Tuesday 22 March 2011

Accounting Entries for Procure to Pay (P2P) cycle

Accounting Entries for Procure to Pay (P2P) cycle is as follows:

Purchasing/PO module:

Event                                                              Accounting Entries

1. Creation of Requisition                        No accounting entries

2. Creation of Purchase Order (PO)           No accounting entries


Inventory Destination Receipts

3. Receipt of Inventory
Items                  Receiving Inspection A/c Dr
                                                          Inventory AP Accrual A/c Cr

Note: Accounting Entries for Inventory Items can be created at Receipts only where as for Expense Items it can be done at Period End OR Receipts as applicable.

Expense Destination Receipts

4. Receipt of Expense
Items                    Receiving Inspection A/c Dr
                                                          Expense AP Accrual A/c Cr

Expense Items with Receipts at Period End

5. When Receipts at Period End set up is done for Expense items,

                                                                   PO Charge A/c
                                                                   To Expense AP Accrual A/c Cr

6.  When next PO period is opened, reversal entry for point 7 is created,
                                               
                                                                   Expense AP Accrual A/c
                                                                   To PO Charge A/c Cr

Inventory module:

Event                                                  Accounting Entries

1. Delivery of Inventory
Items                  Material/Inventory A/c Dr
(Standard Cost)
                                                          To Receiving Inspection A/c Cr (PO Price)
                                                          Purchase Price Variance A/c Dr/Cr# (as applicable)

#Purchase Price Variance (PPV) is the difference between PO price and Standard Cost.

2. Delivery of Expense
Items          PO Distribution Charge A/c Dr
                                                          To Receiving Inspection A/c Cr

3. Purchase Return                                Inventory AP Accrual A/c Dr
                                                          To Inventory A/c Cr

Payables/AP module:

Event                                                              Accounting Entries

1. Creation of
Inventory Item Invoice        Inventory AP Accrual A/c Dr
                                                          To Liability A/c Cr
                                                          Invoice Price Variance* A/c Dr/Cr (if any)

* Invoice Price Variance=Invoice Price-PO Price

2. Creation of
Expense Item Invoice Expense AP Accrual A/c Dr
                                                          To Liability A/c Cr

3. Payment of Invoice (Inventory/Exp)     
Liability A/c Dr
                                                          To Cash Clearing* A/c Cr
                                                          To Discount A/c Cr (If any)
                                                          To Gain/Loss A/c Cr (Foreign Exchange G/L if any)

* Cash Clearing is used where Cash Management module is in place else it will directly hit Cash/Bank Account for payment.

Other Entries:

4. Good return to
Supplier                       Liability A/c Dr
                                                          To Inventory/Expense AP Accrual A/c Cr

5. Refund through
Credit Memo                Liability A/c Dr
                                                          To AP Accrual/Charge A/c Cr

6. Creation of Prepayment Invoice            Prepaid
Expense A/c Dr
                                                          To Liability A/c Cr

7. Payment of
Prepayment Invoice            Liability A/c Dr
                                                          To Cash Clearing A/c Cr

8. Apply prepayment with
Standard Invoice          Liability A/c Dr
                                                                   To Prepayment A/c Cr

9. Creation of
Credit Memo                      Liability A/c Dr
                                                          To AP Accrual A/c/ Expense A/c Cr

2 comments:

  1. This had been very helpful to me....thanks for posting it

    ReplyDelete
  2. Accounting Entries for Procure to Pay Cycle

    A. Inventory Item:
    On Receipt
    DR Recv Ctl (Source – Inventory – Recvg Controls)
    CR Inv AP Accrual Account (Source – Inventory Orgn Parameters – Other Accounts)

    On Delivery
    DR Inventory Account (Source – Sub Inventory)
    CR Recv Ctl

    On matching in AP
    DR Inv AP Accrual Account
    CR Liability Account (Source – Financial Options > Supplier Site)


    B. Expense Item – Periodic Accrual
    a. On Matching
    DR Expense Account (Source – Item Expense)
    CR Liability Account

    C. Expense Item – Accrue on Receipt
    On Receipt
    DR Recv Ctl
    CR Expense AP Accrual Account (Source – Purchasing Options)

    On Delivery
    DR Charge Account (Source – Item Expense)
    CR Recv Ctl

    On matching in AP
    DR Exp AP Accrual Account
    CR Liability Account

    D. Fixed Asset – Periodic Accrual
    On Matching
    DR Asset Clearing Account (Source – Item Expense)
    CR Liability Account

    E. Fixed Asset – Accrue on Receipt
    On Receipt
    DR Recv Ctl
    CR Exp AP Accrual Account

    On Delivery
    DR Asset Clearing Account
    CR Recv Ctl

    On matching in AP
    DR Exp AP Accrual Account
    CR Liability Account

    ReplyDelete