How do I configure Accounting Codes?
Overview
In Zuora, an accounting code is the offsetting GL account to your accounts receivable account. It is used to group transactions that contain similar accounting attributes. The value of accounting codes is that you can group multiple transactions into a condensed number of accounting codes. For example, you can use the same accounting code for payments and refunds, and when you aggregate both, you can get your net payment amount. This article discusses how to use and think about Zuora accounting codes to classify transactions in an accounting system.
Please note the Z-Suite product has a specific use for Zuora accounting codes and the Z-Suite documentation should be referenced to understand the best use of accounting codes for the integration.
Solution
In Zuora, there are two ways to view the summarized transactional data associated to the Accounting Code:
- Use the premium feature, Accounting Periods, that automatically aggregates Zuora invoice and payment operations by accounting period and by accounting code so you can gain insight into your Billing and Cash information. The Zuora payment operations include invoice payments, payment refunds, invoice item adjustments (charge and credit), and credit balance adjustments (credit balance payment, credit balance applied, credit balance transferred, credit balance refund). Please contact support if you would like to use this premium feature.
- Use the AR Summary by Accounting Code report to aggregate Zuora invoice and payment operations by their accounting code. This report can be run for a specific time period to group the following payment operations: invoice items, invoice payments, payment refunds, invoice item adjustments (charge and credit), and credit balance adjustments (credit balance payment, credit balance applied, credit balance transferred, credit balance refund).
Rest assured, you can also export individual Zuora transactions slice and dice that data for your reporting needs.
Let’s talk about how the accounting code is mapped across Zuora transactions:
Invoice Items
The accounting code maps to an income or revenue GL account in your accounting system. If you were to create an invoice in your accounting system, you would add an item to the invoice for each component of the invoice (for example subscription fees, support fees and professional services fees). The GL code that you would associate each item with would be the same accounting code that you would apply in Zuora at the product rate plan charge level. In Zuora, the corresponding invoice item will use the accounting code from the product rate plan charge. You would apply the same accounting code to product rate plan charges that have the same revenue attributes. For example, subscriptions that contain quarterly billing schedules may have the same accounting codes as subscriptions that contain annual billing schedules.
Invoice Item Adjustments
The accounting code maps to the same revenue GL account that was used for the invoice item. The accounting code on the invoice item adjustment is automatically applied based on the corresponding invoice item that is being adjusted. The charge service period for the invoice item adjustment also corresponds to the underlying invoice item. If using a direct integration with your accounting system, invoice item adjustments will also reduce your corresponding accounts receivable balance. An invoice item adjustment can increase or decrease the invoice balance as the invoice item adjustment can bring the balance of an invoice item to zero.
Payments
The accounting code in a payment typically maps to a bank account in your accounting system.
Credit Balance Payment
A credit balance payment is created from an overpayment. The accounting code for a credit balance payment typically maps to a bank account in your accounting system and is generally different than the accounting code you would use for a normal payment.
Payment Refunds
The accounting code in a payment refund typically maps to a bank account in your accounting system. This will also re-create the accounts receivable in your GL. You would then process an invoice item adjustment to the extent the accounts receivable needs to be removed from your financial statements.
Credit Balance Refunds
A credit balance refund occurs when you refund a credit balance payment. The accounting code for a credit balance refund is typically a bank account in your accounting system.
Credit Balance Adjustment (Increase)
The accounting code for a credit balance adjustment typically maps to a cash on account GL account in your accounting system. This transaction type is used when creating a credit balance from a negative invoice, which results in an increase to the credit balance amount on a customer account.
Credit Balance Adjustment (Decrease)
The accounting code for a credit balance adjustment typically maps to a cash on account GL account in your accounting system. This transaction type is used to transfer funds from the credit balance to a positive invoice, thus reducing the invoice balance.
How Accounting Codes Are Derived and Defined in Zuora
The following chart summarizes where accounting codes are derived and defined in Zuora.
Accounting System Documentation
Please refer to the documentation for your specific accounting system when creating corresponding accounts in Zuora such as GL Accounts (Revenue, Accounts Receivable, Bank). For example, if you are using Z-Suite, you will only map over invoice item adjustments.
Sample Steps for Accounting Systems
Here are some sample high level steps for two popular accounting systems:
NetSuite
Payments: Create the Bank Account in Setup
QuickBooks:
Payments: Create the GL Account for the Bank Account