Accounting transactions in Cin7 Core

Accounting transactions are created when the following events have occurred:

User authorized purchase order or sale quote with deposit/prepayment. Nothing will be created if deposit or prepayment is not attached to the purchase order or sale quote.
User authorized purchase or sale invoice/credit note.
User authorized sale shipment.
User authorized manual journal transaction.
User authorized/completed stocktake.
User authorized/completed stock adjustment.
User authorized/completed assembly or productiontask.
User authorized/completed inventory write-off task.
User authorized/completed disassembly task.
User undo/voided any of items above.

Note: Purchase order stock receipt does not generate accounting transactions. Stock receipt authorization updates the physical quantities in Cin7 Core. Authorizing purchase order invoice does not update physical quantities in Cin7 Core, stock receipt must be authorized.

In this article we will show some examples of how accounting transactions are generated for different scenarios. You will need to set up your chart of accounts and complete account mapping for transactions to be generated successfully. This is covered in the Getting Started Guide.

Prerequisites

Getting Started Guide - Financial Basics (required)
An Introduction to COGS in Cin7 Core (recommended)

Purchase

In these examples we will show how accounting transactions work for the purchase module, including adding prepayments/supplier deposits, dropship, and credit notes. Expenses can be capitalised or allocated to an expense account. You may wish to see Landed Cost Expense Distribution for more information about capitalising purchases.

In our first example, we have created a purchase order and attached a $25 supplier deposit. The accounting transaction looks like this:

Dr	Cr	Amount	Transaction Date
Supplier Deposits	Bank	$25	Deposit date

When processing a purchase the following accounts are involved:

Inventory control Account
Account Payable
Tax Account
Optional Expense Account

In the table below is an example of a purchase invoice:

Tax rate is 10%
Purchase amount is $110 (including tax of $10)
$22 delivery fee (that is not capitalised, however, it is allocated to an expense account).

Dr	Cr	Amount	Transaction Date
Inventory control	Account Payable	$100	Invoice date
Tax	Account Payable	$10	Invoice date
Expense	Account Payable	$20	Invoice date
Tax	Account Payable	$2	Invoice date

Account Payable will then be reduced by the amount of supplier deposit made previously ($25).

Dr	Cr	Amount	Transaction Date
Account Payable	Prepayment	$25	Invoice date

If Purchase Order is a Drop ship purchase the transactions are going to be the same as the above example plus the transaction below. For standard sales, COGS transactions are generated once the Ship tab of the order is authorized. With dropshipped orders, there is no Ship tab. For dropship products, COGS transactions are generated when the purchase invoice is authorized.

Dr	Cr	Amount	Transaction Date
COGS	Inventory control	$100	Invoice date

If the delivery fee is capitalised, transactions will instead like the table below. The delivery fee should use the same inventory account as the product in order to capitalise it.

Dr	Cr	Amount	Transaction Date
Inventory control	Account Payable	$100	Invoice date
Tax	Account Payable	$10	Invoice date
Inventory control	Account Payable	$20	Invoice date
Tax	Account Payable	$2	Invoice date

You decide to use a manual journal to distribute $8 in the Warehouse Overheads and allocate them to the inventory items on this invoice:

Dr	Cr	Amount	Transaction Date
Inventory control	Warehouse overheads	$8	Manual Journal Date

In a month you find a defect in the item and request a credit note (total amount is $11 including tax)

Dr	Cr	Amount	Transaction Date
Inventory control	Account Payable	$-10	Credit Note Date
Tax	Account Payable	$-1	Credit Note Date

Invoice Payment will generate the following transaction:

Dr	Cr	Amount	Transaction Date
Account Payable	Bank	$110	Payment Date

Sale

In these examples we will show how accounting transactions work for the sale module, including adding prepayments/customer credits, and credit notes. Expenses can be allocated to the COGS of the products or allocated to an expense account. You may wish to see An Introduction to COGS for more information about how COGS is calculated by the system.

In our first example, we have created a sale quote, authorized it, and received a client prepayment/customer credit of $25. The accounting transaction looks like this:

Dr	Cr	Amount	Transaction Date
Bank	Prepayment	$25	Prepayment Date

When processing a sale the following accounts are involved for a sale invoice:

Accounts Receivable
Tax Account
Optional Expense Account
Sale Revenue

In the table below is an example of a Sale Invoice:

Tax rate is 10%
Sale amount is $110 (including tax of $10)
$22 delivery fee (which is allocated to a different Sale Account)

When the sale invoice is authorized, the following transactions will be generated. Accounts Receivable will be reduced by the amount of Prepayment made before.

Dr	Cr	Amount	Transaction Date
Accounts Receivable	Sale	$100	Invoice Date
Accounts Receivable	Tax	$10	Invoice Date
Accounts Receivable	Sale 2	$20	Invoice Date
Accounts Receivable	Tax	$2	Invoice Date
Prepayment	Accounts Receivable	$25	Invoice Date

When a non-inventory item is invoiced in a sale for $100, the system creates the following transaction:

Dr	Cr	Amount	Transaction Date
Accounts Receivable	Account specified in the invoice	$100	Invoice Date

When we authorize the Shipment tab of a sale, the following accounts are involved:

Inventory Control Account
Cost of Goods Sold (COGS) Account

The amount of the transaction will depend on the value collected from the inventory cards that were picked according to the costing method (e.g. FIFO, FEFO etc.) This will be the purchase value of the picked product.

Dr	Cr	Amount	Transaction Date
COGS	Inventory control	$50	Max of Shipment Dates if multiple

We decide to use a manual journal to distribute $8 in the Warehouse Overheads and allocate them to the COGS Account to change the profit of this sale:

Dr	Cr	Amount	Transaction Date
COGS	Warehouse overheads	$8	Manual Journal Date

When the customer makes the invoice payment, the following transaction is generated:

Dr	Cr	Amount	Transaction Date
Bank	Accounts Receivable	$110	Payment Date

In a month, the customer finds a defect in the item and requests a credit note (total amount including tax is $11).

Dr	Cr	Amount	Transaction Date
Accounts Receivable	Sale	$-10	Credit Note Date
Accounts Receivable	Tax	$-1	Credit Note Date
COGS	Inventory control	$-5	Credit Note Date

Stock Adjustments and Stocktake

When changing the quantity of stock on hand with a stock adjustment or a stocktake, you have an option to allocate the difference in cost to an expense account such as Inventory Discrepancy account.

Below is a result of a $10 increase in stock value due to a stock adjustment:

Dr	Cr	Amount	Transaction Date
Inventory Control	Inventory Discrepancy Account	$10	Effective Date

Below is a result of a $10 decrease in stock value due to a stock adjustment:

Dr	Cr	Amount	Transaction Date
Inventory Control	Inventory Discrepancy Account	$-10	Effective Date

Assembly

There are two stages of assembling new finished goods:

Component allocation
Placing assembled goods to the Inventory Account.

In stage one, we select the work-in-progress (WIP) account and move the components inventory to this account. The transaction below will be created when user clicks the Allocate button.

Dr	Cr	Amount	Transaction Date
WIP Account	Inventory Control	$10	Assembly completion date

Once assembled goods are ready, the user can finalise the work order by pressing Complete. This will close the Work In Progress and place assembled goods to the Inventory account.

Dr	Cr	Amount	Transaction Date
Inventory Control	WIP account	$10	Assembly completion date

Service costs, for example, labour and overheads, are allocated to the assembled goods during the assembly task.

Dr	Cr	Amount	Transaction Date
Inventory Control	Labour account or Overheads account	$150	Assembly completion date

After the assembly is completed, we decide to use a manual journal to distribute $8 in the Warehouse Overheads and allocate them to the assembled goods. See Allocate Landed Costs using a Manual Journal for more information.

Dr	Cr	Amount	Transaction Date
Inventory Control	Warehouse overheads	$8	Manual Journal Date

Inventory Write-Off

Inventory write-off is required when you need to write off stock from the inventory as a result of damage, expiration or to use it to perform some work (issue to production). Along with raw materials you can specify labour and overheads to be allocated on the expense accounts.

Dr	Cr	Amount	Transaction Date
Selected Expense Account	Inventory Control	$20	Date when user completed inventory write-off task
Selected Expense Account	Labour account or Overheads account	$100	Date when user completed inventory write-off task

Disassembly

Disassembly works in a similar way as Finished Goods Assembly. Initially a product that needs disassembly will be put into the Work-In-Progress Account and the disassembled components will be placed to the Inventory Account. Along with raw materials you can specify labor and overheads to be allocated on the expense accounts.

Dr	Cr	Amount	Transaction Date
WIP Account	Inventory Control	$200	Date when user completed disassembly task
Inventory Control	Selected ‘work in progress’ account	$200	Date when user completed disassembly task
Inventory Control	Labour account or Overheads account	$100	Date when user completed disassembly task