Accounting for Import and Export is part of my book "THE SYSTEM OF ACCOUNT" VOLUME III.

1. ACCOUNTING FOR IMPORT & EXPORT
Volume III
WRITTEN BY:
SYED AQEEL RAZA
MASTER OF COMMERCE & POLITICS

2. ACCOUNTING FOR IMPORT AND EXPORT
EXPORT:
The Import and export involve in all types of businesses like this a manufacturing
concern requires materials which are not available in the country of its own for
making products for his home country and the material which he acquire from
abroad is called Import purchase and the purchaser of the material is called
importer and like this the seller is called exporter and the import and exporter are
both involved each other, mostly traders purchase products from manufacturers
and sometimes buys them from abroad to do business and as far as the service
providers are concerned, they involve in solving problems of importer or exporters
having import and export license.
In order to buy goods from foreign countries, the state issues license to importer
and exporter and in case of having no license, the importer and exporter hire
services of clearing agents who are providing services for them and the role of
clearing agent is important in import and export business.
Therefore, we say that the following entities are involved in import and export
business;
Import;
Buyer
Seller
Clearing Agent
Export
Seller
Buyer
Clearing Agent

3. Procedure for import and export of goods:
An importer or export has to follow the procedurefor import;
- Must have valid license to import and export or clearing agent services.
- The importer places the purchase order to exporter.
- On receiving the purchase order, the exporter exports the goods through
road, sea or by air as per required situation.
- The exporter then sends the Invoice for the material to the importer either
directly or through banker.
- After receiving the bill, the importer pays the invoice either directly or
through L/C letter of credit.
- After arrival of goods, the importer pays the customs duty and taxes to customs
department.
- All clearance work is done by clearing agent.
- On imported goods arrival, loading and unloading charges are paid by importer.
Import duty and taxes are due when importing goods into Pakistan
whether by a private individual or a commercial entity. The
valuation method is CIF (Cost, Insurance, and Freight), which means
that the import duty and taxes payable are calculated on the
complete shipping value, which includes the cost of the imported
goods, the cost of freight, and the cost of insurance. However,
import duty can also be charged per unit of measure. In addition to
duty, imports are subject to sales tax (VAT), excise on some
products, and import regulatory duty.

4. The goods orproducts which are imported may have the following payments;
- Costof materials
- Customs duty
- Sales Tax
- Advance Income Tax
- Central Excise Duty
- Import Regulatory Duty
- Other charges
- Clearing Agent services charges
- Sales tax on clearing agent services charges
- Freight and cartage expenses
- Other incidental charges
- Security deposit
IMPORT ACCOUNTING TRANSACTIONS AND SOLUTION
Transactions
1- M/s. Noor Corporation imported goods from M/s. XYZ Company China
on 1.1.2107. The Exporter XYZ Company China issued an Invoice No.
3404 dated 1.1.2017 for US # 1000/=.
2- M/s. Noor Corporation instructed his bank to pay the above bill on
10.1.2017 to XYZ Company, China. The bank paid Rs.99, 000/= against
US $ 100 on same day. The bank deducted Rs.1500/= as bank charges.
3- In connection with the import of goods, M/s. Noor Corporation also
made the following payments. The Company hired the services of
clearing agent named Cargo Linker and because of this he had paid
clearing expenses including sales tax, income tax, customs duty, excise
duty, freight charges, income tax regulatory duty, insurance and all
other expenses as;

5. o On 15.1.2017, M/s. Noor Corporation paid Rs.50, 000/=for import
expenses during clearance of goods as to customs duty, excise
duty, sales tax, income tax and other charges to M/s. Cargo
Linker.
o On 15.1.2017, M/s. Noor Corporation also paid 10,000/= as
security deposit for import to Cargo Linker and he paid it to
Shaheen Shipping Corporation.
o On 20.1.2017, The clearing agent sent the detail of expenses of Rs.50, 000/=
which had been paid in advance for clearance of goods;
Customs duty 15,000.-
Sales Tax 10,000.-
Income Tax 5,000.-
Central Excise duty 5,000.-
Regulatory duty 7,000.-
Other charges 8,000.-
o On 25.1.2017, after clearing of goods, Cargo Linker sent a cheque
of Rs.10, 000/=which was paid as security deposit by Cargo Linker
to Shaheen Shipping Corporation.
o 26.1.2017, the clearing agent sent a bill # 202 of Rs.10, 000/= to
Noor Corporation against its services charges for the import of
product as detailed below;
Services charges 8, 300.-
Sales Tax 1,700.-
o 28.1.2107, Noor Corporation paid the bill # 202 dated26.1.2017 to
Cargo Linker.

6. Solution;
1- M/s. Noor Corporation imported goods from M/s. XYZ Company
China on 1.1.2107. The Exporter XYZ Company China issued an
Invoice No. 3404 dated 1.1.2017 for US # 1000/=.
The invoice of XYZ Company, China will be journalized by importer
for creating liability of the amount against Invoice No. 3404 dated
1.1.2017 which will be used on the import of goods. It is assumed
that the foreign exchange rate for US $ 1 is Rs.100/=.
Import Purchase Account (Dr.) 100,000.-
XYZ Company, China (Cr.) 100,000.-
(To record Invoice No. 3404 dated 1/1/2107)
2- M/s. Noor Corporation instructed his bank to pay the above bill on 10.1.2017 to
XYZ Company, China. The bank paid Rs.99, 000/= against US $ 100 on same day.
The bank deducted Rs.1500/= as bank charges.
XYZ Company, China (Dr.) 99,000
Bank A/c (Cr.) 99,000
(To record the payment of US $ 1000 to XYZ Company, China @ 99/dollar)
Bank Charges A/c (Dr.) 1,500
Bank (Cr.) 1,500.-
(Being bank charges for currency exchange deducted by bank)
3- In connection with the import of goods, M/s. Noor Corporation also
made the following payments. The Company hired the services of
clearing agent named Cargo Linker and because of this he had paid
clearing expenses including sales tax, income tax, customs duty,
excise duty, freight charges, income tax regulatory duty, insurance
and all other expenses as;

7. o On 15.1.2017,M/s. Noor Corporation paid Rs.50, 000/= for import
expenses during clearance of goods as to customs duty, excise
duty, sales tax, income tax and other charges to M/s. Cargo
Linker.
Cargo Linker (Dr.) 50,000/=
Bank (Cr.) 50,000=
(Being the payment of clearing expenses on account)
o On 15.1.2017, M/s. Noor Corporation also paid 10,000/= as security deposit
for import to Cargo Linker and he paid it to Shaheen Shipping Corporation.
Cargo Linker (Dr.) 10,000.-
Bank (Cr.) 10,000.-
(To record the payment of security deposit to Cargo Linker)
o On 20.1.2017, theclearing agent sent the detail of expenses of
Rs.50, 000/=which had been paid in advancefor clearance of
goods;
Customs duty 15,000.-
Sales Tax 10,000.-
Income Tax 5,000.-
Central Excise duty 5,000.-
Regulatory duty 7,000.-
Other charges 8,000.-
.

8. In this situation, sales tax and advance income tax are adjustable
from sales tax and income tax head of accounts because they are
receivable and customs duty, central excise duty, regulatory duty and
other charges relate to the cost of import belong to import purchase
as;
Import Purchase (Dr) 35,000.-
Sales Tax (Dr.) 10,000.-
Income Tax (Dr.) 5. 000.-
Cargo Linker (Cr.) 50,000.-
(To record sales tax, income tax and other import cost expenses)
o On 25.1.2017, after clearing of goods, Cargo Linker sent a cheque of Rs.10,
000/= which was paid as security deposit by Cargo Linker to Shaheen
Shipping Corporation.
Bank (Dr.) 10,000.-
Cargo Linker (Cr.) 10,000.-
(To receive the amount of security deposit by Cargo Linker)
o 26.1.2017, the clearing agent sent a bill # 202 of Rs.10, 000/= to Noor
Corporation against its services charges for the import of product as detailed
below;
Services charges 8, 300.-
Sales Tax 1,700.-
The bill will be journalized as;
Sales Tax (Dr.) 1,700.-
Import Purchase (Dr.) 8,300.-
Cargo Linker (Cr.) 10,000.-
(To record Bill No.202 dated 26.1.2017)

9. o 28.1.2107, Noor Corporation paid the bill # 202 dated26.1.2017 to Cargo
Linker.
Cargo Linker (Dr.) 10,000.-
Bank 10,000.-
(Paid to Cargo linker bill # 202 DT: 26.1.2017)
The ledger account of buyer will show a credit balance Rs.1, 000/= because of foreign
exchange rate shortage or excess. The amount was journalized on the basis of invoice
received from buyer and may be adjusted as on 30.1.2017;
Foreign Exchange Shortage/excess a/c (Dr.) 1,000.-
Import Purchase A/c (Cr.) 1,000.-
The difference is kept under separate account as foreign exchange shortage or excess
account or difference in exchange rate account and at the end of the year, it will be
transferred to trading account so as to reflect the true picture of the import sale
account. This account contra to export sales account just like purchase discount in
purchase account.
SUMMARY OF LEDGER BALANCES
Head of Accounts Debit Credit
Import purchase A/c 143,300.-
XYZ Company, China
Bank A/c 160,500.-
Cargo Linker A/c - -
Sales Tax 11,700.-
Income Tax 5,000.-
Bank charges 1,500.-
Foreign Exchange Shortage/Excess 1,000.-

11. From the above example it is clear;
That all expenses relating to Import Purchase shall be debited to
Purchase account or we can say the expenses involved in
importing the goods concern directly with the cost of goods
imported as;
- Customs duty, central excise duty, Import regulatory duty and
other taxes and charges are deducted by Customs Office link to
the cost of imported goods and will include directly importing
purchase account. As far as the sales tax and income tax which
are deducted by Customs Office are recoverable from sales tax
and income tax departments or this matter relates to
accounting process.
- The services charges of thirty party’s involvement such as
clearing agent or anyone involves in importing are directly
concern with the cost of goods imported.
- Bank fee/commission in connection with exchanging values is
normally chargeable as bank charges under profit and loss
account.
- As far as the receivable and payable concern, they affect
party’s debtors and creditors account and do not belong to the
cost of goods imported.

12. E X P O R T
The export of finished goods increases the
profitability of any country by means of applying raw
material and labors of its own and the return of
money in foreign currency grows any country’s
future.
Export sales are just like any other sales but it
involves drawing of bills in foreign exchange and
realizing the same from bank and the actual amount
of sales is known only when the bill is realized. The
difference of foreign exchange is debited or credited
to Foreign Exchange Shortage or Excess Account or
different in Exchange Rate Account and at the end of
the year it will be transferred to Trading Account
where the shortage or excess will decrease of
increase the sale of export just like in sales, the sale
discount reduce sale in Trading Account at the end
of the year.

13. We can adjust the shortage or excess amount into
export sales and buyer accounts for reaching the
true position of the export sale at the moment but it
is better to show the fluctuation in foreign exchange
rate in Trading account and it is the rule of
accounting.
Suppose that A Company; exporter, exports goods to B Company;
importer, and received a bill No.002 from B Company for US $
1000 on 1.2.2017. He sends the bill for collection to his bank the
same day. The exchange rate on that date is 100 per dollar.
The Exporter A Company will journalize his export sale as;
B Company (Buyer’s A/c) Dr………………………. 100,000.-
Export Sales A/c (Cr.)…………………………………………..100,000.-
(To record bill 002 dated 1.2.2016 of B. Company, Importer)
The bill realized on 10.2.2017 when the exchange rate was Rs.99
per dollar. The bank deducts its collection charges Rs.500/= and
advance income tax Rs.500/= and then credits the balance
amount to exporter’s account means A company under credit
advance.

14. On receipt of credit advice from bank, the A company; Exporter
records the payment entry under bank payment system as;
Bank Dr. 99,000.-
B Company (Buyer’s A/c) Cr 99,000.-
Bank Charges (Dr.) 500.-
Bank (Cr.) 500.-
Advance Income Tax Dr. 500.-
Bank (Cr.) 500.-
The compound entry of this credit advice may be as;
Bank Dr. 98,000.-
Bank Charges 500.-
Advance Income Tax 500.-
B Company (Buyer’s A/c) Cr 99,000.-
After realizing the amount of the bill, the amount receivable in
buyer’s account will show a debit balance with a sum of Rs.1000/=
and like this, the export sale which is just for 99,000/= will show
Rs.100, 000/= therefore, it needs an entry where the difference is
recorded. We open a new account naming Difference in Exchange
Rate Account or Foreign Exchange/Excess account as;
Difference in Exchange Rate a/c Dr.1,000/=
B Company (Buyer’s A/c (Cr.) 1,000/=

15. For our purpose or in a short way, we can see the actual picture of
export sale by decreasing or increasing the accounts of Export
Sales and Buyer.
The difference in exchange rate may be shown separately as
making account difference in exchange account or foreign
exchange shortage or excess account. This new account will do up
and down the profit and loss account as it is in Debit will reduce
export sales account or in credit means it will increase the export
sales. Then we can say, this situation will increase or decrease the
profit or loss account.
In connection with the export, the exporter has to send the goods
at sea port or via land resulting it has to face transportation
charges, loading and unloading charges. In case of export by land,
he will send his goods via Transport Company and Transport
Company will charge transportation charges as freight charges
from the exporter.
The exporter has paid Rs.3000 as transportation charges up to sea
port, Rs.1000/= as loading and unloading the goods at sea port to
labors. The entry of cash payment is made as;
Export Expenses (Dr.) 4,000.-
Cash (Cr.) 4,000.-

16. The transportation charges or may be freight charge and loading
and unloading charges are concern with the export expenses. The
export expenses vary the profit and loss of export sales mean
minimum expense maximum profit.
The clearing agent for export clearance at sea port will be
required by the exporter and suppose that A company hired the
services of export clearing agent named D company who will help
in export of goods from port and be using his export license.
Therefore, A company gives the clearing agent Rs.10, 000/= to D
Company for port expenses.
The exporter will record entry as;
D Company 10,000/=
Bank 10,000/=
The exporter debits the account of clearing agent after paying
cash and the clearing agent sent the detail of the amount which
the exporter paid him in advance for meeting export expenses;
Freight Charges 4,500/=
Service Charges 2,000/=.
Sales tax 1,500/=
Income Tax 1,000/=
Documentation charges 500/=
Incidental charges 500/=

17. The exporter records the detail under journal voucher as;
Export Expenses 8,000/=
Sales Tax 1,500/=
Income Tax 500/=
D Company Account 10,000/=
In order to promote exports, the government allows
various incentives to the exporters as to duty drawback
account, premium on Import/Export License account
which is recovered only when the claim is received or the
premium on license is realized. It may be accounted for as
Bank account debit, duty drawback account credit and
premium on import License account credit which is
transferable to Profit and Loss account at the end of the
financial year.
The sales tax and income tax on the services which are
hired by clearing agent are recoverable from the
departments concerned because of this they are kept in
current asset account.

18. In import, goods or materials are purchased via seaport or
dry port by foreign country and who buys is called
importer and the importer either has import license or the
services of an agent. The importer has to pay customs
duty, freight, insurance, and sales tax, and income tax,
etcetera for clearing his goods or materials. The cost of
import includes all expenses which are directly involved in
import and some payments are recoverable or adjustable
from departments concerned.
In export, goods or materials are sold via seaport or dry
port to foreign country and who exports is called exporter.
An exporter has to face freight charges, loading unloading
charges and agent service charges as well sales tax and
income tax therein.
An import refers to receive and export to sell.
Writer’s view