AP: Accounting Entries

By Jag - September 17, 2012
It is confusing for most of the beginners or new users to understand how an Oracle Application is performing the accounting on various events. Though after going through the application they get use to it. The option of “Create Accounting” and “View Accounting” helps a lot.
Here are some of the events, its explanation and its accounting performed by Oracle Payables, technically, the accounting engine is moved to Oracle Subledger Accounting (SLA). But the accounting is still viewed in Payables.
Anyways,
STANDARD INVOICE:
DEBIT
CREDIT
Expense / Item Expense / Misc. Expense
100
Supplier / Liability
100
PAYMENT:
Supplier / Liability
100
Bank / Cash / Cash Clearing
100
TOTAL
200
200
How is liability account code combination credited in the above accounting entry?
You see when you define Supplier’s Site, you have to give the liability account code combination on that particular site. Although the liability account is defaulted from Payables’ Financial Setup, but you can change the account code according to your need. You can even change the liability account code combination on the Invoice Workbench by enabling the Column from Folders option.
When you create a standard invoice, you have to give the Supplier Master name and a Site, from this site, the application picks the liability account. For expense account code combination you can either use a distribution set or manually enter it.
Now comes the payment, the liability account is fetched from the supplier whose invoice is being paid, the cash clearing or cash account is fetched from the bank you select during the payment. This account is defined during the Bank Account Setup.
PREPAYMENTS / ADVANCES:
DEBIT
CREDIT
Prepaid Expense / Advance Paid
70
Supplier / Liability
70
PAYMENT:
Supplier / Liability
70
Bank / Cash / Cash Clearing
70
STANDARD INVOICE:
Expense / Item Expense / Misc. Expense
100
Supplier / Liability
100
PREPAYMENT APPLIED TO STANDARD INVOICE:
Supplier / Liability
70
Prepaid Expense / Advance Paid
70
TOTAL
310
310
The idea of prepayment or advance is that you pay the supplier before receiving its goods or services. Now what if you pay the supplier but due to some reason or dispute you cancel the agreement or contract before receiving the supplies or service from that supplier? The supplier will have to pay back, now if you are receiving the cash it’s more of an asset. So the prepayment’s accounting is doing the same. When you create a prepayment invoice, the application automatically selects the Assets account given on that particular supplier’s site. And when you apply that prepaid invoice on the standard or actual invoice, the application clears the asset account as well as the liability.
In the above scenario of Prepayment, the total liability was PKR. 100, but the prepayment or the advance was paid of PKR. 70. When the Prepayment was applied to the Standard Invoice, the liability on Standard Invoice was decreased by PKR. 70. Still the remaining amount of PKR. 30 has to be paid and it will be a Standard Payment.
INVOICES with “TRACK AS ASSETS”:
DEBIT
CREDIT
Asset Clearing
100
Supplier / Liability
100
INVOICE TRANSFERRED TO ORACLE ASSETS:
Asset
100
Asset Clearing
100
TOTAL
100
100
“Track as Asset” is a functionality for moving the items from Oracle Payables to Oracle Assets. It is a check box on the Invoice Line TAB and can be enabled on Distribution Line using the Folder View option. When you check this box and run the “Mass Addition Create Report” from Payables, the items on invoice line or distribution line moves to Oracle Assets. You can give the item description on invoice line so that you don’t have to give it when the items are transferred to Oracle Assets.
Now, how does the system identifies that on which account it should move the items to Assets?
It is because the same Asset Clearing account is given in the Assets Setups.
INVOICE with WITHHOLDING TAX (say 6%):
DEBIT
CREDIT
Expense / Item Expense / Misc. Expense
100
Supplier / Liability
100
Payment with Withholding Tax :
Supplier / Liability
100
Bank / Cash / Cash Clearing
94
Withhodling Tax
6
WITHHOLDING TAX  INVOICE (Usually Auto Generated)
WHT Expense
6
WHT Payables (NBP or SBP)
6
TOTAL
106
106
The above scenario is of an invoice with a withholding (WHT).
In above accounting entry the WHT payables or Liability account is selected from the supplier defined as a Tax Authority. The WHT expense is picked from the WHT setup.
This is some basic accounting entries made by Oracle Payables.
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