Accounting for Purchase to Pay Cycle

One of the most common business scenarios in Oracle Apps is Purchase to Pay.

That is when companies purchase goods and receive them in their inventory and raise an invoice for it and later pay the supplier. This purchase to pay cycle has many intermediate accounting steps, specially from localisation perspective.

However I am going to demonstrate here the accounting entries carried out in Base Apps when for the Purchase to pay cycle when you track goods from receipt stage to pay stage.

The transactions carried out in the system for this cycle are:

1. Receive Goods

2. Deliver Goods to inventory

3. Raise an Invoice for the supplier against the purchase order

4. Make payment to supplier

The accounting entries are:

TRANSACTION	ACCOUNT	DR	CR
RECEIVE	Accrual Liability		1
RECEIVE	In-Transit	1
DELIVERY	In-Transit		1
DELIVERY	Inventory	1
INVOICE	Accrual Liability	1
INVOICE	Voucher's Payable		1
PAYMENT	Voucher's Payable	1
PAYMENT	BANK		1

You might have different names for your accounts but these are the Debit-Credit transactions. Notice how In-Transit gets knocked off between Receive and Deliver. Next Accrual Liability get's knocked off between Receive-Deliver and Invoice. The point to note here is that to find your outstanding liability, that is, goods received but not invoiced you would want to find the total credit balance in Accrual Liability account.

Next again note that Voucher's payable is the account that get's hit when you create an invoice with payables. This again get's knocked off when you make the payment. Please remember that I am only talking about standard invoices here. Again, if you want to find total goods invoiced but not yet paid you would query the total credit balance in Voucher's payable account. (you may have a different name in your system).

So in essence the final entry is just simply, Bank Credit to Inventory Debit! Simple and sweet!