Accrual Process for Perpetual Accruals

Use perpetual accruals for expense purchases when you want to record uninvoiced receipt
liabilities immediately upon receipt of goods. Receipts for inventory purchases are always
accrued upon receipt. Other key points of perpetual accruals include:
o Actual journal entries are created for the amount of the receipt liabilities, debiting
the receiving inspection account and crediting the expense accrual liability
account.
o Accrual journal entries are created when you enter receiving transactions.
Purchasing creates adjusting journal entries if you correct your receiving
transactions.
o Perpetual accrual entries do not need to be reversed at the start of a new
accounting period.
o If you are using encumbrance accounting, purchase order encumbrance is relieved
when the goods are delivered to their final destination, either by a delivery or a
direct receipt.
Attention: If you accrue expense purchases on receipt, you must reconcile the entries in the A/P
accrual accounts. In addition, if you also receive inventory, you need to use the Receiving Value
By Destination Account Report to break out your receiving/inspection value by asset and
expense.

Purchase Order Receipt to Receiving Inspection

When you receive material from a supplier into receiving inspection, Purchasing uses the
quantity received and the purchase order price to update the purchase order and the receiving
inspection account. The accounting entries for inventory receipts are:
Account

Debit

Receiving Inspection account @ PO price

XX

Inventory A/P Accrual account @ PO price

Credit
XX

The accounting entries for expense destination receipts are:

Account

Debit

Receiving Inspection account @ PO price

XX

Classification: Genpact Internal

Credit

Expense A/P Accrual account @ PO price

XX

Attention: For clarity, the accounting entries in this section refer to the Inventory A/P Accrual
Account and the Expense A/P Accrual Account. These are the accounts you typically use as your
purchase order distribution accrual accounts for inventory and expense destinations. You can use
the Account Generator to define the business rules you want Purchasing to use to determine the
actual purchase order distribution accrual account. Purchasing uses the accrual account on the
purchase order distribution for all receipt accrual entries.
For expense destinations, the PO distribution accrual account is the Expense A/P Accrual
Account set in the Purchasing Options window. For inventory destinations, the purchase order
distribution accrual account is the Inventory A/P accrual account for the receiving organization.
The accrual accounts are the liability accounts that offset the material and expense charge
accounts. They represent all inventory and expense receipts not matched in Payables.

Delivery From Receiving Inspection to Inventory

With the Receiving Transactions window, you can move material from receiving inspection to
inventory. See: Receiving Transactions.
For standard costing, when you enter a delivery transaction in Purchasing and move the items to
inventory, Inventory generates a purchase price variance transaction. Inventory books this
transaction as a period expense for the current accounting period. If the standard cost is greater
than the purchase order price, then the purchase price variance is favorable. Inventory records the
expense as a credit (negative expense). If the standard cost is less than the purchase order price,
then the variance is unfavorable. Inventory records the expense as a debit (positive expense).
For average costing, when you enter a delivery transaction in Purchasing, you re-weight the
average cost for the inventory organization with the incoming purchase order value. You do not
have any purchase price variance for average costing.
Inventory uses the quantity and the purchase order price of the delivered item to update the
receiving inspection account and the quantity, and the standard cost of the delivered item to
update the subinventory balances. The accounting entries are:
Account

Debit

Subinventory accounts @ standard cost

XX

Receiving Inspection account @ PO price

Debit/Credit Purchase Price Variance

Classification: Genpact Internal

Credit
XX

Delivery From Receiving Inspection to Expense Destinations

With the Receiving Transactions window, you can also move material from receiving inspection
to expense destinations. See: Receiving Transactions.
When you enter a delivery transaction in Purchasing and move the items to an expense location,
Purchasing uses the transaction quantity and the purchase order price of the delivered item to
update the receiving inspection and expense charge account. The accounting entries are:
Account

Debit

PO distribution charge accounts @ PO price

XX

Receiving Inspection account @ PO price

Encumbrance @ PO price

Credit
XX

XX

Reserve for Encumbrance @ PO price

XX

Purchase Order Receipt to Inventory

You can use the Receipts window to receive material directly from a supplier to inventory. See:
Managing Receipts. Please note that this section addresses inventory destinations only.
When you receive material from a supplier directly to inventory, Purchasing and Inventory
perform the receipt and delivery transactions in one step.
Purchasing uses the quantity received and the purchase order price to update the purchase order
and the receiving inspection account. The accounting entries are:
Account

Debit

Receiving Inspection account @ PO price

XX

Inventory A/P Accrual account @ PO price

Credit
XX

Inventory uses the quantity and standard cost of the received item to update the receiving
inspection and subinventory balances. The accounting entries are:
Account

Debit

Classification: Genpact Internal

Credit

Subinventory accounts @ standard cost

XX

Receiving Inspection account @ PO price

XX

Debit/Credit Purchase Price Variance

If you use average costing, you re-weight the average cost at receipt and do not have any
purchase price variance.
The Inventory A/P Accrual account is the liability account that offsets the material accounts, and
represents all inventory receipts not matched in Payables.

Purchase Order Receipt to Expense Destinations

You can use the Receipts window to receive material directly from a supplier to the expense
destination. See: Managing Receipts. Please note this section addresses expense destinations
only.
When you receive material from a supplier directly to expense destinations, Purchasing performs
the receipt and delivery transactions in one step.
Purchasing uses the quantity received and the purchase order price to update the purchase order
and the receiving inspection account. The accounting entries are:
Account

Debit

Receiving Inspection account @ PO price

XX

Expense A/P Accrual account @ PO price

Credit
XX

Purchasing uses the quantity and purchase order price of the received item to update the
receiving inspection and expense accounts. The accounting entries are:
Account

Debit

PO distribution charge accounts @ PO price

XX

Receiving Inspection account @ PO price

Encumbrance @ PO price

Credit
XX

XX

Reserve for Encumbrance @ PO price

Classification: Genpact Internal

XX

Match, Approve, and Post an Invoice

When you enter an invoice in Payables, you match each invoice line to a specific purchase order
shipment in Purchasing. You can set up Payables to ensure that you pay only for the quantity you
received. If you accrue your receipts online, Payables clears the PO distribution accrual account
as part of the accounting transactions.
Inventory Receipts
Under standard costing, when you initially enter the purchase order receipt and delivery to
inventory destinations in Purchasing, you credit the Inventory A/P Accrual Account for the
amount of the receipt, debit the inventory at standard cost, and charge the difference to the
purchase price variance. Encumbrance is reserved for the receipt quantity @ purchase order
amount. When you match the invoice to the purchase order, Payables offsets the Inventory A/P
Accrual Account for the quantity invoiced times the PO price, and records the supplier liability
and the invoice price variance. Encumbrances are created or reversed depending on the positive
(created) or negative (reversed) variances.
In general, invoice price variance is the difference between the purchase price and the invoice
price paid for a purchase order receipt. Purchasing reports invoice variance. Upon invoice
approval, Payables automatically records the invoice price variance to the invoice price variance
account and, if appropriate, to the exchange rate variance account.
Account

Debit Credit

AP accrual account @ PO price

XX

Invoice Price Variance account @ Invoice Quantity * (Invoice Price - PO Price)

XX

Encumbrance

XX

A/P Liability @ (Invoice price * Invoice Quantity)

XX

Reserve for Encumbrance

XX

If you have a foreign currency purchase order, Payables also records exchange rate gains and
losses.
Expense Destination Receipts
When you initially enter the purchase order receipt and delivery to expense destinations in
Purchasing, when your Expense Accrual Option is set to On Receipt, the net accounting entry
credits the Expense A/P Accrual Account for the amount of the receipt and debits the PO
distribution charge account at purchase order price. Encumbrance is reversed for the Receipt
Quantity at the PO amount. When you match the invoice to the purchase order, Payables offsets
the Expense A/P Accrual Account for the quantity invoiced times the PO price and records the

Classification: Genpact Internal

supplier liability for the amount of the invoice. Encumbrances are created or reversed depending
on the positive (encumbrance created) or negative (encumbrance reversed) variance.
Normally, you charge the original expense account for any invoice price variances. You do not
record invoice price variances for expense purchases. Purchasing uses the Account Generator to
set your purchase order distribution variance account to be the same as your purchase order
charge account. If you want to record your invoice price variances to a separate account, use the
Account Generator to define the business rules you use to determine the correct invoice price
variance account.
Account

Debit Credit

Expense A/P accrual account @ PO price

XX

PO distribution variance account (= PO distribution Charge Account) @ Invoice XX

Quantity * (Invoice Price - PO Price)
Encumbrance

XX

A/P Liability @ (Invoice price * Invoice Quantity)

XX

Reserve for Encumbrance

XX

Invoice Exchange Rate Variances

Note that Purchasing uses the functional currency for your set of books in all receiving
accounting entries. Purchasing converts foreign currency purchase order prices to the functional
currency using the currency conversion rate from the purchase order. Payables uses the currency
and the conversion rate of the invoice when booking transactions to the general ledger. If the
conversion rate differs between the purchase order and invoice, the conversion difference is
recorded as an Exchange Rate Variance. Separate accounts are defined for exchange rate gains
and losses.

Return to Supplier From Receiving

You use the Returns window to return material from receiving inspection or from inventory to a
supplier. If you use receiving inspection and you have delivered the material into inventory, you
must first return the goods to receiving before you can return to your supplier. For a return from
inspection, Purchasing decreases the receiving inspection balance, and reverses the accounting
entry created for the original receipt. See: Returns.

Return To Supplier From Inventory or Expense Destinations

Classification: Genpact Internal

When you do not use receiving inspection, the return to supplier transaction updates the same
accounts as the direct receipt to the inventory or expense destination, with reverse transaction
amounts.

Period-End Reconciliation Tasks

When you use perpetual inventories, you should balance your inventory accounts to your
inventory value report. You should also review the general ledger journal transactions for
inventory Purchase Price Variance and A/P Accrual Accounts. You should look for potential
problems or errors such as transactions charged to the wrong account and duplicate transactions.
This process is called the Inventory Reconciliation and Period Close Review. Purchasing and
Inventory provide you with a set of reports you can use to reconcile your transactions with your
general ledger account balances quickly and easily.

Period-End Checklist
Before reconciling your transactions with your general ledger account balances, you should
perform the following steps:
1. Identify the period you want to reconcile and close.
2. Enter all receiving transactions for goods and services you received during the period.
3. Enter and match all invoices you received during the period for your receipt accrual
entries.
4. Perform the GL Transfer in Inventory and reconcile your Inventory Purchase Price
Variance and A/P Accrual entries.
5. Identify the period-end balances of the following accounts in your general ledger:
o Purchase Price Variance
o A/P Accrual Account
o Inventory Accounts
6. Reconcile the balance of the Purchase Price Variance account using the Purchase Price
Variance Report (detailed below).
7. Identify the Invoice Price Variances amount and Accrued Receipts amounts in the A/P
Accrual Account (detailed below).
8. Manually remove the Invoice Price Variance amount from the A/P Accrual Account
using your general ledger (prior release IPV only).
9. Close your accounts payable period corresponding to the purchasing period for your
receipts accrual entries. See: Controlling the Status of AP Accounting Periods
10. Perform period-end accruals steps for purchasing and one-time items as described in
the following section.
11. Close the period in Purchasing, (You do not need to reverse any journal entry batch in
the following period). See: Controlling Purchasing Periods.
12. Close your Inventory period after review. See: Maintaining Accounting Periods.
13. Close your General Ledger period after review.
Classification: Genpact Internal

Accrual Process for Period-End Accruals

Key points for accruing expense purchases at period-end include:
o

You record the total uninvoiced receipt liabilities accrued during the
accounting period.

Actual journal entries are created for the amount of the receipt
liabilities, debiting the charge account and crediting the PO distribution
accrual account (normally the Expense A/P Accrual Account defined in
the Define Purchasing Options form).

You reverse accrual journal entries manually at the start of the new
accounting period.

If you are using encumbrance accounting, purchase order

encumbrance is relieved when the invoice(s) matched to the purchase
order are posted to the general ledger.

Receiving Transactions
Purchasing does not record any accounting entries for expense during a receiving
transaction if you use period-end accruals. You record all of your uninvoiced
liabilities at month end using the Receipt Accruals - Period-End process. See: Receipt
Accruals - Period End Process
Receipts Accruals-Period End
Use the Receipt Accruals - Period End process to create period-end accruals for your
uninvoiced receipts for expense distributions. Purchasing creates an accrual journal
entry in your general ledger for each uninvoiced receipt you choose using this form.
If you use encumbrance or budgetary control, Purchasing reverses your
encumbrance entry when creating the corresponding accrual entry.

Purchasing never accrues an uninvoiced receipt twice. Each time you create accrual entries for a
specific uninvoiced receipt, Purchasing marks this receipt as accrued and ignores it the next time
you run the Receipt Accrual - Period-End process. Purchasing creates accrual entries only up to
the quantity the supplier did not invoice for partially invoiced receipts.
Purchasing creates the following accounting entries for each distribution you accrue using the
Receipt Accruals - Period-End process:
Account

Debit Credit

Classification: Genpact Internal

PO charge account @ Uninvoiced Quantity * PO Price

XX

Expense A/P accrual account @ Uninvoiced Quantity * PO price

XX

As soon as you open the next period, Purchasing reverses the accrual entries using the following
accounting entries:
Account

Debit

Expense A/P accrual account @ Uninvoiced Quantity * PO price

XX

PO charge account @ Uninvoiced Quantity * PO Price

Credit

XX

Match, Approve, and Post an Invoice

When you enter an invoice in Payables, you match each invoice line to a specific
purchase order shipment in Purchasing. You can set up Payables to ensure that you
pay only for the quantity you received. If you accrue your uninvoiced receipts at
period-end, Payables records the expense transactions part of the accounting
transactions:
Account

Debi Credi
t
t

PO Distribution Charge Account @ Invoice Quantity * PO Price

XX

PO Distribution Variance Account @ Invoice Quantity * (Invoice Price PO Price)

XX

A/P Liability @ (Invoice price * Invoice Quantity)

XX

Attention: Normally, you charge the original expense account for any invoice price
variances, so your PO distribution variance account is the same as the PO
distribution charge account. You do not record invoice price variances for expense
purchases. Purchasing uses the Account Generator to set your purchase order
distribution variance account to be the same as your purchase order charge
account. If you want to record your invoice price variances to a separate account,

Classification: Genpact Internal

use the Account Generator to define the business rules you use to determine the
correct invoice price variance account.
Complete Period Transactions
If you use encumbrance or budgetary control, Purchasing creates encumbrance
journal entries in your general ledger each time you approve a purchase order.
Similar to accrual journal entries, encumbrance journal entries recognize a liability
towards your supplier before any invoicing transactions occur. Unlike accrual journal
entries, encumbrance journal entries are not actual transactions. General Ledger
tracks actual and encumbrance journal entries and balances separately.
Period-End Checklist
Purchasing provides you with complete flexibility and control for your period-end
accruals. You can use the Uninvoiced Receipts Report to analyze your uninvoiced
non-inventory receipts before you accrue these receipts. You can then use the
Receipt Accruals - Period-End process as many times as you want to generate
accrual entries for the receipts you choose.

For your period-end reconciliation, you should perform the following steps:
1. Identify the purchasing period you want to reconcile and close.
2. Enter all receiving transactions for goods and services you received during
the period. Purchasing automatically creates receipt accruals for all receipts
you entered up to the end of this period. To prevent any period-end
disruption, Purchasing lets you provide a receipt date that is different from
the date you enter the receipts. You never have to enter all the receipts for a
period before the end of this period. You can enter these receipts later. You
simply need to back date the receipt date.
3. Enter and match all invoices you received during the period for your
receipt accrual entries. You should make sure that you solve all posting holds
problems in Payables before accruing receipts. Purchasing creates accrual
journal entries for all purchase orders you received and did not match to an
invoice. If you matched a purchase order to an invoice, Purchasing does not
accrue the corresponding receipts. Purchasing does not accrue any purchase
order that you closed on or before the end of the accrual period you choose.
If the invoice is on posting hold, Payables has not yet accounted for the
liability corresponding to the invoice. Under these conditions, the liability
corresponding to this invoice would not appear in your books for the period.
Payables lets you recognize this liability in the following period.
4. Close your accounts payable period corresponding to the purchasing
period for your receipt accrual entries.

Classification: Genpact Internal

Note: The List of Values for period end accruals does not require the
Accounts Payable period to be closed, however it's strongly recommended
that closed periods are used, as the receipt accruals process will not pick up
invoices entered after the accruals process is run for the period.rcvaccov
5. For period-end accruals of expense purchases, run the Uninvoiced Receipts
Report. Use this report to analyze your uninvoiced receipts. The Uninvoiced
Receipts Report lets you use the same selection criteria for your uninvoiced
receipts as the Receipt Accruals - Period-End process. You always know
exactly what you accrue and for what amount.
6. For period-end accruals of expense purchases, use the Receipt Accruals Period-End process as many times as you need. You can use the search
criteria to choose what you want to accrue and accrue your receipts steps by
steps. You create accruals for a specific purchasing period. Purchasing
automatically accrues all uninvoiced receipts your entered up to the end of
the accrual period you specify. See: Receipt Accruals - Period End Process.
Each time you use the Receipt Accruals - Period-End process, Purchasing
creates an unposted journal entries batch in your general ledger for your
receipt accruals. If you are using encumbrance, Purchasing creates another
journal entries batch in your general ledger corresponding to the
encumbrance reversal entries for the uninvoiced receipts you accrued.
Purchasing never accrues your uninvoiced receipt twice. Each time you
create accrual entries for a specific uninvoiced receipt, Purchasing marks this
receipt as accrued and ignores it the next time you use the Receipt Accruals Period-End process. Purchasing creates accrual entries only up to the quantity
your supplier did not invoice for your partially invoiced receipts.
7. Post Accrual and Encumbrance Reversal journal entry batches in your
general ledger (See the following section to identify Accrual and
Encumbrance Reversal journal entry batches.)
8. Perform all the steps you need to close your accounting period and
generate your period-end reports and financial statements in your general
ledger.
9. Use your general ledger system to reverse all the receipt accrual and
encumbrance reversal batches you created for your period-end accruals.
10. Close the purchasing period for your receipt accruals. When you close a
purchasing period, Purchasing automatically un-marks all the receipts you
previously accrued to make sure you can accrue these receipts again if they
are still uninvoiced in the next period. See: Uninvoiced Receipts Report.

Classification: Genpact Internal

Classification: Genpact Internal