How Accounting Transactions Work
A Layman's Guide to the General Ledger (GL)
Welcome to the VioBalance Accounting Guide! This page spells out exactly what happens "under the hood" every time you create an invoice, receive inventory, or log an expense.
As a business owner, you might just see "I sold a coffee for $5", but your accountant needs to know exactly which Asset, Liability, Revenue, or Expense accounts were affected so they can generate accurate Profit & Loss (P&L) statements and Balance Sheets for tax season.
Inventory Module
1. Adding Initial Inventory
When you create a brand new item in the system and tell it "I already have 10 of these on the shelf, and they cost me $5 each."
| Account | Category | Source | Action |
|---|---|---|---|
| Inventory Asset | Asset | Selected by you on the "Add Item" screen. | Debit (+ $50) |
| Retained Earnings | Equity | Pulled from Settings > GL Defaults > Retained Earnings. | Credit (- $50) |
2. Adjusting Inventory (Shrinkage/Breakage)
When you manually decrease your inventory (e.g., a coffee mug broke, or you did a cycle count and found 2 missing).
| Account | Category | Source | Action |
|---|---|---|---|
| Inventory Adjustments | Expense | Pulled from Settings > GL Defaults > Inventory Adjustments. | Debit (Increases Expense) |
| Inventory Asset | Asset | Pulled from the specific Item's setup page. | Credit (Decreases Asset) |
3. Adjusting Inventory (Finding Extra Stock)
When you manually increase your inventory without a Vendor Bill (e.g., you found an extra box in the back room).
| Account | Category | Source | Action |
|---|---|---|---|
| Inventory Asset | Asset | Pulled from the specific Item's setup page. | Debit (Increases Asset) |
| Inventory Adjustments | Expense | Pulled from Settings > GL Defaults > Inventory Adjustments. | Credit (Decreases Expense) |
Accounts Receivable (AR) & Sales
1. Sending/Fulfilling an Invoice
When you finalize an invoice for a customer, the system logs the revenue you earned, the tax you collected on behalf of the government, and the cost of the physical items you gave away.
| Account | Category | Source | Action |
|---|---|---|---|
| Accounts Receivable | Asset | Pulled from Settings > GL Defaults > Accounts Receivable. | Debit (Total Invoice Amount) |
| Sales Income | Revenue | First checks if the Item has a "Sales Override" account. If not, pulls from Settings > GL Defaults > Default Sales Income. | Credit (Subtotal Amount) |
| Sales Tax Payable | Liability | Pulled from Settings > GL Defaults > Sales Tax Payable. | Credit (Tax Amount) |
| If physical inventory was sold, the system ALSO makes these two entries automatically: | |||
| Cost of Goods Sold (COGS) | Expense | Pulled from Settings > GL Defaults > COGS Account. | Debit (Cost of items sold) |
| Inventory Asset | Asset | Pulled from the specific Item's setup page. | Credit (Cost of items sold) |
2. Receiving a Payment from a Customer
When the customer finally pays their invoice via Check, Cash, or Credit Card.
| Account | Category | Source | Action |
|---|---|---|---|
| Checking / Bank Account | Asset | Selected by you on the "Record Payment" screen. | Debit (Amount Paid) |
| Accounts Receivable | Asset | Pulled from Settings > GL Defaults > Accounts Receivable. | Credit (Amount Paid) |
3. Point of Sale (POS) Transactions
The POS module is designed for speed. Because the customer receives the goods and pays immediately, the system combines the "Invoice" and "Payment" steps above into one massive journal entry instantly.
| Account | Category | Action |
|---|---|---|
| Checking/Cash Account | Asset | Debit (Total Paid) |
| Accounts Receivable | Asset | Credit (Total Paid) |
| Accounts Receivable | Asset | Debit (Invoice Total) |
| Sales Income | Revenue | Credit (Subtotal) |
| Sales Tax Payable | Liability | Credit (Tax) |
| Cost of Goods Sold | Expense | Debit (Cost of items) |
| Inventory Asset | Asset | Credit (Cost of items) |
Accounts Payable (AP) & Expenses
1. Recording a Direct Expense
When you buy office supplies or pay for a flight with the company credit card (no Vendor Bill involved).
| Account | Category | Source | Action |
|---|---|---|---|
| Expense Account (e.g. Office Supplies) | Expense | Mapped directly from the "Expense Category" you selected. | Debit (Increases Expense) |
| Checking or Credit Card | Asset / Liability | Selected by you as the "Payment Account". | Credit (Decreases Bank or Increases Debt) |
2. Entering a Vendor Bill
When a vendor sends you a bill that you owe them later (e.g., Net 30 terms).
| Account | Category | Source | Action |
|---|---|---|---|
| Expense Account | Expense | Selected by you on each line item of the bill. | Debit (Increases Expense) |
| Accounts Payable | Liability | Pulled from Settings > GL Defaults > Accounts Payable. | Credit (Increases what you owe) |
3. Paying a Vendor Bill
When you actually cut the check or send the ACH to pay off the bill.
| Account | Category | Source | Action |
|---|---|---|---|
| Accounts Payable | Liability | Pulled from Settings > GL Defaults > Accounts Payable. | Debit (Decreases what you owe) |
| Checking / Bank Account | Asset | Selected by you on the "Pay Bills" screen. | Credit (Decreases Bank) |