Key Concepts in Accounting

iVendNext offers a comprehensive set of accounting features and tools that cater to the needs of various businesses. Understanding these key concepts and terms is crucial for effectively managing your finances within the software.

Foundational Accounting Principles

The foundational accounting principles are:

Double-Entry Accounting:

This system, considered the global standard, forms the basis of the Chart of Accounts in iVendNext. It ensures that every financial transaction is recorded in two accounts, one debit and one credit, maintaining the accounting equation (Assets = Liabilities + Equity).

Accounting Period:

This defines the timeframe for recording financial statements. iVendNext allows you to set specific accounting periods and restrict certain transactions after the period ends, preserving the integrity of financial data.

Fiscal Year:

This refers to the year used for recording and reporting financial transactions, often aligning with a company's tax year. It may or may not be the same as a calendar year.

Accounting Equation:

The fundamental equation in accounting: Assets = Liabilities + Owner's Equity. This equation ensures that a company's assets are always equal to the sum of its liabilities and owner's equity.

Assets:

Resources owned by a company that have economic value, such as cash, equipment, and inventory. iVendNext distinguishes between Fixed Assets, which have a long life (like equipment), and Current Assets, which are used in day-to-day operations (like raw materials).

Liabilities:

Obligations a company owes to external parties, such as loans, accounts payable, and unearned revenue.

Equity:

The owner's stake in the company, representing the difference between assets and liabilities. It includes the initial investment (Capital) and retained earnings (accumulated profits).

Revenue:

Income generated from a company's primary business activities, such as sales of goods or services.

Expenses:

Costs incurred in running the business, such as rent, salaries, and utilities.

Profit: The financial gain a company makes when revenue exceeds expenses.

Loss: The financial deficit a company incurs when expenses exceed revenue.

Core Accounting Elements

The core accounting elements are:

Chart of Accounts (CoA)

This is the foundation of your accounting system in iVendNext, acting as a blueprint for all financial accounts within your company. The CoA is structured hierarchically with parent-child relationships between accounts. It categorizes accounts into various types, including Income, Expense, Asset, Liability, Bank, and Tax accounts.

Account Types:

Balance Sheet Accounts:

These accounts, representing assets and liabilities, depict the company's financial position at a specific point in time. They fall under "Application of Funds (Assets)" and "Sources of Funds (Liabilities)" and collectively represent the company's net worth. Examples include Bank Accounts, Fixed Assets, Accounts Receivable (money owed by customers), and Accounts Payable (money owed to suppliers).

Profit and Loss (P&L) Accounts:

These accounts track income and expenses over a period, reflecting the company's financial performance. They are reset at the beginning of each fiscal year. Examples include Sales Revenue, Cost of Goods Sold, Salaries, and Rent.

Groups and Ledgers:

Groups function as containers for other accounts (either other groups or ledgers), allowing for a hierarchical structure in the CoA.
Ledgers are individual accounts at the end of each branch of the CoA tree where financial transactions are recorded.
Opening Balance: This represents the financial position of your company at the start of a new accounting period. It is crucial to accurately import opening balances, particularly when transitioning from another accounting software.

Core Accounting Processes

Initial Investment:

When an owner invests capital into the business, the Cash account is debited, and the owner's Capital account is credited.

Asset Acquisition:

Acquiring assets involves debiting the relevant asset account (e.g., Equipment, Stock in Hand) and crediting either Cash (if paid immediately) or the Supplier account (if purchased on credit).

Sales and Income Recognition:

When a sale occurs, the Sales account (a revenue account) is credited, and either the Cash account (for cash sales) or the Accounts Receivable account (for credit sales) is debited.

Expense Recording:

Business expenses are recorded by debiting the specific Expense account and crediting either Cash (for immediate payments) or the relevant liability account (for expenses incurred on credit).

Profit Booking and Period Closing:

At the end of the accounting period, the profit (or loss) is calculated by subtracting total expenses from total revenue. This profit is then transferred to the owner's Capital account, using a Period Closing Voucher. This process resets the profit and loss accounts for the new period.

Key Features and Tools

Journal Entries:

iVendNext allows users to create journal entries for a wide range of transactions beyond sales and purchases. These include recording expenses, opening balances, contra entries, bank payments, credit notes, debit notes, and adjustments. Journal entries ensure that the accounting equation remains balanced.

Immutable Ledger: iVendNext uses an immutable ledger, preventing the deletion or modification of past journal entries. This ensures data integrity and auditability. When a transaction is canceled, instead of deleting the original entries, reverse entries are created to offset the impact.

Journal Entry Templates:

For recurring journal entries, users can create templates with predefined accounts and options. This streamlines data entry and ensures consistency in recording similar transactions.

Payment Management:

iVendNext offers several tools to manage payments:

Payment Entry:

This is the primary method for recording payments received or made against invoices, orders, or other transactions. It offers features like specifying payment mode, payer and payee details, account tracking, linking to specific documents, and handling deductions or write-offs.

Multi-Currency Payment Entry:

Supports payments in foreign currencies, automatically fetching current exchange rates. Users can manually adjust exchange rates and calculate exchange gains or losses.

Payment Request:

Enables sending payment requests to customers. Users can customize the request message, provide payment links to a payment gateway, or include bank details for direct transfers.

Bulk Payment Entry:

Facilitates creating a single payment entry against multiple invoices. Users can select the party, enter the total amount, and allocate it against specific invoices.

Payment Order:

Designed for recording and tracking bulk payments to suppliers, acting as a communication tool between purchase managers and accountants. Users can fetch multiple payment requests for a supplier and generate payment entries accordingly.

Dunning:

Automates sending persistent payment reminders for overdue invoices. Dunning types can be configured with different levels of urgency, including interest calculations and late fees. The system updates the status of dunning documents as payments are received.

Payment Reconciliation:

This tool matches payments with invoices and bank statements, ensuring all transactions are accurately recorded. It can handle complex scenarios where payments are not directly linked to specific invoices, such as block payments or payments based on a schedule. Both manual and semi-automated options are available.

Semi-Auto Payment Reconciliation:

Allows for bulk reconciliation of payments, streamlining the process when dealing with a large volume of transactions. Users can select the company, party, and relevant accounts, and the system will automatically match payments and invoices based on predefined rules.

Invoice Management:

Opening Invoice Creation Tool:

Streamlines the import of outstanding invoices when transitioning to iVendNext. It focuses on importing balances for customers and suppliers without requiring detailed item data.

Allow Over Delivery/Billing:

Provides flexibility to deliver or bill quantities that exceed the initial order. The allowed percentage of over-delivery can be set at the item level or globally in Stock Settings.

Exchange Rate Management:

Freeze Exchange Rate:

Gives users the option to fix exchange rates for specific transactions or use real-time rates. This feature helps businesses manage currency fluctuations and ensure accurate financial reporting.

Advanced Accounting Features

Finance Book:

iVendNext allows you to create multiple finance books, enabling you to maintain different sets of financial records for various purposes, like reporting to tax authorities or stockholders.

Multi-Currency Accounting:

This feature enables you to record transactions in various currencies, essential for businesses operating internationally or dealing with foreign currencies. You can define accounting currencies for different accounts and parties, and iVendNext handles currency conversions and reporting in multiple currencies.

Deferred Revenue and Expense:

Deferred Revenue:

Deferred Revenue represents payments received for services or goods yet to be delivered. iVendNext automatically creates journal entries to recognize this revenue as it's earned over time.

Deferred Expense

Deferred Expense represents expenses paid in advance for services or goods to be consumed in the future. iVendNext handles the recognition of these expenses over time through automatic journal entries.

Common Party Accounting:

Enables accounting for transactions where a party acts as both a customer and a supplier, allowing for adjustments between sales and purchase transactions.

Discount Accounting:

Provides the ability to track discounts applied to individual items or the entire invoice, allowing for detailed analysis of discount impact.

Deferred Revenue/Expense:

Facilitates the accounting of revenue and expenses over time as they are earned or incurred, adhering to accrual accounting principles.

Invoice Discounting:

Manages the process of using unpaid sales invoices as collateral for short-term loans. Users can track loan details, bank charges, and related accounting entries.

Tax Management

Taxes and Charges:

iVendNext provides comprehensive tax management features. You can define various taxes and charges and apply them to sales and purchase transactions using templates.

Tax Templates:

Sales Taxes and Charges Template:

Used to apply taxes to sales transactions like Sales Orders and Sales Invoices.

Purchase Taxes and Charges Template:

Used to apply taxes to purchase transactions like Purchase Orders and Purchase Invoices.

Item Tax Template:

Allows for overriding the standard tax rates defined in the Sales/Purchase Tax Templates for specific items or item groups.

Tax Withholding:

iVendNext supports Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). You can define Tax Withholding Categories and set thresholds for automatically calculating and deducting TDS/TCS on transactions.

Tax Inclusive Accounting:

iVendNext can handle tax-inclusive pricing where the sales tax is included in the item's price.

Costing and Budgeting

Cost Center:

Cost centers allow you to track costs based on specific departments, projects, or areas within your business. You can create a hierarchical Chart of Cost Centers and assign cost centers to transactions.

Accounting Dimensions:

These allow for tagging transactions with additional information beyond cost centers, providing a more granular level of analysis.

Budgeting:

iVendNext supports creating budgets for specific cost centers, projects, or accounting dimensions. You can define budget amounts for different accounts and track budget vs. actual expenses.

Banking and Payments

Mode of Payment:

This defines the method of payment used for transactions, such as Cash, Bank Transfer, or Credit Card. You can set default payment accounts for different modes of payment.

Payment Terms:

You can define payment terms to specify how and when payments will be made. This can include partial payments, credit periods, and early payment discounts. You can create Payment Terms Templates to easily apply pre-defined payment terms to transactions.

Bank:

iVendNext allows you to record details of your bank accounts, including the bank name, account number, and branch details. This information is used for bank reconciliation and payment processing.

Bank Reconciliation:

This process matches the transactions recorded in iVendNext with your bank statements, ensuring accuracy and identifying any discrepancies. iVendNext offers both manual and semi-automatic bank reconciliation tools to simplify this process.

Reporting and Analytics

General Ledger:

Provides a detailed view of all transactions for each account, allowing filtering by account, cost centers, parties, projects, and periods. It shows debit and credit amounts for each transaction and provides opening and closing balances.

Accounts Receivable/Payable:

Tracks outstanding balances from customers and suppliers. It includes aging analysis, breaking down outstanding amounts based on due dates.

Trial Balance:

Lists account balances for all accounts in the Chart of Accounts for a specific period. The trial balance ensures that the total debits equal the total credits, confirming the accuracy of bookkeeping entries.

Balance Sheet:

Presents a snapshot of a company's financial position at a particular point in time. It shows assets, liabilities, and equity. iVendNext's Balance Sheet allows multi-year comparison and analysis by finance book, cost center, and currency.

Cash Flow Statement:

Summarizes cash inflows and outflows over a specific period, providing insights into a company's liquidity. It categorizes cash flows into operating, investing, and financing activities.

Profit and Loss Statement:

Summarizes a company's revenues and expenses over a specific period, showing the net profit or loss. It allows for multi-year comparison and analysis by finance book, project, cost center, and currency.

Consolidated Financial Statements:

Offers a combined view of financial statements for a group company, merging data from all subsidiary companies. It provides insights into the overall financial performance of the group.

Financial Ratios Report:

Calculates various financial ratios, such as liquidity ratios, debt-equity ratios, and turnover ratios. These ratios provide insights into a company's profitability, liquidity, leverage, and market valuation.

Tax Reports:

Includes reports specific to different tax jurisdictions, such as Sales Register, Purchase Register, GSTR-1, and GSTR-2 for India. These reports help businesses comply with tax regulations and file returns accurately.

Budget and Cost Center Reports:

Allows users to track and analyze budgets and expenses against specific cost centers. The Budget Variance Report compares budgeted and actual expenses, highlighting any deviations.

Analytics Reports:

Provides insights into sales and purchase patterns and trends. Reports like Item-wise Sales/Purchase Register and Sales/Purchase Invoice Trends offer detailed data on item performance and customer behavior.

To Bill Reports:

Tracks items that have been ordered or delivered but not yet billed, enabling efficient invoice generation and revenue recognition.

Other Reports:

Includes specialized reports like Party Wise Trial Balance, which shows the trial balance for individual customers or suppliers, and Customer Credit Balance, which provides an overview of customer credit limits, outstanding balances, and credit balances.