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Accounting for Inventory and AP - surfol - 06-12-2011
Hello guys,
I'm trying to understand a procedure for purchasing and the journalizing associated with it. Below is what I assume happen, but I'm not sure, so correct me if I'm wrong
1. Purchasing Department approves a PO for 10 widgets, of which a copy is passed each to the accounting and receiving department.
2. Receiving department receives the widgets from the supplier with a packing list that list the quantity only (no invoice has been sent yet). He or she cross match with PO to make sure the quantity match and then enter the data into the inventory system
*** not sure what happens to the accounting side at this point. Are AP and inventory updated in the journals at this point? if they are, what price do we use since invoice has not been sent yet ***
3. Receiving Dept. forward the packing list to the accounting department.
4. Accounting Dept. receives invoice for the 10 widgets from the supplier. He or she then cross match the qty with the packing list and cross match the price with the purchase order
5. Acct Dep. produces a Purchase Invoice > AP & Inventory are updated
*** again, I'm not sure if AP & Inventory should be updated at this point or at no.2
As you can see, I'm not sure if the AP & Inventory amount should be updated when you receive the packing list, or when you receive the Invoice?
So, if anyone can explain to me, that'd be great =)
- irfan.mansoor - 06-14-2011
In this case there is little miss conception.
1) Remember Purchase department raises the PO (Purchase Order) not authorized it. in this case the procedure will be as follows
1) Request raised By stores ===> Sent To Purchase department
2) Purchase department collect Quotations from suppliers ======>> sent to Finance Department for approval
3) Order confirmation sent to supplier by PD.
4) Purchaser arrange delivery and sent along with three copies
i. As Delivery Note (Signed by receiving Dept.)
ii. As Packing list or advise note along with the Invoice (Sig. by rec. dept. and sent back to supplier.
iii.Copy Sent to Accounts Department Along with the GRN prepared by receiving Dept. against the Delivery Note indicating the differences. Finance Dep. Match those against the PO and Quotation.
If Issues arises than Dr. or Cr. Notes are issued
- Excel - 06-14-2011
1-Prodcurement dept. ( Purchasing dept)
As soon as goods / inventory recieved, Store keeper will update store ledgers and prepare GRN ( Goods receving notes)and ask for invoice from supplier to complete source documentS to forward Accoutns dept to update payable account of supplier.
At this stage Account payable wont be updated as there is no complete source documents recieved yet from purchasing dept.
2-Account dept will recieve source document including ( P.O alreadly recieved, GRN copy, Invoice with taxes invoices attaced and duly approved by the store and procurement dept heads)
Now Account payable will be updated and payment process may take place as per company policy.
- Ali Akbar - 06-15-2011
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by surfol</i>
<br />Hello guys,
I'm trying to understand a procedure for purchasing and the journalizing associated with it. Below is what I assume happen, but I'm not sure, so correct me if I'm wrong
1. Purchasing Department approves a PO for 10 widgets, of which a copy is passed each to the accounting and receiving department.
2. Receiving department receives the widgets from the supplier with a packing list that list the quantity only (no invoice has been sent yet). He or she cross match with PO to make sure the quantity match and then enter the data into the invetory system
*** not sure what happens to the accounting side at this point. Are AP and inventory updated in the journals at this point? if they are, what price do we use since invoice has not been sent yet ***
3. Receiving Dept. forward the packing list to the accounting department.
4. Accounting Dept. receives invoice for the 10 widgets from the supplier. He or she then cross match the qty with the packing list and croos match the price with the purchase order
5. Acct Dep. produces a Purchase Invoice > AP & Inventory are updated
*** again, I'm not sure if AP & Inventory should be updated at this point or at no.2
As you can see, I'm not sure if the AP & Inventory amount should be updated when you receive the packing list, or when you receive the Invoice?
So, if anyone can explain to me, that'd be great =)
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Hi,
My reply would specifically be in context of Oracle system, but would be logical and can be applied to any system in use after changing terminologies
When goods are received, the user department (UD) has to enter reciept of quantity in system. The system should, after doing 2 way matching (of quantity of PO and PR), update the records and do accounting by picking rate of goods from PO multiplying by actual quantity of goods entered/received in the system. This is automatically generated accrual and is called accrued liability for goods received but not invoiced. This is also called perpetual accrual system. When invoice is received by accounting department, the system before accepting the booking of invoice should perform 3 way matching (of receipt, PO and invoice). After 3 way matching is performed, invoice is booked and accrued liability (earlier booked at time of reciept) is transferred to invoiced payable. Payment is then made as per business routine.
So the answer to your question is, accounting is done when goods are received and not when invoice is received following accrual concept. If the system functionality doesnt allow to use 'perpetual accrual system', manual accruals should be taken as at reporting period to ensure completeness of accruals and accounting for goods received but not invoiced.
Comments from other members having exposure to different systems would be welcomed.
- surfol - 06-29-2011
Thanks guys for the reply. What about from the receivables and sales side? What's the standard operating procedure for sales/receivables and the journalizing ?