Overview of Receipt Accounting
Inventory and Purchasing provide you with visibility and control of your accrued liabilities for inventory items. Purchasing automatically records the accrued liability for your inventory items at the time of receipt as perpetual accruals. This transaction is automatically recorded in your general ledger at the time of receipt. The inventory expense is recorded at delivery if you use Standard Delivery and at receipt if you use Direct Delivery. You have options to determine whether Purchasing and Inventory reverse encumbrances. The option used is dependent on how you compare encumbrance to budget balances in inventory for your organization.
Expense Period-End Accruals
Purchasing optionally accrues uninvoiced receipts of non-inventory items when you close a period. You can choose which uninvoiced receipts are accrued. Purchasing automatically creates a balanced journal entry for each receipt uninvoiced at period end which can be reversed at the beginning of the next period. Purchasing creates a reversing entry for the encumbered amount corresponding to the expense while creating an accrual entry for the receipt in the general ledger if you are using encumbrance at your site.
Attention: When using Cash Basis Accounting, you will not normally run the Receipt Accrual - Period End process. However, you must use the Purchasing Options window and set the Accrue Expense Items flag to Period End. See: Receipt Accruals - Period End Process.
Expense Perpetual Accruals
Purchasing optionally provides you with the ability to accrue non-inventory liabilities at the time of receipt. If you choose at time of receipt, Purchasing records an accrued liability and charges your receiving inspection account for each non-inventory receipt. This transaction is automatically recorded in your general ledger at the time of receipt. Purchasing creates a reversing entry for the encumbered amount at the time you deliver the goods to the final inventory or expense destination. Payables automatically recognizes the accrual and encumbrance reversal on receipt, not at invoice posting time.
Purchase Price Variance
Purchasing and Inventory provide you with visibility and control of your purchase price variances. When you use standard costing, Purchasing and Inventory automatically calculate and record purchase price variances as you receive your inventory items into inventory. If desired, Purchasing and Inventory automatically calculate and record purchase price variances for your outside processing receipts into work in process. You can use the Purchase Price Variance Report to review the accuracy of the standard costs for your purchased items and services. See: Purchase Price Variance Report.
Invoice Price Variance (IPV) and Exchange Rate Variance
Purchasing and Inventory provide you with visibility and control of your invoice price and exchange rate variances. Payables automatically calculates and records invoice price and exchange rate variances in your general ledger when you have matched, approved and posted your invoices. You can use the Invoice Price Variance Report to review the accuracy of your purchase order prices. See: Invoice Price Variance Report.
If the purchase order uses a foreign currency, Purchasing converts the purchase order price to the inventory functional currency. Inventory uses this converted value for receiving accounting purposes. Payables allows you to record exchange rate invoice variance to separate accounts.
Accrual Reconciliation and Write-Off
Purchasing and Inventory provide you with a complete reconciliation report of all of your accounts payable accrual transactions. You can quickly identify any mismatched items and write-off accrual transactions from your receiving, accounts payable, inventory, and work in process subledgers.
Expense Accrual Reporting
You can use the Uninvoiced Receipts Report to analyze your uninvoiced receipt liabilities for non-inventory purchases when you create accrual entries for them in your general ledger. You can control the amount of expenses you accrue by supplier and purchasing category. You can obtain detailed information about the purchase order receipts you accrued during your accounting period. See: Uninvoiced Receipts Report.
Period-End Accruals and Encumbrance
For period-end accruals when using encumbrances, Purchasing creates a reversing entry for the encumbered amount corresponding to an expense while creating an accrual entry for the receipt in the general ledger. When you accrue your receipts, Purchasing ensures that you do not duplicate entries for the period. At the beginning of the following period, you reverse the accrual entry for the expense and recreate the encumbrance entry you reversed in the previous period using General Ledger. See: Receipt Accruals - Period End Process.
Inventory and Perpetual Expense Accruals and Encumbrance
For perpetual expense and inventory accruals, Purchasing and Inventory create a reversing entry for the encumbered amount at the time you deliver the goods to the final inventory or expense destination. Payables automatically recognizes the accrual and encumbrance reversal on receipt, not at the time of invoice posting.
Setting Up Inventory Accruals
Accrual Process for Perpetual Accruals
Monitoring Price variances
Reconciling A/P Accrual Accounts Balance
Accrual Process for Period End Accruals
Identifying Journal Entry Batches in General Ledger