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
This had been very helpful to me....thanks for posting it
ReplyDeleteAccounting Entries for Procure to Pay Cycle
ReplyDeleteA. 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