Purchasing, Inventory and Payables, the Financials Bermuda Triangle

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• Purchasing, Inventory and Payables, the
  Financials Bermuda Triangle
• Judy Vales
• November 7, 2005

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What are we talking about?
Purchase Orders
Financials
Receipts
AP Invoices

• When something cant be explained, it seems scary
  and you avoid it.

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Whats confusing?

• You need several steps in the process to complete
  a full cycle of Procure to Pay and the related
  accounting transactions
• Receiving Accounts
• AP Liability Accounts (Expense, Inventory and
  Trade)
• Purchase Price Variance
• Invoice Price Variance
• Foreign Currency

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Whats the problem?

• Incorrect setups and related misunderstandings of
  the setups.
• Undetected errors
• Process Mistakes
• Lack of a good reconciliation process

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Whats Important

• Understand the standard process.
• Know your business requirements.
• Know where to find the related accounting setups.
  
• Be sure you know how the process and related
  accounting is supposed to work.
• Determine the accounts to be used both for your
  business and the process.

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The Setups

• The Setups The root of most EVIL!
• Inventory
• Inventory Organization Parameters
• Purchasing
• Purchasing Options
• Receiving Options
• Payables
• Financials Options
• Payables Options

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Inventory Org Parameters
Inventory Valuation Account
Inventory Setup ?Organizations ?Parameters
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Inventory Org Parameters
Inventory Accrual Variance Accounts
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Sub Inventory Accounts
Inventory Setup ?Organizations ?Sub Inventories
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Purchasing Options
Purchasing Setup ?Organizations ?Purchasing
Options
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Receiving Options
The Receiving Inspection Account
Purchasing Setup? Organizations ? Receiving
Options
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Financials Options
Payables Setup ?Options ?Financials
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Payables Options
Payables Setup ?Options ?Payables
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Standard Process Inventory Item

• Upon Receipt
• Debit - Receiving Inventory Account (inspection)
• Credit - Inventory A/P Accrual
• Debit / Credit Purchase Price Variance
• Upon Delivery to Inventory (inspected)
• Debit - Material account for Inventory
  Organization receiving goods
• Credit - Receiving Inventory Account

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Standard Process Inventory Item

• Upon Invoicing
• Debit Inventory A/P Accrual
• Credit A/P Liability Account
• Debit / Credit Invoice Price Variance

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Standard Process Expense Item

• Upon Receipt
• Debit - Receiving Inventory Account (inspection)
• Credit - Expense A/P Accrual
• Upon Delivery (inspected)
• Debit - Expense Account on Purchase Order
• Credit - Receiving Inventory Account

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Standard Process Expense Item

• Upon Invoicing
• Debit Expense Account
• Credit A/P Liability Account
• Debit / Credit (If desired) Invoice Price
  Variance

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About PPV and IPV

• Purchase Price Variance (PPV) (No Acct gen)
• Variance between Standard Item Cost and Purchase
  Cost. (No PPV in Average Costing)
• Accounting during Receipt Process
• Also can occur on Internal Sales Orders if the
  two orgs have different standard costs.
• Invoice Price Variance (IPV) (Acct Gen)
• Variance between Purchase Cost and Invoice Price
• Occurs during Invoice Matching
• Approval required during Invoice processing, over
  certain Percentages.
• No PPV for Expense / Non Stocked Items

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Month End Process

• Close Modules in this Order
• Payables
• Purchasing
• Inventory

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Reports and Reconciliation

• A/P Accrual Accounts can include the following
  balances
• Uninvoiced Receipts
• Overinvoiced Receipts
• Errors, including those transactions posted
  inadvertantly to this account.
• Use the Accrual Reconciliation Report to
  reconcile these accounts.

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Reports and Reconciliation

• Uninvoiced Receipts reports will show receipts
  received, but not yet invoiced.
• Verify that all receipts have indeed not been
  invoiced.
• Receiving Value by Destination Report
• Reconcile and Review issues
• Purchase Price Variance Report
• Identify all entries.

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Reports and Reconciliation

• Monitor your price variance accounts
• Be sure that only the variances are recorded and
  not any transactions incorrectly posted.
• Large variances can be due to bad standard costs.
  
• Reconcile both A/P Accrual Accounts

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How do you steer clear?

• Be sure you have all transactions posted to
  independent accounts. This will help to make
  errors easier to identify.
• Educate all users.
• Process Controls.
• Tight / Controlled Closing Process.
• Reconciliation (Monthly at the least).

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Summary

• The accounting process behind Oracles
  transactions do work well, IF you set them up
  correctly.
• Your process steps are critical to the success of
  your accounting transactions.
• Like the Bermuda Triangle, the more you
  understand the less scary it seems.

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THANK YOU

• Judy Vales
• jvales_at_o2works.com
• O2Works LLC