Accounting for sales and sales credits

Brightpearl will automatically create accounting entries for sales and returns. This article explains the details of each accounting journal.

There are three key points at which accounting is automatically generated for a sale or return:

Sales order:

  1. Invoicing the sales order
  2. Marking goods as shipped (when cost of sales accounting is on)
  3. Entering a payment

Sales return (credit):

  1. Crediting the sales credit
  2. Marking goods as received (when cost of sales accounting is on)
  3. Entering a refund

Accounts receivable account code

Brightpearl currently only allows a single account code to be used for accounts receivable (debtors control). This is always account code 1100.

Sales revenue account code

Revenue can be recognized in multiple sales account codes to help segregate financial reporting. The sales account code used for recognizing revenue is based on the following:

  • Sales account code assigned to the product

    A sales account code is assigned to each product record. This will be where the revenue from any sales of the item will be recorded by default. But it may be overridden by...

  • Sales account code assigned to the customer

    If a sales account code is assigned to the customer making the purchase then all sales revenue for those sales will be accounted for in the code assigned to the customer. This will override the sales account codes set on the product records. But this may be overridden by...

  • Sales account code manually assigned to the order row (or assigned via Automation)

    Before invoicing the order the sales account code can be manually assigned directly against an order row. The code chosen is where the sales revenue for that order row will be recorded. This will override the sales account code assigned to the product and/or customer.

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Sales tax account code

Brightpearl currently only allows a single account code to be used for sales or output tax.

This is always account code 2200.

Shipping charges account code

A default account code to be used for shipping charges to customers is chosen at Settings > Company > Accounting: Account (nominal) codes will be used automatically when:

  • An order downloads from a sales channel with a shipping charge
  • A shipping charge is added to the sales order using the Brightpearl shipping quotes feature

If a shipping charge is added to an order as a miscellaneous row, the account code will need to be manually selected.

Sales discounts account code

Discounts can be applied to an order in several ways. The account code used in each case may be different:

  • Row discount - percentage

    If a discount is applied to a line item using the discount percentage column, the sales revenue amount accounted for this row will simply be reduced.

  • Row discount - amount (manual price entered)

    If a discount is applied to a line item using the discount percentage column, the sales revenue amount accounted for this row will simply be reduced.

  • Order discount - amount (negative order row)

    If a discount is added as a line item the account code can be manually set to a specific code for discounts.

  • Coupon discount (POS)

    If a discount is applied in POS using a coupon, the account code used is the one defined at Settings > Company > Accounting: Account (nominal) codes.

Learn more about discounts here.

Sales invoice (SI)

Invoices are raised against sales orders.

At the point of invoicing, a Sales Invoice (SI) journal will be automatically created to record the sales revenue, tax and accounts receivable values.

The SI will:

  • Debit the accounts receivable account
  • Credit the revenue accounts
  • Credit the tax control account

The revenue accounts (in the 4000 range) are defined by the products on the sales order.

SI example:

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Tax codes

The tax code of the journal row will depend on the tax status of the item that was sold.

The accounts receivable row (1100) should always be a not rated/non-taxable code (T9 or -).

Assignments (lead source, channel, project)

These fields are used for segmentation on the income statement (profit and loss) and therefore are only applicable against lines which appear on that report. i.e. income and expense lines.

Accounts receivable and tax lines do not appear on the income statement so do not hold values for lead source, channel or project.

Invoicing multiple products

When sales orders containing multiple products are invoiced, the accounting system will reflect only the unique values for that order.

If all items have the same account code (4000) and tax code (T20), then just two credit rows will be added to the invoice: one for the total net value on 4000 and one for the total tax value on T20.

Foreign currency invoices

Foreign currency invoices follow exactly the same format, except the base debit and credit and the currency debit and credit figures will be different.

For example, take this invoice in Euros:

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Shipping / goods out (GO)

Each time items are marked as shipped they will be removed from stock and a cost of goods sold accounting journal (GO) will be created.

These types of journals are always in base currency.

The GO journal will decrease the debit on an asset account (e.g. 1001 Inventory) and increase the credit on a cost of sales account (e.g. 5005 Cost of Sales). The asset account and cost of sale account used will depend on the product that has shipped, allowing you to segment your accounting by product.

Learn all about cost of sales accounting in the accounting for inventory article

Customer payment / sales receipt (SR)

A customer payment can be taken directly into the accounting area via the payment allocation screen, or by choosing a payment method when paying a sales order or refunding a sales credit. Paying a customer invoice or credit can also be done during bank reconciliation. Learn more about receiving money from customers here.

Both receipts (money in) and refunds (money out) are recorded as a Sales Receipt (SR) journal.

When a sales receipt journal is recorded, it will automatically update the customer account balance, which is calculated from all transactions on the 1100 Accounts Receivable account.

When receiving money, the SR entry will:

  • Debit the bank account
  • Credit the account receivables account

The balance due for a given invoice at any time is calculated using the sum of debits and credits on 1100 Accounts Receivable for that invoice reference, up to the chosen time - which allows for retrospective valuation of assets and invoice balances. 

SR example:

(paying the same EUR 120.00 invoice raised above) :

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Tax codes

The tax code of all rows should always be a not rated/non-taxable code (T9 or -).

Foreign currency payments

As with foreign currency invoices, foreign currency payments follow exactly the same format, except the base debit and credit and the currency debit and credit figures will be different.

For example, take this payment (paying off the above invoice in Euros):

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Exchange rate gains and losses 

If a payment is made to clear the balance of a foreign currency invoice, but the payment has a different exchange rate from the invoice it is paying, Brightpearl will automatically create an adjustment for exchange rate gains/losses.

This ensures that the invoice balance is cleared in both the foreign currency and the base currency.

This is important since the customer account balance is calculated using the transaction (foreign) currency figures but financial reporting reads the base currency figures.

An exchange rate variance journal is an SR journal, but has no values in the transaction currency columns; only the base currency columns.

Example:

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Note: The debits and credits can be either way around, depending on whether the exchange rate has increased or decreased.

Sales Credit (SC)

Credits are raised against sales credits (returns). At the point of 'crediting' (closing or invoicing the credit) a sales credit (SC) journal will be automatically created to record the decrease in sales revenue, tax and accounts receivable values.

The SC will:

  • Debit the revenue accounts
  • Debit the sales tax control accounts
  • Credit the accounts receivable account

It's exactly the same as a Sales Invoice (SI) journal but with debits and credits reversed.

Example:

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Returned stock (SG)

Each time inventory is received on a sales credit (return), the items can be either added back into stock, placed into quarantine or written off. In each case the accounting for inventory will be automatically created. All returns will add the items back into stock and increase assets. Only the write-off option will create a second journal to then remove the items from stock and decrease assets.

These types of journals are always in base currency.

The asset code (e.g. 1001 Stock) and Cost of Sales code (e.g. 5005 COGS) is taken from the product that is being returned.

Learn all about cost of sales accounting in the accounting for inventory article

Customer refund (SR)

A refund is the same as a negative Sales Receipt (SR). When a refund journal is recorded it will automatically update the customer account balance, which is a sum of the debits and credits against Accounts Receivable (1100) for that customer. An SR journal requires an invoice reference.

When refunding money, the SR entry will:

  • Credit the bank account
  • Debit the account receivables account

Example: 

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Customer account allocations

Allocation is the process of matching separate "on account" payments, sales invoices and credits on the customer account to mark them as cleared without necessarily changing the customer account balance with an additional payment or refund.

An example is the situation where you have invoiced $100, and then, on an unrelated transaction, credited $100. You should allocate the credit against the invoice to mark them all as "paid".

When an allocation is made, an SR journal will be created which matches up all the invoice credit and payment references.

Example SR journal matching an invoice against a credit:

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If allocations clear the balance of a foreign currency invoice, credit and/or payment, but each transaction was entered with a different exchange rate, Brightpearl will automatically create an additional journal which creates an adjustment for exchange rate gains/losses.

 

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