Accounting Entries for Procure to Pay (P2P) cycle is as follows:
PO Charge A/c
3. Purchase Return Inventory AP Accrual A/c Dr
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,
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
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
