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 items 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 POcost)


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 POcost)

(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