In Odoo 17, the accounting method referred to as "continental accounting" records the cost of revenue when purchases are made. Typically, expenses are incurred when acquiring products or services, and these expenses are logged when ledger entries are generated. While following GAAP accounting principles, users have the flexibility to choose the accounts to be debited or credited within the predefined accounts.
Now, let's explore how continental accounting affects the ledgers. To understand the effects on stock journals, we'll focus on a product category where inventory valuation can be configured as "Automated." However, it's important to note that inventory valuation doesn't always have to be automated; manual methods are also valid, depending on the business's operations. Some businesses update their ERPs with stock value counts quarterly or semi-annually. When inventory valuation is automated, every stock entry is immediately updated after each transaction.
Before proceeding with continental accounting, it's essential to confirm whether we're in continental accounting mode. To do this, enable developer mode, go to the accounting configuration settings, and ensure that "Anglo-Saxon Accounting" is deactivated.
With "Anglo-Saxon" deactivated, the system is considered to be in continental accounting mode. Now, let's proceed by examining the product category below, which consists of 52 items and has automatic inventory valuation.
Including the stock accounting features becomes essential due to the automated inventory valuation setting. In this setup, the value of incoming stock is logged in the stock input account, while the value of stock removed from inventory is accounted for in the stock output account. The variance between stock inflow and outflow, representing the current stock value, is then stored in the stock valuation.
You have the option to choose between standard, average cost (AVCO), or First In First Out (FIFO) costing methods. Let's say you're acquiring a product from a vendor, and initially, there's no stock on hand.
Now, let's initiate a product purchase process to observe how continental accounting influences the ledgers.
Purchase orders simply generate documents suitable for business purposes; they do not affect accounts in any way. The subsequent step is the purchase receipt, which impacts the stock accounts upon product reception.
Upon receipt, the input account will record the value of the stock, consequently increasing the stock value at that moment. Now, let's delve into the stock ledger.
The characteristics of the received stock are viewed as a liability. As the liability increases, the account follows the asset-liability chart by being credited. Consequently, the stock valuation account is debited while the stock interim received account is credited. The stock valuation account reflects the current worth of the asset. Therefore, the stock valuation account is debited when an asset appreciates.
Note: The asset-liability chart delineates when income and liability increases will be credited, and when asset and expense growth will be debited. Next, the purchase order bill, which will affect the accounting ledgers, must be generated.
Under the journal items tab, you can observe the ledger specifics, indicating the debiting of the expense account and the crediting of the accounts payable. In this scenario, when creating a bill, the business incurs a liability to pay the vendor (accounts payable), which is credited. Accounts payable, being a liability, increases as the credit is applied. Additionally, an acquisition raises the business's expenses, which are recorded in the expenditure account. Consequently, expenses increase, and the account is debited.
The current procedure involves paying the vendor through payment registration. Upon clicking "Register Payment," a pop-up window appears, enabling you to choose the payment journal and method. The payment journal entry, created upon registering the payment, records the accounts payable and any outstanding payments.
Review the journal entry for the payment. In this scenario, unpaid invoices are credited, and the accounts payable are debited.
Once the payment has been made, the accounts payable account is debited, reflecting the decrease in liability. This transaction is then recorded in the outstanding payments for reconciliation. Consequently, the unreconciled transactions will be listed in the unpaid payments account.
The outstanding payments in the bank journal are now displayed on the accounting dashboard. Once reconciled with the bank statement, they will be transferred to the bank, updating the Balance in GL accordingly.
The bank statements retrieved need to be cross-referenced with the payment. Upon generating bank statements, an additional journal entry for bank accounts and bank suspense accounts is made. Thus, let's proceed to input a statement line into Odoo.
You can reconcile the entries by aligning them with the MATCH. Furthermore, it retains the statement value for the bank suspense account until it identifies the suitable account to link with the bank. Consequently, it generates a corresponding journal entry.
In the ledger posting discussion, the Bank account is credited, indicating a decrease in the asset as the vendor is being paid. Conversely, the equivalent account, the suspense account, is debited.
Now, let's proceed to reconcile the payment with the line item on the bank statement. The VALIDATE option is used to confirm the corresponding items.
Once the reconciliation process is finished, it seems that the funds from the overdue payments are moved to the bank. Consequently, both the bank suspense account and outstanding payments will be included in another journal entry.
Following reconciliation, you'll notice that the outstanding payments account has replaced the bank suspense account in this journal entry. Subsequently, the bill status shifted to PAID.
Now, let's observe the Sales operation, where some of the acquired products are being sold.
Sales orders play a vital role in business operations, separate from accounting, and do not impact any ledger entries. The subsequent step involves delivering the items listed in the sales order as requested.
The delivery of goods impacts the stock, subsequently influencing stock ledgers due to automated inventory valuation. Upon delivery of goods, the value of the supplied stock is documented in the stock output account via the stock result record, leading to a decrease in the value of current stock. It's advisable to review the stock journal at this juncture.
In this scenario, the reduction in liability prompts a debit to the stock output account, whereas the decrease in asset triggers a credit to the stock valuation account.
The subsequent action involves generating an invoice to document the revenue. The impacted ledgers can be viewed in the journal items tab.
The credit is allocated to the income account labeled "Product Sales." Income accounts are categorized by their nature as they represent revenue, and they are credited when revenue increases during transactions. The funds expected from the customer are recorded in the accounts receivable, which follows. In this instance, the accounts receivable is recognized as an asset and is debited as assets expand.
After receiving payment from the client, the cashier can input "register payment" in Odoo 17. The received amount will then be allocated to overdue receipts within the payment journal entry generated as a result.
Upon receiving payment, the outstanding amount will decrease. Account receivables are asset-based, and the account is credited when assets decrease. The counterpart account "outstanding receipts" will be debited until reconciliation.
The next step is to either prepare and reconcile a bank statement or obtain one directly from the bank. Now, let's navigate to the accounting dashboard and create a statement line. This time, the outstanding receipt amount will also be visible under the bank journal on the accounting dashboard.
When a statement line is generated, a corresponding journal entry is created linking the bank account with the bank suspense account.
As the consumer has deposited funds into the company's bank account, the bank account is debited. Consequently, with the asset increasing and the account being debited, the balance in the bank account will increase.
At this juncture, proceed to reconcile the Odoo payment log with the statement. Verify the statement by clicking the validate button, thereby completing the reconciliation process.
Upon reviewing the journal item, you'll observe that the overdue receipts account has replaced the bank suspense account.
Consequently, the status of the invoice was updated to PAID.
We've now addressed ledger postings at every stage of the purchasing and sales processes. This demonstrates that the continental accounting expense is influenced either when the purchase bill is generated or when the charge is recorded.