So this will be your second step, if you set up your ledger first, otherwise it is where you will start.
Before you start the actual process of invoicing from your new accounting software package you will need to set up your customers, some products and then almost certainly enter into the system the balances that customers owe you at this stage.
There will probably be provision in your accounting software for entering customer opening balances.
The age trial balance that you print out of your accounting software must equal the manual list that you started with. If it doesn't because you have made a mistake somewhere, left an entry out, or even entered the same amount twice, and you start using the package for invoicing without rectifying the problem then you will just make it harder for yourself because you don't have anything to balance back to. Do not start invoicing in the accounting software before your customer balances balance exactly.
If you can you should separate the balances into current. 30 - 60 days old and 60 and over days old. Your system should have provision to enter them as such. By doing so you will be able to print a customer aged trial balance report from day one and customer statements from month end one. These are two of the more important reports in any accounting software package because it shows what money is owed in what time brackets and gives you the opportunity to chase the older and overdue accounts. REMEMBER - the longer a customer has owed you the money the harder it often is to collect it.
Once your customer opening balances balance in the accounting software you should be in a position to start invoicing.
If your accounting software runs in real time mode (you don't have to do any updating to the general ledger) you should be able to go to the general ledger and see the entries after you have done your first invoice. If you run in batch mode (like having to do an end of day update or similar) then do the update to get the entries into the ledger for you.
Now go to the ledger and find the entries. Print a Ledger financial report and see what has happened, where the entries have gone. Typically look for the Profit and Loss report as well as the trial balance.
A simple invoice to an account customer should have a few simple entries based on the following.
The invoice was for $100.00 plus a 10% GST therefore a total of $110.00. The goods you sold may have a cost of $50.00 (excluding GST). The sale was on the customers account. The entries should be similar to the following.
Sales (Profit & Loss) 100.00 Credit
Cost of Sales (Profit & Loss) 50.00 Debit
Trade Debtors (Balance Sheet) 110.00 Debit
Stock on Hand (Balance Sheet) 50.00 Credit
GST Liability(Balance Sheet) 10.00 Credit
All adds up to zero (total debits equal total credits) and each entry has a corresponding opposite entry somewhere else)
Some accounting software may not show a simple entry for cost of sales but rather have a combination of three accounts - Opening Stock, Purchases, Less Closing Stock. If so there is a separate section on this towards the end called Opening and Closing Stock Entries.
Assuming your system has a simple cost of sales account then your entries should explain themselves but, put simply, it will have made two or three entries in the Profit and Loss section -
Sales
Cost of Sales
(and GST Collected if your system runs that way)
And three in the Balance Sheet section (Assets and Liabilities)
All of the entries add up to zero. But we can also see something else very important in our overall understanding of the ledger.
All revenue or income accounts are CREDITS
All expense accounts are DEBITS
All asset accounts are DEBITS
All liability accounts are CREDITS
There are some extra entries that could have occurred -
You may have also charged your customer a delivery or freight charge, you may also have applied a rounding adjustment to round off to the nearest 5 cents etc. Freight would have been a credit, as in income and the rounding could go either way.
Your accounting software could also allow for a discount to be given at the bottom of the invoice so this would show as a debit in cost of sales
About the Author:
John Cantrell
I have been involved in all aspects of the accounting software industry for over 20 years. I run several websites that specialize in various subjects including www.diyaccounts.com.au that gives advice on all aspects of accounting software from choosing, setting up and using it. Amongst other sites that I run are www.sense-now.com that helps newbies understand what internet business will probably work for them and what won’t. www.oumas.com.au is all about arts, crafts, hobbies, wine and beer making.
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