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Accounting transactions are created when the following events have occurred:

  • User authorised purchase order or sale quote with deposit/prepayment. Nothing will be created if deposit or prepayment is not attached to the purchase order or sale quote.
  • User authorised purchase or sale invoice/credit note.
  • User authorised sale shipment.
  • User authorised manual journal transaction.
  • User authorised/completed stocktake.
  • User authorised/completed stock adjustment.
  • User authorised/completed assembly or productiontask.
  • User authorised/completed inventory write-off task.
  • User authorised/completed disassembly task.
  • User undo/voided any of items above.


NOTE: Purchase order stock receipt does not generate accounting transactions. Stock receipt authorisation updates the physical quantities in DEAR. Authorising purchase order invoice does not update physical quantities in DEAR, stock receipt must be authorised. 


In this article we will show some examples of how accounting transactions are generated for different scenarios. You will need to set up your chart of accounts and complete account mapping for transactions to be generated successfully. This is covered in the Getting Started Guide. 


Prerequisites


Table of Contents


Purchase

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In these examples we will show how accounting transactions work for the purchase module, including adding prepayments/supplier deposits, dropship, and credit notes. Expenses can be capitalised or allocated to an expense account. You may wish to see Landed Cost Expense Distribution for more information about capitalising purchases.


In our first example, we have created a purchase order and attached a $25 supplier deposit. The accounting transaction looks like this:

DrCrAmountTransaction Date
Supplier DepositsBank$25Deposit date


When processing a purchase the following accounts are involved:

  • Inventory control Account
  • Account Payable
  • Tax Account
  • Optional Expense Account

In the table below is an example of a purchase invoice:

  • Tax rate is 10%
  • Purchase amount is $110 (including tax of $10)
  • $22 delivery fee (that is not capitalised, however, it is allocated to an expense account).
DrCrAmountTransaction Date
Inventory controlAccount Payable$100Invoice date
TaxAccount Payable$10Invoice date
ExpenseAccount Payable$20Invoice date
TaxAccount Payable$2Invoice date


Account Payable will then be reduced by the amount of supplier deposit made previously ($25).

DrCrAmountTransaction Date
Account PayablePrepayment$25Invoice date


If Purchase Order is a Drop ship purchase the transactions are going to be the same as the above example plus the transaction below. For standard sales, COGS transactions are generated once the Ship tab of the order is authorised. With dropshipped orders, there is no Ship tab. For dropship products, COGS transactions are generated when the purchase invoice is authorised. 

DrCrAmountTransaction Date
COGSInventory control$100Invoice date


If the delivery fee is capitalised, transactions will instead like the table below. The delivery fee should use the same inventory account as the product in order to capitalise it. 

DrCrAmountTransaction Date
Inventory controlAccount Payable$100Invoice date
TaxAccount Payable$10Invoice date
Inventory controlAccount Payable$20Invoice date
TaxAccount Payable$2Invoice date


You decide to use a manual journal to distribute $8 in the Warehouse Overheads and allocate them to the inventory items on this invoice:

DrCrAmountTransaction Date
Inventory controlWarehouse overheads$8Manual Journal Date


In a month you find a defect in the item and request a credit note (total amount is $11 including tax)

DrCrAmountTransaction Date
Inventory controlAccount Payable$-10Credit Note Date
TaxAccount Payable$-1Credit Note Date


Invoice Payment will generate the following transaction:

DrCrAmountTransaction Date
Account PayableBank$110Payment Date


Sale

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In these examples we will show how accounting transactions work for the sale module, including adding prepayments/customer credits, and credit notes. Expenses can be allocated to the COGS of the products or allocated to an expense account. You may wish to see An Introduction to COGS for more information about how COGS is calculated by the system. 


In our first example, we have created a sale quote, authorised it, and received a client prepayment/customer credit of $25. The accounting transaction looks like this:

DrCrAmountTransaction Date
BankPrepayment$25Prepayment Date


When processing a sale the following accounts are involved for a sale invoice:

  • Accounts Receivable
  • Tax Account
  • Optional Expense Account
  • Sale Revenue

In the table below is an example of a Sale Invoice:

  • Tax rate is 10%
  • Sale amount is $110 (including tax of $10)
  • $22 delivery fee (which is allocated to a different Sale Account)


When the sale invoice is authorised, the following transactions will be generated. Accounts Receivable will be reduced by the amount of Prepayment made before.

DrCrAmountTransaction Date
Accounts ReceivableSale$100Invoice Date
Accounts ReceivableTax$10Invoice Date
Accounts ReceivableSale 2$20Invoice Date
Accounts Receivable

Tax

$2Invoice Date
PrepaymentAccounts Receivable$25Invoice Date

 

When we authorise the Shipment tab of a sale, the following accounts are involved:

  • Inventory Control Account
  • Cost of Goods Sold (COGS) Account


The amount of the transaction will depend on the value collected from the inventory cards that were picked according to the costing method (e.g. FIFO, FEFO etc.) This will be the purchase value of the picked product. 

DrCrAmountTransaction Date
COGSInventory control$50Max of Shipment Dates if multiple


We decide to use a manual journal to distribute $8 in the Warehouse Overheads and allocate them to the COGS Account to change the profit of this sale:

DrCrAmountTransaction Date
COGSWarehouse overheads$8Manual Journal Date


When the customer makes the invoice payment, the following transaction is generated:

DrCrAmountTransaction Date
BankAccounts Receivable$110Payment Date


In a month, the customer finds a defect in the item and requests a credit note (total amount including tax is $11). 

DrCrAmountTransaction Date
Accounts ReceivableSale$-10Credit Note Date
Accounts ReceivableTax$-1Credit Note Date
COGSInventory control$-5Credit Note Date




Stock Adjustments and Stocktake

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When changing the quantity of stock on hand with a stock adjustment or a stocktake, you have an option to allocate the difference in cost to an expense account such as Inventory Discrepancy account. 


Below is a result of a $10 increase in stock value due to a stock adjustment:

DrCrAmountTransaction Date
Inventory ControlInventory Discrepancy Account$10Effective Date



Below is a result of a $10 decrease in stock value due to a stock adjustment:

DrCrAmountTransaction Date
Inventory ControlInventory Discrepancy Account$-10Effective Date


Assembly

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There are two stages of assembling new finished goods:

  1. Component allocation
  2. Placing assembled goods to the Inventory Account.


In stage one, we select the work-in-progress (WIP) account and move the components inventory to this account. The transaction below will be created when user clicks the Allocate button.

DrCrAmountTransaction Date
WIP AccountInventory Control
$10
Assembly completion date


Once assembled goods are ready, the user can finalise the work order by pressing Complete. This will close the Work In Progress and place assembled goods to the Inventory account.

DrCrAmountTransaction Date
Inventory ControlWIP account$10Assembly completion date


Service costs, for example, labour and overheads, are allocated to the assembled goods during the assembly task. 

DrCrAmountTransaction Date
Inventory ControlLabour account or Overheads account$150Assembly completion date


After the assembly is completed, we decide to use a manual journal to distribute $8 in the Warehouse Overheads and allocate them to the assembled goods. See Allocate Landed Costs using a Manual Journal for more information. 

DrCrAmountTransaction Date
Inventory ControlWarehouse overheads$8Manual Journal Date



Inventory Write-Off

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Inventory write-off is required when you need to write off stock from the inventory as a result of damage, expiration or to use it to perform some work (issue to production). Along with raw materials you can specify labour and overheads to be allocated on the expense accounts.

DrCrAmountTransaction Date
Selected Expense AccountInventory Control$20Date when user completed inventory write-off task
Selected Expense AccountLabour account or Overheads account$100Date when user completed inventory write-off task



Disassembly

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Disassembly works in a similar way as Finished Goods Assembly. Initially a product that needs disassembly will be put into the Work-In-Progress Account and the disassembled components will be placed to the Inventory Account. Along with raw materials you can specify labor and overheads to be allocated on the expense accounts.

DrCrAmountTransaction Date
WIP AccountInventory Control$200Date when user completed disassembly task
Inventory ControlSelected ‘work in progress’ account$200Date when user completed disassembly task
Inventory ControlLabour account or Overheads account$100Date when user completed disassembly task




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