Odoo mainly focuses on two types of accounting. One is ‘Continental Accounting,’
and the other is ‘Anglo-Saxon accounting.’
With the advent of Odoo 16, Odoo introduced Storno Accounting, which uses
negative credit/debit values for reverse entries.
Continental Accounting
The most commonly used accounting, continental accounting, and the Odoo system greatly
support continental accounting principles. This accounting will impact the expense
account when accomplishing a purchase operation. So the cost of an item is considered
as soon as the product is reached in the stock. The Odoo platform applies continental
accounting as by default. In addition, the stock can be validated manually or
automatically.
If it is done manually, the stock is not
affected, and the details have to be posted manually at the end of a month or at
the end of a year.
If the stock valuations need to be recorded as the stock in and out, then opt for
the inventory valuation method ‘Automated.’ The well-established accounting, Continental
accounting, has many useful impacts on your business accounting. So we can analyze
how the ledgers affect different transactions or operations in continental accounting.
Transactions in Continental Accounting
Accounting transactions are the monetary activity that directly affects a business’s
financial status and financial statements. Basically, we can consider any type of
exchange of money under this category. Different organizations or businesses handle
these transactions in different ways. So we can have a look at some of the basic
accounting transactions.
1. Purchase
Purchases are said to be the financial transactions that necessitate the
business to acquire the products or services required for creating sales. In the
Odoo platform, all the transactions associated with the purchase are called ‘
Purchase Journals”. All these purchase-related transactions are kept in the
purchase voucher. It is the transaction processed by the vendor of a product or
service purchased, and it can even be a product, purchase, service, or any other
asset purchase. A purchase entails a whole set of transactions such as Purchase
order, Material Receipt, Rejection Out, Purchase Invoice, and Purchase Return.
Purchase Order:
A purchase order can be defined as an official document
presented by a buyer consigning to pay the seller for the sale of a particular
product or service to be issued in the future. Creating a purchase order for any
goods or services from a vendor is possible for a necessary amount. The
initiation of purchase orders does not have a direct impact on both the stock or
account ledgers.
Material Receipt:
The next procedure is Material receipt, which refers to information
like product quantities and lot numbers in relation to the products that are intended
for
the on sight work performed by the employees. If the supplier sends the product, the
inventory item must be received, and it must be moved to the inventory. And the
quantities will be updated in the inventory. So in the case of Material Receipt, only
the
stock accounts get affected.
When receiving the product, the ‘Stock Valuation Account’ and ‘Stock Input
Account’ get affected in the Odoo platform.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Stock valuation account |
Asset |
Increasing |
Debit |
| Stock Input account |
Expense |
Decreasing |
Credit |
Rejection Out:
There are many situations where the organization returns the purchased items even before
meeting the payment. It can be for any reason. When the product gets damaged, the
product will be rejected. Likewise, there will be a lot of reasons behind the rejection.
As a result, the stock will be reversed. In this case, the stock will be affected, and
there will be no impact on the accounts. In addition, the stock value will also
decrease.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Stock valuation account |
Asset |
Decreasing |
Credit |
| Stock Input account |
Expense |
Increasing |
Debit |
Purchase invoice:
If you are creating an invoice for the purchase order, it will affect the payable
account and the expense account. The payable account will get credited because the
nature of the payable account is ‘Liability’. On the other hand, the expense account
gets debited because the nature of the expense account is “expense.”
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Account Payable |
Liability |
Increasing |
Credit |
| Expense Account |
Expense |
Increasing |
Debit |
When you create a payment, the payable account and the outstanding receipt account are
also impacted. If the payment has been given, the liability will decrease. Consequently,
the payable account will be debited. From Odoo 14 onwards for keeping the unreconciled
entries, a temporary account - outstanding payments is used in bank and cash journals.
The outstanding payment’s nature is “Asset.” So when the assets decrease, the
outstanding payment account is credited.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Account Payable |
Liability |
Decreasing |
Debit |
| Outstanding Payments |
Liability |
Increasing |
Credit |
Once it is reconciled with the bank statement, the amount will be transferred to the
bank account. As a result, the outstanding payments account becomes debited, and the
bank is credited.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Outstanding Payments |
Liability |
Decreasing |
Debit |
| Bank Account |
Asset |
Decreasing |
Credit |
Purchase Return:
Purchase Return means if a purchaser returns their purchased product to the seller in
favor of refund, store credit, or any other reason based upon the seller’s obligation.
Purchase returns also will occur occasionally. Like if the purchaser is not satisfied
with the product, if they incorrectly purchased the product, or when the seller sends
them the wrong product or even bought more items than they actually require. In the
Purchase return, it happens after the invoice, hence reducing the stock and the paid
amount wants to be refunded. So the purchase return will affect both the stock accounts
and the accounts. For compensating this, suitable reverse journal entries want to be
generated.
The journal entries for every purchase transaction are described in the table below.
| Operation |
Accounts Affected |
Debit |
Credit |
| Purchase order |
No Accounts Affected |
|
|
| Material Receipt |
|
Stock Valuation Account |
| Stock Interim Account |
|
|
|
| Purchase Bill |
|
Expense Account |
|
Account Payable |
|
|
|
| Registering Payment |
|
Account Payable |
|
Outstanding Payments |
|
|
|
| Reconciling |
Outstanding Payments |
XX |
|
| Operation |
Accounts Affected |
Debit |
Credit |
|
Bank Account |
|
XX |
2.Sales
Sales transactions are the disposition of products, services, or any
other items, including tangible and intangible, or a sale, contract, or
other transfers. Here we can discuss how the Odoo platform helps you to
manage sales transactions and their associated operations and how the
journal entries are impacted. The sales transaction includes operations
such as Sales Orders, Delivery Notes, Rejection IN, Sales Invoices, and
Sales Returns. First, we can look at the Sales Order.
Sales Order:
A Sale Order is merely a document generated by the vendor for
determining the information about the product or service requested by
the customer. The Sales order includes every detail, such as
product-service details along with the price, quantity, terms and
conditions, and many more aspects. So the sale order is meant for only
creating an order, as it never impacts stock or accounts.
Delivery Note:
A Delivery Note is an aspect associated with the shipment or the
delivery of products. This will consist of the information about the
product, quantity, and price of products included in the delivery. The
Delivery Note can also be called a ‘Dispatch Note’ or ‘Goods Received
Note.’ As a confirmed order is delivered to the customer from the
Inventory, the stock value decreases. Delivering products to customers
affects two accounts, the ‘Stock Valuation Account’ and ‘Stock Output
account’.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Stock valuation account |
Asset |
Decreasing |
Credit |
| Stock Output account |
Expense |
Increasing |
Debit |
Rejection IN:
A Rejection IN is a very useful aspect for keeping records of rejected
and returned products by the customer. On conditions where the products
are returned before invoicing, it will affect only the stock, and the
accounts are not affected. Also, when the product returns to the
inventory, the stock value also increases.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Stock valuation account |
Asset |
Increasing |
Debit |
| Stock Output account |
Expense |
Decreasing |
Credit |
Sales Invoice:
A Sales Invoice is a kind of accounting document forwarded by a seller
of goods or services to a purchaser. All the details, such as service
rendered, product supplied, and even the amount that needs to be paid by
the customer, the method for making payment and everything will be
described. It is a legally binding agreement between the organization
and buyers and is essential for larger purchases.
In this case, both the Account Receivable and Income Account will be
made affected. When we analyze the nature of these accounts, the Account
Receivable is marked as ‘Asset,’ and the Income Account is marked as
‘Income”. In this case, the asset is decreasing, and the income is
increasing. As a result, the Account Receivable is credited, and the
Income Account is debited.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Income Account |
Income |
Increasing |
Credit |
| Account Receivable |
Asset |
Increasing |
Debit |
A temporary account, Outstanding Receipts, is applied to manage the
unreconciled entries on payment registration. Therefore, a journal entry
is created upon Account Receivable and Outstanding Receipts.
| Accounts | Nature | Increasing/Decreasing | Debit/Credit | | Accounts Receivable | Asset | Decreasing | Credit |
| Outstanding Receipts | Asset | Increasing | Debit |
Once it is reconciled with the bank statement, the amount will be
transferred to the bank account. As a result, the outstanding receipts
account becomes credited, and the bank is debited.
| Accounts |
Nature |
Increasing/Decreasing |
Debit/Credit |
| Outstanding Receipts |
Asset |
Decreasing |
Credit |
| Bank account |
Asset |
Increasing |
Debit |
Sales Return:
There are many occasions where customers reverse the product even after
invoicing. This kind of sales return makes adjustments in both stock and
accounts. Also, reverse journal entries will be generated for them.
When you look at the table below, you will get an insight into the
journal entries for the entire Sales transactions.
| Operation | Accounts Affected | Debit | Credit |
|---|
| Sales order | No Accounts Affected | NA | NA |
| Delivery Note | | Stock valuation account | | Stock Output account |
| | |
| Customer Invoice | | Income Account | | Account Receivable |
| | |
| Registering Payment | | Accounts Receivable | | Outstanding Receipts |
| | |
| Reconciling | | Outstanding Receipts | | Bank Account |
| | |
So finally, the sum of credits will equal the sum of debit based upon the
double-entry bookkeeping system.