Conclusion:
1. Modify the initial balance by excluding the
relevant amounts from AR, AP, and Equity.
2. Incorporate the outstanding invoices by
utilizing the product sales (income) account, allowing Odoo to display this
amount in the unallocated earnings of the previous year in the equity section.
This is the reason for eliminating the relevant amount in step 1 from the
equity amount.
3. Import the outstanding bills by using the expense account. This enables Odoo to reflect this amount in the unallocated earnings of the
previous year in the equity section.
4. Comparison between cash basis and accrual
basis.
On a cash basis, open invoices and bills are recorded under income and expense
accounts.
On an accrual basis utilizes AR clearing and AP clearing accounts.
Video: https://drive.google.com/file/d/1W_2_Atknmg6V6Ns2uA3RmYYiWRKemMc
Workflow:
1.
Assume the
fiscal year is January 1st. The initial trial balance is as follow:
|
|
Balance
|
Debit
|
Credit
|
|
Inventory
|
1000
|
1000
|
|
|
AR (Account receivable)
|
8000
|
8000
|
|
|
Bank
|
3000
|
3000
|
|
|
Total asset
|
12000
|
|
|
|
AP (Account payable)
|
2000
|
|
2000
|
|
Net income
|
6000
|
|
6000
|
|
Capital
|
4000
|
|
4000
|
|
Total liability + equity
|
12000 |
|
|
2.
The resolution to implement the
cash basis is to eliminate the $8000 debit from accounts receivable (AR) and
deduct a total of $8000 from equity. However, considering the initial balance,
we will deduct $6000 from net income and $2000 from the capital. The outcome is as follows:
|
|
Balance
|
Debit
|
Credit
|
|
Inventory
|
1000
|
1000
|
|
|
AR (Account receivable)
|
|
|
|
|
Bank
|
3000
|
3000
|
|
|
Total asset
|
4000
|
|
|
|
AP (Account payable)
|
2000
|
|
2000
|
|
Net income
|
|
|
|
|
Capital
|
2000
|
|
2000
|
|
Total liability + equity
|
4000
|
|
|
3.
After addressing the outstanding
receivables, it is necessary to eliminate the $2000 credit from the accounts
payable. In turn, we should record a $2000 credit in the capital. Consequently, the capital
will reflect a total credit of $4000. The outcome is presented below.
|
|
Balance
|
Debit
|
Credit
|
|
Inventory
|
1000
|
1000
|
|
|
AR (Account receivable)
|
|
|
|
|
Bank
|
3000
|
3000
|
|
|
Total asset
|
4000
|
|
|
|
AP (Account payable)
|
|
|
|
|
Net income
|
|
|
|
|
Capital
|
4000
|
|
4000
|
|
Total liability + equity
|
4000
|
|
|
4. The outstanding invoices will
directly utilize the AR and Income account, which will be reflected in the
equity section of Odoo. This is because of the connection between the P&L
and Balance sheet in Odoo. The net income from the P&L will automatically
be reflected in the equity section of the balance sheet using the 99999
undistributed profits/losses account. Let's assume that there are three
outstanding invoices totaling $8000.
|
Date
|
Customer A
|
Debit
|
Credit
|
|
11/2/2023
|
AR
|
2000
|
|
|
|
Product sales (income)
|
|
2000
|
|
Date
|
Customer B
|
Debit
|
Credit
|
|
12/5/2023
|
AR
|
1000
|
|
|
|
Product sales (income)
|
|
1000
|
|
Date
|
Customer C
|
Debit
|
Credit
|
|
12/7/2023
|
AR
|
5000
|
|
|
|
Product sales (income)
|
|
5000
|
5.
Open bill as follows:
|
Date
|
Vendor A
|
Debit
|
Credit
|
|
12/20/2023
|
AP
|
|
2000
|
|
|
Expense
|
2000
|
|
6.
After all the
steps, the open balance on 1/1/2024 will result to step1.
