Sales and Purchase Cycle in ERPNext: Technical Flow from Order to Accounting

Introduction

ERPNext handles Sales and Purchase not as isolated transactions but as a tightly connected business lifecycle. Each document created by users triggers validations, stock movements, tax calculations, and accounting entries behind the scenes.

A clear understanding of this flow is mandatory for ERPNext consultants, finance teams, and implementation engineers to avoid stock mismatches, incorrect profit calculation, and audit failures.

Business Transaction → Operational Document → Stock Ledger → General Ledger

1. ERPNext Sales & Purchase Architecture Overview

ERPNext follows a document-driven ERP architecture. Every business event is recorded as a DocType, and each DocType is responsible for a specific operational or accounting role.

Sales and Purchase cycles span across multiple modules, but all converge at the Stock and Accounts engines.

Layer	Role
Selling / Buying	Commercial transactions
Stock	Inventory movement & valuation
Accounts	GL posting & financial impact

DocType Controller → validate() → on_submit() → Ledger Update

2. Lead and Opportunity – Pre-Sales Layer

Leads and Opportunities are pre-sales tracking documents. They help in forecasting revenue but do not impact inventory or accounting.

Lead → Opportunity → Quotation

Document	Stock Impact	Accounting Impact
Lead	No	No
Opportunity	No	No

3. Quotation – Commercial Proposal Logic

Quotation defines pricing, discounts, and taxes offered to a customer. ERPNext applies price list rules and validates item master data.

net_rate = price_list_rate - discount amount = net_rate * qty

Field	Description
Price List	Base selling rate
Discount %	Commercial concession

4. Sales Order – Contractual Control Document

Sales Order is the legally and operationally binding document. It controls delivery, stock reservation, credit exposure, and production planning.

Quotation → Sales Order → Delivery Note → Sales Invoice

Setting	Effect
Reserve Stock	Blocks available quantity
Delivery Date	MRP dependency

5. Customer Credit Limit Validation

ERPNext prevents over-selling by validating customer credit limit at Sales Order stage.

if outstanding_amount + order_total > credit_limit: frappe.throw("Credit limit exceeded")

Component	Included
Outstanding Invoices	Yes
Draft Orders	Optional

6. Pick List – Warehouse Execution Layer

Pick List translates Sales Orders into warehouse-level execution instructions. It helps identify exact bins and warehouses.

Sales Order → Pick List → Delivery Note

Warehouse	Allocated Qty
Main Store	8
Reserve Store	2

7. Delivery Note – Physical Stock Movement

Delivery Note is the point where inventory actually moves out of the warehouse. Submitting it creates Stock Ledger Entries.

Field	Value
Actual Qty	-10
Warehouse	Finished Goods

SLE.actual_qty = -qty SLE.valuation_rate = calculated_rate

8. Stock Valuation and Cost of Goods Sold

ERPNext calculates valuation using FIFO or Moving Average based on item settings. COGS is derived automatically during delivery.

COGS = outgoing_qty × valuation_rate

Method	Usage
FIFO	Batch-wise costing
Moving Average	Weighted costing

9. Sales Invoice – Revenue Recognition

Sales Invoice records revenue and customer receivable. It is the primary accounting document in the sales cycle.

Account	Debit	Credit
Debtors	Yes	No
Income	No	Yes

10. Sales Tax Calculation Logic

ERPNext supports multiple tax components, inclusive pricing, and item-wise tax rules.

tax_amount = net_total × tax_rate / 100 grand_total = net_total + total_tax

11. Accounts Receivable Lifecycle

Once invoiced, the amount remains outstanding until cleared via Payment Entry.

Invoice → Outstanding → Payment Entry

Status	Meaning
Unpaid	Open AR
Paid	Cleared

12. Sales Payment Entry

Payment Entry records cash or bank receipts and clears receivable balances.

Account	Effect
Bank	Debit
Debtors	Credit

13. Material Request – Demand Generation

Material Requests initiate procurement based on stock shortage or production demand.

Type	Purpose
Purchase	External buying
Transfer	Internal movement

14. Request for Quotation (RFQ)

RFQ helps compare supplier pricing and lead time before finalizing a purchase.

Supplier	Rate	Lead Time
A	100	7 days
B	95	10 days

15. Purchase Order – Procurement Commitment

Purchase Order is a legal commitment to the supplier and controls quantity and price.

RFQ → Supplier Quotation → Purchase Order

16. Purchase Receipt – Stock Inflow

Purchase Receipt updates stock and creates incoming Stock Ledger Entries.

Qty	Incoming Rate
20	120

17. Landed Cost Voucher

Landed Cost Voucher distributes freight, customs, and insurance into item valuation.

allocated_cost = item_value / total_value × charges

18. Purchase Invoice – Liability Recognition

Purchase Invoice records supplier payable and accounting impact.

Account	Debit	Credit
Expense / Stock	Yes	No
Creditors	No	Yes

19. Stock vs Expense Purchase Accounting

ERPNext posts accounting based on item type configuration.

Item Type	Posting
Stock	Inventory
Service	Expense

20. Purchase Tax Handling

Supports input tax credit, reverse charge, and multiple tax templates.

input_tax_credit = tax_amount

21. Accounts Payable Lifecycle

Supplier invoices remain outstanding until Payment Entry is made.

Purchase Invoice → Outstanding → Payment Entry

22. Supplier Payment Entry

Payment Entry clears payable and credits bank or cash.

Account	Effect
Creditors	Debit
Bank	Credit

23. Document Traceability and Audit Trail

ERPNext maintains full document linkage for audits and troubleshooting.

SO → DN → SI → Payment PO → PR → PI → Payment

24. Period Closing and Reconciliation

Period Closing Voucher locks accounting periods and prevents backdated entries.

Purpose	Result
Lock Period	Audit safety

25. Common Issues and Best Practices

Most implementation issues arise from skipping standard document flow.

• Always use Delivery Note for stock sales
• Avoid direct Sales Invoice for inventory
• Reconcile stock monthly
• Validate item and account mapping

Conclusion

The Sales and Purchase cycle in ERPNext is a deeply integrated operational and accounting framework. Every document influences inventory valuation, taxation, receivables, payables, and profit.

A strong technical understanding of this flow ensures clean audits, accurate reporting, and scalable ERP implementations.