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In accounting, an open item refers to some type of charge or credit that is currently outstanding and has not been paid or applied. This approach is often used in both household and business accounting to track any financial activity that is managed over a period of time. Once the activity is considered to be settled in full and the appropriate postings have occurred in the accounting records, the activity is considered a closed transaction.
One of the benefits of the open item is that the process makes it relatively easy to track progress made on various charges or credits. Typically, items of this type are worked into a home or business operational budget, with specific projections of what type of activity is to take place with the item over an extended period of time. By noting the charge or credit as being open in the accounting ledger, it is possible to always know the current status of the item and be aware of what steps must be taken next in order to move the item closer to resolution as a closed or settled transaction.
With businesses, one of the more common examples of an open item has to do with a purchase order. That order may be structured to provide for immediate purchase of all items included in the order, or allow for the incremental filling of that order by a vendor over a specified period of time. This approach makes it easier for the issuing company to control costs and keep inventories low. For example, a purchase order may cover the period of a year, and stipulate that a certain quantity of a product be delivered by the last calendar day of each month during the year. As those goods are received and paid for, those specific shipments are closed, while the remaining portions of the purchase order are considered open items.
Businesses will also list any items ordered by customers that have not yet been processed and shipped as open. In this scenario, if a customer of a book club orders three books and only two are shipped due to a backorder on the remaining book, that third book is considered an open item. Once the club receives copies of that third book and completes the customer order, that book moves from being an open item to being a settled or closed transaction, since the original order placed by the customer is now complete or fulfilled.