David Tran Accounting & Finance Published: 11/27/20 Hits: 801

What is owned (an asset) has been financed through debts to reimburse (liabilities) or equity (profits, capital).

A difference is made between buying an assets (e.g. a building) and expenses (e.g. fuel). Assets have an intrinsic value over time, versus expenses having value in them being consumed for the company to "work".

Assets = Liabilities + Equity

Chart of Accounts

The chart of accounts lists all the accounts, whether they are balance sheet accounts or P&L accounts. Every financial transaction (e.g. a payment, an invoice) impacts accounts by moving value from one account (credit) to an other account (debit).

Journal Entries

Every financial document of the company (e.g. an invoice, a bank statement, a pay slip, a capital increase contract) is recorded as a journal entry, impacting several accounts.

For a journal entry to be balanced, the sum of all its debits must be equal to the sum of all its credits.

Reconciliation

Reconciliation is the process of linking journal items of a specific account, matching credits and debits.

Its primary purpose is to link payments to their related invoices in order to mark invoices that are paid and clear the customer statement. This is done by doing a reconciliation on the Accounts Receivable account.

An invoice is marked as paid when its Accounts Receivable journal items are reconciled with the related payment journal items.

Reconciliation is performed automatically by the system when:

  • the payment is registered directly on the invoice
  • the links between the payments and the invoices are detected at the bank matching process

Bank Reconciliation

Bank reconciliation is the matching of bank statement lines (provided by your bank) with transactions recorded internally (payments to suppliers or from customers). For each line in a bank statement, it can be:

matched with a previously recorded payment:
a payment is registered when a check is received from a customer, then matched when checking the bank statement
recorded as a new payment:
the payment's journal entry is created and :ref:`reconciled <accounting/reconciliation>` with the related invoice when processing the bank statement
recorded as another transaction:
bank transfer, direct charge, etc.

Odoo should automatically reconcile most transactions, only a few of them should need manual review. When the bank reconciliation process is finished, the balance on the bank account in Odoo should match the bank statement's balance.

Checks Handling

There are two approaches to manage checks and internal wire transfer:

  • Two journal entries and a reconciliation
  • One journal entry and a bank reconciliation