If you don't have an accounting background and want to understand what happens when you post a sales order in your ERP system, read on. We gain "domain" knowledge as we use a ERP system, learning all about sales orders, purchase orders, shipping and receiving but when it comes to accounting, it can be a black box.
In this post, we will review what happens when a sales order in invoiced in Dynamics BC. There are four terms that we should become familiar with. I'll define them as follows...
Debit | Accounting term for positive numbers.
Credit | Accounting term for negative numbers.
Revenue | Posted sales invoice amount recorded in g/l, typically in the 4XXXX range
Accounts Receivable (AR) | When revenue is recorded, our customer now owes us this money. This amount is recorded in the g/l, typically in the 1XXXX range
Let's stay with these terms and understand them better. The two terms revenue and accounts receivable are related. When you post a sales order, Dynamics BC creates a posted sales invoice. In addition it makes general ledger entries. The general ledger entry will credit revenue and debit AR. Note that in accounting you always make entries in pairs. The credit is a negative amount, the debit is (positive).
Let's take an example. Create a sales order for $1000, post it to generate a posted sales invoice. Use a resource type instead of an item to avoid inventory entries in G/L. If you navigate to the general ledger you will see a -1000 (negative) to g/l 4XXXX (revenue) and a positive 1000 to g/l 1XXXX (AR).
In the next post, we will explore what happens when you post a purchase order