Accounting
/Set-off tool
"Set-off" refers to the legal right to offset a mutual debt with a creditor by reducing the amount owed with an amount that the creditor owes to the debtor. In accounting, it means deducting one amount from another, balancing two accounts by recognizing the amounts owed between two parties and effectively reducing the payable or receivable balance between them. This concept is commonly used in the context of financial transactions and agreements, where mutual obligations can be netted against each other to simplify settlements.
Let's consider a scenario in which a business has one income invoice and two expense invoices, and we'll see how the set-off would work in this context.
Scenario:
- Income Invoice: The business issues an invoice to a customer for providing services amounting to $1,000.
- Expense Invoice 1: The business receives an invoice from a supplier for office supplies amounting to $300.
- Expense Invoice 2: The business receives another invoice from a service provider for internet services amounting to $200.
Set-Off Example:
Instead of paying and receiving money separately for each transaction, the business can offset its income with its expenses.
- Total Income: $1,000 (from services provided to the customer).
- Total Expenses: $300 (office supplies) + $200 (internet services) = $500.
The business can set off its total expenses ($500) against its income ($1,000), leading to a net income or profit that would be recognized in the financial records as $500 ($1,000 income - $500 expenses).
Accounting Entries:
- Debit: Expenses Account (Office Supplies & Internet Services) $500.
- Credit: Income Account $500.
- Net Effect: Reduces the income to reflect the net profit accurately after considering the expenses incurred.
This simplified example illustrates how set-off works by reducing the income by the amount of the expenses, showing a more accurate financial position of the business.
Set-off tool review
The tool for offsetting income and expenses resides in the 'Finance' module within 'OBS'.
Finance -> Set-off tool
How to use the tool?
Using the checkboxes illustrated in the picture above, select the income and expense documents and click 'Set-off' to complete the process. The system will generate a transaction in the 'Set-off tool' module. Additionally, it will update the selected income and expense documents by adding the correct amounts under the fields labeled 'Set-off amount'. It will also create a reference between the income and expense documents associated with the set-off transaction. This operation will mark the income and expense documents as paid and will update the payment date accordingly.
Finance -> Expenses -> Edit Record
Finance -> Income -> Edit Record
How to rollback an erroneous transaction?
At the top of the tool, you will find a button labeled 'Existing transactions'. Click this button, locate the transaction you wish to remove, and delete it. This action will rollback the operation