The economic event is the transfer of ownership of goods for obligation (accounts payable) or cash.
When they accepted ownership of the goods, they accepted the asset. Additionally, when they accepted the ownership of the goods, they accepted the liability. For simplicity, many small businesses hold off on recording this economic event until receiving an invoice. However, receipt of the invoice is not the economic event. This practice is grossly incorrect and may (will) cause major discrepancies in periodic financial reports. A piece of paper summarizing the transfer of ownership has no financial worth and therefore cannot be an economic event. There are two things (WHAT and WHEN[a])that are important for a general ledger entry. And two additional things (WHO and WHEN[b]) that are important for auditing WHAT - the economic event WHEN[a] - date the economic event took place WHO - who recorded the economic event WHEN[b] - date the economic event was recorded The distinction I am making is between WHAT the economic event is and WHEN[b] someone chooses to record it. WHEN[b] is not a part of the economic event. These small differences are some of the reasons why Accountants still get paid the big bucks even in companies that have complete ERP packages. The receipt of the order is not the economic event either. The economic event depends on the terms of shipping FOB shipping/FOB destination. The economic event is the transfer of ownership, not the receipt of goods. It is possible to contract in such a way to make these simultaneously the same moment in time, however generally they are not. --- David E Jones <[EMAIL PROTECTED]> wrote: > > Hmmm... invoice are _definitely_ "economic events", > or artifacts that > have a direct financial impact on a company and > therefore when > finalized cause GL entries to be posted. That's the > normal way of > doing things. An order is received and there is > generally no GL entry > at that point. There are GL entries needed during > fulfillment > (inventory issuance), invoicing, receiving payments, > etc. > > Maybe this isn't what you meant though. I agree that > Si's use of a > "Uninvoiced Fixed Asset Receipt" account seems a > little funny. When a > Fixed Asset is received you would get an invoice > along with it from > the vendor so it would be an unpaid invoice, or > payables entry. > > -David > > > On Dec 1, 2006, at 5:21 PM, Chris Howe wrote: > > > I know you want to want to link all of these into > > automated actionable steps that make sense to your > > business processes but you must remember: > > > > General Ledger entries are ONLY for economic > events. > > > > Receipt of an invoice is NOT an economic event. > If > > you receive a fixed asset you: > > > > Debit: Fixed Asset > > Credit: Accounts Payable > > > > If you want to create a relationship between the > fixed > > asset and an invoice, great. If you want to > create a > > relationship between the invoice and a vendor's > > account, great. If you want to create a > relationship > > between a general ledger entry and an invoice or a > > fixed asset, great. But under no circumstance > should > > you record a non economic event in the general > ledger. > > > > > > > > --- Si Chen <[EMAIL PROTECTED]> > wrote: > > > >> David, > >> > >> I think what should happen is this: > >> > >> When any fixed asset is created, if we know the > >> ownerPartyId, then we > >> can create: > >> > >> Debit Fixed Asset (or a specific FixedAsset GL > >> account) > >> Credit Uninvoiced Fixed Asset Receipt > >> > >> Then, when you have a purchase invoice with a > fixed > >> asset item > >> created, you can do this: > >> > >> Debit Uninvoiced Fixed Asset Receipt > >> Credit a Payable of some kind--Accounts > >> Payable? I'm not sure - > >> often fixed assets are bought with loans. > >> > >> Then we'd have to think about doing the > depreciation > >> calculations, > >> that's what I think could be complicated. > >> > >> Best Regards, > >> > >> Si > >> [EMAIL PROTECTED] > >> > >> > >> > >> > > > >
