What is the importance of accounting in business?
Imagine a world without language and communication, isn’t it in chaos? What would happen if there is no balance sheet or statements of financial position to show us the financial condition of our business? What can we do if there are no income statements that tell us if our company performs well or not? Accounting is considered the language of business. It is a service activity, which function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision. It aids business owners and other users to make informed judgment and better decisions, through the financial information it provides.
Odoo makes this accounting processes easy and provides you with the most up-to-date information available. It helps businesses with all the accounting needs. Through the modern interface the user can easily track the accounts receivable, accounts payable, bank balances, company performance and more. Odoo Accounting provides the right information at the right time, thus you can manage how your business operates and make the best use of the information that your company has. The software’s design helps save your employee’s time and track customers and vendors better. It allows you to do more every day in less time, which increases your efficiency.
There are many features which make Odoo 12 a very capable accounting software.With all these features, Odoo 12 accounting software is a total solution for all the account related activities. With the use of Odoo 12 accounting software, an error-free and more efficient account system are guaranteed for your business.
Odoo acconting features
The double entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts. The double entry system also requires that for all transactions, the amounts entered as debits must be equal to the amounts entered as credits.
Odoo 12 accounting automatically creates an additional entries for each of the accounting transactions like customer invoices, the point of sales, inventory movement expenses etc. Odoo uses the rules of double-entry bookkeeping system: all journal entries are automatically balanced
(sum of debits = sum of credits).
Accounts receivable and payable
Accounts payable is a current liability account that keeps track of money that you owe to any third party. The third parties can be banks, companies, or even someone who you borrowed money from.
Accounts receivable is a current asset account that keeps track of money that third parties owe to you. Again, these third parties can be banks, companies, or even people who borrowed money from you.
A single account is used in Odoo 12 accounting for all receivable and payable account entries. There are options to create separate accounts based on customers also.
Odoo application provides you with flexibility, because it supports multiple users, multiple companies, and multiple currencies for transactions occurring in another currency. It’s design works for businesses of all sizes and for businesses with various needs that are dependent upon personnel and size within the same database.
Cash basis and accrual methods
The cash basis and accrual basis of accounting are two different methods used to record accounting transactions. The core underlying difference between the two methods is in the timing of transaction recordation. When aggregated over time, the results of the two methods are approximately the same. A brief description of each method follows:
Cash basis: Revenue is recorded when cash is received from customers, and expenses are recorded when cash is paid to suppliers and employees.
Accrual basis: Revenue is recorded when earned and expenses are recorded when consumed.
Accrual and cash basis methods are supported in Odoo 12 accounting. With this income/expense at the time of transactions or payment can be reported.
Real-time financial report creation is also made possible with Odoo 12. It allows you to customize your own report based on your own formulae. Various reports can be created using Odoo 12 accounting software like :
Management reports (Such as Budgets, Executive Summary)
Performance reports (Such as Profit and Loss, Budget Variance)
Cash reports (Such as Bank Summary)
Position reports (Such as Balance Sheet, Aged Payables, Aged Receivables)
Inventory valuation is the cost associated with an entity's inventory at the end of a reporting period. It forms a key part of the cost of goods sold calculation, and can also be used as collateral for loans.
Odoo 12 accounting also helps in inventory valuation. Both manual and automatic valuations are possible in Odoo 12 accounting software. The available methods are:
The specific identification method, where you track the specific cost of individual items of inventory
The first in, first out method, where you assume that the first items to enter the inventory are the first ones to be used
The last in, first out method, where you assume that the last items to enter the inventory are the first ones to be used
The weighted average method, where an average of the costs in the inventory is used in the cost of goods sold
Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to investors. This amount is adjusted whenever there is an entry to the accounting records that impacts a revenue or expense account. A large retained earnings balance implies a financially healthy organization. The formula for ending retained earnings is:
(Beginning retained earnings + Profits/losses - Dividends = Ending retained earnings)
Which means that the part of income which you have with you from doing your business is called retained earnings. With Odoo 12 accounting the current year earnings are calculated automatically. This eliminates the possibilities of year-end journals and rollovers.