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June 10, 2013 / Pandeeswari Ramakrishnan

Managing doubtful debt in Openbravo

The reason why companies go for ERP application can be broadly categorized into the following points:
1. Streamline process and thereby business.
2. Easy access of data.
3. Historical Analysis that can be used for forecasting and risk management

Openbravo, being an agile ERP handles all the above points aplomb. One feature related to risk mitigation as part of risk management is Doubtful Debts. This is a common scenario in almost all the companies. At times clients who have some debt pending run into crisis and you know that the debt is unlikely to come very soon. But unless you bring this debt into the accounts there is a high possibility that there would be discrepancies while forecasting based on the current data. The Doubtful Debt feature allows marking a particular payment as ‘doubtful debt’ and in case where you are really sure that the money is never going to be collected, it will be moved to ‘bad debt’ account.

Configuration
Before start working with Doubtful Debt some previous configuration steps are required:

  • To configure Accounting for Doubtful Debts. The accounts that need to be configured can be found in Business Partner window, Accounting Tab, and are:
    • Doubtful Debt Account
    • Bad Debt Expense Account
    • Bad Debt Revenue Account
    • and Allowance for Bad Debts Account.
  • To create a Preference in order to be able to see the amount of a debt that has been classified as doubtful when receiving a Payment.
  • This preference must be defined for the Client and the Organization that needs to see it.
  • This preference is an Attribute ‘Doubtful_Debt_Visibility’ which Value needs to be ‘Y’
  • To create a Document Type for Doubtful Debts.
  • This step is not a must, since there is already a Standard Document Type defined for Doubtful Debts.

Example Scenario:

Let’s visualize the doubtful debts through the example case provided here. The Customer Healthy Food Supermarkets, Co. has an Invoice of 1.000,00 USD pending to be collected, and this is it’s Journal Entry, created when Posting the Invoice.

DDInvoicePosting

After three months without collecting the pending debts from this Customer, the debt from the previous Invoice is considered Doubtful, henceforth a Doubtful Debt Run needs to be created and processed. As shown in the image below, the “Run Date” and the “Accounting Date” are the same, that is 90 days after the Invoice Date, as well as the Days Overdue.

900px-DDDoubtfulDebtRun
Back to the Doubtful Debt Window, the doubtful debt created and processed in the Doubtful Debt Run can be posted. Two entries are generated in the Journal. One to reclassify the debt from Accounts Receivable to Doubtful Debt and the other one to represent the provision for the Doubtful Debt.

DDDoubtfulDebtPosting
A couple of days after, the Customer makes a Payment of 350,00 USD against the previous Invoice, and the Posting of the Payment creates this entries in the Journal. One entry that balances the Doubtful Debt and the Checking In-Transfer Account, and the other entry that decreases the Doubtful Debt provision generated previously.

DDPaymentPosting1
Three months later the Customer becomes bankrupt, therefore it won’t be possible to recover it’s debt any longer. A Payment is made to write off the amount remaining. That action creates another two entries in the Journal.

DDPaymentPosting2

Reversing doubtful debt:
In case we have received the debt back, we can always reverse the doubtful debt using the ‘Doubtful Debt Run’ window. Here we can select the doubtful debt that we wish to reverse and reactivate it and make necessary modifications. Note that we cannot reactivate a doubtful debt that is already posted. In this case, we have to unpost the document and then reactivate it.

An ERP implementation is as effective as the users using it and the data it is fed with. By allowing payments to be marked as doubtful debts, the system will provide an even more clear picture of the status of the current accounts. Doubtful debts feature is available from 3.0 MP20 version.

April 14, 2013 / Pandeeswari Ramakrishnan

Improvements to Open/Close Period Control in Openbravo

Openbravo ERP, being a multitenant architecture application, a single client may have different organizations. The organization may be of various types like legal with accounting, legal without accounting or generic. For more details on organization types and their implications refer here.

Fiscal Calendar:

When the organization is of type ‘Legal with Accounting’, the Fiscal calendar needs to be configured in order to manage accounting. This can be managed using the “Fiscal Calendar” window. The purpose of this window is to create and maintain the calendar, years that are included in the calendar and the periods that are included for each of these years. For those wondering about the options “Close Year” and “Undo Close Year” which were part of the Fiscal Calendar earlier, these options are now moved to ‘End Year Close’ window as part of the improvements done in Open/Close periods which is described in brief at the end. These improvements are done to clearly segregate the calendar setup and maintaining open/close year transactions enabling better transaction history. These improvements are available from version 3.0 MP 22.

Open/Close Period Control:

The Open/Close Period Control window as the name suggests is used to Open or Close an entire period or open the period for certain document types. The main tab allows to control the Open and Close functionality at the entire period level while the sub tab Document Type allows to close or open a period at the document type level. The improvements made to this window from 3.0 MP22 are as follows:

1. Earlier, to close or open a period, we have to create a new row. But now all the periods of the fiscal calendars created will be prefilled. All we have to do is select and open/close the period.

2. Pictures does speak a thousand words. Now you can visualize the status of the period even without searching for the status field and then decoding it with the status values. The status values are marked in colour code to enable quick view of periods.

A period can be in any of the following status, “All never opened”,”All opened”, “All closed”, “Mixed”, “All permanently closed”. These are the colour codes and description for each of these status.

  • All Never Opened, colored in gray. Recently created Periods.
  • All Opened, colored in green. All the Document Types are open for this Period.
  • All Closed, colored in red. All the Document Types are closed for this Period.
  • Mixed, colored in orange. Not all the Document Types have the same Status value in this Period. For more information refer to the Documents Tab below.
  • All Permanently Closed, colored in red. All the Document Types are Permanently Closed for this Period.

As you can see it provides a clear picture of the period’s status even without getting into its details. Similar operations are available at the document level.

800px-OpenClosePeriodControlPic2

For example scenarios and more detailed explanation about the Period Control, refer to our wiki here.

End Year Close:

The ‘Close Year/ Unclose Year’ which was part of the Fiscal Calendar has been refactored as a new window End Year Close. You can select any of the available Fiscal Calendars and Close or Undo Close the Fiscal Calendar. The close year process is used to close a Fiscal Calendar. This process closes all the periods of the fiscal year permanently. The standard periods need not be closed prior to running this process, however it can help to keep tracking of the periods of the year already reviewed and closed. The close year process requires that the next year exists and the first period of the next year to be open. Once a year is closed, it can be reviewed in the Open/ Close Period Control window. All the periods that are closed through this process will be marked with the status ‘Permanently Closed’. It will be not be possible to create any transactions within that year anymore. To create any transaction the ‘Undo Close Year’ process should be run.

The close year process in general creates the following accounting entries:

1. The “Profit and Loss Closing” entry.

  • This accounting entry resets all “Revenue” and “Expense” Account Types and the difference is posted in the Income Summary account.
    • In other words the “Expense” accounts are “Credited and the “Revenue” accounts are “Debited” and the difference if any is posted in the Income Summary account.
    • Let’s take an expense account with a debit balance of 500,00. The P&L Closing entry creates a credit accounting entry of 500,00 in the Expense account of the example, therefore it gets a balance equal to zero.
    • If the revenue accounts total balance is higher than the expense accounts total balance that difference is credited in the Income Summary account, that means a positive result or a profit.
    • If the revenue accounts total balance is lower than the expense accounts total balance that difference is debited in the Income Summary account, that means a negative result or a loss.
  • This accounting entry is posted the last day of the last period of the year being closed, that is the “Adjustment Period” or “13th Period” of the year.
  • Openbravo does not create a G/L Journal for this accounting entry but just the accounting entry.

2. The “Closing” entry or “Balance Sheet Closing” entry.

  • This accounting entry credits all the accounts which have a debit balance and debits all the accounts which have a credit balance. The aim of this accounting entry is to get that Asset and Liability accounts get a zero balance.
    • In order words, let’s take an Asset account with a debit balance of 8.000,00. The closing entry creates a credit accounting entry of 8.000,00 in the Asset account of the example.
  • This account entry is posted the last day of the last period of the year being closed, that is the “Adjustment Period” or “13th Period” of the year.
  • Openbravo does not create a G/L Journal for this accounting entry but just the accounting entry.
  • This entry is created only if the Reverse Permanent Account Balances check-box is set to yes.

Finally, if a Retained Earnings account is specified for the general ledger configuration, an additional entry dated on the last day of the year is created.

This entry moves the Income Summary account balance to the “Retained Earnings” account.

3. And the “Opening” or “Balance Sheet Opening” entry.

  • This accounting entry is the reversal entry of the closing entry.
    • Following the example of point 2 above the opening entry creates a debit accounting entry of 8.000,00 in the Asset account of the example. That amount is the opening balance of the asset account for the new year.
  • This accounting entry is posted the first day of the first period of the next year.
  • This entry is created only if the Reverse Permanent Account Balances check-box is set to yes.

For a use case scenario on how to use the ‘End Year Close’ process and its implications on the Accounting entries refer here.

April 5, 2013 / Pandeeswari Ramakrishnan

Business Partner Blocking

A Business partner in Openbravo is any third party like customers, suppliers, creditors etc. Even employees can be business partners. These business partners are segregated through Business Partner Categories. For more information on Business Partners refer here.

More often, companies are caught up in situations where they are not able to restrict a particular customer in case the payments are long due, or stop payments to a supplier. The problem with these cases is that deciding to block a particular business partner is a management decision and most of the time it varies on a case to case basis. Though there are already notifications like credit limit provided across all financial transactions, in most cases they are not enough to restrict transaction. This is where Business Partner blocking comes handy.

Business Partner locking is a feature where the client can block a business partner thereby revoking the privileges to fulfil a set of documents related to financial transactions. The following documents can be controlled while blocking a business partner

  • Orders (Purchase Order, Sales Order)
  • Goods Shipment / Receipt
  • Invoice (Purchase Invoice, Sales Invoice)
  • Payment Details (Payment In / Payment Out)

Note that Blocking a Business Partner for a document means that it will not be possible to complete this Document, but it will be possible to create a draft. For example, if a Customer is Blocked for Sales Orders, it will be possible to create a new Sales Order for this Business Partner in Draft Status, but it will never be possible to complete it while this Business Partner is blocked.

Customer Blocking
To block a customer, navigate to the customer tab under Business Partner and check the ‘On Hold’ check box. After it is checked it will provide the configuration options mentioned above. These are the default values for the configuration options. This can also be changed to suit the business needs.

  • Sales Order: Blocked
  • Goods Shipment: Blocked
  • Sales invoice: Blocked
  • Payment In: Not blocked

Note that the document is blocked, if the check box next to each item is checked.

Customer Blocking

Customer Blocking

Vendor Blocking
Similar to the Customer, to block a Vendor / Supplier, navigate to the Vendor tab under Business Partner and check the ‘On Hold’ checkbox. These are default values for the configurations for the Vendor. This can also be changed to suit the business needs.

  • Purchase Order: Blocked
  • Goods Receipt: Not blocked
  • Purchase Invoice: Blocked
  • Payment Out: Blocked
Vendor / Supplier blocking

Vendor / Supplier blocking

This way the client need not rely upon manual discretion when handling a huge volume of Business Partners which is usually the case. The Business Partner can be unblocked at any point in time, thus providing greater flexibility.

March 28, 2013 / Shankar Balachandran

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