Two foreign-currency advances were received for an export and the goods were shipped later: at which rates is revenue recorded and how is the remaining receivable remeasured?
Half of the contract amount arrived in advance in two parts, the rest after shipment. One sale is recorded at three different rates: each advance at the rate of its own day, the remaining part at the rate of the shipment day. Why the advance is not remeasured at month-end while the remaining receivable is: the full chain using the example of a knitwear company.
"Uychi Trikotaj" LLC signed a contract with a foreign wholesale buyer for children's clothing worth 50 000 US dollars. The payment terms have three stages: 15 000 dollars after signing, another 10 000 dollars two weeks later, and the remaining 25 000 dollars after the cargo is shipped. Having read the contract, chief accountant Ziyoda realised that one sale would be recorded in the books at three different rates, and put every step into a table in advance.
The general accounting for the contract and the export procedure is covered in a separate article on the site. Here there is only one question: how is an export for which foreign currency was received in advance accounted for.
Which documents are prepared?
To choose the rate and the date correctly, the paperwork must first be in place. Ziyoda collected the following in the contract folder:
| Document | Why it is needed in the accounts | Basis |
|---|---|---|
| The contract or a certified extract from it | It shows the payment stages and whether the advance was received without an obligation to repay | Tax Code, Article 261, item 1 of part one; NAS No. 22, paragraphs 9 and 10 |
| The bank document (statement) for each payment | Date of the currency transaction = the date the money arrived in the bank account; the rate is taken for that day | NAS No. 22, appendix |
| The cargo customs declaration on the basis of which the goods were exported | Confirms that the goods were released under the export procedure; the list of documents for export clearance is set by the Cabinet of Ministers | Tax Code, Article 261, item 2 of part one; Customs Code, Article 31 |
| Accompanying documents of the goods: commercial documents (the invoice, i.e. the tax invoice; loading and packing lists; and other documents confirming that the transaction was concluded) and transport documents (a bill of lading, a waybill or another document confirming that a contract of carriage exists) | They show the date the cargo was handed over to the carrier, which is needed to support the revenue date (practical tip) | Customs Code, Article 9 |
| The settlement document presented to the buyer | Dt 4010 – Ct 9010 is recorded for the amount in this document; the advance is also offset when this document is presented | NAS No. 21, paragraph 383, line 1; paragraph 174, line 5 |
At which rate is an advance received in foreign currency recorded?
Under paragraph 7 of NAS No. 22, a foreign-currency transaction is recognised at the Central Bank rate on the date it is carried out. The appendix to the standard states the transaction date for bank accounts precisely: the date the money arrived in the bank account. So each advance is recorded at the rate of the day it arrived.
All dates and rates in the example (hypothetical):
| Date | Event | Currency, dollars | Rate, soum | In soum |
|---|---|---|---|---|
| 5 September | 1st advance arrived | 15 000 | 12 400 | 186 000 000 |
| 19 September | 2nd advance arrived | 10 000 | 12 450 | 124 500 000 |
| 30 September | Month-end | – | 12 480 | the advance is not remeasured |
| 10 October | Cargo shipped | 50 000 | 12 520 | revenue calculated below |
| 31 October | Month-end, remaining receivable | 25 000 | 12 560 | +1 000 000 |
| 18 November | Remaining payment arrived | 25 000 | 12 470 | 311 750 000 |
Both advances sit on account 6310 for a total of 186 000 000 + 124 500 000 = 310 500 000 soum. Under paragraph 271 of NAS No. 21, analytical records of advances received are kept separately for each type of advance. Ziyoda went one step further: she recorded each advance on a separate line, with its own rate. Later this turns out to be very useful.
Is the advance remeasured at month-end?
No. Paragraph 9 of NAS No. 22 includes foreign-currency receivables and payables in monetary items, but separately excludes advances received without an obligation to repay. Paragraph 10, in turn, directly classifies advances received in advance for goods without an obligation to repay as non-monetary items. A non-monetary item is recorded once at the rate on the transaction date and is not retranslated afterwards, even if the rate changes.
On 30 September the rate rose to 12 480 soum. What would have happened if Ziyoda had remeasured the advance as well?
| Indicator | Calculation | Result, soum |
|---|---|---|
| Advance at the new rate | 25 000 × 12 480 | 312 000 000 |
| Carrying amount of the advance | 186 000 000 + 124 500 000 | 310 500 000 |
| Incorrect "exchange difference" | 312 000 000 − 310 500 000 | 1 500 000 loss |
This 1 500 000 soum loss would be fictitious: the company does not return dollars to the buyer, it delivers goods. So no entry is made to 6310 on 30 September.
There are two subtle points:
- The currency itself is remeasured. If the dollars that came in as an advance sit on account 5210, this is foreign currency in the bank, i.e. a monetary item (paragraph 9). It must be remeasured at month-end. This example follows only the settlements with the buyer; remeasurement of the currency balance in the bank is separate.
- The wording of the contract matters. The standard excludes from monetary items only an advance received "without an obligation to repay". Assess together with a lawyer on what terms the advance was received under the contract, and record the conclusion in the accounting policy (practical tip).
How is revenue split across rates when the cargo is shipped?
On which day revenue is recorded is decided by paragraph 16 of NAS No. 2: the "significant part of the risks and rewards of ownership of the goods" must have passed to the buyer, and four more conditions must be met. In the example, under the contract this happened on 10 October, the day the cargo was handed over to the carrier.
The rate is set by paragraph 12 of NAS No. 22: if goods are sold against an advance received in foreign currency, the part of revenue equal to the advance is recognised at the rate on the date the advance was received. Since the advance came in twice, two different rates are used. The part not covered by an advance is recorded at the rate on the day revenue is recognised (paragraph 7 and the appendix).
| Part of revenue | Dollars | Rate, soum | In soum |
|---|---|---|---|
| Against the 1st advance | 15 000 | 12 400 | 186 000 000 |
| Against the 2nd advance | 10 000 | 12 450 | 124 500 000 |
| Part without an advance | 25 000 | 12 520 | 313 000 000 |
| Total revenue | 50 000 | – | 623 500 000 |
A common mistake: recording all 50 000 dollars at the rate of the shipment day. Revenue would then be 50 000 × 12 520 = 626 000 000 soum, and it would be shown 2 500 000 soum higher than the actual amount.
On the shipment day revenue and the advance are brought together into one receivable: 623 500 000 soum is debited to 4010, and the advance of 310 500 000 soum is offset against it. The balance is 313 000 000 soum, which is exactly 25 000 × 12 520. In other words, only the 25 000 dollars that really have to be collected remain on 4010. The production cost of the goods is 470 000 000 soum (hypothetical).
How is the remaining receivable remeasured and closed?
The buyer's debt for the part without an advance is now an ordinary foreign-currency receivable, i.e. a monetary item. It is remeasured at the end of every month (paragraph 8), and the difference goes to income or expense from financial activities (paragraph 11).
31 October. 25 000 × (12 560 − 12 520) = +1 000 000 soum. The balance on 4010 reached 314 000 000 soum.
18 November. 25 000 × 12 470 = 311 750 000 soum arrived at the bank. Difference: 311 750 000 − 314 000 000 = −2 250 000 soum negative exchange difference.
Journal entries for the whole chain:
| Date | Transaction | Debit | Credit | Amount, soum | Basis (NAS No. 21) |
|---|---|---|---|---|---|
| 5 September | 1st advance arrived in the foreign currency account | 5210 | 6310 | 186 000 000 | Paragraph 229, line 8; paragraph 272, line 1 |
| 19 September | 2nd advance arrived in the foreign currency account | 5210 | 6310 | 124 500 000 | Paragraph 229, line 8; paragraph 272, line 1 |
| 10 October | Settlement document presented to the buyer (revenue) | 4010 | 9010 | 623 500 000 | Paragraph 383, line 1; paragraph 174, line 1 |
| 10 October | Both advances offset | 6310 | 4010 | 310 500 000 | Paragraph 174, line 5; paragraph 272, line 2 |
| 10 October | Cost of goods sold | 9110 | 2810 | 470 000 000 | Paragraph 390, line 1 |
| 31 October | Positive exchange difference on the remaining receivable | 4010 | 9540 | 1 000 000 | Paragraph 421, line 4 |
| 18 November | The remaining 25 000 dollars arrived | 5210 | 4010 | 311 750 000 | Paragraph 229, line 2 |
| 18 November | Negative exchange difference | 9620 | 4010 | 2 250 000 | Paragraph 427, line 3 |
Check: on 4010 debit 623 500 000 + 1 000 000 = 624 500 000; credit 310 500 000 + 311 750 000 + 2 250 000 = 624 500 000. Balance zero.
| Final indicator | Soum |
|---|---|
| Revenue (9010) | 623 500 000 |
| Net exchange difference (1 000 000 − 2 250 000) | −1 250 000 |
| Total money received from the buyer (186 000 000 + 124 500 000 + 311 750 000) | 622 250 000 |
The sum of revenue and the net exchange difference (623 500 000 − 1 250 000) equals the money received: the account is closed. The exchange difference does not change revenue; it appears separately in the financial result.
If the cargo is shipped in two lots, to which lot is the advance assigned?
NAS No. 22 does not answer this question: paragraph 12 only says "the part equal to the advance is at the rate on the advance date", and does not say how several advances are allocated to several lots. For example, if the first lot is worth 20 000 dollars, whether 15 000 dollars of it are recorded against the 1st advance and 5 000 dollars against the 2nd advance, or in some other order, is decided by the organisation itself. Write the chosen order into the accounting policy and apply it consistently in all contracts (practical tip).
Practical tip
- Keep each advance on a separate line. If the amount, arrival date and rate are on one line, splitting revenue on the shipment day takes one minute (practical tip).
- Month-end checklist: foreign-currency receivables on 4010 and currency on 5210 are remeasured; advances received without an obligation to repay on 6310 are not remeasured (NAS No. 22, paragraphs 8, 9 and 10).
- Check on the shipment day: after the advance is offset, the balance on 4010 must equal "dollars remaining without an advance × the shipment-day rate". In the example: 25 000 × 12 520 = 313 000 000 soum. If it does not match, the advance or the revenue was recorded at the wrong rate (practical tip).
- Do not add the exchange difference to revenue. The amounts on 9540 and 9620 are a result of financial activities; revenue on 9010 does not change after the shipment day (NAS No. 22, paragraph 11).
The VAT side of export, i.e. the zero rate and crediting input VAT, is covered in a separate article.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
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?
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?
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?
Under the processing in the customs territory regime, a knitwear company obtained 21 tonnes of knitted fabric from 25 tonnes of foreign yarn (hypothetical). By the definition in Article 11 of the Customs Code, what is the yield rate of the processed product?
Two countries took part in producing a good. Under Article 360 of the Customs Code, which of the following is a criterion of sufficient processing of goods?
Answered: 0 / 50 of 5 correct
All tests →See also
- Import and export section
- Export procedure (code 10): how are the revenue from goods shipped to a foreign buyer and the foreign-currency receivable 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?
- When the exchange rate changes, where is the exchange difference recorded in the accounts?
- Advance received
- Monetary items
- Non-monetary items
- 6310 Advances received from buyers and customers – current portion
Sources
- NAS No. 22 "Accounting for Assets and Liabilities Denominated in Foreign Currency" (Order No. 201 of the Minister of Economy and Finance of 6 December 2024, registered by the Ministry of Justice on 19 December 2024 under No. 3587), paragraphs 7, 8, 9, 10, 11 and 12 and the appendix · Central Bank rate on the transaction date; monthly remeasurement of monetary items; advances received without an obligation to repay are not monetary items and, as non-monetary items, are not retranslated; the exchange difference is income (expense) from financial activities; revenue for the part sold against an advance received is at the rate on the date the advance was received; the appendix covers bank account transactions and the date of revenue
- NAS No. 2 "Revenue from Main Business Activities", paragraph 16 · conditions for recognising revenue from the sale of goods (transfer of the significant part of risks and rewards to the buyer and four other conditions)
- NAS No. 21 "Chart of Accounts for Accounting of Business Entities and Instructions for Its Application": paragraph 174 (lines 1 and 5), paragraph 229 (lines 2 and 8), paragraph 271, paragraph 272 (lines 1 and 2), paragraph 383 (line 1), paragraph 390 (line 1), paragraph 421 (line 4), paragraph 427 (line 3) · Dt 5210 – Ct 6310 advance received; Dt 4010 – Ct 9010 revenue; Dt 6310 – Ct 4010 offset of the advance; Dt 9110 – Ct 2810 cost of sales; Dt 4010 – Ct 9540 positive exchange difference; Dt 5210 – Ct 4010 remaining payment; Dt 9620 – Ct 4010 negative exchange difference; analytical records on 6300 are kept separately for each type of advance
- Tax Code of the Republic of Uzbekistan, Article 261 (items 1 and 2 of part one) · the contract and the cargo customs declaration on the basis of which the goods were exported, as documents confirming export
- Customs Code of the Republic of Uzbekistan (approved by Law No. ZRU-400 of 20 January 2016), Articles 9 and 31 · accompanying documents of goods: commercial and transport documents; the list of documents for the export customs procedure is set by the Cabinet of Ministers
- Example, company name, exchange rates and amounts · compiled by the author, hypothetical (not actual Central Bank rates)