Company and master data in ERPNext

This is the longest station on the path and the least exciting, and it decides whether anything after it works. Most stalled ERPNext projects do not stall in the cycles; they stall because master data was built in the wrong order and then acquired movement.

The reason is structural: many foundation decisions here lock at the first movement. An item’s costing method, the company’s default accounts, the item type — all freely changeable today, and tomorrow a matter of correcting entries.

The mandatory order

#	What you build	Why it belongs here
1	Company, currency, fiscal year	Everything after it is attributed to it, and nothing is created before it
2	Chart of accounts and cost centres	Items and taxes point at accounts, so the accounts must exist first
3	The warehouse tree	Under perpetual inventory every warehouse has a matching account, so these are accounts too
4	Units of measure and conversion factors	They sit on the item card, and changing them after movement forces revaluation
5	Taxes and their templates	They point at accounts, and are named on items and parties
6	Items, customers and suppliers	Built last because they point at everything above

Read the last column again: the order is not taste, it is the direction the references run. Every row points at the one above it. Start with items and you invent accounts with placeholder names and then return to correct them across three hundred cards.

Company and fiscal year

A company in ERPNext is not a name on a letterhead. It is the container holding every default account — the stock account, goods received not invoiced, stock adjustment, and expenses included in valuation. Those accounts are what will explain every entry to you at stations four and six.

The company also carries the perpetual inventory switch, the single most consequential toggle at this station. With it on, every stock movement writes a general ledger entry at the moment it happens. With it off, the movement stays in the stock ledger alone and the general ledger knows nothing about it until you post an adjusting entry yourself.

Turn it on in your training environment without hesitating. Not because it is always right in reality — the decision on a live project depends on the accounting team’s capacity — but because you will not see the entries you came to read unless it is on, and reading entries is the second rule of this path.

The fiscal year is set before the first entry. Changing it after movement is possible; its effect on comparative reports is not commendable.

The chart of accounts — and the idea that recurs everywhere

ERPNext builds you a ready chart of accounts when the company is created, from a standard template you choose. Do not build one from scratch in training. Take the ready one, understand it, then amend it.

And here the most important structural pattern in the product appears: almost everything is a tree. Accounts are a tree, cost centres are a tree, warehouses are a tree, item groups are a tree, territories and customer groups are trees. Every tree has two kinds of node: a group node that accepts no transactions and exists to aggregate, and a leaf node that accepts transactions.

Understand that split once and you understand it in six places. Miss it and you spend an hour asking why an account does not appear in a selection list — and the answer is always that it is a group node.

The four accounts whose place in the tree you should know before moving on, because each shows up in a later entry:

• The stock account — an asset, whose value must equal the sum of warehouse valuations.
• Goods received not invoiced — a temporary liability, filled by the receipt and emptied by the invoice.
• Stock adjustment — an expense, which receives inventory differences.
• Expenses included in valuation — an intermediate account receiving costs added to the value of goods rather than straight to expense.

Cost centres

A cost centre is mandatory on many ERPNext entries, and beginners discover this when their first entry is refused. So build a root centre with at least two beneath it — a branch and a department — to get used to its presence.

Its real value arrives at station seven: an income statement per branch with no duplicated chart of accounts per branch. Anyone who built cost centres from day one gets it free. Anyone who neglected them spends a year later explaining to the finance director why they cannot say which branch is profitable.

The warehouse tree

A warehouse in ERPNext is a place and an account at the same time. Under perpetual inventory every leaf warehouse has a matching stock account, and the account’s value moves with every receipt and delivery.

Which fixes the idea to hold now: the stock account balance on the balance sheet is not a figure somebody types in; it is the sum of the valuation of everything in the warehouses. If the two ever diverge, something happened that deserves investigation — and that is precisely what you check at the month-end close.

Build at least two leaf warehouses. A single warehouse hides half of what you came to learn, because a transfer between two warehouses is the movement that shows you how valuation works while the total does not change.

Units of measure, and the trap in them

The same trap as in every system: the purchase unit is not always the sales unit nor the stocking unit. You buy by the carton, stock by the piece, and sell by the piece.

ERPNext resolves it with a conversion factor named on the item card. The practical rule: the stocking unit is always the smallest, and conversion factors are built on it. Invert that and you get fractional balances and then a wrong stock value — and the error does not show on the entry screen, it shows on the valuation report a month later.

Taxes

Three separate concepts beginners conflate, then spend a week correcting invoices.

1. The tax itself — a rate and an account it posts to.
2. The document tax template — what applies to a whole purchase order or sales invoice.
3. The item tax template — what applies to an item that departs from the general rule, such as an exempt item in a company whose items are otherwise taxable.

The rule: start with one sales template and one purchase template at your country’s general rate, and do not touch item templates until you genuinely need them. Anyone who starts by setting tax item by item builds complexity they cannot maintain.

Setting local rates and everything connected to e-invoicing is an entirely separate subject, and it is station eight.

Items — and the switch that ruins everything if it is wrong

One switch on the item card decides the fate of station six entirely: is a stock balance maintained for this item or not.

Item type	Balance maintained	Enters valuation	Example
Stock item	Yes	Yes	Raw material, finished goods, a spare part
Non-stock item	No	No	A service, professional fees, a freight charge you invoice

The common error is creating every item as non-stock “to avoid inventory complexity”. The result is that you have cancelled station six entirely: no stock ledger, no valuation, no computed cost of goods sold, and no correct margin.

The card also carries the costing method. ERPNext offers two: FIFO and moving average. Choose one now deliberately rather than by default, because station six will measure the difference between them numerically on your own data.

And build ten items, not a hundred. Ten cover everything left on the path. A hundred make every experiment slow, so you run fewer of them.

Customers and suppliers

Built last because they point at everything above. Three fields look secondary and become decisive at station eight, so fill them now:

• The tax registration number — without it no compliant business-to-business invoice leaves the system in any country operating e-invoicing.
• The address in its separate fields — not one free-text line.
• Payment terms and the default price list — because they save you manual entry on every document, which is what master data is for in the first place.

The acceptance test for this station

1. Create a company with its currency and fiscal year, enable perpetual inventory, and write down why you enabled it.
2. Open the chart of accounts and name the four accounts above inside your own tree.
3. Build two leaf warehouses and two cost centres, and confirm you can tell which nodes are groups and which are leaves.
4. Create ten items, at least three of them stock items with two different units and a conversion factor between them.
5. Create two customers and two suppliers with tax numbers and full addresses, then take a backup — this is the restore point for every station that follows.

What these choices mean for someone evaluating the product to buy rather than to learn is set out in the ERPNext guide.

What comes next

The company is ready and has no movement in it. The next station enters the first real one: a full purchase cycle from material request to supplier payment — and with it your first reading of both ledgers together, the skill the rest of the path rests on.