Accounting entries in Oracle Purchasing and Payables

This document gives in detail different accounts used and the accounting impact of various transactions that take place in Oracle Purchasing and Oracle Payables. Both Standard costing and Average costing methods are considered. The accounts are Oracle Applications specific and might differ from the conventional accounting names. Examples are given wherever required for better understanding of the concept. The sources of these accounts are given.

PURCHASING:  Receiving – For Accrual Process for perpetual Accruals

Receipts for inventory purchases are always accrued upon receipt. And also use perpetual accruals for expense purchases you want to record uninvoiced purchase liabilities immediately upon the receipt of the expense goods.

Receiving Account (Receiving Account)

To record the current balance of the material in receiving and inspection.

Where to define in Apps: Define Organization

                                         Define Receiving Options

Inventory AP Accrual Account

Used to accrue your inventory accounts payable liability when you receive your items. This account represents your uninvoiced receipts and is usually a part of your accounts payable liabilities in the balance sheet. Payable relieves this account when the invoice is matched and approved.

Where to define in Apps: Define Organization Parameters

Expense AP Accrual Account

Used to accrue your expense accounts payable liability when you receive your items. This account represents your uninvoiced receipts when your Expense Accrual Option is On Receipt and is usually a part of your accounts payable liabilities in the balance sheet. Payable relieves this account when the invoice is matched and approved.

Where to define in Apps: Define Purchasing Options

Purchase Price Variance Account

To Accumulate purchase price variance for the organization. PPV account is usually an expense account, which you record at the time you receive an item into the inventory and is the difference between the purchase order cost and the item’s standard cost.  PPV account is not used for average costing.

 

Where to define in Apps: Define Organization Parameters

Invoice Price Variance Account

To Accumulate invoice price variance for the organization. IPV account is usually an expense account, which is used at the time of creating requisition or PO. When a corresponding invoice is matched and approved, AP uses this account from PO to record the invoice price variance entries. It is the difference between the purchase order price of the inventory item and the actual invoice price multiplied by the quantity invoiced.

 

Where to define in Apps: Define Organization Parameters

Exchange Rate Gain or Loss Account

To Accumulate purchase exchange rate gains or losses for the organization. This account is usually an expense account, which you use to record the difference between the exchange rate used for purchase order cost and the exchange rate used for invoice

 

Where to define in Apps: Define Financial Options

Accounting Entries

A). Purchase Order receipt to the Receiving Inspection Location. When the goods are received into Inspection Location.

When you receive material from a vendor into receiving inspection, Apps uses the quantity received and the PO price to update the following accounts.

                           Accounting Entry                               Debit         Credit                   Source                 

Receiving inspection account @ PO price	xx		At Define Organization/ Receiving Options
Inventory A/P Accrual account  @ PO price		xx	At Organization Parameters
(for receiving Inventory Items)
Receiving inspection account @ PO price	xx		At Define Organizations
Expense A/P Accrual account @ PO price		xx	At Define Purchasing Options
(for receiving expense items)

B). Delivery from Receiving Inspection to Inventory under Standard Costing. Recorded at the time, when the goods are transferred from Receiving Inspection to Inventory

With Enter Receiving form, you can move material from receiving inspection to inventory.

Case#1: If the standard cost is greater than purchase order price then the PPV is favourable and Apps records this expense as a credit (negative expense).

                          Accounting Entry                                          Debit       Credit                     Source                   

Sub-inventory accounts @ Std. Cost	xx		At Define Sub-inventory
Receiving Inspection account @ PO price		xx	At Define Organization
Purchase Price Variance Account (Negative Expense)		xx	At Define Organization Parameters

Case#2: If the standard cost is less than the PO price then the variance is unfavourable and Apps record this as a debit (positive expense)

                       Accounting Entry                                  Debit       Credit                    Source                   

Sub-inventory accounts @ Std. Cost	xx		At Define Sub-inventory
Purchase Price Variance Account (Positive Expense)	xx		At Define Organization Parameters
Receiving Inspection account @ PO price		xx	At Define Organization/ Define Receiving Options

(C). Purchase Order receipt to the Receiving Inspection at Average Cost.  When the goods are received into Inspection Location at the Enter Receipts form.

If you use average costing, the actual cost is picked from the PO and hence you do not have any PPV. 

                          Accounting Entry                                        Debit       Credit                     Source                    

Receiving inspection account @ PO price	xx		At Define Organization/ Define Receiving Options
Inventory A/P Accrual account  @ PO price		xx	At Organization Parameters
(for receiving Inventory Items)

(D). Delivery from Receiving Inspection to Inventory under Average Costing. Recorded at the time, when the goods are transferred from Receiving Inspection to Inventory

After inspection, you deliver the inventory items to the inventory at the Enter Receiving Transactions form.

                         Accounting Entry                                           Debit       Credit                     Source                   

Sub-inventory accounts @ PO price	xx		At Define Sub-inventory
Receiving Inspection account @ PO price		xx	At Define Organisation/ Define Receiving Options
(for delivering to the inventory at actual PO cost)

To record the actual Landed cost (Average Cost)

The goods are received into Landed Organisation first and then are transferred to actual organisations with the addition of landed cost recorded as the transfer charges. This step is performed in Inventory as Inter-organisations transfers and the accounting impact is:

                          Accounting Entry                                          Debit       Credit                     Source                   

Inter-Org Receivable account @ Purchase order cost + actual Landed cost	xx		At Define Inter-Org transfers Networks
Sub-inventory Material account      @ Purchase order Cost		xx	At Define Sub-inventories / Define Organisation
Inter-Org transfer charges account      @ Amount of actual Landed cost		xx	At Define Inter-Org transfers Networks

E). Delivery from Receiving Inspection to Expense. Recorder at the time, when the goods are transferred from Receiving Inspection to Expense Destination

With Enter Receiving form, you can also move material from receiving inspection to expense destinations.

Oracle Purchasing uses the transaction quantity and the PO price of the delivered item to update the receiving inspection and expense charge account. 

                         Accounting Entry                                           Debit       Credit                     Source                   

PO distribution charge accounts @ PO price	xx		At individual item level
Receiving inspection account @ PO price		xx	At Define Receiving Options

(F). Purchase Order receipt to the Inventory without inspection at Standard Cost.  When the goods are received into Inspection Location at the Enter Receipts form and delivered to inventory directly in one step.

In this case, Apps performs both receipt and delivery in one step. Purchasing uses quantity ordered and PO price to update the following accounts. At the same time, Oracle Inventory uses the quantity and the standard cost of the received item to update the receiving inspection and the sub-inventory balances (The accounting impact is the same except as the case of inspection & deliver, except this one is arrived with one operation/step).

                      Accounting Entry                                             Debit       Credit                     Source                    

Receiving inspection account @ PO price	xx		At Define Organisation/ Receiving Options
Inventory A/P Accrual account  @ PO price		xx	At Organisation Parameters
(for receiving Inventory Items)
Case # 1
Sub-inventory accounts @ Std. Cost	xx		At Define Sub-inventory
Receiving Inspection account @ PO price		xx	At Define Organisation
Purchase Price Variance Account (Negative Expense)		xx	At Define Organisation Parameters
(Delivered into inventory when the Std.cost is more than the PO price)
Case # 2
Sub-inventory accounts @ Std. Cost	xx		At Define Sub-inventory
Purchase Price Variance Account (Positive Expense)	xx		At Define Organisation Parameters
Receiving Inspection account @ PO price		xx	At Define Organisation/ Define Receiving Options
(Delivered into inventory when the Std.cost is less than the PO price)

(G). Purchase Order receipt to the Inventory without inspection at Average Cost.  When the goods are received into Inspection Location at the Enter Receipts form and delivered directly in one step.

If you use average costing, the actual cost is picked from the PO and hence you do not have any PPV (The accounting impact is the same except as the case of inspection & deliver, except this one is arrived with one operation/step).

                       Accounting Entry                                             Debit       Credit                    Source                    

Receiving inspection account @ PO price	xx		At Define Organisation/ Receiving Options
Inventory A/P Accrual account  @ PO price		xx	At Organisation Parameters
(for receiving Inventory Items)
Sub-inventory accounts @ PO price	xx		At Define Sub-inventory
Receiving Inspection account @ PO price		xx	At Define Organisation/ Define Receiving Options
(for delivering to the inventory at actual PO cost)

(H). Purchase Order receipt to the Expense destinations without inspection.  When the goods are received into Inspection Location at the Enter Receipts form and delivered to inventory directly in one step.

                    Accounting Entry                                                Debit       Credit                    Source                    

Receiving inspection account @ PO price	xx		At Define Organisation/ Define Receiving Options
Expense account  @ PO price		xx	At Define Items
(for receiving expense items)
PO distribution charge account @ PO price	xx		From Purchase Order
Receiving inspection account @ PO price		xx	At Define Organisation/ Define Receiving Options
(for delivering to the expense destinations directly)

 

Return to Vendor from Receiving Inspection at Standard Cost.

For a return from inspection, Purchasing decreases the receiving inspection balance, and reverses the accounting entry created for the original receipt.

                         Accounting Entry                                            Debit     Credit                   Source                      

Inventory A/P Accrual account  @ PO price	xx		At Organisation Parameters
Receiving inspection account @ PO price		xx	At Define Organisation/ Receiving Options
(for returning Inventory Items)
Expense A/P Accrual account @ PO price	xx		At Define Purchasing Options
Receiving inspection account @ PO price		Xx	At Define Organizations
(for returning expense items)

 

Return to Vendor from Inventory (to Receiving Inspection) at Standard Cost.

If you use receiving inspection and delivered material into inventory and if you want to return material from the same inventory, you must first return the material to Receiving Inspection from inventory before you can return to your vendor. For a return from inspection, Purchasing decreases the receiving inspection balance, and reverses the accounting entry created for the original receipt. This is two step process.

Case # 1: Incase of Std.cost is less than PO price of the returned item when it was received into the inventory.

                         Accounting Entry                                            Debit     Credit                   Source                      

Step#1: When you return goods from inventory to receiving location
Receiving Inspection account @ PO price	xx		At Define Organisation/ Define Receiving parameters
Sub inventory accounts @ Std. Price		xx	At Define Sub-inventory
Purchase Price Variance		xx	At Define Org. Parameters
(for reversing the entry – when the items is returned from SI to Receiving Inspection)
Step#2: When you return goods from receiving inspection location to the supplier
Inventory A/P Accrual account  @ PO price	xx		At Organisation Parameters
Receiving inspection account @ PO price		xx	At Define Organisation/ Receiving Options
(for returning Inventory Items from Receiving inspection to the vendor)

Case # 2: Incase of Std.cost is more than PO price of the returned item when it was received into the inventory.

                         Accounting Entry                                            Debit     Credit                   Source                      

Step#1: When you return goods from inventory to receiving location
Receiving Inspection account @ PO price	xx		At Define Organisation/ Define Receiving parameters
Purchase Price Variance	xx		At Define Org. Parameters
Sub inventory accounts @ Std. Price		Xx	At Define Sub-inventory
(for reversing the entry – when the items is returned from SI to Receiving Inspection)
Case #2: When you return goods from the receiving inspection location to the supplier
Inventory A/P Accrual account  @ PO price	Xx		At Organisation Parameters
Receiving inspection account @ PO price		Xx	At Define Organisation/ Receiving Options
(for returning Inventory Items from Receiving inspection to the vendor)

(I). Return to Vendor from Inventory when the items are received through  Direct Receipt without inspection at Standard Cost.

The accounting impact is the same as in the previous inspection case, except all the accounting is done in one step.

Case # 1: Incase of Std.cost is less than PO price of the returned item when it was received into the inventory.

                         Accounting Entry                                            Debit     Credit                   Source                      

Receiving Inspection account @ PO price	xx		At Define Organisation/ Define Receiving parameters
Sub inventory accounts @ Std. Price		xx	At Define Sub-inventory
Purchase Price Variance		xx	At Define Org. Parameters
(for reversing the entry that is made when  the items is received & delivered directly)
Inventory A/P Accrual account  @ PO price	xx		At Organisation Parameters
Receiving inspection account @ PO price		Xx	At Define Organisation/ Receiving Options
(for returning Inventory Items from Receiving inspection to the vendor)

Case # 2: Incase of Standard cost is more than PO price of the returned item when it was received into the inventory.

                         Accounting Entry                                            Debit     Credit                   Source                      

Receiving Inspection account @ PO price	xx		At Define Organization/ Define Receiving parameters
Purchase Price Variance	xx		At Define Org. Parameters
Sub inventory accounts @ Std. Price		Xx	At Define Sub-inventory
(for reversing the entry that is made when the items are received & delivered directly)
Inventory A/P Accrual account  @ PO price	Xx		At Organization Parameters
Receiving inspection account @ PO price		Xx	At Define Organization/ Receiving Options
(for returning Inventory Items from Receiving inspection to the vendor)

Same Procedure has to be followed for returning the expense items also.

Accounts Payable

Invoice Booking at Standard Costing at Algorithm

For Actual Supplier Invoice

When matched with the PO both Inventory AP Accrual account and Liability accounts come from the related Purchase order. If it s an unmatched invoice, you have to give the Inventory AP Accrual account and the liability account is defaulted from the supplier definition

 

 

When the Invoice Price is more than the Purchase order Price

                     Accounting Entry                                     Debit     Credit                  Source                      

Inventory AP Accrual account @ PO price	Xx		Comes from Purchase Order / and Entered in the Distributions
Invoice Price Variance account @ Invoice quantity * (Invoice price - PO price)	Xx		At Define Org. Parameters
AP liability account @ Invoice price * Invoice qty		xx	At individual Define Suppliers

 

 

When the Invoice Price is less than the Purchase order Price

                     Accounting Entry                                     Debit     Credit                  Source                      

Inventory AP Accrual account @ PO price	xx		Comes from Purchase Order / and Entered in the Distributions
AP liability account @ Invoice price * Invoice qty		Xx	At individual Define Suppliers
Invoice Price Variance account     @ Invoice quantity * (Invoice price - PO price)		Xx	At Define Org. Parameters

For Other Cost Invoices like Clearing Agent payments, Insurance, Freight, etc.

Different invoices are booked for each supplier invoice. 1.Supplier invoice 2.Clearing Agent invoice 3.Insurance invoice 4.Freight invoice.  As these are booked as four different invoices this accounting entry is impacted that many times and the payments are made separately for each invoice.

                        Accounting Entry                                             Debit     Credit                   Source                      

Inventory AP Accrual account @ Actual costs	xx		Comes from Purchase Order / and Entered in the Distributions
AP liability account @ Invoice price		Xx	At individual Define Suppliers

Invoice Booking at Average Costing at DU

While making the inter-organization transfer (to record the landed cost) from Landed cost organization to Pharma or Non Pharma organizations, the Landed cost Clearing Account is credited with the landed costs as the Transfer Charges. The same account is debited at the time of invoice booking as an expense account.

                          Accounting Entry                                           Debit     Credit                   Source                      

Inventory AP Accrual account @ PO price	xx		Comes from Purchase Order / and Entered in the Distributions
Landed Cost Clearing Account @ the actual landed cost	xx
AP liability account @ Invoice price * Invoice qty		Xx	At individual Define Suppliers

Payment of the Invoices booked

As mentioned above payment is done separately for each invoice.

                          Accounting Entry                                           Debit     Credit                   Source                      

AP liability account @ Amount paid	xx		Comes from Purchase Order / and Entered in the Distributions
Bank account @ Amount paid		xx	At individual Define Banks

Incase of Debit and Credit Memo

When you enter a credit note and match it with a purchase order the following entry is created.

                          Accounting Entry                                           Debit     Credit                   Source                      

AP liability account @ Amount of credit note	xx		At individual Define Banks/ and comes from the related invoice
Inventory AP Accrual account @ Amount of credit note		xx	Comes from Purchase Order / and Entered in the Distributions

When you pay the invoice, applying the credit/debit note, the following entry is created with the difference in the amounts.

                         Accounting Entry                                            Debit     Credit                   Source                      

AP liability account @ (Invoice Amount – Credit/Debit note amount)	xx		At individual Define Banks/ and comes from the related invoice
Inventory AP Accrual account     @ (Invoice Amount – Credit/Debit note amount)		xx	Comes from Purchase Order / and Entered in the Distributions

Prepayment Advance to Suppliers

The complete cycle of transaction relating to Prepayment to suppliers and their accounting impact is detailed under.

Step-1: When you pay Prepayment to the supplier (one prepayment account is maintained for all suppliers and on liability account is maintained for all suppliers in Algorithm). Payables keep track of individual supplier balances and the individual application of prepayments to the invoices.

                          Accounting Entry                                           Debit     Credit                   Source                      

Prepayment to Suppliers account @ Amount of Prepayment paid	xx		At individual Define Suppliers
Bank account @ Amount of credit note		xx	At individual Define Banks

Step-2: When you receive invoice from the supplier and booked. Invoice Price Variance account @ Invoice quantity * (Invoice price - PO price)  is debited or credited by Payables according the invoice price variances.

                    Accounting Entry                                      Debit     Credit                  Source                      

Inventory AP Accrual account @ PO price	xx		Comes from Purchase Order / and Entered in the Distributions
AP liability account @ Invoice price * Invoice qty		xx	At individual Define Suppliers

Step-3: When you apply the existing prepayment to the invoice booked. The amount of the application depends on the amount you want to apply from the prepayment to the invoice.

                        Accounting Entry                                             Debit     Credit                   Source                      

AP liability account  @ (Prepayment amount applied)	xx		At individual Define Banks/ and comes from the related invoice
Prepayment to Suppliers account       @ (Prepayment amount applied)		xx	Comes from Define suppliers / Entered in the related Invoices

Step-4: When the Invoice amount is less than the Prepayment amount, you can apply the remaining amount to the future invoice (the accounting impact is same as above). In other way, If the Invoice amount is more than the Prepayment amount, then the difference amount has to be paid to the supplier with the following accounting impact.

                          Accounting Entry                                           Debit     Credit                   Source                      

AP liability account @ (Invoice amount – Prepayment amount)	xx		Comes from Purchase Order / and Entered in the Distributions
Bank account @ Amount paid		xx	At individual Define Banks

Employee Advances

The complete cycle of transaction relating to Prepayment to suppliers and their accounting impact is detailed under.

Step-1: When you pay Advance to the supplier (one Advance/prepayment account is maintained for all employees and on liability account is maintained for all employees in Algorithm). Payables keep track of individual employee balances and the individual application of advances/prepayments to the invoices.

                          Accounting Entry                                           Debit     Credit                   Source                      

Advances to Employee account @ Amount of advance paid	xx		At individual Define Employees as Suppliers
Bank account @ Amount of advance		xx	At individual Define Banks

Step-2: When you receive Expense report from the employee, an invoice is booked from it.

                    Accounting Entry                                      Debit     Credit                  Source                      

Expense account @ Expense cost	xx		Comes from Define Expense Reports
AP liability account @ Expense cost		xx	At individual Define Employees defined as Suppliers

Step-3: When you apply the existing advance to the invoice booked. The amount of the application depends on the amount you want to apply from the advance to the invoice.

                        Accounting Entry                                             Debit     Credit                   Source                      

AP liability account  @ (Advance amount applied)	xx		Comes from the invoice to which the advance is applied
Advances to Employees account       @ (Advance amount applied)		xx	Comes from Define suppliers / Entered in the related Invoices

Step-4: When the Expense report/Invoice amount is less than the Advance amount, the employee has to return the money back to the company. 

For that, create an adjustment invoice against the same employee for the difference amount he/she has to pay, debiting the Advance to employee account. The accounting impact in Payables is detailed under.

                        Accounting Entry                                             Debit     Credit                   Source                      

Advances to Employees account @ (Amount to be paid by the employee)		xx	Has to be given manually
AP liability account     @ (Amount to be paid by the employee)	xx		Comes from Define suppliers / Entered in the related Invoices

Then you apply the remaining amount of the advance to the new invoice created. In payables you have the   following accounting impact.

                          Accounting Entry                                           Debit     Credit                   Source                      

AP liability account  @ (Remaining advance amount applied)	xx		Comes from the invoice to which the advance is applied
Advances to Employees account       @ (Remaining advance amount applied)		xx	Comes from Define suppliers / Entered in the related Invoices

The accounting impact in Receivables receive a miscellaneous receipt crediting the same Advances to Employee account which was debited while booking the adjustment invoice. The accounting impact is detailed under.

                          Accounting Entry                                           Debit     Credit                   Source                      

Bank account @ (Amount to be paid by the employee)	xx		Comes from Payment methods
Advances to Employees account @ (Amount to be paid by the employee)		xx	At Define Receivables Activities

In other way, If the Invoice amount is more than the Prepayment amount, then the difference amount has to be paid to the employee with the following accounting impact.

(All the remaining entries are same as the above advance application except the Step-4)

Step-4

                          Accounting Entry                                           Debit     Credit                   Source                      

AP liability account  @ (Amount to be paid to employee)	xx		At individual Define Employees defined as Suppliers
Bank account @ (Amount to be paid by the employee)		xx	Comes from Payment methods