Hi all,
I've spent a good chunk of my day trying to unravel a messy purchase order situation and wanted to make sure I'm not going mad.
The way I see it the whole purchase order thing should work a little like this:-
- PO is raised for goods and services - No impact on accounting records
- Goods and received and in good order etc etc - DR to P&L expense, CR to accruals in the balance sheet
- Invoice comes in from supplier - DR the accrual above, CR Supplier/Purchase ledger
I guess my question is two fold......
1. am i right in saying no entry should hit the accounting records until the goods are received (the accrual stage above)
2. shouldnt a fully integrated system such as SAP, Oracle etc etc create that accrual for you (and subsequently get rid of it when the supplier invoice is matched)
The records im looking at just now show maual accruals for goods received where no invoice has been received and I'm begining to panic a little.
Can someone at least tell me that my theory is sound?
I need a drink................
Thanks in advance!
Replies (8)
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Ah, happy memories.
A company that I spent many years auditing had this procedure:
When a goods received note came in, with the physical stock of course, the entry was to debit stock and credit a 'stock accruals' account.
When the invoice came in, they debited stock accruals account and credited purchase ledger.
Oh what fun we had tidying up the stock accruals account every quarter. Better not say any more otherwise I will give myself away!
HTH
SA
Seems simple enough
Not really sure what your problem is, unless it's the hard posting to accruals. The journal should be automatically reversing to remove this element.
You are correct
Autoreversing jnl period 1
Dr Stock, Cr Accrual
Period 2
System should automatically reverse the above
Cr Stock, Dr Accrual
meanwhile invoice arrives
Dr Stock Cr creditor
no reconcilaition issues (save for ensuring that stock receipts for which no invoice has been received continues to be acccrued in future perioods until the supplier eventually comes up with the correct invoice)
I'm having a thick day today so forgive me...
...but when the PO is raised are you not creating an obligation and therefore should be accruing from that point onwards?
.
steve, surely the obligation to pay only "accrues" when the goods are received.
granted - all orders placed will end up in accruals (awaiting invoice) when the GRN is received but to enter into accruals before receipt of goods is jumping the gun a bit. but I suppose it depends on the type of goods and the terms and conditions of orders you are looking at.
A PO certainly commits an organization to pay, and is an obligation, but only under the terms of the contract. If the obligation is to pay for goods delivered, then no accrual until delivery. similarly with services performed.
A PO for a retainer may need accrual based on the PO itself.