If you are a new company you can start using ERPNext accounting module by going to chart of accounts. However, if you are migrating from a legacy accounting system like Tally or a Fox Pro based software we recommend that you start using accounting in a new financial year, but you could start midway too. To setup your accounts, you will need the following for the “day” you start using accounting in ERPNext:

  • Opening capital accounts – like your shareholder’s (or owner’) capital, loans, bank balances on that day.
  • List of outstanding sales and purchase invoices (Payables and Receivables).

If you were using another accounting software before, firstly you should close financial statements in that software. The closing balance of the accounts should be updated as an opening balance in the ERPNext. Before starting to update opening balance, ensure that your Chart of Accounts has all the Accounts required.

Opening entry is only for Balance Sheet accounts and not for the Accounts in the Profit and Loss statement.

  • For all assets (excluding Accounts Receivables): This entry will contain all your assets except the amounts you are expecting from your Customers against outstanding Sales Invoices. You will have to update your receivables by making an individual entry for each Invoice (this is because, the system will help you track the invoices which are yet to be paid). You can credit the sum of all these debits against the Temporary Opening account.
  • For all liabilities: Similarly you need to pass a Journal Entry for your Opening Liabilities (except for the bills you have to pay) against Temporary Opening account.

Opening Entry

Step 1: New Journal Entry

To open new Journal Entry, go to:

Explore > Accounts > Journal Entry

Step 2: Entry Type

If Entry Type is selected as Opening Entry, all the Balance Sheet Accounts will be auto-fetched in the Journal Entry.

Opening Account

Step 3: Posting Date

Select Posting Date on which Accounts Opening Balance will be updated.

Step 4: Enter Debit/Credit Value

For each Account, enter opening value in the Debit or Credit column. As per the double entry valuation system, Total Debit value in a entry must be equal to Total Credit value.

Opening Account

Step 5: Is Opening

Set field Is Opening as Yes.

Opening Account

Step 6: Save and Submit

After enter opening balance for each account, Save and Submit Journal Entry. To check if Opening Balance for an account is updated correctly, you can check Trial Balance report.

Selecting Accounts Manually

If your Balance Sheet has many Accounts, then updating Account Opening balance from single Journal Entry can lead to performance issues. In such a scenario, you can multiple Journal Entries to update opening balance in all the Accounts.

If you are updating account opening balance in few accounts at a time, you can use Temporary Opening account for balancing purpose. In the standard chart of accounts, a Temporary Opening Account is auto-created under Assets.

Opening Account

In the Journal Entry, manually select an Account for which opening balance is to be updated. For each Account, enter opening balance value in the Debit or Credit column, based on it’s Account Type (Asset or Liability).

For example, if you want to update balance in bank accounts, create Journal Entry as following.

Opening Account

Once all your invoices are entered, your Temporary Opening account will have a balance of zero!

Trial Balance

After completing the accounting entries, the trial balance report will look like the one given below:

Opening Account

Stock Opening

To track stock balance in the Chart of Account, an Account is created for each Warehouse.

Chart of Accounts > Assets > Current Asset > StocK Assets > (Warehouse Account)

Opening Account

To update stock opening balance, create Stock Reconciliation entry. Based on the valuation of items’s update in the Warehouse, balance will be updated in the Warehouse account.

Fixed Asset Opening

Opening balance for the fixed asset account should be updated via Journal Entry. Assets which are not fully depreciated should be added in the Asset master. For adding Assets in your possession, ensure to check Is Existing Asset field.

Outstanding Payables and Receivables

After opening Journal Entries are made, you will need to enter the Sales Invoice and Purchase Invoice that is yet to be paid.

Since you have already booked the income or expense on these invoices in the previous period, select Temporary Opening in the “Income” and “Expense” accounts.

Note: Make sure to set each invoice as “Is Opening”!

If you don’t care what items are in that invoice, just make a dummy item entry in the Invoice. Item code in the Invoice is not necessary, so it should not be such a problem.

You can also do this quickly using the Opening Invoice Creation Tool

To use this tool, just type “Opening Invoice” in the search bar and select the Opening Invoice Creation Tool

Here, select the company and type of invoice (sales or purchase) and add a line item for each invoice you want to create.

Opening Invoice Creation Tool

The Chart of Accounts forms the blueprint of your organization. The overall structure of your Chart of Accounts is based on a system of double entry accounting that has become a standard all over the world to quantify how a company is doing financially.

The Chart of Accounts helps you to answer:

  • What is your organisation worth?
  • How much debt have you taken?
  • How much profit are you making (and hence paying tax)?
  • How much are you selling?
  • What is your expense break-up

You may note that as a business manager, it is very valuable to see how well your business is doing.

Tip: If you can’t read a Balance Sheet (It took me a long time to figure this out) it’s a good opportunity to start learning about this. It will be worth the effort. You can also take the help of your accountant to setup your Chart of Accounts.

Financial statements for your company are easily viewable in ERPNext. You can view financial statements such as Balance Sheet, Profit and Loss statement and Cash flow statement.

An Example of various financial statement are given below:

Cash Flow Report

Cash Flow Report

Profit and Loss Report

Profit and Loss Report

Balance Sheet Report

Balance Sheet Report

To edit your Chart of Accounts in ERPNext go to:

Accounts > Setup > Chart of Accounts

Chart of Accounts is a tree view of the names of the Accounts (Ledgers and Groups) that a Company requires to manage its books of accounts. ERPNext sets up a simple chart of accounts for each Company you create, but you have to modify it according to your needs and legal requirements. For each company, Chart of Accounts signifies the way to classify the accounting entries, mostly based on statutory (tax, compliance to government regulations) requirements.

Let us understand the main groups of the Chart of Accounts.

Chart of Accounts

Balance Sheet Accounts

The Balance Sheet has Application of Funds (/assets) and Sources of Funds (Liabilities) that signify the net-worth of your company at any given time. When you begin or end a financial period, all the Assets are equal to the Liabilities.

Accounting: If you are new to accounting, you might be wondering, how can Assets be equal to Liabilities? That would mean the company has nothing of its own. Thats right. All the “investment” made in the company to buy assets (like land, furniture, machines) is made by the owners and is a liability to the company. If the company would want to shut down, it would need to sell all the assets and pay back all the liabilities (including profits) to the owners, leaving itself with nothing.

All the accounts under this represent an asset owned by the company like “Bank Account”, “Land and Property”, “Furniture” or a liability (funds that the company owes to others) like “Owners funds”, “Debt” etc.

Two special accounts to note here are Accounts Receivable (money you have to collect from your customers) and Accounts Payable (money you have to pay to your suppliers) under Assets and Liabilities respectively.

Profit and Loss Accounts

Profit and Loss is the group of Income and Expense accounts that represent your accounting transactions over a period.

Unlike Balance sheet accounts, Profit and Loss accounts (or PL accounts) do not represent net worth (/assets), but rather represent the amount of money spent and collected in servicing customers during the period. Hence at the beginning and end of your Fiscal Year, they become zero.

In ERPNext it is easy to create a Profit and Loss analysis chart. An example of a Profit and Loss analysis chart is given below:

Financial Analytics Profit and Loss Statement

(On the first day of the year you have not made any profit or loss, but you still have assets, hence balance sheet accounts never become zero at the beginning or end of a period)

Groups and Ledgers

There are two main kinds of Accounts in ERPNext – Group and Ledger. Groups can have sub-groups and ledgers within them, whereas ledgers are the leaf nodes of your chart and cannot be further classified.

Accounting Transactions can only be made against Ledger Accounts (not Groups)

Info: The term “Ledger” means a page in an accounting book where entries are made. There is usually one ledger for each account (like a Customer or a Supplier).

Note: An Account “Ledger” is also sometimes called as Account “Head”.

Chart of Accounts

Account Number

A standard chart of accounts is organized according to a numerical system. Each major category will begin with a certain number, and then the sub-categories within that major category will all begin with the same number. For example, if assets are classified by numbers starting with the digit 1000, then cash accounts might be labeled 1100, bank accounts might be labeled 1200, accounts receivable might be labeled 1300, and so on. A gap between account numbers is generally maintained for adding accounts in the future.

You can assign a number while creating an account from Chart of Accounts page. You can also edit a number from account record, by clicking “Update Account Number” button. On updating account number, system renames the account name automatically to embed the number in the account name.

Other Account Types

In ERPNext, you can also specify more information when you create a new Account, this is there to help you select that particular account in a scenario like Bank Account or a Tax Account and has no effect on the Chart itself.

Explanation of account types: – Bank: The account group under which bank account will be created. – Cash: The account group under which cash account will be created. – Cost of Goods Sold: The account to book the accumulated total of all costs used to manufacture / purchase a product or service, sold by a company. – Depreciation: The expense account to book the depreciation of the fixed assets. – Expenses Included In Valuation: The account to book the expenses (apart from direct material costs) included in landed cost of an item/product, used in Perpetual Inventory, . – Fixed Asset: The account to maintain the costs of fixed assets. – Payable: The account which represents the amount owed by a company to its creditors. – Receivable: The account which represents the amount owed by a company by its debtors. – Stock: The account group under which the warehouse account will be created. – Stock Adjustment: An expense account to book any adjustment entry of stock/inventory, and generally comes at the same level of Cost of Goods Sold. – Stock Received But Not Billed: A temporary liability account which holds the value of stock received but not billed yet and used in Perpetual Inventory.

Creating / Editing Accounts

To create new Accounts, explore your Chart of Accounts and click on an Account group under which you want to create the new Account. On the right side, you will see an option to “Open” or “Add Child” a new Account.

Chart of Accounts

Option to create will only appear if you click on a Group (folder) type Account. There you need to enter account name, account number and some more optional details.

ERPNext creates a standard structure for you when the Company is created but it is up to you to modify or add or remove accounts.

Typically, you might want to create Accounts for

  • Types of Expenses (travel, salaries, telephone etc) under Expenses.
  • Taxes (VAT, Sales Tax etc based on your country) under Current Liabilities.
  • Types of Sales (for example, Product Sales, Service Sales etc.) under Income.
  • Types of Assets (building, machinery, furniture etc.) under Fixed Assets.