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Procurement to Payment Accounting Entries

Purchase Requisition Creation


No Journal Entry

Purchase Order Creation


No Journal Entry

Good Receiving
Expenditure/Stock/Purchase A/c
To GR/IR or GRNI A/c

Debit
Credit

Procurement to Payment Accounting Entries


Invoice Entry
GR/IR or GRNI A/c

Debit

To Vendor/Creditor A/c

Credit

Payment Initiation
Vendor/Creditor A/c

Debit

To Accounts Payable A/c

Credit

Payment Made
Accounts Payable A/c
To Cash/Bank A/c

Debit
Credit

*GR/IR and GRNI : Good Received/Invoice Received and Good Received not Invoiced

Procurement to Payment Accounting Entries


1. A Purchase Request is raised by the buyer
E.g. the production department raises a requisition to buy raw material specifying the quantity of raw material to be ordered (55 tons).
Journal Entry - In this case there will be no accounting transaction recorded. Raising a purchase requisition does not result in an
accounting transaction.

2. A Purchase Order is raised by the buyer

E.g. the procurement department raises a purchases order (for 55 tons of raw material, costing $ 780 per ton plus taxes), gets it
approved and sends to the vendor (ABC Ltd.)
Journal Entry - In this case there will be no accounting transaction recorded. Raising a purchase order does not result in an accounting
transaction.

Procurement to Payment Accounting Entries


3. A Cash advance is paid to the vendor towards part payment of the order
E.g. $5000 is paid to ABC Ltd. as an advance payment on the order.
Journal Entry

4. Vendor supplies the goods/services. Does not send the invoice yet.
E.g. Vendor, ABC Ltd., supplies the raw material.
Journal Entry

Procurement to Payment Accounting Entries


5. Vendors invoice is received and processed
E.g. The invoice supplied by the vendor is processed and approved for payment. The invoice (for $ 46332) to be paid within 30 days from
receipt. Net amount to be paid is $ 41332
($ 5000 was paid as advance).
Journal Entry

Procurement to Payment Accounting Entries


6. Payment is made to the vendor
E.g. The treasury/payment group sends a cheque to the vendor ($41,332).

Journal Entry

Procurement to Payment Accounting Entries


7. A discount is availed from the vendor due to early payment
E.g. The payment terms were 1/10 net 30 (i.e. the client can avail 1% discount if the money is paid within 10 days otherwise the full amount
will have to be paid in 30 days of receipt of invoice).The customer pays on the 10th day and avails of the discount by paying $ 40919.
Journal Entry

Procurement to Payment Accounting Entries


8. A late payment fee is paid to the vendor due to delayed payment
E.g. The payment terms were that the money will be paid within 30 days of receipt of invoice otherwise 1% per month late fee will be
charged.
The customer pays on the 45th day and along with the late fee (0.5% for 15 days).
Journal Entry

Procurement to Payment Accounting Entries


9. Withholding Tax is deducted from the vendors payment
Instead of complete payment, withholding tax of 10% of the invoice amount should be deducted from the amount being paid to the
vendor and deposited directly on the vendors behalf i.e. instead of $ 41332, the vendor is paid $36699 and the balance 4633 is deducted
as WT.
Journal Entry

10. The Withholding tax deducted in the last transaction is paid directly to the tax authorities.
Journal Entry

Procurement to Payment Accounting Entries


11. Some goods are found defective and are returned to the vendor.
E.g. $ 4000 worth of material was found to be of inferior quality and was rejected and returned to the vendor.

Journal Entry

Order to Cash Accounting Entries


Customer Creation/Setup
No Journal Entry

Sales Order Creation


No Journal Entry

Delivery of Goods
Goods-in-transit A/c
To Sales/Revenue A/c

Debit
Credit

Order to Cash Accounting Entries


Invoicing/Billing
Customer/Debtor A/c

Debit

To Goods-in-transit A/c

Credit

SL to GL Interface
Accounts Receivable A/c

Debit

To Customer/Debtor A/c

Credit

Cash received and moved to temporary account for further allocation


Cash A/c

Debit
To Un-allocated Cash A/c

Credit

Order to Cash Accounting Entries


Cash received but Customer not identified
Cash A/c

Debit
To Unidentified Cash A/c

Credit

Cash received and it is yet to be applied against due outstanding invoices


Cash A/c

Debit
To Un-applied Cash A/c

Credit

Cash received but remittances not received/legible images


Cash A/c

Debit
To On-Account A/c

Credit

Order to Cash Accounting Entries


A Purchase Order is received from a Customer
E.g. a Purchase Order (for 55 tons of mild steel, costing $ 780 per ton) is received from a customer (ABC Ltd.)
Journal Entry - This is a commercial transaction and does not translate into an accounting transaction yet.

The Purchase Order is confirmed to the Customer.


E.g. The PO is confirmed to the customer (for supply of 55 tons of mild steel, costing $ 780 per ton)
Journal Entry - In this case also there will be no accounting transaction recorded. Confirming a purchase order does not result in an
accounting transaction.

Order to Cash Accounting Entries


A Cash advance is received from the Customer against a purchase order.
E.g. a Purchases Order (for 55 tons of mild steel, costing $ 780 per ton) is received from a customer (ABC Ltd.) along with a cash advance
of $5000.
In this case since an asset of monetary value changes hands, an accounting transaction will be recorded.
Journal Entry

Order to Cash Accounting Entries


Goods are shipped to the Customer (at our risk)
E.g. 55 tons of mild steel (costing $ 780 per ton) is transported to the customer location the risk of transportation is ours.
Journal Entry
In this case, till the risk of possession of the material is transferred to the customer, the revenue cannot be recognized. Hence there will
be no accounting transaction to recognize revenue yet.

Order to Cash Accounting Entries


Goods are shipped to the Customer (at Customers risk)
E.g. 55 tons of mild steel (costing $ 780 per ton) is transported to the customer location the risk of transportation is customers (ABC
Ltd.).
Journal Entry
In this case, the risk of possession of the material is transferred to the customer, hence the revenue can be recognized.

Order to Cash Accounting Entries


Goods are supplied against the advance received
E.g. 55 tons of mild steel (costing $ 780 per ton) is transported to the customer location against advance received earlier of $ 5000.
Journal Entry

Order to Cash Accounting Entries


Invoice sent to the customer
E.g. 55 tons of mild steel (costing $ 780 per ton) has been transported to the customer (ABC Ltd.) location (no prior advance was
received). Invoice is sent after the goods have been delivered.
Since the customer has taken delivery of the goods, the revenue can be recognized (if it has not been recognized already).
Journal Entry

Order to Cash Accounting Entries


Payment received from the Customer in full
E.g. ABC Ltd. Pays the complete amount in full ($ 42900)
Journal Entry

Order to Cash Accounting Entries


Customer avails an early payment discount
E.g. The payment terms were 1/10 net 30 (i.e. the customer can avail 1% discount if the money is paid within 10 days otherwise the full
amount will have to be paid in 30 days of receipt of invoice).
The customer pays on the 10th day and avails of the discount by paying $ 42471.
Journal Entry

Order to Cash Accounting Entries


Withholding Tax is deducted by the customer while making the payment
E.g. As per the regulations the customer has to deduct 10% tax from the payment and pay to the tax authorities directly.
The customer withholds 10% of the payment amount towards withholding tax.
Journal Entry

Order to Cash Accounting Entries


Goods are returned by the Customer
Customers returns 10 tons of steel due to poor quality (@ $ 780 per ton)
Journal Entry

Order to Cash Accounting Entries


Payment received from a customer (cash not applied because the customer not identified yet)
E.g. received a direct deposit of $ 14200 into the bank account. The customer not known yet
Journal Entry

Order to Cash Accounting Entries


Customer identified for the Unapplied Cash
E.g. The customer (as stated in the previous transaction) identified as XYZ Ltd.
Journal Entry

Order to Cash Accounting Entries


Provisioning for Bad Debt
E.g. Historically 3% of your credit sales every quarter is not collected (turns into bad debt). You closed the month with $100,000 of credit
sales.
Journal Entry

Order to Cash Accounting Entries


Write off of receivables against provisions already created
E.g. XYZ Ltd. (customer) went into liquidation. None of the $ 1500 that was owed to you can be recovered. A provision for bad debt was
already created.
Journal Entry