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Purchasing, Inventory and Payables, the Financials Bermuda Triangle

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Title: Purchasing, Inventory and Payables, the Financials Bermuda Triangle


1
  • Purchasing, Inventory and Payables, the
    Financials Bermuda Triangle
  • Judy Vales
  • November 7, 2005

2
What are we talking about?
Purchase Orders
Financials
Receipts
AP Invoices
  • When something cant be explained, it seems scary
    and you avoid it.

3
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

4
Whats the problem?
  • Incorrect setups and related misunderstandings of
    the setups.
  • Undetected errors
  • Process Mistakes
  • Lack of a good reconciliation process

5
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.

6
The Setups
  • The Setups The root of most EVIL!
  • Inventory
  • Inventory Organization Parameters
  • Purchasing
  • Purchasing Options
  • Receiving Options
  • Payables
  • Financials Options
  • Payables Options

7
Inventory Org Parameters
Inventory Valuation Account
Inventory Setup ?Organizations ?Parameters
8
Inventory Org Parameters
Inventory Accrual Variance Accounts
9
Sub Inventory Accounts
Inventory Setup ?Organizations ?Sub Inventories
10
Purchasing Options
Purchasing Setup ?Organizations ?Purchasing
Options
11
Receiving Options
The Receiving Inspection Account
Purchasing Setup? Organizations ? Receiving
Options
12
Financials Options
Payables Setup ?Options ?Financials
13
Payables Options
Payables Setup ?Options ?Payables
14
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

15
Standard Process Inventory Item
  • Upon Invoicing
  • Debit Inventory A/P Accrual
  • Credit A/P Liability Account
  • Debit / Credit Invoice Price Variance

16
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

17
Standard Process Expense Item
  • Upon Invoicing
  • Debit Expense Account
  • Credit A/P Liability Account
  • Debit / Credit (If desired) Invoice Price
    Variance

18
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

19
Month End Process
  • Close Modules in this Order
  • Payables
  • Purchasing
  • Inventory

20
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.

21
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.

22
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

23
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).

24
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.

25
THANK YOU
  • Judy Vales
  • jvales_at_o2works.com
  • O2Works LLC
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