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Hi everyone, welcome to Frappe School. My name is Lynette Sharon. This is the first chapter in our advanced accounting course. In this chapter, we will discuss payment entries and the various ways you can create them in ERPNext. By the end of this chapter, you will know what payment entries are; learn how to create payment entries with and without invoices; learn how to create advanced payments without invoices.
First, let's understand what payment entries are. Payment entries are records of transactions made against documents like purchase or sales invoice, sales orders, or even internal expense claims. They are used to keep a record of outgoing, incoming, and internal payment transactions. There are different types and modes of payment in each transaction; it is important to make sure each detail is recorded accurately. Payment entries reflect various other document types such as sales and purchase invoices and can be linked seamlessly. Let's see payment entries in action in ERPNext.
Before we learn how to create payment entries, we must understand certain prerequisites that are needed in order to create it. The first one is a bank account in ERPNext. Bank accounts can be created for companies as well as other parties like customers, suppliers, etc. This lets us record all the bank transactions correctly for accuracy in accounting. We can find the list of bank accounts in the accounting module or by searching in the awesome bar. Here, we can see a list of all existing registered bank accounts and create a new one here. Click on "bank account." Once we do, we can add an account name, bank name, account type, and use these check boxes to select if this bank account is a company account and if it is to be used as a default account as well. We can add additional details to the bank account like party details, account details, website, and integration details. Once we have added all the necessary details, we can save this bank account.
Once we have added bank accounts, we need to set up different modes of payment in the system. In any sales or purchase transactions, there can be various modes of payment such as cash, check, bank transfer, and more. In ERPNext, we can create different modes of payment and set default payment accounts for each so that this information can be automatically pulled whenever a mode of payment is linked in records and transactions such as payment entries. We can find the mode of payment list in the accounting module, and we can even navigate to it using the awesome bar. Here, we can see a list of pre-existing modes of payment in the system like cash, bank draft, wire transfer, credit card, and check. In each, we can add a default payment account. For example, if we open "cash," we can select "default account" and add it to the accounts table. We can do the same for other modes of payment as well.
Now that we have set up all our prerequisites, let's first see how we can create a payment entry from scratch. To navigate to the list of payment entries, we can go to shortcuts in the accounting module or use the awesome bar. Here, we can see a list of all previously created payment entries and create a new one using the "add payment entry" button. When we open a new payment entry, we will have to first select a payment type. The payment type defines whether a payment is being made to a certain party, received from a certain party, or if this payment entry is a record of internal transfer. If we choose "payment type" as "receive," then we can select a mode of payment that the transaction will be conducted through. For example, let's pick cash. Since we've already assigned a default account for this mode of payment, the account and the currency will be automatically added in the account section below. Next, we will need to mention a party type, that is, who the payment is coming from. Suppose the payment is coming from a customer; we can pick "customer" in this field. Once we do, we will need to name the specific customer and add their contact details. In the account section, we will already have default accounts fetched from the mode of payment master. The section will also show any balance amounts from the sender's side. In the amount section, we can mention the specific amount that is to be received and consequently add the reference sales invoice or any other documents to link it to this payment entry. If this payment entry has multiple invoices linked to it, we can use the "get outstanding invoice" button to get all the outstanding invoices for this customer. If there are no invoices linked to this payment entry, this will be recorded as an advanced payment against the customer. We will look into advance payments in more details later in this video as well. Next, in the write-off section, we can mention any payment amount difference that is present due to things like currency exchange rate or such, using the allocated and unallocated amount fields. Write-offs are usually used when recording multi-currency transactions. We will create a multi-currency transaction later in this video. We can add taxes and charges using pre-made templates. The deductions or losses section is used when a payment entry is created against an invoice and there is a difference between the invoice amount and the actual paid amount. This could be due to rounding errors or difference in exchange rates. We can even select an amount here where the difference will be recorded. Lastly, we need to add transaction ID details to record the payment reference number. Once we have added all these details, we can save and permanently submit this payment entry. Once we submit, the outstanding amounts will be updated in the invoice linked to this payment entry.
We saw how to create a payment entry with "receive" as the payment type. Let's take a look at if we choose "pay" or "internal transfer" as the payment type. Open a new payment type. For example, if we want to send a payment to an employee, we will select "pay," add the details of the employee, amount details, tax details, and any other fields necessary before saving and submitting the document. Similarly, when we need to record an internal transfer between two accounts, we can select the payment type as "internal transfer" and add the from and to accounts, amount paid, and transaction details before saving and submitting the document.
Let's now see how we can create a payment entry using a sales invoice. We can navigate to the sales invoice list from either the accounting module or the awesome bar. Once created, we can use the "create" button at the top of the document, pick "payment," to create a new payment entry linked to this sales invoice. Once opened, we can see that the customer details are automatically fetched from the sales invoice that is linked. The payment type shows "receive" as well. We need to add the transaction ID details and then save and submit this payment entry.
To create a payment entry from a purchase invoice, we need to first open the purchase invoice list. We can find the purchase invoice list in the accounting module or easily navigate to it using the awesome bar. Similar to sales invoice, when we create a payment entry from a purchase invoice, we can do it using the "create" button at the top of the document to pick "payment" to create a new payment entry linked to this purchase invoice. Once opened, we can see that the payment type is automatically set to "pay," party details, account, and amounts are fetched from the invoice details. We will need to add transaction details, and then we are all set to save and submit this payment entry.
Next, let's explore how we can record advance payments against sales orders and purchase orders. As mentioned earlier, if you are creating a payment entry from scratch and not linking a sales or purchase invoice to it, then the ERPNext system automatically records it as an advance payment to parties like a customer or a supplier. There is another way to record advanced payments from any particular sales or purchase order. Let's have a look at a sales order first. When we open a submitted sales order, we can see an option to create a payment entry using the "create" button at the top of the document. Once a payment entry is submitted, we can see the advance amount updated in the sales order linked to the payment entry. Once opened, we can see all the details pulled from the sales order into the payment entry. We can set and check the accounts and then save and submit the payment entry. This is now recorded as an advance payment against the customer. If, at a later time, an invoice is to be created, we can link it to this transaction record as well. Let's create a new sales invoice. If we select a party and scroll down to the advance payment section, we can use the "get advances received" button to get all the advance payments made to the party selected. Once fetched, the invoice amount will be updated automatically, and the invoice will be linked to the payment entry showing the advance.
This brings us to the end of the first chapter in our advanced accounting course. I hope this helped you understand how to use ERPNext to record payment entries for incoming, outgoing, and internal transactions. You can read more about ERPNext on docs.erpnex.com. In the next chapter, we will discuss payment terms. Thank you.