Your finance team records a cost in the period it belongs to, not when it is paid. This is called accrual accounting. It creates entries that move a cost between months. Those entries are not purchases.
What is an accrual?
At month end, finance records costs that have happened but have not been invoiced yet. This is an estimate. Next month, when the real invoice arrives, finance reverses the estimate.
Date | Entry | Amount |
31 December | Accrual: December freight, not yet invoiced | $5,000 |
1 January | Reverse the December accrual | −$5,000 |
20 January | Supplier invoice for December freight | $5,000 |
Over the two months, the accrual and the reversal cancel out. The supplier invoice is the real purchase.
Count the supplier invoice. Leave out the accrual and its reversal.
What is a prepayment?
Some invoices cover a long period, such as annual insurance or a software licence. Finance records the invoice in a Prepayments account (an asset). Each month, a journal moves one twelfth of it into the expense account.
Count the invoice once, where it first lands, in Prepayments. Leave out the monthly release journals.
What if supplier invoices post to a clearing account first?
Some businesses post supplier invoices to an accrual or clearing account first, then move the cost to expense accounts by journal. The clearing account is a liability.
In that case, the clearing account is where the invoice first lands. Include it, and leave out the journals that move the cost into the expense accounts. Never count both.
Ask your finance team whether this applies to you. See Reading a chart of accounts you have never seen.
Why do my ledger and my invoices not agree?
The usual reasons:
Accruals. The ledger holds an estimate in one month and the invoice in the next.
Prepayments. An annual invoice appears in the ledger as twelve monthly amounts.
GST. Your ledger is usually without GST. A supplier invoice total usually includes it.
Timing. An invoice for June activity is dated and entered in July.
What this means in Avarni
Accrual accounts. Avarni sets liability accounts to Excluded when you upload your chart of accounts. If your supplier invoices post to a clearing account first, change it to the right category before you upload your general ledger. Rows for an excluded account are rejected at upload.
Accrual and release journals. Leave them out with a classification rule that sets the GHG Category to Excluded. Match on the description, such as "Accrual", "Reverse" or "Release".
Dates. Avarni uses the date on each ledger line. The trial balance check also uses ledger dates. See How a trial balance shows your ledger is complete.