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About Order Types and GL Entries

The Orders service calculates the GL entries for each order based on the following set of rules that are dependent on the Order Type:

Rules for Regular Orders and Cancellations Order Types

Regular orders and cancellations generate general ledger (GL) entries for several segments of the order. For each order there are three basic GL entries that are made regardless of which products are ordered. Each order contains GL entries for the sales tax, shipping, and accounts receivable (A/R) account types. (Note that sales tax and shipping are not necessarily applicable to all orders.)

In addition to the basic GL entries, each order line may result in additional entries to the general ledger or changes to the default entries. For each line of an order, the following accounts may be affected: Sales, Discounts, Deferred Income, Unearned Revenue, Inventory, and Cost of Goods Sold (COGS).

Rules for Sales Tax

Sales tax entries are generated to show a credit to the sales tax liability account for sales tax amounts recorded in the order. The account to be credited is based on the sales tax rate chosen for the order. By default, the Orders service selects the appropriate sales tax rate based on where the order is shipped. Administrators configure rates from the Sales Tax Rate service; see Configuring Sales Tax Options for Product Pricing for more information.

Rules for Shipping

Shipping charges in the order are calculated and credited to the appropriate revenue account based on the shipment type chosen. The Shipment Types service tracks all of the different shipment types and the revenue accounts for recording the freight charges. The Shipment Types service also maintains an expense account and payable account to record actual shipping expenses. See Adding Shipment Types for more information.

Rules for Accounts Receivable

If all products, tax, and shipping charges use the default Accounts Receivable (A/R) account, then only one A/R account is debited when an order is shipped. However, it is possible for each product, sales tax rate, and shipping type to use a separate A/R account, and in those cases the Orders service creates separate entries by account.

You must designate one (and only one) A/R account as the Default A/R Account. The system uses the default A/R account for any product, sales tax rate, or shipping type that does not specify an A/R account.

Rules for Sales

For accrual basis products, revenue is recognized at the time the order is shipped. Therefore, Aptify creates a GL entry that credits the applicable sales account(s) when an order ships. (Each product may have a different sales account so a single order with multiple order lines may include a credit to multiple sales accounts.). Each GL credit entry equals the quantity of product ordered multiplied by the price per unit. The amount is the gross sale amount and does not include any discounts.

Rules for Discounts

For order lines containing products that have revenue recognized on an accrual basis, discounts are removed from the order line by debiting the sales discount account linked to the product. However, in the case of cash basis accounting or for deferred income products, discount accounts are not altered until the revenue is recognized. This occurs in the Payments service for cash basis products or in the Scheduled Transactions service for deferred income products.

Rules for Deferred Income

For deferred income products such as subscription products or membership dues, the revenue account is not credited by the Orders service. Instead, the deferred income account defined on the product's GL Accounts tab is credited for the net amount of the line item. Any discounts for the deferred income product are applied in the scheduled transaction at the time of revenue recognition so that revenue and discounts correlate.

Rules for Unearned Revenue

In the case of cash basis products, revenue is not recognized until payment occurs. In the Orders service, the system still tracks the potential revenue earned in the account designated in the product's GL Accounts tab as the unearned revenue account. At the time of payment, the revenue is recognized by debiting the unearned revenue account and crediting the sales account.

Rules for Inventory

Inventory GL adjustments are only made when the Calculate COGS option on a Products record is selected. This field is located on the General sub-tab of the Inventory tab of the Products form. The amount credited from inventory is dependent upon the costing method used by the organization.

Inventory Tab on the Products Form

Rules for Cost of Goods Sold

Cost Of Goods Sold (COGS) account entries are only made in the Orders service if the Calculate COGS option is selected for the product. For products requiring COGS, the Orders service calculates the cost of goods sold for the product based on the cost method selected in the Cost Method list. If the order is in a foreign currency, the Mark-To-Market object runs in the background and calculates the COGS in the currency type of the order, and converts it based on the appropriate currency spot rate.

  • Average: Average costing methodology assigns each unit sold the average cost of all units currently in stock, regardless of when they were purchased. Aptify recalculates the average cost per unit each time a user adds a new Purchase Product Inventory Ledger Entry (PILE) for a product.
  • LIFO: Last-In-Last-Out methodology assumes that the most recently acquired goods are sold first, and that the ending inventory consists of "old" goods acquired in the earliest purchases. Thus, inventory value is based on the price of the most recently acquired items.
  • FIFO: First-In-First-Out methodology is based on the assumption that the first merchandise acquired is the first merchandise sold. In other words, each sale is made out of the oldest goods in stock and the ending inventory always consists of the most recently acquired goods. Inventory value are prioritized so that the price of the oldest items is posted, regardless of current market cost.

Rules for Quotations Order Type

Quotations do not generate any GL entries. This order type exists only as a sales status and thus has no direct impact on accounting methods.

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