Payment done by the customer before accepting delivery of the product is an Advance Payment. For Orders of high value, the business houses expect to receive advance.

For Example: Consider a customer- Jane D’souza placing an order for a double bed costing $10000 She is asked to give some advance before the furniture house begins work on her order. She gives them $5000 in cash.

Once Sales Order or Purchase Order is submitted, you will find option to create Advance Payment entry against it.

To directly create Advance Payment Entry, Go to:

Accounts > Documents > Journal Entry > New Journal Entry

Select a Voucher Type based on a mode in which advance payment is made.

Since the customer has given $5000 as cash advance,it will be recorded as a credit entry against the customer. To balance it with the debit entry [as per the Double accounting system] enter $5000 as debit against the company’s cash account. In the row “Is Advance” click ‘Yes’.

Figure 1 : Journal Entry -Advance Entry

Advace Payment

Double Entry Accounting

Double entry bookkeeping is a system of accounting in which every transaction has a corresponding positive and negative entry : debits and credits. Every transaction involves a debit entry in one account and a credit entry in another account. This means that every transaction must be recorded in two accounts; one account will be debited because it receives value and the other account will be credited because it has given value.

Figure 2: Transaction and Difference Entry

Advace Payment

Save and submit the Journal Entry. If this document is not saved it will not be pulled in other accounting documents.

When you make a new Sales Invoice for the same customer, mention the advance in the Sales Invoice Form.

To link the Sales Invoice to the Journal Entry which mentions the advance payment entry, click on ‘Get Advances Received’. Allocate the amount of advance in the advances table. The accounting will be adjusted accordingly.

Figure 3: Receive Advance

Advace Payment

Save and submit the Sales Invoice.

In ERPNext, you can make accounting entries in multiple currency. For example, if you have a bank account in foreign currency, you can make transactions in that currency and system will show bank balance in that specific currency only.

Setup

To get started with multi-currency accounting, you need to assign accounting currency in Account record. You can define Currency from Chart of Accounts while creating Account.

Set Currency from Chart of Accounts

You can also assign / modify the currency by opening specific Account record for existing Accounts.

Modify Account Currency

For Customer / Supplier (Party), you can also define it’s billing currency in the Party record. If the Party’s accounting currency is different from Company Currency, you should mention Default Receivable / Payable Account in that currency.

Customer Accounting Currency

Once you defined Currency in the Account and selected relevant accounts in the Party record , you are ready to make transactions against them. If Party account currency is different from Company Currency, system will restrict to make transaction for that party with that currency only. If account currency is same as Company Currency, you can make transactions for that Party in any currency. But accounting entries (GL Entries) will always be in Party Account Currency.

You can change accounting currency in Party / Account record, until making any transactions against them. After making accounting entries, system will not allow to change the currency for both Party / Account record.

In case of multi-company setup, accounting currency of Party must be same for all the companies.

Exchange Rates

When dealing with multiple currencies, ERPNext has the Currency Exchange module for managing exchange rates. It allows you to save the exchange rate quotes you require.

For foreign currency transactions, ERPNext checks Currency Exchange for any matching record. If this fails, ERPNext will attempt to get the exchange rate quote from fixer.io. If this still fails, then the exchange rate will have to be entered manually.

Exchange Rate Selection

ERPNext automatically fetches the latest exchange rate available.

Transactions

Sales Invoice

In Sales Invoice, transaction currency must be same as accounting currency of Customer if Customer’s accounting currency is other than Company Currency. Otherwise, you can select any currency in Invoice. On selection of Customer, system will fetch Receivable account from Customer / Company. The currency of receivable account must be same as Customer’s accounting currency.

Now, in POS, Paid Amount will be entered in transaction currency, instead of earlier Company Currency. Write Off Amount will also be entered in transaction currency.

Outstanding Amount and Advance Amount will always be calculated and shown in Customer’s Account Currency.

Sales Invoice Outstanding

Purchase Invoice

Similarly, in Purchase Invoice, accounting entries will be made based on Supplier’s accounting currency. Outstanding Amount and Advance Amount will also be shown in the supplier’s accounting currency. Write Off Amount will now be entered in transaction currency.

Journal Entry

In Journal Entry, you can make transactions in different currencies. There is a checkbox “Multi Currency”, to enable multi-currency entries. If “Multi Currency” option selected, you will be able to select accounts with different currencies.

Journal Entry Exchange Rate

In Accounts table, on selection of foreign currency account, system will show Currency section and fetch Account Currency and Exchange Rate automatically. You can change / modify the Exchange Rate later manually. Debit / Credit amount should be entered in Account Currency, system will calculate and show the Debit / Credit amount in Company Currency automatically.

Journal Entry in multi currency

Reports

General Ledger

In General Ledger, system shows debit / credit amount in both currency if filtered by an Account and Account Currency is different from Company Currency.

General Ledger Report

Accounts Receivable / Payable

In Accounts Receivable / Payable report, system shows all the amounts in Party / Account Currency.

Accounts Receivable Report

If you offer a service which requires renewal in the certain time period (yearly, monthly, quarterly etc.), you can use Subscription feature to track them. Subscription master captures all the details required for the auto-creation of Sales Invoice on subscription expiry.

Let’s consider a use-case of ERPNext subscription itself. Our hosting plans are available on yearly basis. Each customer’s account has subscription expiry date, after which customer must renew their subscription with us.

To manage client’s subscription expiry and auto-generation of Sales Invoice for the renewal, we use Subscription feature.

Subscription Validity

Start Date: Day from when the subscription will be valid.

Days Until Due: Enter no. of days for which subscription will be valid.

Based on the subscription start and end date, actual dates for invoices will be calculated.

Subscription Plan

The subscription plan is linked to an Item, for which Sales Invoice is created.

Subscription

Taxes

Select Taxes and Charges which will be applicable in the Sales Invoice created against this Subscription.

Discounts

Mention discounts if any which will be applied on this particular subscription.

Difference Between Subscription and Auto-Repeat

Before Subscription feature was added in ERPNext, the current Auto-Repeat feature was available as a Subscription only.

The Auto-Repeat feature which is applicable for multiple transactions like Sales Order, Purchase Order, Invoices, Journal Entry etc. Whereas based on Subscription, only Sales Invoices are auto-created.

Disabled: It will stop to make auto recurring documents against the subscription

Deferred revenue, also known as unearned revenue, refers to advance payments a company receives for products or services that are to be delivered or performed in the future.

The company that receives the prepayment records the amount as Deferred revenue on their balance sheet as a liability. Deferred revenue is a liability because it refers to revenue that has not been earned and represents products or services that are owed to a customer. As the product or service is delivered over time, it is recognized as revenue on the income statement.

Deferred Revenue Usecase

The internet and broadcasting services providers offers subscription plans on quaterly or yearly basis. They take complete payment in advance from the customer for couple of months, but book income on monthly basis in their books of accounts. Following is how they should configure Deferred Revenue accounting in ERPNext to automate the process.

Item

In the Item master created for the subscription plan, under Deferred Revenue section, check field Enable Deferred Revenue. In this section, you can also select a Deferred Revenue account for this particular item and no. of months.

Item - Deferred Revenue

Sales Invoice

On creation of Sales Invoice for the Deferred Revenue Item, instead of posting in the Income Account, Deferred Revenue account is Credited by the sale amount.

Item - Deferred Revenue

Journal Entry

Based on the From Date and To Date set in the Sales Invoice Item table, Journal Entries are created automatically at the end of each month. It debits the value from Deferred Revenue account and credits Income Account selected for an Item in the Sales Invoice. Following is the example of Income for the deferred Revenue Item is booked via multiple Journal Entries.

Item - Deferred Revenue

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All types of accounting entries other than Sales Invoice and Purchase Invoice are made using the Journal Entry. A Journal Entry is a standard accounting transaction that affects multiple Accounts and the sum of debits is equal to the sum of credits.

To create a Journal Entry go to:

Accounts > Company and Accounts > Journal Entry > New

Journal Entry

In a Journal Entry, you must select.

  • Type of Voucher from the drop down.
  • Add rows for the individual accounting entries. In each row, you must specify:
    • The Account that will be affected
    • The amount to Debit or Credit
    • The Cost Center (if it is an Income or Expense)
    • Against Voucher: Link it to a voucher or invoice if it affects the “outstanding” amount of that invoice.
    • Is Advance: Select “Yes” if you want to make it selectable in an Invoice. Other information in case it is a Bank Payment or a bill.

Difference

The “Difference” field is the difference between the Debit and Credit amounts. This should be zero if the Journal Entry is to be “Submitted”. If this number is not zero, you can click on “Make Difference Entry” to add a new row with the amount required to make the total as zero.


Common Entries

A look at some of the common accounting entries that can be done via Journal Voucher.

Expenses (non accruing)

Many times it may not be necessary to accrue an expense, but it can be directly booked against an expense Account on payment. For example a travel allowance or a telephone bill. You can directly debit Telephone Expense (instead of your telephone company) and credit your Bank on payment.

  • Debit: Expense Account (like Telephone expense)
  • Credit: Bank or Cash Account

Bad Debts or Write Offs

If you are writing off an Invoice as a bad debt, you can create a Journal Voucher similar to a Payment, except instead of debiting your Bank, you can debit an Expense Account called Bad Debts.

  • Debit: Bad Debts Written Off
  • Credit: Customer

Note: There may be regulations in your country before you can write off bad debts.

Depreciation

Depreciation is when you write off certain value of your assets as an expense. For example if you have a computer that you will use for say 5 years, you can distribute its expense over the period and pass a Journal Entry at the end of each year reducing its value by a certain percentage.

  • Debit: Depreciation (Expense)
  • Credit: Asset (the Account under which you had booked the asset to be depreciated)

Note: There may be regulations in your country that define by how much amount you can depreciate a class of Assets.

Credit Note

“Credit Note” is made for a Customer against a Sales Invoice when the company needs to adjust a payment for returned goods. When a Credit Note is made, the seller can either make a payment to the customer or adjust the amount in another invoice.

  • Debit: Sales Return Account
  • Credit: Customer Account

Debit Note

“Debit Note” is made for a Supplier against a Purchase Invoice or accepted as a credit note from supplier when a company returns goods. When a Debit Note is made, the company can either receive a payment from the supplier or adjust the amount in another invoice.

  • Debit: Supplier Account
  • Credit: Purchase Return Account

Excise Entry

When a Company buys good from a Supplier, company pays excise duty on these goods to Supplier. And when a company sells these goods to Customers, it receives excise duty. Company will deduct payable excise duty and deposit balance in Govt. account.

  • When a Company buys goods with Excise duty:
    • Debit: Purchase Account
    • Debit: Excise Duty Account
    • Credit: Supplier Account
  • When a Company sells goods with Excise duty:
    • Debit: Customer Account
    • Credit: Sales Account
    • Credit: Excise Duty Account

Note: Applicable in India, might not be applicable for your country. Please check your country regulations.

Payment can be made against following transactions.

  1. Sales Invoice.
  2. Purchase Invoice.
  3. Sales Order (Advance Payment)
  4. Purchase Order (Advance Payment)

In ERPNext, there is two options through which user can capture the payment

  1. Payment Entry(Default).
  2. Journal Entry.

Payment Entry

Step 1: Make Payment

On submitting a document against which Payment Entry can be made, you will find Make Payment button.

Making Payment

Step 2: Payment Entry

Making Payment

 

Journal Entry

To make payment using journal entry, check below steps

Step 1: Activate Payment via Journal Entry

Goto Accounts Settings > checked Make Payment via Journal Entry

Making Payment

Step 2: Make Payment

On submitting a document against which Journal Entry can be made, you will find Make Payment button.

Making Payment

Step 3: Journal Entry

Save and submit the journal entry to record the payament against the invoice Making Payment

 

Along with creating Purchase Invoices or Sales Invoices for a single company, you can create inter-linked invoices for multiple companies.

Such as, you can create a Purchase Invoice for a company say ‘Company ABC’, and create a Sales Invoice against this Purchase Invoice for a company say ‘Company XYZ’ and link them together.

To create Inter Company Invoices as mentioned in the above process, you need to follow the below steps:

  • Go to the Customer list, select the customer which you would want to choose for the inter-linked invoices, enable the checkbox, Is Internal Customer as shown below:

    Internal Customer

  • Along with that, add the company which the Customer represents, i.e. the company for which the Sales Invoice will be created.
  • Next, fill up the child table Allowed To Transact With as shown in the image and add the company against which you will be creating a Purchase Invoice, which will be linked with the Sales Invoice created using this Customer.
  • Easy peasy, right? Now, you need to follow the similar procedure for setting up a Supplier for inter-linked invoices. And, in the Represents Company field, add the company which you added in the child table Allowed To Transact With for the Customer.
  • And, in the child table Allowed To Transact With for the Supplier, add the company which the Customer represents or against which you are going to make an inter-linked Purchase Invoice. You can refer the below image to avoid any confusion.

    Internal Supplier

    • Now, create a new Sales Invoice, fill up the fields, and remember to select the Customer who is an internal customer and company which the Customer represents.
    • Submit the Invoice.

    Inter company invoice

    • Under the Make button dropdown, you will find a link Inter Company Invoice, on clicking the link, you will be routed to a new Purchase Invoice form page.
    • Here, the supplier and company will be auto-fetched depending on the company you selected in the Sales Invoice. Remember: There can only be a single Internal Supplier or Customer per company.
    • Submit the invoice, done! Now, both the invoices are inter-linked. Also, on cancelling any of the invoices, the link will break as well.

You can follow the same process to create a Purchase Invoice and then an inter-linked Sales Invoice from the submitted Purchase Invoice.

A debit note is a document sent by a buyer to a seller, or in other words, a purchaser to a vendor while returning goods received on credit. This notifies that a debit has been made to their accounts.

A debit note is issued for the value of the goods returned. In some cases, sellers are seen sending debit notes which should be treated as just another invoice.

How to make debit note in ERPNext

The user can make a debit note against the purchase invoice or they can directly make debit note from the purchase invoice without reference Goto module Accounts > Purchase Invoice > New > Manually enabled Is Return checkbox

Sales Invoice

Note: For debit note set the negative quantity while adding the item

Example

Debit note with payment entry in ERPNext

Sales Invoice

Purchase Invoice is the exact opposite of your Sales Invoice. It is the bill that your Supplier sends you for products or services delivered. Here you accrue expenses to your Supplier. Making a Purchase Invoice is very similar to making a Purchase Order.

To make a new Purchase Invoice:

type “new purchase invoice” into the search bar then select “New Purchase Invoice” from the drop down

or click on “Make Purchase Invoice” in Purchase Order or Purchase Receipt.

You can also create a Purchase Invoice from:

Accounts > Billing > Purchase Invoice > New Purchase Invoice

Purchase Invoice

The concept of “Posting Date” is again same as Sales Invoice. “Bill No” and “Bill Date” helps to track the bill number as set by your Supplier for reference.

Is Paid option

The Is Paid checkbox should be checked if there is a part or full payment on the invoice at posting date.

Update Stock

The Update Stock checkbox should be checked if you want ERPNext to automatically update your inventory. Consequently, there will be no need for a Delivery Note.

Accounting Impact

Like in Sales Invoice, you have to enter an Expense or an Asset account for each row in your Items table. This helps to indicate if the Item is an Asset or an Expense. You must also enter a Cost Center. These can also be set in the Item master.

The Purchase Invoice will affect your accounts as follows:

Accounting entries (GL Entry) for a typical double entry “purchase”:

Debits:

  • Expense or Asset (net totals, excluding taxes)
  • Taxes (/assets if VAT-type or expense again).

Credits:

  • Supplier
Accounting Treatment When Is Paid is checked

If Is Paid is checked, ERPNext will also make the following accounting entries:

Debits:

  • Supplier

Credits: * Bank/Cash Account

To see entries in your Purchase Invoice after you “Submit”, click on “View Ledger”.


Is purchase an “Expense” or an “Asset”?

If the Item is consumed immediately on purchase, or if it is a service, then the purchase becomes an “Expense”. For example, a telephone bill or travel bill is an “Expense” – it is already consumed.

For inventory Items, that have a value, these purchases are not yet “Expense”, because they still have a value while they remain in your stock. They are “Assets”. If they are raw-materials (used in a process), they will become “Expense” the moment they are consumed in the process. If they are to be sold to a Customer, they become “Expense” when you ship them to the Customer.


Deducting Taxes at Source

In many countries, the law may require you to deduct taxes, while paying your suppliers. These taxes could be based on a standard rate. Under these type of schemes, typically if a Supplier crosses a certain threshold of payment, and if the type of product is taxable, you may have to deduct some tax (which you pay back to your government, on your Supplier’s behalf).

To do this, you will have to make a new Tax Account under “Tax Liabilities” or similar and credit this Account by the percent you are bound to deduct for every transaction.

For more help, please contact your Accountant!

Hold Payments For A Purchase Invoice

There are two ways to put a purchase invoice on hold: – Date Span Hold – Explicit Hold

Explicit Hold

Explicit hold holds the purchase invoice indefinitely. To do it, in the “Hold Invoice” section of the purchase invoice form, simply check the “Hold Invoice” checkbox. In the “Reason For Putting On Hold” text field, type a comment explaining why the invoice is to be put on hold.

If you need to hold a submitted invoice, click the “Make” drop down button and click “Block Invoice”. Also add a comment explaining why the invoice is to be put on hold in the dialog that pops up and click “Save”.

Date Span Hold

Date span hold holds the purchase invoice until a specified date. To do it, in the “Hold Invoice” section of the purchase invoice form, check the “Hold Invoice” checkbox. Next, input the release date in the dialog that pops up and click “Save”. The release date is the date that the hold on the document expires.

After the invoice has been saved, you can change the release date by clicking on the “Hold Invoice” drop down button and then “Change Release Date”. This action will cause a dialog to appear.

Purchase Invoice on hold

Select the new release date and click “Save”. You should also enter a comment in the “Reason For Putting On Hold” field.

Take note of the following: – All purchases that have been placed on hold will not included in a Payment Entry’s references table – The release date cannot be in the past. – You can only block or unblock a purchase invoice if it is unpaid. – You can only change the release date if the invoice is unpaid.

A credit note is a document sent by a seller to the customer, notifying that a credit has been made to their account against the goods returned by the buyer.

A credit note is issued for the value of goods returned by the customer, it may be less than or equal to total amount of the order.

How to make credit note in ERPNext

The user can make a credit note against the sales invoice or they can directly make credit note from the sales invoice without reference Goto module Accounts > Sales Invoice > New > Manually enabled Is Return checkbox

Sales InvoiceNote: For credit note set the negative quantity while adding the item

Example

Customer Mr. Sagar Malhotra has purchased Nokia Lumia worth Rs 42,400 and at the time of delivery customer were found that the piece has been damaged. Now Sagar has returned the product and he got his money back. Credit note with payment entry in ERPNext for above example is as below

Sales Invoice