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Some time back one of my reader asked to provide accounting details information that take place in accrual accounting, so here to go:
Lets try to understand the accounting details with these entry:
PO Cost SGD 200
Invoice Price SGD 200
Payment Rate SGD 200
Enter purchase order
When you enter a purchase order, accounts are created and stored with the purchase order distribution. The accounts will eventually be used as a basis for creating accounting that is sent to the general ledger. Creating a purchase order in and of itself generates no accounting that is sent to the general ledger.
When you process a receipt, no accounting is created for period end accruals. Receipts that are accrued at period end will always be for a destination type of expense.
Deliver and cost
When you deliver a receipt to its final destination, no accounting is created. The expense will be recorded after matching to the purchase order, running the Payables Accounting process and subsequently running the Payables Transfer to General Ledger process.
Period end accrual
If an invoice is not entered by period end, the Receipt Accruals - Period End process will generate accruals and transfer the accounting for them to the GL Interface. Use the Journal Import program to create unposted journals. This journal is created with a reversal date in a subsequent period. The journal must be reversed so your receipt liability is not overstated.
Reverse accrual in the general ledger
In the subsequent period, reverse the prior period accrual.
Invoice and match
Entering an invoice and matching creates a debit to the Inventory AP Accrual account to clear the liability for the uninvoiced receipt (you now have an invoice).
The entire credit is to the AP Liability account that defaults from the supplier site if the invoice unit price is the same as the purchase order line unit price. Any difference is charged to the Invoice Price Variance account.
For items with destination type of Expense, the Invoice Price Variance account will be the same as the charge account. The AP Liability account is cleared when a payment is processed.