P2P (Procure to Pay) Cycle in Oracle EBS

First you enter the Requisition in PO module. Supplier sends quotation reply of requisitions or RFQ. You can approve the quotation of a supplier after to record all information received from your supplier such as terms and conditions, shipment and price breaks.

Then you can go ahead for Purchase Agreement. Purchase Agreement has two types: first Blanket and Contract Purchase Agreement. You cans use blanket purchase agreement to communicate to those supplier that are negotiating pricing before actually releasing firm purchases. A blanket purchase agreement must have detailed information besides the header level information. A blanket purchase agreement contains lines for specific terms, quantity, promised date, need-by-date and prices.

You can create a contract purchase agreement with a supplier to agree on terms and conditions without entering into agreement for specific items or services. A contract purchase agreement can support competitive solicitation through the RFQ process and then through the purchase releases because a contract purchase agreement has only header level information and no detailed information. Header level includes terms, currency Supplier and a supplier site. You can enter Purchase Order for confirms to purchasing services or goods. Purchase order has four types: Standard, Planned, Blanket and Contract.

Whenever you get goods or service that time you enter receipts in system. There are five types of receipts: manual receipts, express receipts, cascade receipts, unordered item receipts and substitute item receipts. That time accounting entry should be debited to Inventory Material Value and credited to Payable Clearing Account.

Whenever you get the invoice in account department, it enters in the system that time accounting entries should be debited Payable Clearing and credited to Payable. Then you make a payment to supplier that time accounting entries should be debited Payable liability and credited to cash clearing account. After reconciliations between cash management and bank, accounting should be debited to cash clearing account and credited to bank or cash account.

Accrual Accounting - Perpetual Accrual (On Receipt)

Enter purchase order (1)

When you enter a purchase order, accounts are created and stored with the purchase order distribution. The accounts will eventually be used as a basis for creating accounting that is sent to the general ledger. Creating a purchase order in and of itself generates no accounting that is sent to the general ledger.

Receive (2)

When you accrue on receipt, processing a receiving transaction automatically sends a receipt accrual to the general ledger. The Receiving Inventory Account is debited (quantity x purchase order line unit price) and the Inventory AP Accrual account (un-invoiced receipts account) is credited the same amount. Run the Journal Import process with a source of Purchasing to create un-posted journals in the general ledger.

Deliver and cost (3)

After delivering to the final destination, the Receiving Inventory Account is cleared and the Material account is debited. If you use standard costing, the Material account is debited with the standard cost of the item and any difference is charged to the Purchase Price Variance account.

Period end accrual (4)

When items are accrued on receipt, no period-end accrual is generated by the Receipt Accruals - Period-End process. The receipt accrual is automatically generated when the receipt is processed.

Invoice and match (5)

Entering an invoice and matching creates a debit to the Inventory AP Accrual account to clear the liability for the uninvoiced receipt (you now have an invoice). The credit is to the AP Liability account that defaults from the supplier site if the invoice unit price is the same as the purchase order line unit price. Any difference is charged to the Invoice Price Variance account. For items with destination type of Inventory, the Invoice Price Variance account will be the Invoice Price Variance account specified when you defined Inventory Information for your inventory organizations in the Other Accounts tab. The AP Liability account is cleared when the invoice is paid.

Accounting for Mass Additions - Periodic Accrual (Period End)

Enter purchase order (1)

When you enter a purchase order, accounts are created and stored with the purchase order distribution. The accounts will eventually be used as a basis for creating accounting that is sent to the general ledger. Creating a purchase order in and of itself generates no accounting that is sent to the general ledger.

Receive (2)

For most expenses and asset purchases (other than inventory), receipt accruals are generally processed at period end, so no accounting is transferred to the general ledger at the time the receipt is processed.

Period end accrual (3)

If no invoice is received and matched to the purchase order at period end, the Receipt Accruals - Period End process will generate an accrual that is transferred to the GL Interface. Run the Journal Import process to create un-posted journals in the general ledger.

Reverse accrual (4)

Perpetual accruals (on receipt accruals) are reversed when the invoice entered in Payables is matched to the purchase order. Periodic accruals (period end accruals) are reversed when a reversing journal is created and posted in the general ledger.

Invoice and match (5)

Entering an invoice and matching creates a debit to the Inventory AP Accrual account to clear the liability for the uninvoiced receipt (you now have an invoice). The credit is to the AP Liability account that defaults from the supplier site if the invoice unit price is the same as the purchase order line unit price. Any difference is charged to the Invoice Price Variance account. For items with destination type of Expense, the Invoice Price Variance account will be the same as the charge account. In the case of an asset that will be capitalized and depreciated in assets, the charge account is an asset clearing account associated with an asset category in Assets. The AP Liability account is cleared when a payment is processed.

Post asset to Assets (6)

The Post Mass Additions process places the asset in service. When the Create Journal Entries process is run in Assets, the charge account (the clearing account on the invoice distribution) is relieved and the cost account associated with the asset category is charged for the cost of the asset.

Enter invoice (1)

A standard, unmatched invoice entered into Payables will generate a credit to the AP Liability account and a debit to the charge account specified on the invoice distribution. For expenses, this will be an income statement account; for assets that will be capitalized in Assets and depreciated, this account will be a balance sheet account (asset clearing account); for inventory received, the account will be the Inventory AP Accrual account.

Procure to Pay Process

Demand

The procurement process generates and manages requests for the purchase of goods. The demand for purchase items may be a one-time event or may recur in either predictable or random time intervals.

Source

The procurement sourcing process covers the business activities related to the search, qualification, and selection of suitable suppliers for requested goods and services.

Order

The procurement ordering process includes purchase order placement by the buying organization and purchase order execution by the supplying organization.

Receive

The receipt process acknowledges that a purchase order has been duly executed. For orders of physical goods, it will typically include the receipt, inspection and delivery of the goods to inventory or to another designated location. For orders of services, it will typically consist of a notification from the requester or the approving person that the service has been performed as agreed.

Invoice

The invoice process includes entering supplier and employee invoices.

Pay

The payment process consists of those activities involved in the payment for ordered goods and services.

Definitions of Purchasing Document

Blanket Purchase Agreement: It committed amounts for specific date range for service or goods.

Contract Purchase Agreement: It committed amount for certain period of unspecified goods.

Purchase Order types:

Standard: It is regular purchases order to represents your order to the supplier.

Planned: It is a purchase order before you actually order the goods and services.

Blanket: It is entering to against of blanket purchase agreement.

Contract: It is entering to against of contract purchase agreement.

Types of receipts:

Manual: It is for inputting data manually.

Express: It is a quicker method-if you have specified PO then requires fewer keystrokes.

Cascade: It is assists in the distributions of the quantity of a receipt from a single supplier to multiple shipments and distributions.

Unordered: When you are missing a PO or if you’re not sure to which PO the receipt should be matched against, you can enter this type receipt.

Substitute Item: If you do not have any information for the Order Information alternative region then you enter a receipt for substitute item.

Quotation: It is used for quotes from the supplier regarding prices, terms and conditions of items.

RFQ: It is used for soliciting quotes from the supplier regarding prices, terms and conditions of items.

Purchase Release: It is used for releases against other document types, there are two subtypes for this: Blanket and Schedule.

Accounting Entries for Procure to Pay Cycle
A. Inventory Item:
On Receipt
DR Recv Ctl (Source – Inventory – Recvg Controls)
CR Inv AP Accrual Account (Source – Inventory Org Parameters – Other Accounts)

On Delivery
DR Inventory Account (Source – Sub Inventory)
CR Recv Ctl

On matching in AP
DR Inv AP Accrual Account
CR Liability Account (Source – Financial Options > Supplier Site)

B. Expense Item – Periodic Accrual
a. On Matching
DR Expense Account (Source – Item Expense)
CR Liability Account

C. Expense Item – Accrue on Receipt
On Receipt
DR Recv Ctl
CR Expense AP Accrual Account (Source – Purchasing Options)

On Delivery
DR Charge Account (Source – Item Expense)
CR Recv Ctl

On matching in AP
DR Exp AP Accrual Account
CR Liability Account

D. Fixed Asset – Periodic Accrual
On Matching
DR Asset Clearing Account (Source – Item Expense)
CR Liability Account

E. Fixed Asset – Accrue on Receipt
On Receipt
DR Recv Ctl
CR Exp AP Accrual Account

On Delivery
DR Asset Clearing Account
CR Recv Ctl

On matching in AP
DR Exp AP Accrual Account
CR Liability Account