Introduction to Odoo 16 Accounting Basics

Introduction to Odoo 16 Accounting Basics

Accounting is considered to be the backbone of every business. It allows you to keep a note of numbers about what you earn, what you owe, and how sorted your company’s finances are. With the Odoo Accounting app, managing business numbers has now become easier and smarter. 

Odoo Accounting module collates and shows all the important information related to the business's financial activities like journal entries, payments, reports, reconciliations, etc under one streamlined system. 

In this blog we will go through the basics of Odoo’s accounting app setup and see how it organizes financial data efficiently through account groups and account ledgers.

Accounts Groups in Odoo

In Odoo accounting app, account groups are used to organize similar ledger accounts under the one category. This helps businesses to maintain a simplified and structured accounting system. 

This also helps in making a clean report structure which is easy to understand. Each account group in the Odoo accounting app helps you to understand how various transactions impact your company's balance sheet or profit and loss statement.

The main account groups include:

Receivable (Debtors): In Odoo account Receivables can be defined as the amount of money owed by the customers for the products or services received but not yet paid. The receivables are also known as debtors. These accounts are pretty much convenient for registering all receivables from the side of customers. Whenever the receivables increase, this account is debited.

Bank and Cash: In Odoo Bank and Cash is a type of an asset. Every bank and cash account of the organization will come under the Bank and Cash type. It covers all liquid assets, including the bank accounts and petty cash. Whenever the money is spent, this account is credited.

Current Assets: In Odoo, Current assets are the cash and other assets that are expected to be converted to cash within one year. This type of account is very beneficial for recording short term assets. 

For Example: inventory, loans, and prepaid expenses that are expected to convert into cash within a year. 

Non Current Assets: In Odoo, The non-current assets are considered as an asset that the business organisations obtain or invest in. However, the amount of that investment does not revert within an accounting year. These are the long term investments. For Example: insurances, land, buildings, and vehicles that are hard to get liquidated. 

The total esteem can not be calculated within the accounting year, hence all of the assets are listed in the balance sheet.

Prepayments: In Odoo, Prepayments can be considered as prepaid expenses. In this scenario, the cost has already occurred for the products and services, but they are not to be received yet consumed. These are the payments made in advance. For Example insurance or rent, which are gradually recognized as expenses over time. 

Fixed Assets: In Odoo the Fixed Assets account type captures details of every fixed asset transaction, such as furniture, machinery, vehicles, land, buildings, and equipment or assets. Under fixed assets we can include all company’s items which they aim to use for a long period. These are all reflected in the balance sheet.

Payables (Creditors): In Odoo, The Payables account type is also known as Creditors. This tracks all outstanding amounts the company owes to the vendors and the suppliers. The payable account is credited as the type of liability on a vendor bill.

Credit Card: In Odoo, A Credit Card account is a type of account which is considered as a liability that represents short term debts owed to the credit card provider. In credit cards, the money spent for any purpose like purchase or any other kind of payment through credit card is recorded as a liability until it is repaid. This account is reflected on the balance sheet under current liabilities, as the company is asked to settle the amount with the bank or credit issuer within a specified billing period.

Current Liabilities: In Odoo, Current liabilities are considered as short term liabilities or debts which are supposed to be settled within a year like salaries, payroll taxes, accrued expenses, income taxes, short term loans, and much more.

Non Current Liabilities: In Odoo, Non current liabilities are the long term debts or financial commitments  that are due for a year or more and are listed on the balance sheet. For Example: Long term bank loans, deferred taxes, long term lease, and pension benefit obligations.

Equity: In Odoo, Equity account is considered as the financial depiction of the proprietary of an organization or business. In other words, equity shows how much of the business actually belongs to the business owners after all the debts are paid. It shows the owner’s share in the company and is reflected on the balance sheet.

Equity comes from two main sources: the money that is invested by the owners and the profits the business has earned and kept over time. Common items under equity include owner’s capital, retained earnings, common stock, and treasury stock.

When the owners invest more money in the business, the equity increases, and the company’s capital account is credited to show this growth.

Current Year Earnings: In Odoo, The Current Year Earnings account type displays the profit or loss accumulated during the ongoing fiscal year. If the sales or any other transaction has impacted on the income and expense account, the current year's earnings will also be affected. This also gets listed in the balance sheet.

Income & Other Income: In Odoo, Income & Other Income account type is beneficial for businesses to show company income or revenue. This section tracks revenue from sales and other sources like rent or interest. This account's nature is income, which is recorded under the profit and loss reports.

Expenses: In Odoo, Expenses accounts are the type of accounts that captures all the details of the amount an organization spends on everyday costs during an assigned accounting period. Expenses such as salaries, rent, income tax expenses, production of goods and services expenses, repairs expenses, promotion expenses, or other utilities. This account’s nature is expense, and it will be listed under the income statement/profit and loss report.

Depreciation: In Odoo, Depreciation account type records how much value a company’s fixed assets lose over time. Or in other words, depreciation reflects the gradual decrease in the value of the fixed assets over time. 

Assets like machines, vehicles, or buildings wear out or become less useful each year, and this decrease in value is called depreciation. 

Each asset has its book value or an original cost, instead of showing the full cost in one year, Odoo spreads the expense over several years based on the chosen method. 

Cost of Revenue: In Odoo, Cost of revenue represents the direct cost of producing goods or delivering services offered by the company. Which means it is the total cost of manufacturing and delivering a product or service to its customers. 

Cost of Revenue is directly associated with the income statement, so it is more suitable to represent the direct cost related to the goods and services. It includes the manufacturing cost of the product and the cost of delivering them to the customers. Cost of revenue is considered as an expense in nature, and the account type impacts the gross profit.

This structure in Odoo Accounting ensures the ease of detailed and accurate reports generation at any point of time.

Account Ledgers

The Account Ledger in Odoo serves as the detailed record book for all your financial transactions. It manages bookkeeping entries for both balance sheet and income statement accounts, such as opening and closing balances in debit or credit. Every transaction is recorded on account ledgers, whether debit, credit, balance adjustment, stock valuation, invoicing customers, vendor invoices records, salary expenses, and many more.

The ledgers include all the essential information required for preparing financial statements. Every transaction has a reference number that will be advantageous to them to determine why and how that specific transaction was done.

Different account ledgers used in Odoo Accounting App are as follows:

Income Account: Income Account tracks all the money earned from sales or services.

Expense Account: Expense Account records all business spending and operational costs.

Stock Input & Output Accounts: Stock Input & Output Accounts manages the value of goods moving in and out of inventory.

Stock Valuation Account: Stock Valuation Account shows the total value of all items currently in stock.

Price Difference Account: Price Difference Account records the difference between the expected cost of a product and the actual cost paid for it.

Accounts Receivable: Accounts Receivable tracks the money customers owe to your business for the goods or services that are already delivered.

Accounts Payable: Accounts Payable tracks the money your business owes to the vendors or suppliers.

Fixed Asset Account:  Fixed Asset Account records the value of long term assets like land, buildings, furniture, or equipment owned by the company.

Depreciation Account: Depreciation Account shows how much value the fixed assets lose over time as they are used.

Revenue Account: Revenue Account records all the income business earns from selling their goods or providing services.

Deferred Revenue Account: Deferred Revenue Account tracks payments received in advance for goods or services that will be delivered later.

Expense Account: Expense Account records all spends which are used to run the business, like rent, salaries, or utilities payments.

Deferred Expense Account: Deferred Expense Account records payments made in advance for services or benefits that will be used in the future like rent, prepaid insurance, annual software subscriptions, etc.

Suspense Account: Suspense Account helps to temporarily hold transactions that need clarification or verification before being assigned to the correct account.

Outstanding Receipts Account: Outstanding Receipts Account records payments that are received but not yet confirmed or reconciled in the system.

Outstanding Payments Account: Outstanding Payments Account tracks payments that are initiated but not yet processed or cleared by the bank.

Transfer Accounts: Transfer Accounts are used to move funds between different accounts within the company, example:  transferring money from one bank account to another.

Odoo accounting module streamlines a proper structure, accuracy, and automation to your company’s financial management. Whether grouping the similar accounts under defined categories or maintaining detailed ledgers for every business transaction, Odoo makes sure that no financial detail is ever missed.

Odoo also helps in streamlining everything related to accounting like assets and liabilities or income and expenses. It helps in making accounting transparent, efficient, and easy to manage.

Whether it’s tracking daily operations, preparing reports, or ensuring compliance, Odoo Accounting module provides businesses with the clarity they need to make informed financial decisions and focus on growth rather than manual bookkeeping.