a Question about accounting concept

In the Navision System… we can see every account is belong to “Income Statement” or “Balance Sheet”

for example: account “Sales of Row Materials” is belong to “Income Statement”

Does this mean this account will increase amount while have positive number in Debit side…

On the other hand, if account belong to “Balance Sheet”, It’ll increase amount while have positive number in Credit side…

thank you for help.

I’m not an accountant, but I would say that Income Statment and Balance Sheet are part of the standard statment of accounts


did you mean i got the wrong idea?

thank you.

  • income statement is a financial statement; based on income and cost accounts from G/L Account table

  • balance sheet is a financial statement also, but it’s based on all accounts from G/L Account table (in my country is the base for all others statements); in balance sheet you see all : income, costs, FA, etc

Firstly keep inind that the field is just a flag that is arbitarily set by the user, its is usefull in reports to know which account is which, but the only place that Navision actually uses this field is when you close out the end of year accounts. This is the routine that moves all P/L accoutns to the balance sheet.

In Accounting terms, the Balance sheet represents the Assets Debts and current status of the company. These are things that change a little bit each day, and as the company grws stronger the Balance Sheet also gets stronger. The balance sheet shows the long term value of the company. When You buy a new Building, itgoes ont he balance sheet, because it strengthens the company and gives it an asset. When you buy paper for thephotocopier, you put it on the Profit Loss statement, because it will not last long. It does not strengthen the company.

To buy assets, you had to have revenue of some kind, and that revenue is taxed, so the Balance sheet is not taxed, in fact the money there was taxed earlier on the P/L. This is why tax is all based on the Profit Loss statement, and not the bakance sheet.

The Profit Loss statement says “Where are we now” it shows what profit we made in the current financial year. It also shows us how much tax we need to pay on that profit. But once we pay the taxes, and the year is over, we take the profit after taxes, move that to the Balance sheet, and then we clean out the Profit Loss accounts for a nother year.

So think of the P/L as a buffer or work area, where you do all your day to day work, and then when you have it all worked out, you move the summarized results onto the Balance Sheet.

Lets say you are going to sell your company, then the buyer will (amongst other things) want to see a Balance Sheet, a Profit Loss Statement and a Cash Flow.

You look at the balance sheet to see what you are actually buying, adn what it is worth. Since if you tried to start out your own company, you would need to go out and buy all that stuff again.

You look at the Profit Loss statement becasue you want to be sure that the comapny has a baswe of customer that buy the products, and that they make a profit on them.

And you want the cash flow (not really relevant to this discussion) to make sure that Short Term Debt is covered by Short Term Assets, and long term Debt by long term assets. For example, you dont want to buy a company that has recently purchased a huge warehouse but paid for it using Trade Creditors and a 3 year loan. By the same token you don’t want to find that they have a 10 Year Mortgage that has been used to pay trade vendors. (Though if you look at the current US credit crisis, you will realize that that has been happening a lot lately).

So from your point of view as a Navision implementor, you need always to be aware of transactions that are made, and how the posting groups are set up, so that B/S and P/L accounts are correctly reported. And in simple terms always remember that Balance Sheet accounts keep steadily increasing every day since day one of the company but they don’t make huge jumps and they only really increase at thesame rate the company grows. Profit Loss accounts can go up very rapidly, but at the end of the year they are all reset again.

Sorry this is a bit over the place, I will try to clean this up later and add it to the Dynamics Wiki, but I hope for now it helps.

Hi David,

Thanks for your enthusiasm and I’m deeply appreciated. I learned a lot from your reply.

There is some concept I want to make a confirm. Could you let me know if i’m wrong. We know Asset account increase on debit side …and Asset account decrease on Credit side. On the other hand Revenue account increase when it appear on Credit side.

Asset + ………(Debit) Asset - ……(Credit) => We use choice “Balance Sheet” for this kind of account in Navision
Expense + ……(Debit) Expense - ……(Credit) => We use choice “Balance Sheet” for this kind of account in Navision

Liability + ……(Credit) Liability - ……(Debit) => We use choice “Income Statement” for this kind of account in Navision
Capital + ……(Credit) Capital - ………(Debit) => We use choice “Income Statement” for this kind of account in Navision
Revenue + ……(Credit) Revenue - .……(Debit) => We use choice “Income Statement” for this kind of account in Navision

Assets, liabilities and capital are balance sheet accounts

Income and expenses are Income statement (proft and loss) accounts