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
- Getting Started Guide - Financial Basics (required)
- An Introduction to COGS in DEAR (recommended)
Table of Contents
Purchase
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:
Dr | Cr | Amount | Transaction Date |
Supplier Deposits | Bank | $25 | Deposit 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).
Dr | Cr | Amount | Transaction Date |
Inventory control | Account Payable | $100 | Invoice date |
Tax | Account Payable | $10 | Invoice date |
Expense | Account Payable | $20 | Invoice date |
Tax | Account Payable | $2 | Invoice date |
Account Payable will then be reduced by the amount of supplier deposit made previously ($25).
Dr | Cr | Amount | Transaction Date |
Account Payable | Prepayment | $25 | Invoice 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.
Dr | Cr | Amount | Transaction Date |
COGS | Inventory control | $100 | Invoice 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.
Dr | Cr | Amount | Transaction Date |
Inventory control | Account Payable | $100 | Invoice date |
Tax | Account Payable | $10 | Invoice date |
Inventory control | Account Payable | $20 | Invoice date |
Tax | Account Payable | $2 | Invoice 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:
Dr | Cr | Amount | Transaction Date |
Inventory control | Warehouse overheads | $8 | Manual Journal Date |
In a month you find a defect in the item and request a credit note (total amount is $11 including tax)
Dr | Cr | Amount | Transaction Date |
Inventory control | Account Payable | $-10 | Credit Note Date |
Tax | Account Payable | $-1 | Credit Note Date |
Invoice Payment will generate the following transaction:
Dr | Cr | Amount | Transaction Date |
Account Payable | Bank | $110 | Payment Date |
Sale
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:
Dr | Cr | Amount | Transaction Date |
Bank | Prepayment | $25 | Prepayment 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.
Dr | Cr | Amount | Transaction Date |
Accounts Receivable | Sale | $100 | Invoice Date |
Accounts Receivable | Tax | $10 | Invoice Date |
Accounts Receivable | Sale 2 | $20 | Invoice Date |
Accounts Receivable | Tax | $2 | Invoice Date |
Prepayment | Accounts Receivable | $25 | Invoice 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.
Dr | Cr | Amount | Transaction Date |
COGS | Inventory control | $50 | Max 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:
Dr | Cr | Amount | Transaction Date |
COGS | Warehouse overheads | $8 | Manual Journal Date |
When the customer makes the invoice payment, the following transaction is generated:
Dr | Cr | Amount | Transaction Date |
Bank | Accounts Receivable | $110 | Payment Date |
In a month, the customer finds a defect in the item and requests a credit note (total amount including tax is $11).
Dr | Cr | Amount | Transaction Date |
Accounts Receivable | Sale | $-10 | Credit Note Date |
Accounts Receivable | Tax | $-1 | Credit Note Date |
COGS | Inventory control | $-5 | Credit Note Date |
Stock Adjustments and Stocktake
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:
Dr | Cr | Amount | Transaction Date |
Inventory Control | Inventory Discrepancy Account | $10 | Effective Date |
Below is a result of a $10 decrease in stock value due to a stock adjustment:
Dr | Cr | Amount | Transaction Date |
Inventory Control | Inventory Discrepancy Account | $-10 | Effective Date |
Assembly
There are two stages of assembling new finished goods:
- Component allocation
- 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.
Dr | Cr | Amount | Transaction Date |
WIP Account | Inventory 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.
Dr | Cr | Amount | Transaction Date |
Inventory Control | WIP account | $10 | Assembly completion date |
Service costs, for example, labour and overheads, are allocated to the assembled goods during the assembly task.
Dr | Cr | Amount | Transaction Date |
Inventory Control | Labour account or Overheads account | $150 | Assembly 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.
Dr | Cr | Amount | Transaction Date |
Inventory Control | Warehouse overheads | $8 | Manual Journal Date |
Inventory Write-Off
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.
Dr | Cr | Amount | Transaction Date |
Selected Expense Account | Inventory Control | $20 | Date when user completed inventory write-off task |
Selected Expense Account | Labour account or Overheads account | $100 | Date when user completed inventory write-off task |
Disassembly
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.
Dr | Cr | Amount | Transaction Date |
WIP Account | Inventory Control | $200 | Date when user completed disassembly task |
Inventory Control | Selected ‘work in progress’ account | $200 | Date when user completed disassembly task |
Inventory Control | Labour account or Overheads account | $100 | Date when user completed disassembly task |