I used to say that accountants speak "accounting." 😊 They have their own language, which can be a bit complicated for some of us. I will try to make it more understandable for you to make working on the ERP solution clearer. We have to start with basic knowledge—all accounts are built with two sides: Debit and Credit. The names come from Latin: "debere" means "to owe," and "credere" means "to entrust."
For better understanding of what should be posted on which side, let's take an example. If you want to spend your money on something, you must decrease your equity (posted on credit side), so in simple terms, you have to debit it. That is why all costs are posted on the debit side.
If you sell something, your income goes to credit then. On the credit side, we also post equity, which represents everything we have in our company. As you see below, spending reduces our equity, so it needs to be posted on the opposite side. This may not be a "textbook" explanation, but it makes it simple to remember.😊
There are several accounting rules we need to follow while doing the posting. The most important one is as follows:
All postings must be done on two sides. When we make a debit, there must be a corresponding credit (in Business Central, we mark it with “-”). What is considered a plus on one side must be a minus on the other side. All postings must balance! We can refer to this as the “Golden Rule” 😊
Where does it come from? Not all of you may be familiar with the T Account, which was used long ago to create account books. All postings and information below describe the basics of accounting. For the first article, I will focus mostly on posting costs and revenues. In the next blog post, I will describe more difficult or advanced concepts. Let’s take a look at the examples below:
If you have a value on the debit side, you must have the same value on the credit side as well. These examples are either (1) a single value or (2) divided among different accounts, but they must always reconcile to zero in the end. Another rule is that all costs must be posted on the debit (DT) side.
Company income must be posted to the credit side.
How is all of this reflected in Business Central for basic transactions? Below, you can find the details of basic postings, such as company costs and revenue. In future articles, you will find more advanced postings:
Purchase Order & Sales Order (transactions related to items)
Acquisition/Disposal of Fixed Assets
Posting of company equity (including annual profit & loss)
Posting of bank account transactions
Postings with VAT (or ther Tax)
Postings in a different currencies (LCY vs. FCY)
Let’s start with the initial setup related to the posting sides. On the G/L Account card, you can select whether this account will only allow postings on one side. This option helps accountants keep the accounting books clear.
Purchase Invoices – costs
Let’s start with purchases for the company—something many people enjoy 😊. When you purchase something, you create a cost (spending) for your company (let’s simplify it and not discuss tax costs, deferred costs, acquisition of fixed assets, etc. for now).
Most purchase transactions are related to vendors. First, on the vendor card, you must set up the Vendor Posting Group. The system will use this to determine the corresponding account for the purchase invoice.
Next you can go to the Purchase Invoice and fill the:
Type: G/L Account
No: select the account from the Chart of Accounts (NOTE: for this type of posting, the system requires setting up defaults):
o Gen. Prod. Posting Group
o VAT Prod. Posting Group
You can add them later on the invoice:
NOTE: While creating the document, the system will take defaults from the Vendor/Customer Card: Gen. Bus. Posting Group and VAT Bus. Posting Group. The Gen. Prod. Posting Group and VAT Prod. Posting Group come from the G/L Account, Item, or Resource.
Quantity: 1 (see the description: https://www.dynamics-mom.com/post/default-qty-for-type-g-l-account)
Unit Price Excl. VAT: amount e.g. 100 (posting in LCY, for new users Local Currency)
In connection with what I have explained above, we know that this transaction will be posted on the debit side to the account from line (31330) and payables on the credit side (-) from the Vendor Posting Group table (82100).
Let’s see how the posting looks like in the Purchase Journals:
On the first line, you have the cost on the debit side, and on the second line, you have the payables on the credit side (-). At the bottom of the page, you can see that the transaction is balanced:
From an accounting perspective, transactions cannot be posted if they are not balanced (the system checks this as well). If I remove the credit from the line, an error will occur:
When all details are filled in properly, you will get the same posting as above by using Purchase Invoice Card:
In both cases, you can see that the system creates:
Vendor Ledger Entries
Detailed Vendor Ledger Entries
For both of these, the amount is presented with (-). You already know that payables are posted on the credit side, which explains this.
The posting in the journal can also be done in a single line. Instead of adding a line below the posting, you can add the vendor as follows:
Bal. Account Type: Vendor
Bal. Account No.: Number of the vendor from the list
You can think of the balancing account as making our posting equal to zero on both sides.
Purchase Credit memo – Cost corrections
Sometimes, due to issues with the invoice, returning products, or a simple mistake during posting, you must post a Purchase Credit Note for the posted document. Here, the situation regarding the side becomes more complicated. The main (cost) account can be as follows:
· Credit – You already know that costs are posted on the debit side, so if you need to reverse the cost, you use the opposite side.
· Debit – If you prefer to keep your posting clear (or if it's a tax requirement in some countries), you may want to keep your correction on the same side as the cost. To do this correctly, you must enter the value with a negative sign to make the reversal against your spending.
In Business Central, you can run both options, but you have to mark the General Ledger Setup -> Mark Cr. Memos as Corrections.
See below for the posting with this:
See below for the posting without this:
Once again, in simple words, to reverse something, you can either post it on the opposite side or keep it on the same side with negative value.
A similar situation applies to sales invoice corrections. I won’t repeat the same explanation twice. 😊
Sales Invoices - revenue
On the sales side, the situation is the opposite. First, similar to the previous posting, you must set up the Customer Posting Groups on the Customer Card:
When you select the Customer on the invoice the system will use the Receivables Account as an opposite account for the posting.
Fill the line of the document:
Type: G/L Account
No.: select the Account from the list (remember to fill the defaults)
Quantity (see here: https://www.dynamics-mom.com/post/default-qty-for-type-g-l-account)
Unit Price Excl. VAT – give the amount
On the posting, you can see that the system creates the posting for the account from the line (income) on the credit side (31330). The receivables are on the debit side (75110):
The sales journal will be created with the first line containing the income account, which should be on the credit side (-). Then, the receivables line is on the debit side.
The posting will then look like the example below:
Together with all our sales postings, the system will create:
Customer Ledger Entries
Detailed Customer Ledger Entries
Both of these will be posted as debit, so they will appear with a positive sign.
Journals – other postings without Customer / Vendor Card
Sometimes, we have to post transactions that are not related to purchasing or selling, such as employee salaries, moving values between accounts, etc. These will be posted in General Journals.
While creating the journals, you can follow all the rules I have described above with some adjustments:
In the General Journal, you can unhide the Debit Account and Credit Account fields.
If you want to post a cost, the account from the Account Type & Account No. determines the side. If it is a cost account, the value in the amount should be positive.
If you want to post a income, the account from the Account Type & Account No. determines the side. If it is a cost account, the value in the amount should be (-).
Thanks for reading! :) Check the other articles in this section to learn more about accounting in Business Central.
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