Accounting for purchases and purchase credits

Brightpearl will automatically create accounting entries for purchases and purchase credits. This article explains the details of each accounting journal.

There are four key points at which accounting is automatically generated for a purchase order, and two for a purchase credit:

Purchase order:

  1. Receiving the invoice against the purchase order
  2. Receiving the inventory on the purchase order
  3. Unreceiving inventory on the purchase order
  4. Recording a payment made to the vendor

Purchase credit:

  1. Receiving the credit against the purchase credit
  2. Entering a refund from the vendor

Note: When returning goods to a vendor, an inventory adjustment has to be performed, separate to the purchase credit. Learn more here.

Accounts payable account code

Brightpearl currently only allows a single account code to be used for accounts payable (creditors control). This is always account code 2100.

Purchases account code

Purchases, stock and expenses can be recognized in multiple account codes to help segregate financial reporting. The account code used for recognizing a purchase depends on a few factors:

  • Stock code or purchases code assigned to the product

    Product records are assigned a stock code and a purchases code. If the product is stock tracked then the stock code will be used for recording the inventory assets (when the goods are received), so when the invoice is received the "stock received not invoiced" account code is used.
    If the product is non-stock tracked then the product purchases code will be used.

  • Purchase or expense code assigned to the vendor
    If a purchases or expenses account code is assigned to the vendor assigned to the purchase, any non-stock tracked rows on the purchase order will use the vendor's code. This will override the purchases account codes set on the product records. But this may be overridden by...
  • Purchase or expense code manually assigned to the order row

    Before the invoice is received on the order the stock or purchases code can be manually changed directly on an order row. This will override the default code assigned to the product.
    To ensure inventory assets are always recorded in the product assigned stock account, go to Settings > Purchases > Purchase settings and set "Always use asset nominal code for inventory items on Purchase Orders?" to "Yes". This will prevent the account code from being manually edited on the order.

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Purchase tax account code

Brightpearl currently only allows a single account code to be used for purchase or input tax.

This is always account code 2201.

Stock received not invoiced

This is usually 2050 or 2250, and should always be a liability code.

Set this code at Settings > Company > Accounting: Account codes.

Purchase invoice (PI)

Invoices are received against purchase orders.

At the point of receiving the invoice, an accounting journal will be automatically created to record the purchase cost, tax and accounts payable values.

The PI will:

  • Debit the stock received not invoiced code (stock-tracked products)
  • Debit the purchases code (non-stock tracked products)
  • Debit the purchase tax control account
  • Credit the accounts payable (creditors control) account

PI example:

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PI journals will always record the transaction currency and the base currency, converted using the transaction exchange rate. The supplier account balance will display the transaction currency balance and financial reports will display the base currency value (if they are the same, the exchange rate will be 1.00).

Tax codes

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

The accounts payable row (2100) 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 payable, stock received not invoiced and and tax lines do not appear on the income statement so do not hold values for lead source, channel or project.

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.

Purchase goods-in (PG)

Each time items are marked as received, they will be added into stock and a purchase goods-in accounting journal (PG) will be created.

These types of journals are always in base currency.

The PG will debit an asset account and credit the stock received not invoiced account. The asset account used will depend on the product being received, allowing you to segment your accounting by product.

Learn more about the accounting for receiving goods in here.

Unreceiving inventory on a purchase (PG)

Each time items are marked as unreceived they will be removed from stock and the accounting journal will be created. The journal is the exact opposite of the PG entry that brought the goods in.

These types of journals are always in base currency.

An asset account will be credited, and the stock received not invoiced account will be debited.

Purchase payment (PP)

When a payment journal is recorded it will automatically update the vendor account balance and mark any related invoices and orders as paid. Learn more about paying vendors here.

Both payments (money out) and refunds (money in) are recorded as a Purchase Payment (PP) journal.

When paying vendors, the PP entry will:

  • Debit the accounts payable (creditors) account
  • Credit the bank account

The balance due for a given invoice at any time is calculated using the sum of debits and credits on 2100 Accounts Payable for that invoice reference, up to the chosen time - which allows for retrospective valuation of assets and invoice balances. 

PP example:

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These types of journals will always record the transaction currency and the base currency converted using the transaction exchange rate. A base currency transaction will show an exchange rate of 1 and therefore the same values for the transaction debit and credits as the base debit and credit.

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.

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 vendor 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 PP journal, but has no values in the transaction currency columns; only the base currency columns.

Example:

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Purchase credit (PC)

Credits are raised against purchase credit orders. At the point of 'crediting' (closing or invoicing the credit), a purchase credit (PC) journal will be automatically created.

The PC will:

  • Debit the accounts payable (creditors) account
  • Credit a purchases (5000-range) code

Note: It's important to make sure the code being used is the same as the inventory adjustments (write-off) code, because on returning goods to the vendor, that accounting will debit the inventory adjustments code. You want the two entries to balance off against one another!

PC example:

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These types of journals will always record the transaction currency and the base currency, converted using the transaction exchange rate.

Supplier refund (PP)

When a refund journal is recorded (when money is received from a supplier against a purchase credit) it will automatically update the supplier account balance and mark any related credits and returns as refunded.

When receiving money, the PP entry will:

  • Debit the bank account
  • Credit the accounts payable account

PP example:

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These types of journals will always record the transaction currency and the base currency converted using the transaction exchange rate. A base currency transaction will show an exchange rate of 1 and therefore the same values for the transaction debit and credits as the base debit and credit.

Vendor account allocations (PP)

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

An example is the situation where you have been 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, a PP journal will be created which matches up all the invoice credit and payment references.

Example PP 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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