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

Receiving inspection account @ PO price

xx

Inventory A/P Accrual account @ PO

price
(for receiving Inventory Items)
Receiving inspection account @ PO price
Expense A/P Accrual account @ PO
price
(for receiving expense items)

Credit

xx

xx
xx

Source

At Define Organization/
Receiving Options
At Organization
Parameters

At Define Organizations
At Define Purchasing
Options

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

Sub-inventory accounts @ Std. Cost

Source
xx

Receiving Inspection account @ PO price

At Define Sub-inventory
xx

nt (Negative Expense)

At Define Organization

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
Sub-inventory accounts @ Std. Cost
nt (Positive Expense)
Receiving Inspection account @ PO price

xx

Debit

Credit

Source

xx

At Define Sub-inventory

xx

Define Organization
Parameters
At Define Organization/ Define
Receiving Options

xx

(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

Receiving inspection account @ PO price

Source
xx

Inventory A/P Accrual account @ PO price

At Define Organization/ Define

Receiving Options
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

Sub-inventory accounts @ PO price

Source
xx

Receiving Inspection account @ PO price

At Define Sub-inventory
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

Inter-Org Receivable account

@ Purchase order cost + actual Landed cost

Source
xx

Sub-inventory Material account

xx
@ Purchase order Cost
Inter-Org transfer charges account
xx
@ Amount of actual Landed cost
E). Delivery from Receiving Inspection to Expense. Recorder at
transferred from Receiving Inspection to Expense Destination

At Define Inter-Org transfers

Networks
At Define Sub-inventories /
Define Organisation
At Define Inter-Org transfers
Networks
the time, when the goods are

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

PO distribution charge accounts @ PO price

Source
xx

@ PO price

At individual item level

xx

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

Receiving inspection account @ PO price

Source
xx

Inventory A/P Accrual account @ PO price

At Define Organisation/
Receiving Options
xx

At Organisation Parameters

(for receiving Inventory Items)

Case # 1
Sub-inventory accounts @ Std. Cost

xx

Receiving Inspection account @ PO price

nt (Negative Expense)

At Define Sub-inventory
xx

At Define Organisation

xx

Define Organisation
Parameters

(Delivered into inventory when the Std.cost

is more than the PO price)
Case # 2
Sub-inventory accounts @ Std. Cost
nt (Positive Expense)
Receiving Inspection account @ PO price

xx

At Define Sub-inventory

xx

Define Organisation
Parameters
At Define Organisation/ Define
Receiving Options

xx

(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

Receiving inspection account @ PO price

Source
xx

Inventory A/P Accrual account @ PO price

At Define Organisation/
Receiving Options
xx

At Organisation Parameters

(for receiving Inventory Items)

Sub-inventory accounts @ PO price

xx

Receiving Inspection account @ PO price

At Define Sub-inventory
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

Receiving inspection account @ PO price

Source
xx

Expense account @ PO price

At Define Organisation/ Define

Receiving Options
xx

At Define Items

(for receiving expense items)

PO distribution charge account @ PO price
Receiving inspection account @ PO price

xx

From Purchase Order

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

Receiving inspection account @ PO price

At Organisation Parameters
xx

At Define Organisation/
Receiving Options

(for returning Inventory Items)

Expense A/P Accrual account @ PO price

xx

Receiving inspection account @ PO price

At Define Purchasing Options

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

Step#1: When you return goods from inventory

to receiving location
Receiving Inspection account @ PO price

Source

Sub inventory accounts @ Std. Price

xx

At Define Organisation/ Define

Receiving parameters
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
Receiving inspection account @ PO price

xx

xx

At Organisation Parameters
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
Purchase Price Variance

xx
xx

Sub inventory accounts @ Std. Price

(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

At Define Organisation/ Define

Receiving parameters
At Define Org. Parameters
Xx

Xx

Receiving inspection account @ PO price

At Define Sub-inventory

At Organisation Parameters
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
Sub inventory accounts @ Std. Price

xx

At Define Organisation/ Define

Receiving parameters
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
Receiving inspection account @ PO price

xx

xx

At Organisation Parameters
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

Purchase Price Variance

xx

Sub inventory accounts @ Std. Price

(for reversing the entry that is made when
the items are received & delivered directly)
Inventory A/P Accrual account @ PO price

At Define Organization/ Define

Receiving parameters
At Define Org. Parameters
Xx

Xx

Receiving inspection account @ PO price

At Define Sub-inventory

At Organization Parameters
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

Inventory AP Accrual account @ PO price

Xx

Invoice Price Variance account

@ Invoice quantity * (Invoice price - PO price)

Xx

AP liability account @ Invoice price * Invoice

qty

Credit

Source
Comes from Purchase Order /
and Entered in the
Distributions
At Define Org. Parameters

xx

At individual Define Suppliers

When the Invoice Price is less than the Purchase order Price
Accounting Entry

Debit

Inventory AP Accrual account @ PO price

Credit

xx

AP liability account @ Invoice price * Invoice

qty
Invoice Price Variance account
@ Invoice quantity * (Invoice price PO price)

Source

Xx

Comes from Purchase Order /

and Entered in the
Distributions
At individual Define Suppliers

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

Inventory AP Accrual account @ Actual costs

Source
xx

AP liability account @ Invoice price

Xx

Comes from Purchase Order /

and Entered in the
Distributions
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

Landed Cost Clearing Account

@ the actual landed cost

xx

Comes from Purchase Order /

and Entered in the
Distributions

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

AP liability account @ Amount paid

Source
xx

Bank account @ Amount paid

xx

Comes from Purchase Order /

and Entered in the
Distributions
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

AP liability account @ Amount of credit note

Source
xx

@ Amount of credit note

xx

At individual Define Banks/

and comes from the related
invoice
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

AP liability account
@ (Invoice Amount Credit/Debit note amount)
t
Debit note amount)

Source
xx

xx

At individual Define Banks/

and comes from the related
invoice
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

Prepayment to Suppliers account

@ Amount of Prepayment paid
redit note

Source
xx

At individual Define Suppliers

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

Inventory AP Accrual account @ PO price

Credit

xx

AP liability account @ Invoice price * Invoice

qty

xx

Source
Comes from Purchase Order /
and Entered in the
Distributions
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

AP liability account
@ (Prepayment amount applied)

Source
xx

count
plied)

xx

At individual Define Banks/

and comes from the related
invoice
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

AP liability account
@ (Invoice amount Prepayment amount)
Bank account @ Amount paid

Source
xx
xx

Comes from Purchase Order /

and Entered in the
Distributions
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

Advances to Employee account

@ Amount of advance paid
dvance

Source
xx
xx

At individual Define
Employees as Suppliers
At individual Define Banks

Step-2: When you receive Expense report from the employee, an invoice is booked from it.
Accounting Entry

Debit

Expense account @ Expense cost

Credit

xx

AP liability account @ Expense cost

xx

Source
Comes from Define Expense
Reports
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
AP liability account
@ (Advance amount applied)
count
d)

Debit

Credit

Source
xx
xx

Comes from the invoice to

which the advance is applied
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

Advances to Employees account

mployee)
AP liability account
@ (Amount to be paid by the employee)

Source
xx
xx

Has to be given manually

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

AP liability account
@ (Remaining advance amount applied)
count
ount applied)

Source
xx
xx

Comes from the invoice to

which the advance is applied
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

Bank account
mployee)
Advances to Employees account
mployee)

Source
xx
xx

Comes from Payment

methods
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)
Bank account
mployee)

xx

xx

At individual Define
Employees defined as
Suppliers
Comes from Payment
methods