Continental vs. Anglo-Saxon Accounting in Odoo - Part 2

Automatic Accruals

A significant drawback of the "Continental" method is the need for clean accruals. However, if this is done elegantly and largely automated, it can be established as a fixed part of the closing process. This encourages a conscious engagement with the topic and improves closing quality.

Odoo's Accrual Feature

1. Since version 16, Odoo has offered a feature for accruing purchase and sales orders. Despite its potential, this feature has serious shortcomings:
   Missing differentiation on the sales side: Accruals aren’t based on the quantities actually delivered and invoiced, but already accrue against the ordered quantity. This contradicts the principles of correct accounting (at least in Germany). Missing cut-off date reference: Accruals need to be calculated retroactively as of the balance sheet date. However, Odoo only offers a current view, with no way to simulate the historical state as of the closing date. Insufficient account logic: The accrual posts, across the board, to a single account stored on the product and a contra account defined in the accrual wizard. This lacks differentiated accounts for different accrual scenarios: an asset account “goods in transit” for a posted invoice without a goods receipt, and a liability account “accrued liabilities for invoices outstanding” for a posted goods receipt without an invoice. Missing tax treatment: The accrual is posted to the account stored on the product, e.g. “cost of materials 19%.” A tax-free accrual, however, doesn’t belong on this account. Odoo also ignores intercompany accounts, which is problematic for intra-group reconciliation. No partner assignment: The accrual posting is made without partner information, which is a particular obstacle for intercompany reconciliation.

Alternative: The syscoon Accrual App

1. The syscoon "Accrual" app analyzes all orders and identifies discrepancies between delivered and invoiced quantities. This brings the following benefits:
2. Error detection: Companies identify incomplete postings early, such as missing invoices or unposted goods receipts.
3. Improved collaboration: Accounting, purchasing, and logistics can systematically reconcile open items. Correct P&L presentation: Under the Anglo-Saxon method, the P&L is only affected once both delivery and invoicing have occurred. This can lead to incorrect results, for example when an outgoing invoice was forgotten. Intercompany accruals: The app enables posting to dedicated IC accounts with partner assignment, making a fast-close consolidation possible regardless of invoice or goods-receipt status.

The Multi-Company Trap

In corporate groups, the question arises of how to eliminate intercompany (IC) transactions. When one company books under Anglo-Saxon and another under Continental, inconsistencies arise during consolidation.

Example:

Company A (sells to B using Continental Accounting): Receivables IC to Revenue IC, COGS to Inventory.

Company B (buys from A using Anglo-Saxon Accounting): Stock Interim (Receipt) to Payables IC, Inventory to Stock Interim (Receipt).

While IC receivables and payables can be eliminated, the "Revenue IC" account remains without a contra account, since there's no corresponding "Cost of Materials IC" account on the purchasing side. This prevents automatic consolidation. Even the IC journals Odoo suggests don't solve this problem within a legally compliant consolidation.

Continental for President – Cost of Sales Method with Continental Accounting

Odoo allows the use of two inventory accounts: "Stock Input" and "Stock Output". These accounts can be flexibly assigned within the P&L, depending on the desired method.

1. Total cost method 
   "Increase in trade goods inventory" and "decrease in trade goods inventory" are mapped to the "cost of materials" or "change in WIP/finished goods inventory" line. The expense account is assigned to cost of materials.
   
   
2. Cost of sales method with Continental Accounting
   "Expense account", "increase in inventory", and "decrease in inventory" are mapped to the "COGS" line. Since "expense account" and "increase in inventory" cancel each other out, only "decrease in inventory" remains – which corresponds exactly to the COGS account under the cost of sales method. The posting "COGS to Stock Interim (Delivered)" otherwise required under the Anglo-Saxon method is no longer needed.

One drawback of the Continental approach: analytic accounts (cost centers) aren't automatically carried into the COGS posting. However, this can easily be extended with small adjustments and should be taken into account during the project.

Drawbacks of the Stock Interim Account

A significant drawback of the Anglo-Saxon method is the use of the Stock Interim account. It's used both as an asset and as a liability:

Asset account "goods in transit" for a posted invoice without a goods receipt. Liability account "accrued liabilities for outstanding invoices" for a posted goods receipt without an invoice.

Since an account can't be both an asset and a liability at the same time, this creates a confusing mixed balance. This makes balance sheet analysis considerably more difficult.

Conclusion

The supposed advantage of the Anglo-Saxon method – directly matching COGS to revenue – can also be achieved with Continental Accounting. Smart account configuration makes it possible to get the desired presentation in the P&L. The prerequisite is clean accruals, which can be automated with the right extensions.

Part three of this series will look at both methods in the context of production valuation, manufacturing costs, and analytics.