Value added tax (VAT) is one of the two types of tax that is collected on consumption. The other type of consumption tax is sales tax. Value added tax is the most common type of consumption tax and is collected in European Union Countries, India, Mexico and most of the other countries of Latin America, New Zealand, Australia, Japan, Russia and in many other countries including Turkey. Sales tax is collected in the United States of America.

 

      There is a very important difference between value added tax and sales tax. Value added tax is collected at each stage up to the end consumer. For example, manufacturer pays value added tax when it buys inputs such as raw materials, energy, and other services (transportation, maintenance and repair, advertisement, etc.), wholesaler pays value added tax when it buys finished goods from the manufacturer, retailer pays value added tax when it buys merchandise from the wholesaler, end consumer pays value added tax when he/she buys merchandise from the retailer. While value added tax is collected at each stage, sales tax only collected at the last stage from the end consumer.

 

            In Turkey, when goods or services are sold, value added tax is collected. Value added tax is also collected when goods or services are imported. Seller receives the value added tax; buyer pays the value added tax. If goods are imported, importer pays the value added tax to the customs. Import of services requires a different procedure that is not presented in this text. Value added tax is accrued when the goods are delivered and the services are provided. Receipt and payment of cash may occur later, but the value added tax is accrued at the time of delivery of goods or services. In other words, value added tax is accrued whenever an invoice is issued. An invoice must be issued when the goods are delivered and services are provided.

 

      We have studied how value added tax is recorded when a firm makes a sale or a purchase. Remember; when a firm buys goods or services the value added tax paid (or that will be paid if the payment will be made later) is recorded as VAT deductible. In a purchase, the amount of VAT is debited to VAT deductible. When a firm makes a sale the value added tax received (or that will be received if the money will be received later) is recorded as VAT payable. In a sale, the amount of VAT is credited to VAT payable. We can say that VAT payable is the twin of domestic sales. Because, whenever a domestic sale is made, value added tax is accrued. Let’s remember how these records are made:

 

      The company bought merchandise inventory costing 60,000 lira + 8 % VAT and gave a three-month forward-dated check. The accounting record of this transaction is as follows:

     

	Debit	Credit
Merchandise inventory	60,000
VAT deductible	4,800
Notes payable		64,800

 

      As you see, the amount of VAT that will be paid is debited as VAT deductible.

 

      The company made sales amounting 30,000 lira + 18 % VAT and received a 45-day forward-dated check. The cost of goods sold is 22,000 lira. The accounting record of this transaction is as follows:

     

	Debit	Credit
Notes receivables	35,400
Domestic sales		30,000
VAT payable		5,400
Cost of merchandise sold	22,000
Merchandise inventory		22,000

 

      As you see, the amount of VAT that will be received is credited as VAT payable.

 

 

      Now, let’s see the mechanics of value added tax in the following example:

 

      Suppose a manufacturer bought goods or services amounting 100 TL and paid (or will pay) 18 TL as VAT. 18 TL of VAT (assume that VAT rate is 0.18) is recorded (debited) as VAT deductible. The manufacturer added labor and its profit to these inputs and sold the goods. Assume that labor cost 150 TL and profit is 50 TL. Products are sold to the whole seller. The price is 300 TL (100 + 150 + 50). Total cost of the products is 250 TL and the manufacturer added 50 TL profit. So, the price is 300 TL. When the manufacturer sold the products to the wholesaler, it received or will receive (300 * 0.18) 54 TL VAT from the wholesaler. This amount (54 TL) is recorded (credited) as VAT payable. The manufacturer will pay the difference between VAT payable and VAT deductible (54 – 18 = 36 TL) to the government. A firm deducts VAT deductible from VAT payable and pays the difference to the government. That is why the account is called VAT deductible.

 

      What is the situation for the wholesaler? The wholesaler paid (or will pay) 54 TL value added tax to the manufacturer. So, the wholesaler records (debit) this amount to VAT deductible. The wholesaler bought the goods for 300 TL from the manufacturer. It added 75 TL as its profit and sold the goods to retailer for 375 TL. The wholesaler received (or will receive) (375 * 0.18) 68 TL value added tax from the retailer. The wholesaler records (credits) this amount as VAT payable. The wholesaler must pay the difference between VAT payable and VAT deductible (68 – 54 = 14 TL) to the government.

 

      What is the situation for the retailer? The retailer paid (or will pay) 68 TL value added tax to the wholesaler. So, the retailer records (debit) this amount to VAT deductible. The retailer bought the goods for 375 TL from the manufacturer. It added 83 TL as its profit and sold the goods to the end consumers for 458 TL. The retailer received (or will receive) (458 * 0.18) 82 TL value added tax from the end consumers. The retailer records (credits) this amount as VAT payable. The retailer must pay the difference between VAT payable and VAT deductible (83 – 68 = 15 TL) to the government.

     

      As you see, value added tax is collected at each stage. But the businesses deduct VAT deductible from VAT payable and pay the difference to the government. So the businesses only pay the tax of the value added by them. The value added may be labor, profit or any other input. For example, the value added by the retailer is its profit, which is 83 TL. So, it only pays the tax of this added value (83 * 0.18). This is exactly equal to the difference between VAT payable and VAT deductible (83 – 68). That is why the name of the tax is value added tax.

 

      The tax period of value added tax is one month. During the month value added tax accrued from the purchases is debited to VAT deductible, value added tax accrued from sales is credited to VAT payable. At the end of each month VAT deductible and VAT payable accounts are closed. Closing an account means making debit and credit totals equal. This is accomplished by making a reverse entry. Let’s take examples:

 

                                   

                                          March-2011

VAT Deductible			VAT Payable
40,000				45,000

 

 

      At the end of March 2011, debit total of VAT deductible account is 40,000 TL, credit total of VAT deductible account is 45,000 TL. Close VAT deductible and VAT payable accounts as end of March 2011. Remember that closing and account means making debit and credit totals equal and this is accomplished by making a reverse entry. So, 40,000 must be credited to VAT deductible to make its debit total equal to its credit total and 45,000 must be debited to VAT payable to make its debit total equal to its credit total. This closing journal entry is shown below.

 

	Debit	Credit
VAT payable	45,000
VAT deductible		40,000
Taxes payable		5,000

     

      As you see, 5,000 TL is credited to taxes payable. This is the difference between VAT payable and VAT deductible and this amount must be paid to the government. In other words, the firm owes this amount of money to the government. It is the liability of the firm and increase in liabilities is credited. This journal entry must be made by 24^th of the next month (in this example 24^th of April), because on 24^th of the next month value added tax return must be submitted to the government. The tax owed by the firm must be paid by 26^th of the next month (in this example 26^th of April). Make the accounting record when the firm pays the tax.

 

	Debit	Credit
Taxes payable	5,000
Bank accounts		5,000

 

      When the tax is paid, the liability of the firm decreases. Decreases in liabilities are debited. The firm paid from its bank account, so the asset (the money in the bank) of the firm decreased. Decreases in assets are credited.

 

      Now, let’s consider the situation in the next month.

 

                                                                April-2011

VAT Deductible			VAT Payable
50,000				42,000

 

       

      As you see, in April debit total of VAT deductible account is 50,000 TL, credit total of VAT payable account is 42,000 TL. If in a month VAT payable is more than VAT deductible, the firm owes the difference to the government (as is the case in March 2011). On the other hand, if in a month VAT deductible is more than VAT payable government owes the difference to the firm (as is the case in April). In other words, if in a month VAT deductible is more than VAT payable the firm has a receivable from the government. But, according to Value Added Tax Law, the government does not pay this amount to the firm. The government will deduct this amount in the future if the firm owes value added tax. This receivable of value added tax is called VAT carried forward.

 

      Make the accounting record as end of April 2011.

 

	Debit	Credit
VAT payable	42,000
VAT carried forward	8,000
VAT deductible		50,000

     

      As you see, 8,000 TL is debited to VAT carried forward. The government owes 8,000 TL to the firm. Situation in May is presented below:

 

                                                                May-2011

VAT Deductible			VAT Payable
30,000				36,000

 

      Make the accounting record as end of May 2011.

 

	Debit	Credit
VAT payable	36,000
VAT deductible		30,000
VAT carried forward		6,000

 

      In May 2011, VAT payable is more than VAT deductible. The firm owes 6,000 TL to the government. But the firm has a receivable of 8,000 TL from the government. So, the money owed is deducted from the receivable. In other words, receivable from the government is decreased by 6,000 TL. Decrease in receivables is credited. So, 6,000 TL is credited to VAT carried forward. Situation in June is presented below:

 

VAT Deductible			VAT Payable
38,000				47,000

 

      Make the accounting record as end of June 2011.

     

	Debit	Credit
VAT payable	47,000
VAT deductible		38,000
VAT carried forward		2,000
Taxes payable		7,000

 

            In June 2011, VAT payable is more than VAT deductible. The firm owes 9,000 TL to the government. But the firm has a receivable (VAT carried forward) of 2,000 TL from the government (the receivable at the end of April was 8,000 TL, and decreased by 6,000 TL at the end of May. So the remaining VAT carried forward at the end of May is 2,000 TL). First, the money owed is deducted from the receivable (2,000 TL from VAT carried forward), and then the remaining amount (7,000 TL) must be paid to the government. So, 2,000 TL is credited to VAT carried forward (VAT carried forward is decreased by 2,000 TL), and the remaining 7,000 TL is credited to taxes payable. The firm owes 7,000 TL to the government and this amount must be paid by 26^th of July.

 

      Make the accounting record when the firm pays the tax.

 

	Debit	Credit
Taxes payable	7,000
Bank accounts		7,000

 

 

      Businesses employ people. They are called employees. Employees receive a payment in return of their service to the business. This payment is called wage or salary and must be paid in every month at the latest. Payroll is a legal document that shows the details of the payments (wage or salary) received by the employees. Let’s examine payroll accounting by taking an example:

 

      The employee’s gross salary is 2,500 TL. This employee works in an administrative function and married (the spouse does not work and does not have any other income) with two children. Prepare a payroll for this employee and make the accounting record.

 

      Payroll always starts with gross pay (gross salary or gross wage). In Turkey some firms make contracts with their employees on gross pay; others make contracts on net pay. We will discuss this matter later. But, if the contract is on net pay gross pay must be calculated, because the payroll must start with gross pay. Then, deductions are calculated. The deductions from the gross pay are: social security premium employee share, unemployment insurance premium employee share, income tax payable, and stamp duty. The sum of these deductions (total deductions) is subtracted from the gross pay and the remaining amount is the net pay.

 

      Gross pay – Total deductions = Net pay

 

      Net pay is the amount paid to the employee. Deductions are calculated by the employer and paid to the government (social security administration, tax authority, unemployment insurance fund) on behalf of the employee. Don’t forget, it is the responsibility of the employer to calculate and pay the deductions to the government. There are also employer shares. Those are: social security premium employer share and unemployment insurance premium employer share. When we add employer shares to the gross pay we find the total cost to the employer.

 

      Gross pay + Employer shares = Total cost.

 

      Keep in mind that, deductions are made from the gross pay on behalf of the employee. Deductions decrease the amount actually paid to the employee (net pay). Gross pay includes the deductions; net pay excludes the deductions.

 

      The payroll for this employee is presented below. Explanations how the payroll is prepared are also presented.

 

 

      Gross salary of this employee is 2,500 TL. All deductions and employee shares are calculated based on the rates effective in 2013.

      Social security premium employee share is 14 % of the gross pay.

      Social security premium employee share = 2,500 * 0.14 = 350 TL.

      Unemployment insurance premium employee share is 1 % of the gross pay.

      Unemployment insurance premium employee share = 2,500 * 0.01 = 25 TL.

      When calculating income tax base, social security premium employee share and unemployment insurance premium employee share are subtracted from the gross pay.

      Income tax base = Gross pay (gross salary) - social security premium employee share - unemployment insurance premium employee share

      Income tax base = 2,500 – 350 – 25 = 2,125 TL

      Income tax base is the amount on which the income tax is calculated. There is a progressive income tax system in Turkey. For simplicity we assume that the tax rate is 15 %.

      Income tax = Income tax base * 0.15

      Income tax = 2,125 * 0.15 = 319 TL.

 

      In Turkey there is a system called minimum living allowance-MLA (asgari geçim indirimi). Income tax calculated for this employee is 319 TL. But 319 TL is not the amount that will be paid to the tax authority on behalf of this employee. Minimum living allowance (MLA) must be calculated for this employee. Minimum living allowance is calculated as follows:

 

      Gross minimum wage at the beginning of the year (gross minimum wage in January) is taken. Gross minimum wage in January 2011 is 796.5 TL. When MLA is calculated in 2011 (including December 2011) this amount (796.5 TL) is used. When MLA is calculated for 2012, the gross minimum wage in January 2012 will be used. The formula to calculate MLA is:

      Gross minimum wage (in January of that year) * tax rate for the first bracket *

      0.5 for the employee

      0.10 for the spouse (not working and not any other income)

      0.075 for each of the first two children

      0.05 for each of the other children

 

      As can be seen, MLA is calculated for the employee, for the spouse (if the spouse does not work and does not have any other income), and for the children. Then the amounts calculated for the employee, for the spouse, for the children are summed to come up with the total MLA. Let’s calculate MLA for this employee. (tax rate for the first bracket is 15%)

 

      For the employee = 796.5 * 0.15 * 0.5 = 59.74 TL

      For the spouse = 796.5 * 0.15 * 0.1 = 11.95 TL

      For the first two children = 796.5 * 0.15 * 0.075 = 8.96 TL. This is for the first child. Since the employee has two children MLA for the children = 8.96 * 2 = 17.92 TL.

      Total MLA = 59.74 + 11.95 + 17.92 = 89.61 TL (approximately 90 TL).

 

      Income tax payable is calculated by subtracting MLA from the income tax. Income tax payable is the amount that must be paid to the tax authority.

      Income tax payable = 319 – 90 = 229 TL.

 

      Stamp duty is 0.75 % of the gross pay.

      Stamp duty = Gross pay * 0.0075

      Stamp duty = 2,500 * 0.0075 = 19 TL

     

      As explained before net pay is calculated by subtracting the deductions from the gross pay.

      Net pay = Gross pay (gross salary) - social security premium employee share - unemployment insurance premium employee share – income tax payable – stamp duty

      Net pay = 2,500 – 350 – 25 – 229 – 19 = 1,877 TL.

      1,879 TL is amount that is paid to the employee.

 

      Now, the employer shares must be calculated.

      Social security premium employer share is 14.5 % of the gross pay.

      Social security premium employer share = 2,500 * 0.145 = 363 TL.

      Unemployment insurance premium employer share is 2 % of the gross pay.

      Unemployment insurance premium employer share = 2,500 * 0.02 = 50 TL.

 

      Total cost to the employer is calculated by adding employer shares to the gross pay

      Total cost = Gross pay (gross salary) + social security premium employer share + unemployment insurance premium employer share

      Total cost = 2,500 + 363 + 50 = 2,913 TL.

 

      As you see the amount paid to the employee is 1,877 TL, but the total cost to the employer is 2,913 TL. The difference between the total cost and the net pay (2,913 – 1,877 = 1,036 TL) is called tax and social security burden.      

     

      As you may recall, we have said that some businesses in Turkey make contracts with their employees based on net pay. That means the employer agrees to pay the some amount of money throughout the year. If the contact is based on gross pay, the net pay (amount paid to the employee) decreases as the income tax base exceeds the first bracket amount, and decreases again as income tax base exceeds the second bracket amount, etc., because income tax payable increases. If the contract is based on net pay, the employer must calculate the gross pay first. As the income tax base increases the gross pay must also increase in order to maintain the same amount of net pay. Briefly, if the contract is based on gross pay, the net pay decreases as the months pass, but the total cost to the employer does not change. If the contract is based on net pay, gross pay and as a result the total cost increases as the months pass, but the net pay stays the same.

 

      Let’s make the accounting record:

 

     

	Detail	Debit	Credit
770 General administrative expenses          - Salaries	2,913	2,913
Bank accounts			1,877
Taxes payable			248
Social security premiums payable			788

 

      Total cost to the employer is debited to the general administrative expenses account. Because the employee works in an administrative function. Net pay is credited to the bank accounts. Because net pay comes from the bank account of the employer and goes to the bank account of the employee. The sum of income tax payable and stamp duty (229 + 19 = 248 TL) is credited to taxes payable. This amount is owed to the government and must be paid by 26^th of the next month. The sum of social security premium employee share, social security premium employer share, unemployment insurance premium employee share, and employment insurance premium employer share (350 + 363 + 50 + 25 = 788 TL) is credited to social security premiums payable. This amount is also owed to the government and must be paid by the end of next month.

 

      So far we have seen most of the current assets. These current assets that we have seen are cash, bank accounts, trade receivables (accounts receivable, notes receivable, credit card receivables, deposits and guarantees extended), inventories, prepaid expenses, advance payments, and VAT carried forward. Now, we will study bank accounts and trade receivables in more detail. Next chapter will deal with inventories.

 

 

      Firms sometimes make cash transactions in a foreign currency. When a cash transaction occurs in a foreign currency, it is converted to the local currency (TL in Turkey) by using the exchange rate effective on the date of the transaction. Examples with the accounting records are presented below:

 

      The firm received 90,000 Euro in advance for the shipment of goods to an importer in a foreign country. The money is transferred to the bank account of the firm. 1 Euro = 2.46 TL when the money received.

 

      90,000 Euro must be converted to TL by using the exchange rate effective on the day the money is received (in this case 2.46 TL).

      90,000 * 2.46 = 221,400 TL.

 

	Debit	Credit
Bank accounts	221,400
Advance payments received		221,400

     

      Since the money is received before delivering the goods, it is credited as advance payments received. The firm owes the goods to the importer. The firm delivered the goods (goods came from the goods inventory). Cost of goods sold is 160,000 TL. Accounting record when the goods are delivered:

 

     

	Debit	Credit
Advance payments received	221,400
Foreign sales		221,400
Cost of goods sold	160,000
Goods inventory		160,000

 

      There is no value added tax (VAT), because the sale is made to a customer in a foreign country. The sale is an export, and there is no VAT in exports.

 

      As you know bank accounts are cash in local currency or the local currency equivalent of foreign currency held by the firm in its bank accounts. A firm may hold cash in local currency or in foreign currency in its bank accounts. Bank accounts may be demand deposit accounts or time deposit accounts. A special form of demand deposit account is checking account from which the checks written by the business is paid.

 

      If the account is in local currency (TL in Turkey), there is no problem. But if the account is in a foreign currency, then the TL equivalent must be calculated. Let’s take an example to show this situation.

 

      Debit total of demand deposit account Euro is (demand deposit account Euro is a subsidiary account under bank accounts) 400,000 TL, credit total of demand deposit account Euro is 270,000 TL. There is 60,000 Euro in the bank account on 31 December (end of the accounting period). 1 Euro = 2.45 TL on 31 December. 

 

      Remember the bank account is in Euro. Do not confuse the bank account with the accounting account. The name of the accounting account to which the amounts are recorded is “demand deposit account Euro”. In fact Euro is deposited into the bank account, but the amount of Euro deposited must be converted to TL by using the exchange rate when the transaction occurred and recorded (debited) to the accounting account as TL. For example if the money is deposited on 10 May 2011, exchange rate on that day must be used to convert Euro to TL. The same thing also holds when the money is withdrawn from this account. Euro is withdrawn from the bank account. The amount of Euro withdrawn must be converted to TL and the TL equivalent must be credited to the accounting account. As can be understood, amount of Euro deposited or withdrawn are converted to TL and the TL equivalents are debited or credited to the accounting account. The situation of the accounting account (demand deposit account Euro) as of 31 December is shown below:

 

Demand Deposit Account (Euro)
400,000	270,000

 

      The account balance is 130,000 TL as of 31 December. Account balance is the difference between debit total and credit total (400,000 – 270,000). This is shown below:

 

Demand Deposit Account (Euro)
400,000	270,000
130,000

 

      The TL equivalent of Euro in the bank account as of 31 December is (60,000 * 2.45) 147,000 TL. Remember that there is 60,000 Euro in the bank account as of 31 December and 1 Euro = 2.45 TL on 31 December. The TL equivalent of the bank account as of 31 December must be equal to the accounting account balance as of 31 December. Account balance is 130,000 TL, TL equivalent of the bank account is 147,000 TL. The difference is 17,000 TL. The accounting account balance is 17,000 TL less than the TL equivalent of the bank account (60,000 Euro * 2.45). 17,000 TL must be debited to the accounting account in order to make it equal to the TL equivalent of the bank account. This record is shown below:

 

	Debit	Credit
Bank accounts  - Demand deposit account Euro	17,000
Foreign exchange gain		17,000

 

      Note that bank accounts is the main accounting account, demand deposit account Euro is the subsidiary account.

 

      Let’s take another example. Debit total of demand deposit account USD is 600,000 TL, credit total of demand deposit account USD is 450,000 TL. There is 75,000 USD in the bank account on 31 December. 1 USD = 1.85 TL on 31 December. 

 

Demand Deposit Account (USD)
600,000	450,000
150,000

 

      TL equivalent of 75,000 USD on 31 December:

 

      75,000 * 1.85 = 138,750 TL. Accounting account balance (the balance of demand deposit account USD) is 11,250 TL more than the TL equivalent of 75,000 USD. So, 11,250 TL must be credited to the accounting account to make it equal to 138,750 TL. The record is shown below:

 

	Debit	Credit
Foreign exchange loss	11,250
Bank accounts     - Demand deposit account Euro		11,250

 

      Another subject related to bank accounts is time deposit accounts. A firm transfers 80,000 TL from its demand deposit account and opens a time deposit account on 15 July 2011. Maturity is 30 days, interest is 9.5 %.

 

      Make the accounting record on 15 July 2011.

 

	Debit	Credit
Bank accounts  - Time deposit account (TL)	90,000
Bank accounts    - Demand deposit account (TL)		90,000

     

      That entry records the transfer of 90,000 TL from demand deposit account and opening of the time deposit account.

 

      Make the accounting record on maturity (15 August 2011). The firm withdraws the principal + interest and transfers it to demand deposit account.

 

      First of all interest must be calculated.

      Interest = Principal * rate * Maturity in days/365 (one year is accepted as 365 days).

      Interest = 90,000 * 0,095 * 30/365 = 703 TL.

      The accounting record:

 

	Debit	Credit
Bank accounts  - Demand deposit account (TL)	90,703
Bank accounts       - Time deposit account (TL)		90,000
Interest Revenue		703

     

      As can be seen from the above journal entry, 703 TL of interest is credited as interest revenue, total amount transferred to demand deposit account (TL) is 90,703 TL (90,000 TL principal + 703 TL interest), and this amount is debited to demand deposit account (TL). 90,000 TL principal was debited to time deposit account (TL) when the account was opened. When the account is closed it is credited to time deposit account (TL).

 

      Let’s consider another example:

 

      A firm transfers 120,000 TL from its demand deposit account and opens a time deposit account on 20 November 2011. Maturity is 60 days, interest is 10 %.

 

      Make the accounting record on 20 November 2011.

 

	Debit	Credit
Bank accounts  - Time deposit account (TL)	120,000
Bank accounts    - Demand deposit account (TL)		120,000

 

      Make the adjusting entry on 31 December 2011.

 

      The firm has to make an adjusting entry on 31 December 2011. In the previous example all the interest (703 TL) belongs the accounting period 2011. Because the time deposit account is opened on 15 July 2011 and closed on 15 August 2011. So all the interest is earned in 2011 (between 15 July 2001 and 15 August 2011). But in this example all the interest does not belong to 2011. Interest will be earned between 20 November 2011 and 20 January 2012. As can be seen interest earned between 20 November 2011 and 31 December 2011 belongs to 2011; interest earned between 01 January 2012 and 20 January 2012 belongs to 2012. Interest accrued (earned) between 20 November 2011 and 31 December 2011 must be recorded as 2011’s interest revenue. Adjusting entries accomplish this. First of all let’s calculate the amount of interest accrued between 20 November 2011 and 31 December 2011. 41 days passed until 31 December 2011. Amount of interest belonging to 41 days is calculated as follows:

 

      120,000 * 0.1 * 41/365 = 1,348 TL. This amount must be recorded as 2011’s interest revenue. The accounting record is shown below:

 

	Debit	Credit
Accrued revenues	1,348
Interest revenue		1,348

 

      Remember that accrued revenues account is revenues other than sale of goods or services like interest or rent accrued (earned) in this period but will be received in the next period. 1,348 TL of interest is accrued in the period of 2011 but will be received in the next period (on 20 January 2012). That is why this amount is debited to accrued revenues. You may think accrued revenue of 1,348 TL as interest receivable from the bank.

 

      Make the accounting record on maturity (20 January 2012). The firm withdraws the principal + interest and transfers it to demand deposit account.

 

      Total interest (interest between 20 November 2011 and 20 January 2011) is calculated as follows:

 

      120,000 * 0.1 * 60/365 = 1,973 TL.

      Remember 1,348 TL of this interest belongs to 2011 and it was debited as accrued revenues on 31 December 2011.

      The remaining (1,973 – 1,348) 625 TL of interest is earned between 01 January-20 January 2012. So, this interest belongs to 2012 and it must be recorded 2012’s interest revenue. Accounting record on 20 January 2012 is shown below:

 

	Debit	Credit
Bank accounts  - Demand deposit account (TL)	121,973
Bank accounts       - Time deposit account (TL)		120,000
Interest Revenue		625
Accrued revenues		1,348

      As you see, 625 TL of interest is credited as interest revenue on 20 January 2011. Accrued revenues (1,348 TL) is closed by credited. Because that amount is interest receivable from 2011 and it is received on 20 January 2012. Total principal and interest (120,000 + 1,973) is transferred to demand deposit account (TL) so it’s debited to this account. Time deposit account TL (120,000 TL) is closed with a credit record.

      We have already studied trade receivables. Here we will see trade receivables in foreign currency.

 

      The firm delivered (exported) merchandise to a foreign customer on account (payable in 30 days) on 22 October 2011. Total amount is 50,000 Euro. Cost of merchandise sold is 80,000 TL. 1 Euro = 2.42 TL when the merchandise is delivered.

 

      Make the accounting record when the merchandise is delivered.

      50,000 * 2.42 = 121,000 TL.

           

	Debit	Credit
Accounts receivable	121,000
Foreign sales		121,000
Cost of merchandise sold	80,000
Merchandise inventory		80,000

 

      The importer transferred the payment to the bank account of the firm in 30 days.

 

a.       Make the accounting record when the payment is received. 1 Euro = 2.47 TL.

 

      The amount received is 50,000 Euro. But it must be converted to TL.

      50,000 * 2.47 = 123,500 TL.

     

	Debit	Credit
Bank accounts	123,500
Accounts receivable		121,000
Foreign exchange gain		2,500

 

      50,000 Euro was 121,000 TL when the sale was made. 50,000 Euro is 123,500 TL when the money is received. The difference is due to the foreign exchange rate difference. The exchange rate increased, so the TL equivalent of the accounts receivable (50,000 Euro). Since the TL equivalent increased it is foreign exchange gain.

 

b.      Make the accounting record when the payment is received. 1 Euro = 2.40 TL.

 

50,000 * 2.40 = 120,000 TL

           

	Debit	Credit
Bank accounts	120,000
Foreign exchange loss	1,000
Accounts receivable		121,000

 

      Since the TL equivalent of accounts receivable decreased as a result of change in foreign exchange rate, it is a loss.

 

      The firm delivered the goods and sent a draft stating that the amount must be paid in 90 days. The draft is signed by the importer and returned to the firm. The amount of sale is 120,000 Euro. Cost of goods sold is 210,000 TL. 1 Euro = 2.30 TL when the sale took place. The sale took place on 12 November 2011.

 

      Make the accounting record when the sale took place

 

      120,000 * 2.3 = 276,000 TL.

 

	Debit	Credit
Notes receivable	276,000
Foreign sales		276,000
Cost of goods sold	210,000
Goods inventory		210,000

 

      a.   Make the adjusting entry on 31 December 2011. 1 Euro = 2.42 TL.

 

            On 31 December TL equivalent of notes receivable is 120,000 * 2.42 = 290,400. TL equivalent of notes receivable increased by (290,400 – 276,000 ) 14,400 TL as a result of increase in foreign exchange rate. The adjusting entry:

     

	Debit	Credit
Notes receivable	14,400
Foreign exchange gain		14,400

 

      b.   Make the adjusting entry on 31 December 2011. 1 Euro = 2.26 TL.

            120,000 * 2.26 = 271,200.

            TL equivalent of notes receivable decreased by (276,000 – 271,200 ) 4,800 TL as a result of decrease in foreign exchange rate. The adjusting entry:

     

	Debit	Credit
Foreign exchange loss	4,800
Notes receivable		4,800

           

      Sometimes a firm may not collect its trade receivables because the buyer does not make the payment for some reason. Trade receivables that are overdue and have not been collected are called doubtful receivables. They are called doubtful receivables because the firm is not sure at that point whether it will be able to collect the receivables or not. If a receivable is overdue and if the firm has initiated legal actions to collect this receivable an allowance is made for it. This allowance account is called “allowance for doubtful receivables”. 

 

      Example: A firm has an overdue receivable (accounts receivable) amounting 40,000 TL. The firm has initiated legal action to collect this receivable. Make the accounting record:

 

	Debit	Credit
Allowance expenses	40,000
Allowance for doubtful accounts		40,000

 

      As you see the amount of the receivable is expensed as allowance expenses. Two things may happen to this account. The account may be collected in the future. If the account is collected, following accounting record is made.

 

	Debit	Credit
Bank accounts	40,000
Accounts receivable		40,000
Allowance for doubtful accounts	40,000
Recovery from allowance loss		40,000

 

      The first portion records the collection. The second portion reverses the allowance. Allowance for doubtful accounts was credited first. When the receivable is collected, making a debit entry reverses allowance for doubtful accounts. If it is understood that the receivable will never be collected, the following accounting record is made:      

     

	Debit	Credit
Allowance for doubtful accounts	40,000
Accounts receivable		40,000

 

      Here the allowance for doubtful accounts is closed with a debit entry. Because, there is no doubtful accounts. It is understood that the receivables will never be collected. There is no doubt about it. Account receivable is closed with a credit entry.

 

Value added tax law: Katma deÄŸer vergisi kanunu            

VAT payable: Hesaplanan KDV

VAT deductible: Ä°ndirilecek KDV

VAT carried forward: Devreden KDV

Customs: Gümrük

Tax period: Vergilendirme dönemi

Value added tax return: KDV beyannamesi

Owe: Borcu olmak

Twin: Ä°kiz kardeÅŸ

Journal entry: Yevmiye kaydı

Accrue: Tahakkuk etmek (meydana gelmek, oluÅŸmak)

Invoice: Fatura

Purchase: Satın alma

Payroll: Bordro

Employee: Çalışan

Employer: Ä°ÅŸveren

Wage: Ücret

Salary: MaaÅŸ

Spouse: EÅŸ

Gross salary: Brüt maaÅŸ

Gross wage: Brüt ücret

Net salary: Net maaÅŸ

Net wage: Net ücret

Net pay: Net ele geçen

Deductions: Kesintiler

Social security premium employee share: Sosyal güvenlik primi çalışan payı

Unemployment insurance premium employee share: Ä°ÅŸsizlik sigortası primi çalışan payı

Income tax: Gelir vergisi

Stamp duty: Damga vergisi

Social security administration: Sosyal Güvenlik Kurumu

Tax authority: Gelir idaresi

Unemployment insurance fund: İşsizlik sigortası fonu

Income tax base: Gelir vergisi matrahı

Gross minimum wage: Brüt asgari ücret

Tax rate for the first bracket: Birinci dilim gelir vergisi oranı

Tax and social security burden: Vergi ve sosyal güvenlik yükü

Exchange rate: Döviz kuru

Shipment: Sevkiyat

Importer: Ä°thalatçı

Export: Ä°hracat, ihraç etmek

Demand deposit account: Vadesiz mevduat hesabı

Time deposit account: Vadeli mevduat hesabı

Checking account: Çek hesabı

Deposit money: Para yatırmak

Withdraw money: Para çekmek

Account balance: Hesap bakiyesi (kalanı)

Maturity: Vade

On maturity: Vade sonunda

Interest: Faiz

Principal: Ana para

Accrued: Tahakkuk eden

Draft: Poliçe

Collect: Para tahsil etmek

Collection: Tahsilat

Payment: Ödeme

Overdue: Vadesi geçmiÅŸ

Allowance: Karşılık

Allowance for doubtful receivables: Åžüpheli alacaklar karşılığı

Allowance expenses: Karşılık giderleri

Recovery from allowance loss: Konusu kalmayan karşılıklar