January 2025   ​|   ​Finance & Accounting

Choosing the right accounting method is a crucial factor for accurate financial accounting. With Anglo-Saxon Accounting and Continental Accounting, Odoo offers two different accounting methods for the valuation of stock receipts and issues, each of which has its own advantages and disadvantages. It is important to emphasize that these terms are not to be equated one-to-one with the concepts of the total cost method and the cost of sales method - more on this later.

But which method is the right one for your company? And how can you avoid pitfalls such as period shifts or incorrect stock allocations?

In this first article in the series, we take a detailed look at both booking methods, highlight challenges and provide practical recommendations for correct implementation in Odoo.

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Anglo-Saxon Accounting

In the Anglo-Saxon procedure, the goods receipt is completely neutral to income. Similar to the WERE account familiar from the SAP world, the goods receipt is posted as a credit and the invoice posting as a debit to the “Stock Interim (Receipt)” account. When goods are sold, the goods issue is recorded as a debit to the “Stock Interim Delivered” account. A further posting is only made when the invoice is issued, in which the COGS (Cost of Goods Sold) is debited and the “Stock Interim (Delivered)” account is credited. This means that the cost of materials is allocated exactly to the time of sale.

Continental Accounting

In Continental Accounting, on the other hand, the goods receipt is posted in credit against an inventory change account (increase). The corresponding invoice entry is posted to the debit side of the cost of materials account. This also normally results in an overall effect that does not affect profit or loss.

Important aspects and pitfalls

1. Timing issues in Continental Accounting

A potential disadvantage of the Continental method is the period shift between goods receipt and invoicing. If the goods receipt is recognized in an earlier period but the invoice is not received until later, there is an undesired effect on earnings (the same applies vice versa):

• In the first period, the increase in inventories is recognized as income.

• In the second period, the invoice entry leads to an expense.

Both periods are therefore wrong or distorted in themselves.

Careful period management is therefore essential with this method in order to avoid false income and expense effects (more on this in the following parts).

2. Stock changes and their correct allocation

The term change in inventories can generally be used for all types of materials. However, in the German HGB income statement it is generally only used for unfinished and finished products. Changes in stock also exist for merchandise and raw materials, but these should be shown within the cost of materials (preferably in separate accounts, e.g. "Cost of materials HW - increase in stock").

It is therefore essential when selecting product categories in Odoo to ensure that the correct inventory change accounts are assigned and that this accounting aspect is already taken into account in the categories.

Recommendation for account segregation:

I recommend configuring different stock change accounts for goods receipts and goods issues, i.e:

• Inventory increase for goods receipts

• Inventory reduction for goods issues

The exact reason for this separation will be explained in more detail later.

Total cost method vs. cost of sales method

Now back to the classification of 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 only relates to the gross margin (sales and COGS).

The actual cost of sales method is based on a matrix organization between accounts and cost centers. This is not mapped in the standard P&L of Odoo. However, with the syscoon formulas integrated in the Odoo sheets, a P&L according to the cost of sales method could also be set up without any problems!

The next part of this series will take a closer look at the practical implications of the two methods and explain when which booking method makes sense.