Sales and Purchase Contra
Sales and Purchase Contras enable you to:
Offset Sales Invoices against Purchase Invoices
Implement Multiple Due Dates
Generate Accruals/ Pre-payments
Examples:
Contra Posting
You have a customer who also sells to you. You wish to offset any monies owing by this customer against monies that you owe them.
You raise a Sales Invoice for 'Annual Renewal' with an amount of £1000
You raise a Purchase Invoice for 'Office Stationery' with an amount of £250
The Contra Posting will offset the Purchase against the Sales, leaving your customer with a balance to pay of £750
Multiple Due Dates
You have a customer who purchases an expensive item. You may wish to offer this customer instalments to pay for the item:
You sell the customer stock to the value of £1000
You agree that the customer will pay 10% down (£100), and the remainder over 4 instalments of £225
Accruals/Pre-payments
In terms of the software, these two terms are interchangeable as they essentially do the same thing, albeit one is a credit and the other a debit, one a Liability the other an Asset. Throughout the Help the term Accrual is used, but this term can equally refer to Pre-payments, as appropriate.
An accrual is an adjustment made for expenses incurred, like a quarterly electricity bill, where you need to account for electricity used each month toward the quarterly bill.
A pre-payment is an adjustment for expenses accounted but not yet used, perhaps like car insurance where an invoice is paid for the full year ahead, but only 1/12th of it is an expense within a given month.
Reversing journals are used for accruals and pre-payments so that the adjustment is made automatically so that expenses are accounted in the month in which they occur. Recurring reversing journals can be used to set up regular accrual and pre-payment adjustments.