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Key accounts – P2P Cycle

Here are some of the key accounts used in P2P(Procure to Pay) Cycle.

RECEIVING INVENTORY ACCOUNT

This is one of the clearing account.

The account is used for receipt accruals.

After receiving transactions are processed and the Transfer Transactions to GL process is run, the Receiving Inventory Account is cleared and the Material account is charged with the cost of the capitalized inventory .

You can specify this account when you define Receiving Information for your inventory organizations.

INVENTORY AP ACCRUAL

This is the account used by Purchasing to accrue your payable liabilities when you receive items you will capitalize as inventory.

This account represents your uninvoiced receipt liability and is usually part of your Accounts Payable Liabilities in the balance sheet.

Oracle payables relieves this account when the invoice is matched and validated.

So, you have to specify this account when you define Inventory Information for your inventory organizations in the Other Accounts tab.

AP LIABILITY ACCOUNT

This account defaults from the supplier site and is credited when a standard invoice is entered or debited when a credit memo or debit memo is entered. The account is relieved when the invoice is paid.

When you are creating an invoice, the liability account will get defaulted based on the hierarchy i.e., it can be from Financial options/Supplier /Supplier site.However you will still have an option to modify the Liability account by replacing the defaulted account.

(0r) do you see a different account getting defaulted during Invoice creation

EXPENSE AP ACCRUAL

This is the account used by Purchasing to accrue your payable liabilities when you receive items you will expense. This account represents your uninvoiced receipt liability when you run the Receipt Accruals - Period End process.

When you receive the goods,the accounting entry will be
Receiving Inv Dr
To Expense Accrual Cr

In Payables

Expense Accrual Dr
To Liability Cr.

So the Expense Accrual will knock-off

You can specify this account on the Accrual tab when you set up Purchasing Options.

MATERIAL ACCOUNT

An asset account is used for to tracks material cost .

In the average costing, this account holds your inventory and in transit values. Once you perform transactions, you cannot change this account.

You can specify this account when you define Inventory Information for your inventory organizations in the Valuation Accounts region for the Costing Information tab.

CHARGE ACCOUNT

This is the charge account is the account that will be charged for the purchase on either the balance sheet or income statement.

  • If the destination type for the distribution is Inventory, this account will be the Material account associated with the subinventory and you cannot override it. This is the balance sheet account that will be charged after inventory is capitalized.
  • If the destination type is expense, you can specify this account (provided it isn’t project related) and override any defaults. This account will be either an asset clearing account that will be included on the balance sheet or an expense account that will be included on the income statement. This account is either created or specified when you create a purchase order.

Look at the Material Account on the destination inventory organization, or (if specified), destination subinventory.
Under Inventory: Setup/Organizations/Parameters or Sub inventories

PURCHASE PRICE VARIANCE

This account is used to record differences between purchase order line price and standard cost.

The Purchase Price Variance is calculated when items delivered to inventory are costed.

You should note, this account is not used with the average cost method.

For example, assume the purchase order line price for an item was set at $100 per item but standard cost was set to $120 per item and you purchased 10 items. The Purchase Price Variance would be $200.

You can specify the Purchase Price Variance account when you define Inventory Information for your inventory organizations in the Other Accounts tab.

INVOICE PRICE VARIANCE

The variance account used to record differences between purchase order price and invoice price.

This account is used by Payables to record the invoice price variance for inventory items.

For expense items, the account generator uses the charge account to record any invoice price variance.

You can understand with this set of example, how its works;

1). Create a purchase order with expense type item having the above
Navigation: Purchasing->Purchase Orders->Purchase Orders

2). Receive the goods for this PO.
Navigation: Purchasing->Receiving->Receipts

3). Login as Payables manager, create an invoice and match it to the PO created in step 1.
Navigation:Payables->Invoices->Entry-Invoices

for example

PO Quantity=100
PO Price = 5

Now you match an invoice to the PO and Invoice(match) details are as follows:
Matched Quantity=100
Price on Invoice= 1

in this case, probably you have set the Invoice price variance account in define Organization Parameters form( alternate region: other accounts) same as the expense account on the PO

Invoice Price Variance= (PO Price - Invoice Price) x Qty. Invoiced

You can specify this account when you define Inventory Information for your inventory organizations in the Other Accounts tab.

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7 Comments (Open | Close)

7 Comments To "Key accounts – P2P Cycle"

#1 Comment By Sunil On March 24, 2008 @ 4:36 am

Thanks for the wonderful explanation.

-Sunil

#2 Comment By Syed Iftikhar Ahmed On April 13, 2008 @ 4:31 am

Very nice effort.

#3 Comment By Venkat On April 23, 2008 @ 10:19 am

Altruistic Service Anand…BoL

#4 Comment By Zizi On August 21, 2008 @ 10:16 pm

Hello there,
Can you plz tell me about the distributions involved in inventory expense transfer to GL.And also the implication if the costing system is changed.
thankx,
Zi

#5 Comment By Manohar On October 21, 2008 @ 10:01 pm

if you could explain more on this account location or navigator in Ap or INV module.

Very much helpfull for us

#6 Comment By Venki On January 26, 2011 @ 5:39 pm

Thank you very much for a veru informative article

#7 Comment By Khaled On August 3, 2011 @ 4:24 pm

This clears my doubts…

Thanks for a wonderfull Explanaiton…