Accounting Entries for Procure to Pay (P2P)

Purchasing/PO module:

Event Accounting Entries

1. Creation of Requisition No accounting entries

2. Creation of Purchase Order (PO) No accounting entries

Inventory Destination Receipts

3. Receipt of Inventory Items

Receiving Inspection A/c Dr
Inventory AP Accrual A/c Cr

Note: Accounting Entries for Inventory Items can be created at Receipts only whereas for
Expense Items it can be done at Period End OR Receipts as applicable.

Expense Destination Receipts

4. Receipt of Expense Items

Receiving Inspection A/c Dr
Expense AP Accrual A/c Cr

Expense Items with Receipts at Period End

5. When Receipts at Period End set up is done for Expense items,

PO Charge A/c
To Expense AP Accrual A/c Cr

6. When next PO period is opened, reversal entry for point 7 is created,

Expense AP Accrual A/c

To PO Charge A/c Cr

Inventory module:

Event Accounting Entries

1. Delivery of Inventory Items

Material/Inventory A/c Dr
(Standard Cost)
To Receiving Inspection A/c Cr (PO Price)
Purchase Price Variance A/c Dr/Cr# (as applicable)

#Purchase Price Variance (PPV) is the difference between PO price and Standard Cost.

2. Delivery of Expense
Items PO Distribution Charge A/c Dr
To Receiving Inspection A/c Cr

3. Purchase Return
Inventory AP Accrual A/c Dr
To Inventory A/c Cr

Payables/AP module:

Event Accounting Entries

1. Creation of Inventory Item Invoice

Inventory AP Accrual A/c Dr

To Liability A/c Cr
Invoice Price Variance* A/c Dr/Cr (if any)

* Invoice Price Variance=Invoice Price-PO Price

2. Creation of Expense Item Invoice

Expense AP Accrual A/c Dr
To Liability A/c Cr

3. Payment of Invoice (Inventory/Exp)

Liability A/c Dr
To Cash Clearing* A/c Cr
To Discount A/c Cr (If any)
To Gain/Loss A/c Cr (Foreign Exchange G/L if any)

* Cash Clearing is used where Cash Management module is in place else it will directly hit
Cash/Bank Account for payment.

Other Entries:

4. Good return to Supplier

Liability A/c Dr
To Inventory/Expense AP Accrual A/c Cr

4. Refund through Credit Memo

Liability A/c Dr
To AP Accrual/Charge A/c Cr

5. Creation of Prepayment Invoice

Prepaid Expense A/c Dr
To Liability A/c Cr

7. Payment of Prepayment Invoice

Liability A/c Dr
To Cash Clearing A/c Cr

8. Apply prepayment with Standard Invoice

 Liability A/c Dr
To Prepayment A/c Cr

9. Creation of Credit Memo

Liability A/c Dr
To AP Accrual A/c/ Expense A/c Cr