Continental Accounting in Odoo 18
Continental accounting is the default accounting system provided by Odoo, designed to handle financial transactions in a straightforward manner without requiring any additional configurations. In this system, expenses are automatically recorded in the ledger as soon as a purchase is made, ensuring simplicity and immediacy in financial tracking.
So to set up and function the continental accounting system, there is no need for you to set up any configurations. By default, Odoo provides the continental accounting system to use. Only after you have set up Anglo-Saxon Accounting from the Configuration settings, Odoo moves the accounting system from Continental to Anglo-Saxon. So move to the Configuration settings and check whether the Anglo-Saxon Accounting is disabled or not. If Anglo-Saxon Accounting is enabled, just disable it.
We are going to try the Continental accounting with a specific product category, so we should need to set the inventory valuation as automatic. That is only when the inventory valuation gets automated, an accounting entry is automatically created to value the inventory when a product enters or leaves the stock of the company. To automate the inventory valuation, you need to enable the Field ‘Automatic Accounting’ from the Configuration > Settings of the Accounting Application.
Then move to the product category sub-menu and then choose one of the product categories. Then set the inventory valuation of that product category as Automatic.
Next, we need to create a product from this category, and we can use this on several operations so that we can identify the actions of the continental accounting.
Now, we have created a new product, Test product, from the category "All." Then we can create a purchase order for this product, Move to the purchase module and create a purchase order for the product Test product
Then confirm the purchase order and validate the receipt of the purchase order
After the validation, Then create the bill for this purchase order.
Once the bill has been created, a journal item tab will be formed, and there we can see all the journal items that are created according to the purchase order.
After confirming the purchase order and reviewing the journal items created, we observe that the accounts used for posting the journal entries are ‘600000 Expenses’ and ‘211000 Accounts Payable.’ The account ‘600000 Expenses’ is an expense account, which gets debited because an increase in expenses results in a debit entry. On the other hand, ‘211000 Accounts Payable’ is a liability account. When liabilities increase, the account is credited. Therefore, when a product is purchased from a vendor, the liability associated with the purchase increases, and the account is credited accordingly. Additionally, the Tax Paid account, being an asset account, gets debited since an increase in assets results in a debit entry
Account | Nature | Increasing/Decreasing | Credit/Debit |
600000 Expenses | Expenses | Increasing | Debit |
211000 Account payable | Liability | Increasing | Credit |
Tax paid | Expenses | Increasing | Debit |
The next step involves selling the same product. Navigate to the Sales module to create a new sale order, or alternatively, create an invoice directly for the product ‘Test Product’ from the Accounting application. Proceed by generating a new invoice.
Once the products are added to the invoice line, the invoice can be confirmed. At this stage, the Journal Items tab becomes accessible, displaying all the journal entries generated based on the sale order.
In the Journal Items tab, we can observe that the accounts ‘400000 Product Sale’ and ‘121000 Accounts Receivable’ are used to post the journal entries for this sale order. The ‘Product Sale’ account is an income account, and an increase in income results in a credit entry for the account. Similarly, the ‘Accounts Receivable’ account is an asset account, and an increase in assets leads to a debit entry. Additionally, there is a tax account where ‘Tax Received’ is treated as a liability account. When liabilities increase, the account is credited accordingly
Account | Nature | Increasing/Decreasing | Credit/Debit |
Product sales | Income | Increasing | Credit |
Account Receivable | Asset | Increasing | Debit |
Tax received | Liability | Increasing | Credit |
Conclusion
We can say that when the Accounting system is set as continental Accounting the expense for a product is generated instantly whenever a vendor bill has been created for that product. Continental accounting is the default accounting system provided by Odoo, designed to handle financial transactions in a straightforward manner without requiring any additional configurations. In this system, expenses are automatically recorded in the ledger as soon as a purchase is made, ensuring simplicity and immediacy in financial tracking.