Imagine you run a popular catering business known for its excellent food and hospitality. And you always buy high-quality ingredients from a trusted supplier. This supplier now needs catering for a family event and naturally comes to you.
Since you regularly purchase ingredients from this supplier, you have a supplier record, and you create purchase invoices. But now this supplier is buying products from you, so you need to create a customer record.
Further, you may want to adjust your purchase transaction with the sales transaction and pay for only the remaining amount.
Instead of creating separate supplier and customer records, ERPNext offers a feature to link the supplier and customer records. This is called common party accounting.
Follow these steps to set up common party accounting in ERPNext
- Navigate to “Accounts Settings” and enable “Common Party Accounting” in the ‘Invoicing Features’ section.
- Link the customer and supplier.
- If the party is already created as a supplier, then create a customer. Go to the “Supplier”, click on “Link with Customer” from the “Actions” option to link.
- If the party is already created as a customer, then create a supplier. Go to the “Customer”, and click on “Link with Supplier” from the “Actions” option to link.
- Now, create a sales invoice against the customer who was assigned as the secondary party in the previous step.
- Upon submission of the sales invoice, an automatic journal entry will be made against the linked supplier, creating an advance balance. Also the invoice is marked as paid.
- You can now reconcile this journal entry advance against a Purchase Invoice.
This process allows you to adjust your purchases with the sales transactions.