accounting 5 step guide

Getting Started w/Apache OFBiz®

Sharan Foga

July 2010

OFBiz Release 9.04

inform. excite. educate.™

Accounting In 5 Easy Steps

Copyright 2010, Sharan Foga All Rights Reserved.

The information in this article is distributed on an “as is” basis without any warranty. Although every effort has been made to ensure accuracy, the author shall have no liability to any person or entity with respect to any loss or damage

caused by or alleged to be caused directly or indirectly by the information contained in this work.

About The Author

Sharan is an IT project management and ERP implementation specialist across a whole range of sectors. After 10 years of working with commercial ERPs, she discovered OFBiz and couldn’t believe something this good could exist in the open source market. She was “blown away” as she puts it by the functionality and the thought and planning that went into its development. “I’m a total OFBiz convert and enjoy helping people see how OFBiz could work for their business. I’m a regular contributor to the OFBiz project documentation efforts and see the need for high quality end-user focused documentation and resources.”

Conventions

The following conventions are used in this document:

OFBiz applications and component names are in bold type. For example, the OFBiz Accounting Manager application and the OFBiz Content Component.

When talking about OFBiz features, where such features have a name, the name is capitalized. For example, OFBiz Components, Events and Services. These references are to specific OFBiz architectural features and/or elements.

File names and directory (“folders” for Windows users) names and locations are italicized. For example, controller.xml.

$OFBIZ_HOME is a reference to the OFBiz installation directory. For example, if OFBiz is installed in /opt/applications/ofbiz-12345, $OFBIZ_HOME=/opt/applications/ofbiz-12345. In some cases the “~” character is used to indicate a relative to $OFBIZ_HOME directory or file location. For example ~/framework/x is the same as $OFBIZ_HOME/framework/x

OFBiz entity names are presented in the same camel case format as in the code. For example, the database table called “BILLING_ACCOUNT” is written as the entity “BillingAccount”.

Command-line commands are presented as follows:

ant run-install

Contents

About The Author ............................................................................................................2

Conventions .....................................................................................................................2

Introduction ......................................................................................................................4

What is Accounting? .......................................................................................................4

Basic Accounting Concepts 4

Accounting Transactions 5

The 5 Steps to “Getting Started” ...................................................................................6

Step 1: Understand Your Business Accounting Needs ...............................................6

Step 2: Decide How To Use OFBiz Accounting ...........................................................6

Step 3: Setup your Basic Accounting Information ......................................................7

Step 4: Setup your Detailed Accounting Information .................................................9

Step 5: Test Your Accounting Setup .......................................................................... 12

Next Steps ..................................................................................................................... 16

4 | OFBiz Accounting In 5 Easy Steps

Introduction

OFBiz Accounting Manager application is a completely integrated accounting application that forms the core of OFBiz ERP functionality. It contains the key features you need to manage the accounting function for your business.

Key features include:

General Ledger

Accounts Receiveable

Accounts Payable

Agreements

Multi Currency

Billing Accounts

Fixed Assets

What is Accounting?

Accounting is the as “the systematic recording, reporting, and analysis of the financial transactions for a business.”

A business generally exists to make money it is important to be able to understand where money is spent, received and used by the business.

Basic Accounting Concepts

In order to keep track of how your business is doing financially, you need to make sure that you setup the accounts in a way that you understand.

The first thing that needs to be defined is the General Ledger. The General Ledger is a list of accounts you use to keep the accounting records for your business. The account itself will just be a description of what the it will be used to track.

Examples of General Ledger accounts include the following:

Company Cheque Account

Company Payroll Account

Income Received from Product Sales

Postage Charges

Taxes Paid

5 | What is Accounting

Once the list of accounts have been defined, they need to be put together in a hierarchy that keeps the different types of account together. This hierarchy is called the “Chart of Accounts”.

A chart of accounts is split into 5 main types of account. These are:

Assets

Liabilities

Expenses

Income

Equity

These types are like categories that allow you to keep the same types of account together. The categories are standard and form the basis of any chart of accounts anywhere in the world.

An example of some Asset General Ledger account descriptions could be:

Company Cheque Account

Cash

Customer Credit Card Payments Received

There will always be regional differences in the way accounts are named or used and the rules to be applied.

For example everyone pays taxes but the name of the tax, the type of tax and the way it is calculated are all reliant on what country you live in and the rules that apply.

Accounting Transactions

Accounting transactions are made up of two entries a debit and a credit (i.e. a negative value and a positive value) that balance to zero.

The main principle here is that money comes from somewhere and has to go to somewhere.

Example: If you take money out of your bank account to pay a bill, the simple accounting transaction for this could be:

Cheque Account -$100 (debit / negative value)

Electricity Bill +$100 (credit / positive value)

$100 is taken out of your cheque account.

$100 is paid to pay off the Electricity Bill.

And -100+100 = 0, so our transaction balances. If a transaction does not balance to zero then this means there is an error.


The 5 Steps to “Getting Started”

This guide assumes that you have read and performed the tasks in the “Getting Started with Apache OFBiz In 5 Easy Steps”1 and that you have already:

Setup your workstation or laptop

Downloaded and installed a version of OFBiz with the demo data

Step 1: Understand Your Business Accounting Needs

This first step involves taking a look at how you plan to use OFBiz for your business. If you are in business then the most important information you are interested in, is making sure that:

You know who owes you money

Your customers can pay you

You collect any payments due

You know if you are making a profit

You keep track and pay any taxes due

You must be able to respond to the following questions:

3 How does your business function?

3 Do you simply buy products from a supplier and on sell them,

3 Do you buy raw materials process them and then sell the end product?

3 Is your product a digital one (eg a subscription service, or music download)

3 How do your customers buy your product?

3 How and when do they pay?

Step 2: Decide How To Use OFBiz Accounting

OFBiz is a full ERP and you may not be using all the functionality – so by defining what you want to use will ensure you don’t waste time setting up something that you wont use.

If you use OFBiz E-commerce then there are a range of processes used but the main one is Order Management. This covers the complete process from a customer placing an order through the webstore all the way through to product delivery and payment.

Note: The sequence of your customer payment is important. Does your customer need to pay you first before the product is shipped? Or Do you dispatch products and allow

the customer a certain number of days in which to pay?

OFBiz supports both of these variations in the order process out-of-the-box.

1 Available from the myofbiz.com website: http://www.myofbiz.com

7 | Step 3: Setup your Basic Accounting Information

Step 3: Setup your Basic Accounting Information

The next step is to begin setting up your business in OFBiz. The key things that need to be setup include:

Company details including address and telephone contact information

Financial year (when does your accounting year start)

Currency (the currency that you use – if you use more than one this will be your main currency)

Taxes (the tax rate applicable to the products you sell)

Company address and contact information is setup using Party Manager application as shown in the following screen shot:

Note: In the OFBiz world, a company is part of a larger data model that defines organizations such as a company and a individual person as a “Party”. Hence the use

of the Party Manager application to handle contact details.

Setting Up Company Details In The Party Manager Application


Other basic accounting setup is done using Accounting Manager application as shown:

Setting Up details In the Accounting Manager Application

THIS SECTION INTENTIONALLY LEFT

BLANK

9 | Step 4: Setup your Detailed Accounting Information

Step 4: Setup your Detailed Accounting Information

This step involves setting up your chart of accounts and the rules to be used for your business. OFBiz comes with a master template for a very comprehensive chart of accounts.

Note: If you need to change the master template, the accounts can be easily renamed or you can load in your own structure and descriptions.

“Chart Of Accounts” Master Template In the Accounting Manager


Selecting Accounts From The Master Template

This means that if you want to use an account that does not exist then it needs be created first in the master template (global chart of accounts) before it can be selected and linked to your chart of accounts.

Once the chart of account has been defined we then need to setup rules about where transactions are generated. This is done using the OFBiz “GL Account Defaults” shown in the following screen shot:

GL Account Defaults

11 | Step 4: Setup your Detailed Accounting Information

Additional setup includes a an error journal (also called a suspense account). This is set up by the system to store any transactions that fall into error.

Setting Up An Error Journal


OFBiz Order Confirmation Screen

Step 5: Test Your Accounting Setup

To test the setup, place an order using the e-commerce web store and track it through the complete order cycle.

Note that demo accounting setup is for the payment to be received first before the product is shipped and this is common practice for e-commerce stores.

You can use the existing DemoCustomer to order a Large Widget.

13 | Step 5: Test Your Accounting Setup

You can use the Order Manager application to confirm that payment has been received.

Receiving A Payment As Seen From The Order Manager Payment Information Screen

Note: In OFBiz receiving money for an order automatically triggers an accounting transaction. The transaction created is based on the rules in your accounting setup.

To view the transaction created, navigate to Organisation GL Settings / Accounting / Accounting Transactions and click “Find”.

Click on the “Acctng Trans Id” to view the transaction details.


Viewing An Accounting Transaction

Check that the transaction matches the amount received.

Note: The OFBiz demo setup uses the accounts “Undeposited receipts” and “Accounts Recieviable”. “Accounts Receivable” is the name of a general ledger account

commonly used to track customers that owe you money.

The transaction tells us that DemoCustomer has sent a payment (eg. a cheque) that we haven’t yet paid into our company bank account, so the payment is not yet been deposited into our account.

Note: In later versions of OFBiz additional functionality has been added to print deposit slips that can be used to deposit cheques to the bank.

Once the customer has paid, we can ship the order.

15 | Step 5: Test Your Accounting Setup

Quick Ship The Entire Order

In OFBiz shipping an order also automatically triggers an accounting transaction.

To view the transaction created, navigate to Organisation GL Settings / Accounting / Accounting Transactions and click on the “Find” button to view additional transactions as shown here:

Viewing Additional Transactions

This list of transactions reflects the process of taking products from inventory, shipping the order and then invoicing the customer.

Finally using the Party Manager you can quickly see a summary of the accounting details linked to DemoCustomer's order.

Navigate to Party Manager application and find the DemoCustomer. Click on the “Fin.History” tab to reveal the web page shown here:

Party Manager Financial History For “Demo Customer”

Use the Order Manager application to “Quick Ship Entire Order” as shown here:


Next Steps

We hope that this has given you a high level overview of some accounting principles and a quick look at how the OFBiz e-commerce demonstration seamlessly integrates with many of the OFBiz accounting features and functions.

Look out for our more OFBiz accounting information on myofbiz.com and our detailed guide that will take you through the accounting setup step by step.

We are always happy to receive feedback on this document. Please send your feedback to [email protected]

accounting 5 step guide

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