Overview of Receipt Accounting_UG.pdf

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Overview of Receipt Accounting

Inventory Accruals

Inventory and Purchasing provide you with visibility and control ofyour accrued liabilities for inventory items. Purchasing automaticallyrecords the accrued liability for your inventory items at the time ofreceipt as perpetual accruals. This transaction is automaticallyrecorded in your general ledger at the time of receipt (unless youspecified otherwise when setting up periodic costing). The inventoryexpense is recorded at delivery if you use Standard Delivery and atreceipt if you use Direct Delivery. You have options to determinewhether Purchasing and Inventory reverse encumbrances. The optionused 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 uninvoicedreceipts are accrued. At period end, Purchasing automatically creates abalanced journal entry for each uninvoiced receipt, which willautomatically be reversed at the beginning of the next period.Purchasing creates a reversing entry for the encumbered amountcorresponding to the expense while creating an accrual entry for thereceipt in the general ledger if you are using encumbrance at your site.

Attention: When using Cash Basis Accounting, you will notnormally run the Receipt Accrual Period End process.However, you must use the Purchasing Options window andset the Accrue Expense Items flag to Period End. See: ReceiptAccruals Period End Process: page 9 118.

Expense Perpetual Accruals

Purchasing optionally provides you with the ability to accruenoninventory liabilities at the time of receipt. If you choose at time ofreceipt, Purchasing records an accrued liability and charges yourreceiving inspection account for each noninventory receipt. Thistransaction is automatically recorded in your general ledger at the timeof receipt. Purchasing creates a reversing entry for the encumberedamount at the time you deliver the goods to the final inventory orexpense destination. When an invoice is matched to a purchase order

and approved in Payables, it is not necessary for Payables to record an


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encumbrance for the expense. However, Payables will record anencumbrance for invoice price variance or exchange rate variance, ifthe variance exists.

Purchase Price Variance

Purchasing and Inventory provide you with visibility and control ofyour purchase price variances. When you use standard costing,Purchasing and Inventory automatically calculate and record purchaseprice variances as you receive your inventory items into inventory. Ifdesired, Purchasing and Inventory automatically calculate and recordpurchase price variances for your outside processing receipts into work

in process. You can use the Purchase Price Variance Report to reviewthe accuracy of the standard costs for your purchased items andservices. See: Purchase Price Variance Report: page 9 99.

Invoice Price Variance (IPV) and Exchange Rate Variance

Purchasing and Inventory provide you with visibility and control ofyour invoice price and exchange rate variances. When Payablesaccounts for invoices, it automatically creates accounting entries forprice and exchange rate variances. You can use the Invoice PriceVariance Report to review the accuracy of your purchase order prices.See: Invoice Price Variance Report: page 9 47.

Foreign Currencies

If the purchase order uses a foreign currency, Purchasing converts thepurchase order price to the inventory functional currency. Inventoryuses this converted value for receiving accounting purposes. Payablesallows you to record exchange rate invoice variance to separateaccounts.

Nonrecoverable Tax

If you use nonrecoverable or partially recoverable tax, thenonrecoverable tax amount is included in your periodend orperpetual accrual accounting. Nonrecoverable tax is also included inthe invoice and exchange rate variances. Changing the exchange rateon the receipt may affect the nonrecoverable tax amount. See: TaxDefaults in Purchasing: page 4 135. See: Entering Receipt Lines: page7 34.


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Accrual Reconciliation and WriteOff

Purchasing and Inventory provide you with a complete reconciliationreport of all of your accounts payable accrual transactions. You canquickly identify any mismatched items and writeoff accrual

transactions from your receiving, accounts payable, inventory, andwork in process subledgers. See: Reconciling A/P Accrual AccountsBalance: page 7 117.

Expense Accrual Reporting

You can use the Uninvoiced Receipts Report to analyze your

uninvoiced receipt liabilities for non

inventory purchases when youcreate accrual entries for them in your general ledger. You can controlthe amount of expenses you accrue by supplier and purchasingcategory. You can obtain detailed information about the purchase orderreceipts you accrued during your accounting period. See: UninvoicedReceipts Report: page 9 169.

PeriodEnd Accruals and Encumbrance

For periodend accruals when using encumbrances, Purchasing createsa reversing entry for the encumbered amount corresponding to anexpense while creating an accrual entry for the receipt in the generalledger. When you accrue your receipts, Purchasing ensures that you donot duplicate entries for the period. At the beginning of the followingperiod, you reverse the accrual entry for the expense and recreate theencumbrance entry you reversed in the previous period using General

Ledger. See: Receipt Accruals Period End Process: page 9 118.

If you use nonrecoverable or partially recoverable tax, thenonrecoverable 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 thetime you deliver the goods to the final inventory or expensedestination. When an invoice is matched to a purchase order andapproved in Payables, it is not necessary for Payables to record anencumbrance for the expense. However, Payables will record anencumbrance for invoice price variance or exchange rate variance, ifthe variance exists.


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If you use nonrecoverable or partially recoverable tax, thenonrecoverable tax amount is included in your encumbrances.

See Also

Setting Up Inventory Accruals: page 7 104

Accrual Process for Perpetual Accruals: page 7 109

Monitoring Price variances: page 7 117

Reconciling A/P Accrual Accounts Balance: page 7 117

Accrual Process for Period End Accruals: page 7 119

Identifying Journal Entry Batches in General Ledger: page 7 124

Setting Up Inventory Accruals

If you use Purchasing and Inventory together, use the following stepsto implement perpetual accruals for inventory item purchases:

Defining Expense Accrual Option

You need to specify whether you want to use periodend or perpetualaccruals for your expense destination receipts. Set the Accrue ExpenseItems option in the Purchasing Options window to At Receiptif youwant to accrue your expense receipts perpetually. Specify Period Endif

you want to accrue your receipts at period end. See: Defining AccrualOptions: page 1 47.

Defining Default Accounts

You need to define the following accounts before entering transactionsin Purchasing and Inventory.

Receiving Account

Enter the general ledger account to record the current balance ofmaterial in receiving and inspection.

Use the Define Organization or Receiving Options window to set upthis account. See: Defining Receiving Options: page 1 57.


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Inventory A/P Accrual Account

Enter a general ledger account to accumulate the inventory accountspayable accrual for this organization. This is the account used byPurchasing to accrue your payable liability when you receive your

items. This account represents your uninvoiced receipts and is usuallypart of your accounts payable liabilities in the balance sheet. Payablesrelieves this account when the invoice is matched and approved. See:Defining Other Account Parameters, Oracle Inventory Users Guide.

Expense A/P Accrual Account

Enter a general ledger account to accumulate the expense accountspayable accrual for your purchasing installation. This is the accountused by Purchasing to accrue your accounts payable liability forexpense items at time of receipt when your Expense Accrual Option isAt Receipt, or at periodend when your Expense Accrual Option isPeriod End. This account represents your uninvoiced receipts and isusually part of your accounts payable liabilities in the balance sheet.

Use the Purchasing Options window to set up this account. See:Defining Accrual Options: page 1 47.

Purchase Price Variance Account

Enter a general ledger account to accumulate purchase price variancefor this organization. The purchase price variance account is usually anexpense account. This is the variance that you record at the time youreceive an item in inventory, and is the difference between the purchaseorder cost and an items standard cost. Purchasing calculates purchaseprice variance as:

PPV = (PO unit price standard unit cost)quantity received

Note: Cost Management includes nonrecoverable tax with the PO unitprice if tax and a recovery rate are set up for the item. If the purchaseorder is in a foreign currency, the purchase price variance is calculatedusing the exchange rate from the receipt if the Invoice Match Option in

the purchase order Shipments window is Receipt and from thepurchase order if the Invoice Match Option is Purchase Order.

Purchase price variance is not used for average costing.

Use the Organization Parameters window to set this account. See:InterOrganization Transfer Accounts, Oracle Inventory Users Guide.


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Invoice Price Variance Account

Enter a general ledger account to accumulate invoice price variance forthis organization. This is usually an expense account.

Invoice price variance is the difference between the purchase orderprice for an inventory item and the actual invoice price multiplied bythe quantity invoiced: Invoice Quantity x (Invoice Price PO Price) xInvoice Exchange Rate. Purchasing uses this account on the POdistribution when the requisition or purchase order is created. WhenPayables creates accounting entries for the invoice, it uses the invoiceprice variance account from the purchase order to record invoice pricevariance entries.

Use the Organization Parameters window to set this account. See:InterOrganization Transfer Accounts, Oracle Inventory Users Guide.

Exchange Rate Gain or Loss Accounts

Enter general ledger accounts to accumulate exchange rate gains orlosses for this organization. These are usually expense accounts.

Exchange rate gain or loss accounts are used to record the difference

between the exchange rate used for the purchase order and theexchange rate used for the invoice. The exchange rate is taken from thepurchase order only if the Invoice Match Option in the purchase orderShipments window is Purchase Order. If the Invoice Match Option isReceipt, the exchange rate is taken from the receipt.

These accounts can also be used in Payables to record gains and lossesat payment time and clearing time.

Use the Accounting region of the Financials Options window to set upthese accounts. See: Defining Financials Options, Oracle Payables UsersGuide.

Using the Account Generator to build accounts

In addition to the standard default accounts listed above, you can usethe Account Generator to predefine a set of rules that allow Purchasingto build the following accounts for each purchase order distributionautomatically:

Charge Account

Budget Account

Accrual Account

Invoice Variance Account

See: Using the Account Generator in Oracle Purchasing: page C 9.


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Setting Up Your Period End Date

For the accrual report to balance to the general ledger, the lasttransaction (or accounting) date of each fiscal period has to be the samein Inventory, Purchasing, and Payables.

Creating Purchase Orders for Inventory Items

Some of the purchase orders you create are for items you want to movedirectly into your inventories. Some other purchase orders are foritems you simply want to expense.

Purchasing ensures that you charge all inventory items you purchase to

the Inventory A/P accrual account for the receiving organization. Eachtime you enter an item on a purchase order, Purchasing defaults theInventory A/P accrual account corresponding to the organization youare ordering this item for on your distributions. You cannot overridethe distribution accrual account.

Purchasing also ensures that you use the correct invoice price varianceaccount for the receiving organization. Each time you enter an item on

a purchase order, Purchasing defaults the invoice price varianceaccount corresponding to the organization you are ordering this itemfor on your distributions. You cannot override the distribution invoicevariance account.

Inventory Funds Checking Methods

One way in which you can budget and funds check the inventory

purchases you make for a given subinventory is by setting up anencumbrance (i.e. budget) account for the subinventory, and notreversing the encumbrance on receipt/delivery. This way, theencumbrance will accumulate as an actual and can be compared withthe account budget for actual purchases to budget analysis. You cannotuse the subinventory asset account in the funds available calculation(FA = Budget Enc Actuals), because this account will only containthe current value of the subinventory or the net of received and

delivered items currently in the subinventory, and will not track to theaccumulated purchases for the subinventory. To use this method offunds checking, you must set the Reverse Encumbrance flag in theOrganization Parameters window to No. See: InterOrganizationTransfer Accounts, Oracle Inventory Users Guide.

An alternative method of funds checking inventory purchases is bysetting up a summary account and performing a funds check against


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that summary account. To provide an accurate picture of the fundsavailable, you need to take into account:

The outstanding commitments/obligations for inventory andexpense purchases

The current value of inventory

The amounts purchased for inventory, but already issued out ofthe subinventory to either expense accounts within thedepartment (summary account) or to other departments(other summary accounts)

Funds available = Budget

less amount on open commitments/obligations (either for inventory, orfor expense accounts within the department)

less current inventory value

less value of material expensed to accounts with the department

The following example illustrates some of the transactions and their

impact on the funds available:

Summary (Department X)

SubinventoryAssetAccount x1

SubinventoryEncumbranceAccount x2

BudgetAccountxbud

DepartmentExpense xA

DepartmentExpense xB

DepartmentExpense xC

Summary (Department Y)

SubinventoryAssetAccount y1

SubinventoryEncumbranceAccount y2

BudgetAccountybud

DepartmentExpense yA

DepartmentExpense yB

DepartmentExpense yC

Requisitions and purchase orders for expense purchases willcreate commitments/obligations against expense accounts (xA,

xB, xC), decreasing the funds available for Department X

Receipt and Delivery of expense purchase orders (or invoicingfor period end accruals) will create the actuals to the departmentexpense accounts (xA, xB, xC), and reverse the encumbrance inthose same accounts

Requisitions and purchase orders for inventory purchases willcreate commitments/obligations against the encumbrance


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account (x2, y2). We use a different account than the assetaccount to ensure that we do not distort the value in the assetaccount (which should only contain the value of the material inthe given subinventory). The requisitions and purchase orderswill decrease funds available for the department.

Receipt and Delivery of inventory purchase orders will reversethe encumbrance against x2/y2 and create actuals to thesubinventory asset account, having no net impact against fundsavailable

Inventory issues from x1 to xA, xB, or xC will not be fundschecked and will have no net impact on funds available

Inventory issues from x1 to Department Y expense accounts (yA,yB, or yC) will increase Department Xs funds available anddecrease Department Ys funds available

Inventory transfers from x1 to y1 will also increase DepartmentXs funds available, and decrease Department Ys funds available.

Note: If you want to use encumbrances and budgetary controlfor inventory transfers or issues to expense accounts, you can

use internal requisitions.If you are using Period End Accruals, the encumbrance reversals arecreated with the accrual entries for the month end. You should reversethese journal entries in the beginning of the next period.

If you are accruing At Receipt, the delivery transaction reverses theencumbrances (and creates the debit to the charge account and thecredit to the receiving/inspection account).

Note: A direct receipt in purchasing performs both the debitand credit transactions.

Accrual Process for Perpetual Accruals

Use perpetual accruals for expense purchases when you want to record

uninvoiced receipt liabilities immediately upon receipt of goods.Receipts for inventory purchases are always accrued upon receipt.Other key points of perpetual accruals include:

Actual journal entries are created for the amount of the receiptliabilities, debiting the receiving inspection account and creditingthe expense accrual liability account.


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Accrual journal entries are created when you enter receivingtransactions. Purchasing creates adjusting journal entries if youcorrect your receiving transactions.

Perpetual accrual entries do not need to be reversed at the start

of a new accounting period. If you are using encumbrance accounting, purchase order

encumbrance is relieved when the goods are delivered to theirfinal destination, either by a delivery or a direct receipt.

Attention: If you accrue expense purchases at the time ofreceipt, you must reconcile the entries in the A/P accrualaccounts. In addition, if you also receive inventory, you need

to use the Receiving Value By Destination Account Report tobreak out your receiving/inspection value by asset andexpense.

Purchase Order Receipt to Receiving Inspection

When you receive material from a supplier into receiving inspection,Purchasing uses the quantity received; the purchase order price;

nonrecoverable tax if any; and, if the purchase order is in a foreigncurrency, exchange rate, to update the accrual and the receivinginspection account. (If the purchase order is in a foreign currency, theexchange rate comes from the receipt if the Invoice Match Option in thepurchase order Shipments window is Receipt and from the purchaseorder if the Invoice Match Option is Purchase Order.) The accountingentries for inventory receipts are:

Account Debit CreditReceiving Inspection account @ PO price XX

Inventory A/P Accrual account @ PO price XX

The accounting entries for expense destination receipts are:

Account Debit Credit

Receiving Inspection account @ PO price XXExpense A/P Accrual account @ PO price XX

Attention: For clarity, the accounting entries in this sectionrefer to the Inventory A/P Accrual Account and the ExpenseA/P Accrual Account. These are the accounts you typicallyuse as your purchase order distribution accrual accounts forinventory and expense destinations. You can use the Account

Generator to define the business rules you want Purchasing to


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Subinventory accounts @ standard cost XXReceiving Inspection account @ PO price XXDebit/Credit Purchase Price Variance

Delivery From Receiving Inspection to Expense Destinations

With the Receiving Transactions window, you can also move materialfrom receiving inspection to expense destinations. See: ReceivingTransactions: page 7 46.

When you enter a delivery transaction in Purchasing and move theitems to an expense location, Purchasing uses the transaction quantity;the purchase order price; nonrecoverable tax if any; and, if the purchaseorder is in a foreign currency, exchange rate, of the delivered item toupdate the receiving inspection and expense charge account. (If thepurchase order is in a foreign currency, the exchange rate comes fromthe receipt if the Invoice Match Option in the purchase order Shipments

window is Receipt and from the purchase order if the Invoice MatchOption is Purchase Order.) The accounting entries are:


PO distribution charge accounts @ PO price XXReceiving Inspection account @ PO price XX

Encumbrance @ PO price XXReserve for Encumbrance @ PO price XX

Purchase Order Receipt to Inventory

You can use the Receipts window to receive material directly from asupplier to inventory. See: Managing Receipts: page 7 23. Pleasenote that this section addresses inventory destinations only.

When you receive material from a supplier directly to inventory,

Purchasing and Inventory perform the receipt and deliverytransactions in one step.

Purchasing uses the quantity received; the purchase order price;nonrecoverable tax if any; and, if the purchase order is in a foreigncurrency, exchange rate, to update the accrual and the receivinginspection account. (If the purchase order is in a foreign currency, theexchange rate comes from the receipt if the Invoice Match Option in thepurchase order Shipments window is Receipt and from the purchase


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order if the Invoice Match Option is Purchase Order.) The accountingentries are:


Receiving Inspection account @ PO price XXInventory A/P Accrual account @ PO price XX

Inventory uses the quantity and standard cost of the received item toupdate the receiving inspection and subinventory balances. Theaccounting entries are:


Subinventory accounts @ standard cost XXReceiving Inspection account @ PO price XXDebit/Credit Purchase Price Variance

If you use average costing, the system recalculates the average cost atreceipt, and you do not have any purchase price variance.

The Inventory A/P Accrual account is the liability account that offsetsthe material accounts, and represents all inventory receipts notmatched in Payables.

Purchase Order Receipt to Expense Destinations

You can use the Receipts window to receive material directly from asupplier to the expense destination. See: Managing Receipts: page7 23. Please note this section addresses expense destinations only.

When you receive material from a supplier directly to expensedestinations, Purchasing performs the receipt and delivery transactionsin one step.

Purchasing uses the quantity received; the purchase order price;nonrecoverable tax if any; and, if the purchase order is in a foreigncurrency, exchange rate, to update the accrual and the receivinginspection account. (If the purchase order is in a foreign currency, the

exchange rate comes from the receipt if the Invoice Match Option in thepurchase order Shipments window is Receipt and from the purchaseorder if the Invoice Match Option is Purchase Order.) The accountingentries are:


Receiving Inspection account @ PO price XXExpense A/P Accrual account @ PO price XX


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Purchasing uses the quantity received; the purchase order price;nonrecoverable tax if any; and, if the purchase order is in a foreigncurrency, exchange rate, to update the receiving inspection and expenseaccounts. (If the purchase order is in a foreign currency, the exchangerate comes from the receipt if the Invoice Match Option in the purchase

order Shipments window is Receipt and from the purchase order if theInvoice Match Option is Purchase Order.) The accounting entries are:


PO distribution charge accounts @ PO price XXReceiving Inspection account @ PO price XX

Reserve for Encumbrance @ PO price XX

Encumbrance @ PO price XX

Match, Approve, and Create Accounting Entries for an Invoice

In Payables, when you are matching an invoice to a purchasingdocument, if the Invoice Match Option in the purchase orderShipments window is Purchase Order, then you match each invoicedistribution to a purchase order distribution. If the Invoice Match

Option is Receipt, then you match each invoice distribution to apurchase order distribution for the received transaction. You can setup Payables to ensure that you pay only for the quantity you received.

If you accrue at receipt, and if you use encumbrance, then during thePayables Approval process, Payables makes any encumbranceadjustments for price and exchange rate variances, includingnonrecoverable tax, between the invoice and the purchase order (or

receipt, if the invoice is matched to a receipt). Also, if yourencumbrance types are different for purchase orders and invoices, thenPayables creates appropriate entries. For details on how Payablescalculates variance amounts, see: Invoice Variances (Oracle PayablesUsers Guide). To see the accounts that Payables uses to record thevariances, see: Variance Accounts (Oracle Payables Users Guide)

When Payables records the accounting entries for the invoice, anyvariances are recorded as actuals and the encumbrances are reversed.

Payables then credits the Liability account for the full amount of theinvoice, and debits the accrual account for the remaining amount(invoice price invoice price variance exchange rate variance).

For details on how Payables accounts for purchase order matchedinvoices, refer to Release 11i Accounting in Oracle Payables. Thisdocument is available on the Oracle Payables documentation Web pageon MetaLink, which is accessible through Oracle Support Services on

the Web.


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Attention: Normally, you charge the original expense accountfor any invoice price variances. Purchasing uses the AccountGenerator to set your purchase order distribution varianceaccount to be the same as your purchase order charge account.If you want to record your invoice price variances to a separate

account, use the Account Generator to define the business rulesyou use to determine the correct invoice price varianceaccount.

Invoice Exchange Rate Variances

Note that Purchasing uses the functional currency for your set of booksin all receiving accounting entries. Purchasing converts foreigncurrency purchase order prices to the functional currency using thecurrency conversion rate from the purchase order. Payables uses thecurrency and the conversion rate of the invoice when it createsaccounting entries for the invoice. If the conversion rate differs

between the purchase order (or the receipt, if the Invoice Match Optionin the purchase order Shipments window is Receipt) and the invoice,then the conversion difference is recorded as an Exchange RateVariance. Separate accounts are defined for exchange rate gains andlosses, which record currency gains and losses within Payables, forexample, between invoice time and payment time.

Return to Supplier From Receiving

You use the Returns window to return material from receivinginspection or from inventory to a supplier. If you use receiving

inspection and you have delivered the material into inventory, youmust first return the goods to receiving before you can return to yoursupplier. For a return from inspection, Purchasing decreases thereceiving inspection balance, and reverses the accounting entry createdfor the original receipt. See: Returns: page 7 77.

Return To Supplier From Inventory or Expense Destinations

When you do not use receiving inspection, the return to suppliertransaction updates the same accounts as the direct receipt to theinventory or expense destination, with reverse transaction amounts.

PeriodEnd Reconciliation Tasks

When you use perpetual inventories, you should balance your

inventory accounts to your inventory value report. You should also


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review the general ledger journal transactions for inventory PurchasePrice Variance and A/P Accrual Accounts. You should look forpotential problems or errors such as transactions charged to the wrongaccount and duplicate transactions. This process is called theInventory Reconciliation and Period Close Review. Purchasing and

Inventory provide you with a set of reports you can use to reconcileyour transactions with your general ledger account balances quicklyand easily.

PeriodEnd Checklist

Before reconciling your transactions with your general ledger account

balances, you should perform the following steps:1. Identify the period you want to reconcile and close.

2. Enter all receiving transactions for goods and services you receivedduring the period.

3. Enter and match all invoices you received during the period foryour receipt accrual entries.

4. Perform the GL Transfer in Inventory and reconcile your InventoryPurchase Price Variance and A/P Accrual entries.

5. Identify the periodend balances of the following accounts in yourgeneral ledger:

Purchase Price Variance

A/P Accrual Account

Inventory Accounts6. Reconcile the balance of the Purchase Price Variance account using

the Purchase Price Variance Report (detailed below).

7. Identify the Invoice Price Variances amount and Accrued Receiptsamounts in the A/P Accrual Account (detailed below).

8. Manually remove the Invoice Price Variance amount from the A/PAccrual Account using your general ledger (prior release IPV only).

9. Close your accounts payable period corresponding to thepurchasing period for your receipts accrual entries. See:Controlling the Status of AP Accounting Periods, Oracle PayablesUsers Guide.

10. Perform periodend accruals steps for purchasing and onetimeitems as described in the following section.


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11. Close the period in Purchasing, (You do not need to reverse anyjournal entry batch in the following period). See: ControllingPurchasing Periods: page 1 92.

12. Close your Inventory period after review. See: Maintaining

Accounting Periods, Oracle Inventory User

s Guide.13. Close your General Ledger period after review.

Monitoring Price Variances

Purchasing provides you with reports you can use to review the

purchase and invoice price variances. You should run the PurchasePrice Variance Report weekly to review the accuracy of standard costsand purchase price variance. The Purchase Price Variance Report isalso a good indicator of buyer s performance. However, you shouldmake sure to include in your analysis any fluctuation of market prices

beyond buyer control or changes in standard costs. At the end of aperiod, you should run the Purchase Price Variance Report for theentire period. See: Purchase Price Variance Report: page 9 99.

You should run the Invoice Price Variance Report monthly to reviewthe accuracy of standard costs and purchase order prices. The InvoicePrice Variance Report is also a good indicator of buyers performance.However, you should make sure to include in your analysis any pricingfluctuations beyond buyer control.

You can sort the Invoice Price Variance Report by Category or Supplier,and you can restrict your report to invoice price variances for a specific

Category, Supplier, or Period Name.

At the end of a period, you should run the Invoice Price VarianceReport for this period. Identify the invoice price variance for allpurchase orders charged to the Inventory A/P Accrual Account andcompare it with the balance of the Invoice Price Variance account inyour general ledger. See: Invoice Price Variance Report: page 9 47.

Reconciling A/P Accrual Accounts Balance

At any given time, the balance of the A/P accrual accounts can accountfor the following transactions:

Uninvoiced Receipts

Over

invoiced Receipts


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Errors (Invoices or inventory transactions charged to thisAccount by mistake)

You need to analyze the balance of the A/P accrual accounts,distinguish accrued receipts from invoice price variances, and identify

errors.

Analyzing the A/P Accrual Account Balance

You need to monitor potential problems with purchasing and receivingactivities that can affect the accuracy of your A/P accrual accounts.You can use the Accrual Reconciliation Report to identify the followingproblems in receiving, purchasing, inventory, work in process, or

accounts payable transactions:

Quantities differ between receipts and invoices

Incorrect purchase order or invoice unit prices (previous releasesonly)

Discrepancies in supplier billing

Invoice matched to the wrong purchase order distribution (or for

receiptmatched invoices, the wrong purchase order distributionfor the receipt transaction)

Received against the wrong purchase order or order line

Miscellaneous inventory or work in process transactions that donot belong to the accrual accounts

Payables entries for tax and freight that do not belong to the

accrual accounts

Using the Accrual Reconciliation Report

Use the Accrual Reconciliation Report to analyze the balance of theAccounts Payable (A/P) accrual accounts. To submit this report, youmust have Purchasing and Payables installed. You can accrue bothexpense and inventory purchases as you receive them. When this

happens, you temporarily record an accounts payable liability to yourExpense or Inventory A/P accrual accounts. When Payables createsaccounting entries for the invoice, Payables clears the A/P accrualaccounts and records the liability from the supplier site. See: AccrualReconciliation Report: page 9 5.

Typically, you run this report at month end. After you have enteredyour receipt transactions and matched your invoices, you can run the

Accrual Reconciliation Report for any transaction date range and


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identify any differences between your PO Receipts and A/P Invoices.This report also displays any miscellaneous transactions recorded inerror to your accrual accounts. These miscellaneous transactions ortransactions unrelated to purchase order receipts may be fromPayables, Inventory, or Work in Process (depending on your

installation). After you have researched the reported accrual balances,you can use the Accrual WriteOff form to indicate which entries youwish to remove and write off from this report. And, after you havewritten off these entries, you can use the Accrual WriteOff Report assupporting detail for your manual journal entry.

Resolving Quantity Differences

The Accrual Reconciliation Report lets you easily identify quantitydifferences (i.e., when the quantity received for a purchase ordershipment is smaller than the quantity invoiced). Such differences leaveresidual balances that never clear from the A/P accrual accounts. Youshould investigate the cause of these differences and take correctiveactions before closing your period.

Common causes of quantity differences include late inventory receipts,

incorrect receipt quantities, and supplier overbilling. To correct latereceipts, ensure that receivers enter all receipts into inventory. Tocorrect receipt quantities, enter receipt corrections. To correctoverbilling errors, follow your standard procedure for supplier debitmemos to clear the difference.

Resolving Price Differences

The Accrual Reconciliation Report lets you determine how much youshould have paid and whether the PO or invoice is correct. Suchdifferences leave residual balances that never clear from the A/Paccrual accounts. You should investigate the cause of these differencesand take corrective actions before closing your period.

Accrual Process for PeriodEnd Accruals

Key points for accruing expense purchases at periodend include:

You record the total uninvoiced receipt liabilities accrued duringthe accounting period.

Actual journal entries are created for the amount of the receiptliabilities, debiting the charge account and crediting the PO


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distribution accrual account (normally the Expense A/P AccrualAccount defined in the Define Purchasing Options form).

You reverse accrual journal entries manually at the start of thenew accounting period.

If you are using encumbrance accounting, purchase orderencumbrance is relieved when the invoice(s) matched to thepurchase order are posted to the general ledger.

Receiving Transactions

Purchasing does not record any accounting entries for expense during areceiving transaction if you use periodend accruals. You record all ofyour uninvoiced liabilities at month end using the Receipt Accruals PeriodEnd process. See: Receipt Accruals Period End Process: page9 118.

Receipts AccrualsPeriod End

Use the Receipt Accruals Period End process to create periodend

accruals for your uninvoiced receipts for expense distributions.Purchasing creates an accrual journal entry in your general ledger foreach uninvoiced receipt you choose using this form. If you useencumbrance or budgetary control, Purchasing reverses yourencumbrance entry when creating the corresponding accrual entry.

Purchasing never accrues an uninvoiced receipt twice. Each time youcreate accrual entries for a specific uninvoiced receipt, Purchasingmarks this receipt as accrued and ignores it the next time you run theReceipt Accrual PeriodEnd process. Purchasing creates accrualentries only up to the quantity the supplier did not invoice for partiallyinvoiced receipts.

Purchasing creates the following accounting entries for eachdistribution you accrue using the Receipt Accruals PeriodEndprocess:

Account Debit CreditPO charge account @ Uninvoiced Quantity x POunit Price

XX

Expense A/P accrual account @ UninvoicedQuantity x PO price

XX

As soon as you open the next period, Purchasing reverses the accrualentries using the following accounting entries:


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Expense A/P accrual account @ UninvoicedQuantity x PO unit price

XX

PO charge account @ Uninvoiced Quantity xPO Price

XX

Note: Purchasing adds nonrecoverable tax, if any, to the unit price andincludes the exchange rate if the purchase order is in a foreign currency.The exchange rate comes from the receipt if the Invoice Match Optionin the purchase order Shipments window is Receipt, from the purchaseorder if the Invoice Match Option is Purchase Order.

Match, Approve, and Create Accounting Entries for an InvoiceWhen you enter an invoice in Payables, you match each invoicedistribution to a specific purchase order distribution or to a purchaseorder distribution for a receipt transaction in Purchasing. You can setup Payables to ensure that you pay only for the quantity you received.If you accrue your uninvoiced receipts at periodend, Payables recordsthe expense transactions part of the accounting transactions.

For details on how Payables accounts for purchase order matchedinvoices, refer to Release 11i Accounting in Oracle Payables. Thisdocument is available on the Oracle Payables documentation Web pageon MetaLink, which is accessible through Oracle Support Services onthe Web.

Attention: Normally, you charge the original expense accountfor any invoice price variances, so your PO distribution

variance account is the same as the PO distribution chargeaccount. You do not record invoice price variances for expensepurchases. Purchasing uses the Account Generator to set yourpurchase order distribution variance account to be the same asyour purchase order charge account. If you want to recordyour invoice price variances to a separate account, use theAccount Generator to define the business rules you use todetermine the correct invoice price variance account.

Complete Period Transactions

If you use encumbrance or budgetary control, Purchasing createsencumbrance journal entries in your general ledger each time youapprove a purchase order. Similar to accrual journal entries,encumbrance journal entries recognize a liability towards your supplier

before any invoicing transactions occur. Unlike accrual journal entries,


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process will not pick up invoices entered after the accruals processis run for the period.

5. For periodend accruals of expense purchases, run the UninvoicedReceipts Report. Use this report to analyze your uninvoicedreceipts. The Uninvoiced Receipts Report lets you use the sameselection criteria for your uninvoiced receipts as the ReceiptAccruals PeriodEnd process. You always know exactly whatyou accrue and for what amount.

6. For periodend accruals of expense purchases, use the ReceiptAccruals PeriodEnd process as many times as you need. Youcan use the search criteria to choose what you want to accrue andaccrue your receipts step by step. You create accruals for a specific

purchasing period. Purchasing automatically accrues alluninvoiced receipts your entered up to the end of the accrualperiod you specify. See: Receipt Accruals Period End Process:page 9 118.

Each time you use the Receipt Accruals PeriodEnd process,Purchasing creates an unposted journal entries batch in yourgeneral ledger for your receipt accruals. If you are using

encumbrance, Purchasing creates another journal entries batch inyour general ledger corresponding to the encumbrance reversalentries for the uninvoiced receipts you accrued.

Purchasing never accrues your uninvoiced receipt twice. Each timeyou create accrual entries for a specific uninvoiced receipt,Purchasing marks this receipt as accrued and ignores it the nexttime you use the Receipt Accruals PeriodEnd process.Purchasing creates accrual entries only up to the quantity your

supplier did not invoice for your partially invoiced receipts.

7. Post Accrual and Encumbrance Reversal journal entry batches inyour general ledger. (See the following section to identify Accrualand Encumbrance Reversal journal entry batches.)

8. Perform all the steps you need to close your accounting period andgenerate your periodend reports and financial statements in yourgeneral ledger.

9. Use your general ledger system to reverse all the receipt accrualand encumbrance reversal batches you created for your periodendaccruals.

10. Close the purchasing period for your receipt accruals. When youclose a purchasing period, Purchasing automatically unmarks allthe receipts you previously accrued to make sure you can accrue

h f h ll d h d


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these receipts again if they are still uninvoiced in the next period.See: Uninvoiced Receipts Report: page 9 169.

Identifying Journal Entry Batches in General Ledger

Purchasing creates accrual journal entries in your general ledger whenyou accrue receipts. If you use encumbrance, Purchasing also createsencumbrance reversal journal entries corresponding to the receipts youaccrued. Purchasing automatically names journal entry batches,headers, and lines for you. The names Purchasing uses to create

batches are the following:

PeriodEnd Accruals

Purchasing creates one batch each time you run the Receipt Accruals PeriodEnd process. Purchasing creates one header for each purchaseorder you accrue. See: Receipt Accruals Period End Process: page9 118.

Journal Entry Batches

Batch Name: PO/Accruals/[current date and time]/Batch:[JE_BATCH_ID of the Accruals Batch]

Batch Type: Actual

Batch Status: Unposted

Period: [Accrual Period]

Debits: [Sum of all debits for all headers]

Credits: [Sum of all credits for all headers]

Journal Entry Headers

Header Name: Accrue/PO [PO NumberRelease Number]

Category: Accrual

Source: Purchasing

Currency: [PO Currency]

Reverse: Yes

Reverse to Period: [Next Period]

Debits: [Sum of all debits for all lines]

C dit [S f ll dit f ll li ]


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Credits: [Sum of all credits for all lines]

Purchasing creates two types of journal entry lines for each accruedreceipt:

Distribution Lines (one for each distribution of an accrued

purchase order line)

Accrued Receipt Lines (one for each accrued purchase order line)

Purchasing creates one line for each purchase order distribution youaccrued on the purchase order. Purchasing charges each line to thecharge account on the purchase order distribution. Purchasingcomputes the accrual amount by prorating the quantity accrued for thepurchase order shipment of the distribution to the quantity ordered on

the distribution.

Purchasing creates one journal entry line charged to the PO distributionaccrual account (normally the expense A/P accrual account). This linecorresponds to the amount accrued for a purchase order. The amountaccrued for a purchase order equals the sum of all uninvoiced receiptsfor this purchase order multiplied by the price for the correspondingpurchase order shipments. The accrued receipt journal entry line

balances all the distribution journal entry lines.

Distribution Journal Entry Lines

Account: [Charge Account for PO Distribution]

Amount: [Shipment Price x Quantity Received for Shipment xQuantity Ordered on Distribution/Quantity Ordered onShipment]

Dr/Cr: Dr

Description: Purchase Order Line Description

Accrued Receipt Journal Entry Lines

Account: [Accrual Account for PO Distribution]

Amount: [Sum of all amounts for Distributions Journal EntryLines for the same Header]

Dr/Cr: Dr

Description: Accrued Liability Account

Encumbrance Reversal


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Encumbrance Reversal

Purchasing creates one batch each time you use the Receipt Accruals PeriodEnd process if you use encumbrance.

Note that Encumbrance Journal Entry Batches are unbalanced in

General Ledger. General Ledger automatically offsets the Reserve forEncumbrance account with the balance of your encumbrance batch.You set up your Reserve for Encumbrance account when defining yourset of books. See: Defining Sets of Books, Oracle General Ledger UsersGuide.

Purchasing creates one header for each purchase order you accrue.

Journal Entry Batches Batch Name: PO/Accruals/[current date and time]/Batch:

[JE_BATCH_ID of the Encumbrance Batch]

Batch Type: Encumbrance

Batch Status: Unposted

Period: [Accrual Period]

Debits: 0.00

Credits: [Sum of all credits for all headers]

Journal Entry Headers

Header Name: Rev Enc/PO [PO NumberRelease Number]

Category: Purchases

Source: Purchasing

Encumbrance Type: Obligation

Currency: [PO Currency]

Reverse: Yes

Reverse to Period: [Next Period]

Debits: 0.00 Credits: [Sum of all credits for all lines]

Purchasing creates one line for each purchase order distribution youaccrued on the purchase order. Purchasing charges each line to theaccount on the purchase order distribution. Purchasing computes theline amount by prorating the quantity accrued for the purchase ordershipment of the distribution to the quantity ordered on the distribution.



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Account: [Charge Account for PO Distribution]

Amount: [Shipment Price x Quantity Received for Shipment xQuantity Ordered on Distribution/Quantity Ordered on

Shipment] Dr/Cr: Cr

Description: Purchase Order Line Description

Accrual Writeoffs

If you choose the Perpetual Accrual Method within Purchasing,Purchasing records an accounts payable liability to an AP accrualaccount for goods received but not invoiced. When Payables matchesand approves the invoice for the received goods, Payables clears theaccounts payable accrual account and records the actual liabilityamount to the invoice accounts payable liability account.

After you have entered your receipt transactions and matched andapproved your invoices, you can run the Accrual Reconciliation Reportto identify any differences between your Purchasing receipts andPayables invoices. With this report, you can identify the followingproblems with receiving, purchasing, inventory, work in process, oraccounts payable transactions:

Quantities differ between receipts and invoices

Incorrect purchase order or invoice unit prices (previous releasesonly)

Discrepancies in supplier billing

Accounts Payable clerk matched an invoice to the wrongpurchase order or purchase order line or the wrong receipt orreceipt line

Receiving clerk received against the wrong purchase order or

wrong purchase order line Miscellaneous inventory or work in process transactions that do

not belong to the accrual accounts

Payables entries for sales tax and freight that do not belong tothe accrual accounts

After you have researched the reported accrual balances, you can usethe Accrual WriteOffs window to indicate which entries you wish to

write off and remove from the Accrual Reconciliation Report. Submit


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write off and remove from the Accrual Reconciliation Report. Submitthe Accrual Write Off Report, which lists the transactions you markedin the Accrual WriteOffs window, and use it to support a manual

journal entry to write off listed transactions.

Writing Off Accrual Transactions

Prerequisites:

Payables and Purchasing are installed.

Define your transactions reasons in Inventorys Transaction

Reasons window. This gives you a means of classifying yourwriteoffs so you can record them in separate accounts when yourecord a manual journal entry to write off these transactions. TheAccrual Write Off Report provides a summary by transactionreason. See: Defining Transaction Reasons, Oracle Inventory UsersGuide.

If you use Inventory and Work in Process, transfer to your generalledger transactions from these two sources.

Transfer your Payables invoices to your general ledger. See:Payables Transfer to General Ledger Program, Oracle PayablesUsers Guide.

" To write off a transaction from an accrual account:

1. Submit the Accrual Reconciliation Report. Review this report and

identify the transactions you want to write off. See: AccrualReconciliation Report: page 9 5.

2. Select Accrual WriteOffs from the menu. Enter search criteria inthe WriteOff Search Criteria region to find the transactions youwant to write off:

Enter the Source:

AP. Payables.

INV. Inventory.

PO. Purchasing.

WIP. Work in Progress.

You can optionally enter the following additional search criteria:Account number, Item number, item Description, PO Number,Document Order Line, Document Number, Document Line,

Destination Type, Quantity, and a date range. You can also


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yp , Q y, grestrict the search to include written off transactions andtransactions matched to a purchase order.

3. Choose Find to initiate the search and display the results in theWriteOff Transactions region.

4. Select the transactions that you want to write off. Enter a Write OffDate that is in the same accounting period as the journal entry youwill prepare to write off selected transactions.

5. Save your work. Transactions that you selected to write off in thiswindow will no longer appear on the Accrual ReconciliationReport. They will appear on the Accrual Write Off Report, which isused to support your manual journal entry.

6. Submit the Accrual Write Off Report. See: Accrual WriteOffReport: page 9 13.

7. Using the Accrual Writeoff Report as support, prepare a manualjournal entry for the transactions you wish to write off. Optionallyprepare a journal entry line for each transaction reason.

See Also

Defining Accrual Options: page 1 47

Setting Up Inventory Accruals: page 7 104

Defining Purchase Order Receipt Accruals: page 7 130

Overview of Receipt Accounting: page 7 101

Reconciling A/P Accrual Accounts Balance: page 7 117

Accrual Process for Perpetual Accruals: page 7 109

Automatic Offsets in Oracle Purchasing


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Automatic Offsets in Oracle Purchasing

Receipt Accruals

The default Account Generator configuration in Oracle Purchasingbuilds a charge, budget, accrual, and variance account for eachpurchase order, release, and requisition distribution based on thedistributions Expense, or Inventory, destination type. OraclePurchasing always builds these accounts using the Account Generator;you cannot disable this feature.

To populate the Accrual account for distributions with an Expensedestination type, the Account Generator locates the Expense AP

Accrual Account that you specify in Define Purchasing Options as partof your application setup and copies it into the Accrual Account inyour document. The Account Generator then overlays the balancingsegment of the AP Accrual Account with the balancing segment of thecharge account so that your transactions always balance by fund.

Defining Purchase Order Receipt Accruals

You can create balanced offsets for receipt accrual accounts in OraclePurchasing by customizing the default configuration of the AccountGenerator to overlay the balancing segment of the AP Accrual Accountwith the balancing segment of the charge account so that yourtransactions always balance by balancing segment.

Prerequisites

Establish your Chart of Accounts. See: Defining Your Chart ofAccounts, Oracle General Ledger Users Guide

See Prerequisites to Using the Account Generator in: Decide HowTo Use the Account Generator: page C 9.

" To build Purchase Order Receipt Accrual Accounts:

1. Use the same Chart of Accounts you used to build the purchaseorder charge accounts by balancing segment, substituting thereceipt accrual liability account for the expense account.

The Account Generator function is called from the Purchase Orderswindow to automatically create the receipt accrual liability

accounts by balancing segment on each purchase order


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distribution.

Attention: Use the same balancing segment for the charge accountand the receipt accrual account so the receipt transactions will

balance by balancing segment.

2. Customize your Account Generator process. See: Customizing theAccount Generator for Oracle Purchasing: page C 16.

See Also

Automatic Offsets in Oracle Purchasing: page 7 130

Defining Purchase Order Receipt Accruals: page 7 130

Defining Transaction Reasons, Oracle Inventory Users Guide

Accrual Reconciliation Report: page 9 5

Accrual Write Off Report: page 9 13

Overview of Receipt Accounting: page 7 101

Overview of Receipt Accounting_UG.pdf

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