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Accountings in PO
Posted Sun, 04/19/2009 - 13:40 by Anonymous

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 PeriodEnd Accruals

Purchasing optionally accrues uninvoiced receipts of noninventory 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 noninventory 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 noninventory 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

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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.

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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.

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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

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