approved by Law No. ZRU-400 of 20 January 2016), Articles 29, 30 and 31 · definition of the export procedure and loss of the status of Uzbek goods; conditions for placement (customs payments, economic policy measures) and the condition of the goods; the list of documents is set by the Cabinet of Ministers, the customs authority checks permits itself in its information system
- Instruction on the Procedure for Completing the Cargo Customs Declaration (registered by the Ministry of Justice under No. 2773), Annex 3 "Classifier of Customs Procedures" · Export procedure code: 10
- NAS No. 2 "Revenue from Main Business Activities", paragraph 16 · the five conditions for recognising revenue from the sale of goods, the first being the transfer of the significant part of risks and rewards to the buyer
- NAS No. 22 "Accounting for Assets and Liabilities Denominated in Foreign Currency", paragraphs 7, 8, 9, 10, 11 and 12 and the appendix · Central Bank rate on the transaction date; monthly remeasurement of monetary items; a foreign-currency receivable is a monetary item; the exchange difference is income (expense) from financial activities; the part covered by an advance received is at the rate on the advance date; date of settlement of the debt
- NAS No. 21 "Chart of Accounts for Accounting of Business Entities and Instructions for Its Application": paragraph 174 (lines 1 and 5), paragraph 229 (line 2), paragraph 383 (line 1), paragraph 390 (line 1), paragraph 421 (line 4), paragraph 427 (line 3) · Dt 4010 – Ct 9010; Dt 6310 – Ct 4010; Dt 5210 – Ct 4010; Dt 9110 – Ct 2810; positive exchange difference Ct 9540; negative exchange difference Dt 9620
- Example, company name, exchange rates and amounts · compiled by the author, hypothetical