Where are freight, insurance, broker and certificate costs recorded in an export, and how do the delivery terms change the seller's profit?

"Sherobod Don" LLC in Surkhandarya cleans, sorts and packs mung beans into sacks. A wholesale buyer in Astana sent two different prices for 18 tonnes of mung beans. The first is lower: you hand the cargo over at the warehouse in Denov to a carrier hired by the buyer, and he sorts out the rest himself. The second is higher: the seller pays the freight to Astana and the insurance in transit. Director Jasur aka asked chief accountant Malika opa two things: where do these costs go in the books, and which offer leaves the company more money?

Are export costs added to the cost of the product?

No. Paragraph 36 of NAS No. 4 excludes from the production cost of products selling (distribution) expenses, general (administrative) expenses of managing the organisation, other operating expenses, expenses on financial activities and extraordinary losses. The cost of the mung beans was already formed when they entered the warehouse in finished form; every soum spent on getting them to the buyer is now a selling expense.

NAS No. 21 provides a separate account for such costs: 9410 "Selling expenses". Paragraph 407 includes in this account the costs of employees and departments engaged in delivering products to the buyer, loading them onto vehicles and marketing. At the end of the period 9410 is closed not to the warehouse but directly to 9910 "Final financial result (profit or loss)" (paragraph 408). So an export cost reduces the profit of that same month.

For an importer's accountant the picture is the reverse. Paragraph 15 of NAS No. 4 lists the costs included in the cost of purchased inventories, and among them are customs duties and fees, costs of certification and testing for compliance with technical specifications, and transport and procurement costs of bringing the inventories to their location. In an export, however, costs with the same names (certificate, freight, clearance) are incurred to sell finished products, so they become period expenses.

Which documents are drawn up?

The documents customs requires for the cargo to cross the border and the documents that support the expense in the books are separate groups.

For customs. Article 9 of the Customs Code divides the accompanying documents that travel with the goods into two types:

• commercial documents: the invoice, the shipping list, the packing list, and other documents used to confirm that a transaction (in foreign trade or other activity) relating to moving the goods across the customs border has been concluded;
• transport documents: the bill of lading, the waybill, and any other document confirming that a contract of carriage exists and travelling with the cargo.

The full list of documents needed for clearance under the export procedure, under Article 31, is set by the Cabinet of Ministers. That is why we do not repeat the list here: check the current one with your broker. The declaration itself is the CCD, and the delivery terms are shown in it with the Annex 7 code (see below).

For the books (practical tip). Keep two documents ready for every cost line: the contract with the service provider (the carrier, broker, insurer or certificate-issuing organisation) and its invoice. For insurance there is also a policy. The basis for the customs fee and duty is the payments section of the CCD and the payment document.

Which journal entry records each export cost?

In the table below each pair is taken from a line of the model table in NAS No. 21. The "Comment" column is the author's conclusion.

A short note on customs payments. Under Article 290 of the Customs Code, export duty is paid when the goods are taken out of the customs territory, and Article 291 includes customs clearance among the actions for which a fee is charged. We do not state the rate or the fee amount in this article: the actual amount appears in the payments section of the CCD, check it against the current document.

The difference between 9410 and 9430 does not affect net profit: both are period expenses and are closed to 9910 (paragraph 412, line 25). The difference is only in the line of the statement: selling expenses or other operating expenses.

How do the delivery terms show which costs stay with the seller?

In Annex 7 to the Instruction on the Procedure for Completing the CCD, each delivery term is written with a numeric and a letter code. The terms in the two offers Jasur aka received:

The name itself gives a hint: term B says "carriage and insurance paid". But who pays for what and at which point the risk passes to the buyer is written in the contract text and in the Incoterms edition it refers to, so the accountant does not stop at the code alone. All 16 terms and their codes are given in a table in a separate article on the site (see the link below).

The rule for the accountant is simple:

• every cost that, under the terms and the contract, stays with the seller is recorded on 9410 (fees on 9430);
• a cost paid by the buyer does not appear in the seller's books at all, and it is not in the price either.

The second effect of the terms is on the revenue date. Under paragraph 16 of NAS No. 2, the first condition for recognising revenue from the sale of goods is that the main part of the risks and rewards of owning the goods has passed to the buyer. Both "Sherobod Don" contracts state that the risk passes on the day the cargo is handed to the first carrier in Denov (the example is hypothetical). So in both offers the revenue is recorded on the same day; the difference is only in the price and the costs.

Example: which offer leaves more profit?

All figures are hypothetical, compiled by the author. The rate on the day of shipment: 1 US dollar = 12 430 soum. The production cost of 18 tonnes of mung beans: 1 008 000 000 soum.

The customs clearance fee is the same under both terms, so it is not included in the table: it reduces both results by the same amount and does not change the comparison. "Profit from sales" here is the result before tax and other general expenses.

Calculation:

• price difference: 116 500 − 108 000 = 8 500 dollars, i.e. 8 500 × 12 430 = 105 655 000 soum;
• additional cost falling on the seller under term B: 68 500 000 + 5 900 000 = 74 400 000 soum;
• advantage of B: 105 655 000 − 74 400 000 = 31 255 000 soum (the same as 360 695 000 − 329 440 000).

Conclusion: this time the more expensive offer is more profitable. But it is worth knowing the threshold too: the additional cost is 74 400 000 soum, which at a rate of 12 430 soum is about 5 986 dollars. If the buyer added less than that for term B, offer A would leave more profit.

Journal entries for offer B (soum):

The buyer's dollar receivable is remeasured until the money arrives, and the exchange difference appears separately, in the result of financial activities. This part works the same way under both terms; it is shown in detail in the "Export procedure (code 10)" article above.

Practical tip

The following are the author's practical recommendations (practical tip), not a regulatory requirement:

• When comparing offers, calculate the break-even markup. Add up in soum all the costs that pass to the seller and divide by the expected rate on the shipment day. If the buyer adds more than that, the more expensive term is profitable; if less, the cheaper one.
• Keep a separate cost card for each export batch. If you keep 9410 analytics by contract number, at the end of the month you can see at a glance how much profit each batch brought.
• Ask the carrier and the broker for the invoice in the same month the cargo left. A late document pushes the expense into another month, and month-on-month results become impossible to compare.
• Compare the terms in the contract, the CCD and the carrier's document. If the Annex 7 code in the CCD does not match the term in the contract, contact the broker before recording the expense.
• Check the tax question separately. This article covers accounting; look at VAT and corporate profit tax questions on exports separately under the current version of the Tax Code.