// THE MOST IMPORTANT POINTS AT A GLANCE
What You'll Take Away from This Article
- Key Takeaway: Odoo offers two posting methods for valuing inventory receipts and issuances-Anglo-Saxon and Continental Accounting-each with its own advantages and disadvantages.
- Recommended Action: Configure different inventory change accounts for goods received and goods issued (inventory increase for goods received, inventory decrease for goods issued).
- Most Important Rule/Pitfall: With the Continental method, careful period management is essential to avoid timing discrepancies between the receipt of goods and invoicing.
Choosing the right posting method is a crucial factor for accurate financial accounting. Odoo offers two different posting methods-Anglo-Saxon Accounting and Continental Accounting-for valuing inventory receipts and issuances, each of which has its own advantages and disadvantages. It is important to note that these terms are not directly equivalent to the concepts of the full-cost method and the cost-of-sales method-more on this later.
But which method is right for your company? And how can you avoid pitfalls such as period shifts or incorrect inventory allocations?
// COMPARISON
Anglo-Saxon Accounting
Under the Anglo-Saxon method, goods receipts are recorded entirely without affecting income. Similar to the WERE account familiar from the SAP environment, the goods receipt is posted to the credit side and the invoice entry to the debit side of the “Stock Interim (Receipt)” account. Upon sale, the goods issue is posted to the debit side of the “Stock Interim Delivered” account. Only when the invoice is issued does another posting occur, in which the COGS (Cost of Goods Sold / Cost of Materials) is posted to the debit side and the “Stock Interim (Delivered)” account is posted to the credit side. This ensures that the cost of materials is precisely allocated to the time of sale. Feature or Advantage 3
Continental Accounting
In Continental Accounting, on the other hand, the receipt of goods is posted to the credit side of a change in inventory account (increase). The corresponding invoice entry is posted to the debit side of the cost of materials account. Here, too, the overall effect is normally neutral with respect to income.
Key Considerations and Pitfalls
1. Timing Issues in Continental Accounting
A potential drawback of the Continental method lies in the timing difference between the receipt of goods and the issuance of an invoice. If the receipt of goods is recorded in an earlier period but the invoice is not received until later, this results in an unintended effect on earnings (the same applies vice versa):
- In the first period, the increase in inventory is recognized as revenue.
- In the second period, the journal entry results in an expense.
- Both periods, therefore, are incorrect or distorted in and of themselves.
Attention: Important Notice / Deadline
Daher ist bei dieser Methode ein sorgfältiges Periodenmanagement essenziell, um falsche Ertrags- und Aufwandseffekte zu vermeiden (more on this in the following sections)
1. Changes in inventory and their correct classification
The term “change in inventory” can generally be applied to all types of materials. However, in the German HGB income statement, it is typically used only for work-in-progress and finished goods. Changes in inventory also occur for merchandise and raw materials; however, these should be reported under cost of materials (preferably in separate accounts, such as “Cost of Materials – Merchandise: Increase in Inventory”!).
Therefore, when selecting product categories in Odoo, it is essential to ensure that the correct inventory transaction accounts are assigned and that this accounting aspect is already taken into account in the categories.
Practical Tip
Recommendation on account segregation: We recommend configuring separate inventory change accounts for goods received and goods shipped, that is:
- Increase in Inventory for Goods Received
- Inventory Reduction for Outgoing Goods
Bestandsverringerung für Warenausgänge
Full-Cost Method vs. Cost-of-Sales Method
Now, back to classifying the methods in the context of the total cost method and the cost-of-sales method:
The Continental method clearly corresponds to the total cost method. The Anglo-Saxon method, on the other hand, is not directly equivalent to the cost-of-sales method, but rather pertains only to the gross margin (revenue and COGS). The actual cost-of-sales method is based on a matrix organization between accounts and cost centers. This is not reflected in Odoo’s standard income statement. However, using the syscoon formulas integrated into Odoo Sheets, it would be easy to set up a P&L statement based on the cost-of-sales method!
Workaround for the Cost of Goods Sold Method in Odoo
Since Odoo does not, by default, provide for the allocation of personnel expenses to different functional areas such as SG&A, R&D, or Sales, this can be achieved through a manual posting solution. A pragmatic workaround is to create separate personnel expense accounts for each area. Not the most elegant solution...
Outlook
Der nächste Teil dieser Reihe wird näher auf die praktischen Auswirkungen der beiden Methoden eingehen und erläutern, wann welche Buchungsmethode sinnvoll ist.