Accountings in PO

Inventory Accruals
Inventory and Purchasing provide you with visibility and control of your accrued liabilities for inventory items. Purchasing automatically records the accrued liability for your inventory items at the time of receipt as perpetual accruals. This transaction is automatically recorded in your general ledger at the time of receipt (unless you specified otherwise when setting up periodic costing). The inventory expense is recorded at delivery if you use Standard Delivery and at receipt if you use Direct Delivery. You have options to determine whether Purchasing and Inventory reverse encumbrances. The option used is dependent on how you compare encumbrance to budget balances in inventory for your organization.

Expense Period–End Accruals
Purchasing optionally accrues uninvoiced receipts of non–inventory items when you close a period. You can choose which uninvoiced receipts are accrued. At period end, Purchasing automatically creates a balanced journal entry for each uninvoiced receipt, which will automatically be reversed at the beginning of the next period. Purchasing creates a reversing entry for the encumbered amount corresponding to the expense while creating an accrual entry for the receipt in the general ledger if you are using encumbrance at your site.

Expense Perpetual Accruals
Purchasing optionally provides you with the ability to accrue non–inventory liabilities at the time of receipt. If you choose at time of receipt, Purchasing records an accrued liability and charges your receiving inspection account for each non–inventory receipt. This transaction is automatically recorded in your general ledger at the time of receipt. Purchasing creates a reversing entry for the encumbered amount at the time you deliver the goods to the final inventory or expense destination. When an invoice is matched to a purchase order and approved in Payables, it is not necessary for Payables to record an
encumbrance for the expense. However, Payables will record an encumbrance for invoice price variance or exchange rate variance, if the variance exists.

Purchase Price Variance
Purchasing and Inventory provide you with visibility and control of your purchase price variances. When you use standard costing, Purchasing and Inventory automatically calculate and record purchase price variances as you receive your inventory items into inventory. If desired, Purchasing and Inventory automatically calculate and record purchase price variances for your outside processing receipts into work in process. You can use the Purchase Price Variance Report to review the accuracy of the standard costs for your purchased items and services.

Invoice Price Variance (IPV) and Exchange Rate Variance
Purchasing and Inventory provide you with visibility and control of your invoice price and exchange rate variances. When Payables accounts for invoices, it automatically creates accounting entries for price and exchange rate variances. You can use the Invoice Price Variance Report to review the accuracy of your purchase order prices.

Foreign Currencies
If the purchase order uses a foreign currency, Purchasing converts the purchase order price to the inventory functional currency. Inventory uses this converted value for receiving accounting purposes. Payables allows you to record exchange rate invoice variance to separate accounts.

Nonrecoverable Tax
If you use nonrecoverable or partially recoverable tax, the nonrecoverable tax amount is included in your period-end or perpetual accrual accounting. Nonrecoverable tax is also included in the invoice and exchange rate variances. Changing the exchange rate on the receipt may affect the nonrecoverable tax amount. See: Tax Defaults in Purchasing. See: Entering Receipt Lines.

Accrual Reconciliation and Write-Off
Purchasing and Inventory provide you with a complete reconciliation report of all of your accounts payable accrual transactions. You can quickly identify any mismatched items and write-off accrual transactions from your receiving, accounts payable, inventory, and work in process subledgers. See: Reconciling A/P Accrual Accounts Balance.

Expense Accrual Reporting
You can use the Uninvoiced Receipts Report to analyze your uninvoiced receipt liabilities for non-inventory purchases when you create accrual entries for them in your general ledger. You can control the amount of expenses you accrue by supplier and purchasing category. You can obtain detailed information about the purchase order receipts you accrued during your accounting period. See: Uninvoiced Receipts Report.

Period-End Accruals and Encumbrance
For period-end accruals when using encumbrances, Purchasing creates a reversing entry for the encumbered amount corresponding to an expense while creating an accrual entry for the receipt in the general ledger. When you accrue your receipts, Purchasing ensures that you do not duplicate entries for the period. At the beginning of the following period, you reverse the accrual entry for the expense and recreate the encumbrance entry you reversed in the previous period using General Ledger. See: Receipt Accruals - Period End Process.
If you use nonrecoverable or partially recoverable tax, the nonrecoverable tax amount is included in your encumbrances.

Inventory and Perpetual Expense Accruals and Encumbrance
For perpetual expense and inventory accruals, Purchasing and Inventory create a reversing entry for the encumbered amount at the time you deliver the goods to the final inventory or expense destination. When an invoice is matched to a purchase order and approved in Payables, it is not necessary for Payables to record an encumbrance for the expense. However, Payables will record an encumbrance for invoice price variance or exchange rate variance, if the variance exists.
If you use nonrecoverable or partially recoverable tax, the nonrecoverable tax amount is included in your encumbrances.

You need to define the following accounts before entering transactions in Purchasing and Inventory.

1. Receiving Account
Enter the general ledger account to record the current balance of material in receiving and inspection.Use the Define Organization or Receiving Options window to set up this account.
 

2.a. Inventory A/P Accrual Account

Enter a general ledger account to accumulate the inventory accounts payable accrual for this organization. This is the account used by Purchasing to accrue your payable liability when you receive your items. This account represents your uninvoiced receipts and is usually part of your accounts payable liabilities in the balance sheet. Payables relieves this account when the invoice is matched and approved.

2.b. Expense A/P Accrual Account
Enter a general ledger account to accumulate the expense accounts payable accrual for your purchasing installation. This is the account used by Purchasing to accrue your accounts payable liability for expense items at time of receipt when your Expense Accrual Option is On Receipt, or at period-end when your Expense Accrual Option is Period End. This account represents your uninvoiced receipts and is usually part of your accounts payable liabilities in the balance sheet.

Use the Purchasing Options window to set up this account.

3.a Purchase Price Variance Account
Enter a general ledger account to accumulate purchase price variance for this organization. The purchase price variance account is usually an expense account. This is the variance that you record at the time you receive an item in inventory, and is the difference between the purchase order cost and an item's standard cost. Purchasing calculates purchase price variance as:

PPV = (PO unit price - standard unit cost) X quantity received

Purchase price variance is not used for average costing.

Use the Organization Parameters window to set this account.

3.b. Invoice Price Variance Account
Enter a general ledger account to accumulate invoice price variance for this organization. This is usually an expense account.

IPV = (PO unit price - Invoice Price) X quantity invoiced

Invoice price variance is the difference between the purchase order price for an inventory item and the actual invoice price multiplied by the quantity invoiced.
Purchasing uses this account on the PO distribution when the requisition or purchase order is created. When Payables matches and approves the invoice, Payables uses the invoice price variance account from the purchase order to record invoice price variance entries. In addition, if you have exchange rate variances, Payables also records invoice price variance for exchange rate gains and losses.

Use the Organization Parameters window to set this account.

3.c. Exchange Rate Gain or Loss Accounts
Enter general ledger accounts to accumulate exchange rate gains or losses for this organization. These are usually expense accounts.
Exchange Rate Gain Or Loss = (Exchange rate used for PO - Exchange rate used for Invoice Price)

Exchange rate gain or loss accounts are used to record the difference between the exchange rate used for the purchase order and the exchange rate used for the invoice.

Use the Accounting region of the Financials Options window to set up these accounts.

4. Mat. Valuation Account
If the material that we deliver is an inventory asset then the inv valaution account that we define in organization parameter gets debited.

If the material that we deliver is an inventory expense item then the expense account that is attached to the item in item master PO tab is debited.

If the material that we deliver is an non-inventory expense item then the expense account that is attached to the oraganization(or subinventory if the subinventory has a differnt excepnese a/c) parameter