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 item’s 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 xx At Organization
price Parameters
(for receiving Inventory Items)

Receiving inspection account @ PO price xx At Define Organizations

Expense A/P Accrual account @ PO xx At Define Purchasing
price 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
nt (Negative Expense) xx 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
nt (Positive Expense) xx 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 xx At Define Inter-Org transfers
@ Purchase order cost + actual Landed cost Networks
Sub-inventory Material account xx At Define Sub-inventories /
@ Purchase order Cost Define Organisation
Inter-Org transfer charges account xx At Define Inter-Org transfers
@ Amount of actual Landed cost 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
@ PO price 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 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
nt (Negative Expense) xx 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
nt (Positive Expense) xx 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 Xx At Define Org. Parameters
@ Invoice quantity * (Invoice price - PO price)
AP liability account @ Invoice price * Invoice xx At individual Define Suppliers
qty
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 Xx At individual Define Suppliers
qty
Invoice Price Variance account Xx At Define Org. Parameters
@ Invoice quantity * (Invoice price -
PO price)

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 xx
@ the actual landed cost
 AP liability account @ Invoice price * Invoice Xx At individual Define Suppliers
qty

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
@ 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 xx At individual Define Banks/
@ (Invoice Amount – Credit/Debit note amount) and comes from the related
invoice
t xx Comes from Purchase Order /
Debit note amount) 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 xx At individual Define Suppliers
@ Amount of Prepayment paid
redit 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 xx At individual Define Suppliers
qty

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 xx At individual Define Banks/
@ (Prepayment amount applied) and comes from the related
invoice
count xx Comes from Define suppliers /
plied) 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 xx Comes from Purchase Order /
@ (Invoice amount – Prepayment amount) 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 xx At individual Define
@ Amount of advance paid Employees as Suppliers
dvance 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 xx Comes from the invoice to
@ (Advance amount applied) which the advance is applied
count xx Comes from Define suppliers /
d) 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 xx Has to be given manually
mployee)
AP liability account xx Comes from Define suppliers /
@ (Amount to be paid by the employee) 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 xx Comes from the invoice to
@ (Remaining advance amount applied) which the advance is applied
count xx Comes from Define suppliers /
ount applied) 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 xx Comes from Payment
mployee) methods
Advances to Employees account xx At Define Receivables
mployee) 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 xx At individual Define
@ (Amount to be paid to employee) Employees defined as
Suppliers
Bank account xx Comes from Payment
mployee) methods