4. ACCOUNTS PAYABLE
4.2. SOLUTION IN SAP – (TO BE):
Overview: The Accounts Payable application component records and administers accounting data for all vendors. It is also an integral part of the purchasing system. Deliveries and invoices are managed according to vendors. The system automatically makes postings in response to the operative transactions.
Payables are paid with the payment program. The payment program supports all standard payment methods.
Postings made in Accounts Payable are simultaneously recorded in the General Ledger where different GL accounts are updated based on the transaction involved (payables and down payments, for example). The system contains due date forecasts and other standard reports that you can use to help you monitor open items.
You can design balance confirmations, account statements, and other forms of reports to suit your requirements in business correspondence with vendors. There are balance lists, journals, balance audit trails and other internal evaluations available for documenting transactions in Accounts Payable.
4.2.1. PO BASED BILLS PROCESSING (REVENUE & SERVICE)
In this process Purchase Order is raised with reference to Purchase Requisition where accounting has no impact, it’s only a commitment item. When the goods are received from the vendor based on the PO, we execute MIGO where goods receipt is posted and both Material document and FI document is generated.
Material document will be for accounting stock into stores and FI entry will Inventory / Stock A/c Dr.
GR/IR Clearing A/c Cr.
Here GR / IR clearing account is a clearing account and gets knocked off at the time posting the invoice (MIRO execution).
All the Incoming Invoices are verified in terms of their content, prices and arithmetic and the invoice is posted, the data is saved in the system. The system updates the data saved in the invoice documents in Materials Management and Financial Accounting.
After the invoice has been posted, the document appears as an open item in the vendor account. (Payment proposal list).
Accounting Entries when invoice is posted will be:
GR/IR A/c Dr.
CENVAT Clearing A/c Dr (if applicable) VAT Clearing A/c Dr (if applicable)
Vendor Account Cr.
In case of Service PO following entry will be triggered:- Goods Receipt:
Expense a/c Dr.
Service GR / IR A/c CR
Invoice Posting:
Service GR/IR A/c Dr.
Vendor Account Cr.
Delivery costs can be divided into:
Planned delivery costs
Unplanned delivery costs
Planned Delivery Cost:
Planned delivery costs are entered at item level in the purchase order.
Planned delivery costs can be divided into:
Freight costs
Customs relevant
Insurance
Planned delivery costs can be invoiced in the following ways:
Fixed amount, independent of scope of supply
Quantity-dependent amount
Percentage of value of goods to be delivered
For planned delivery costs, the System makes postings to a clearing account at goods receipt.
If the delivery costs in the invoice differ from the planned delivery costs, the System posts the differences in the same way as it posts normal price and quantity variances.
In case of planned delivery cost such as Freight:
Freight clearing A/c Dr Freight Vendor A/c Cr
In case of planned delivery cost for Customs duty (Bill of Entry items), Customs clearing A/c Dr
Customs Officer’s A/c Cr (Govt. Vendor) Unplanned Delivery Cost:
Enter the unplanned delivery costs on the Extras tab page. The System distributes unplanned delivery costs among the items; it treats them in the sameway as price differences. However, it does not check the price after distributing the delivery costs. It does not list them separately in the purchase order history. They are only included in the invoiced value.
Then accounting entries will be,
Vendor A/c Cr
Stock A/c (or) Price Difference Dr
Domestic Purchases (material) -- which includes fright,VAT During GR:
Material Stock Dr
GR/IR Clearing A/c Cr Freight Clearing A/c Cr
During Invoice Verification:
GR/IR Clearing A/c Dr Freight Clearing A/c Dr VAT A/c Dr
Vendor A/c Cr Freight Vendor A/c Cr
For Domestic Procurements of Capital Goods:
During GR:
Material (Asset) A/c Dr GR/IR Clearing A/c Cr
During Invoice Verification:
GR/IR A/c Dr Vendor Payable A/c Cr
Import Purchases (material) -- which includes fright, Duty
During Customs Duty Clearing Invoice:
Custom Clearing A/c Dr Custom Officer A/c Cr
Here Custom Officer is created as a vendor.
During GR:
Material Stock Dr
GR/IR A/C Cr
Custom Clearing A/c Cr
(The custom duty portion of value is loaded to the inventory and the Customs clearing a/c will get nullified)
During Invoice Verification:
GR/IR A/c Dr
Vendor A/c Cr
4.2.2. DIRECT BILLS PROCESSING (NON PO BASED)
Accounting Document is generated manually by debiting the expense and crediting the vendor. WHT is also deducted at this stage which will be called up automatically.
Vendor invoices without MM purchase order would be booked through FI vendor invoice and has no impact on the stock.
In the FI vendor invoice, GL account is to be entered for the debit posting. Due date, payment terms is to be mentioned in the invoice.
4.2.3. VENDOR DOWN PAYMENT & CLEARING Payment / Receipt process (Advance & Regular):
Advance Payment: Once the APR (Advance Payment Request) received from Purchase / Intending department, AP user will cross check the request with PO for compliance.
For all the purchase based advances, PO numbers will be referred/attached to prepayment voucher. So system will allow to pay the advance always less than or equal to the advance amount mentioned in the PO. More than one PO can be referred for a single pre payment against each vendor.
Advance Payment:
A Down Payment request is raised by the authorized person requesting for payment. Based on the request, a down payment may be released to the particular vendor and request item is cleared. Down payment request is a noted Item special General Ledger account which will not be displayed in the Balance Sheet. In SAP, processing of a down payment involves a number of steps:
Down Payment request, a notational item recorded against the vendor,
Make payment against the payment request,
Post the invoice which required the down payment,
Clear the down payment against the invoice, and
Make final vendor payment, the balance of the invoice.
The accounting entry for making the down payment will be:
Vendor account (Spl. G/L: Down Payment) Dr Bank A/c Cr
4.2.4. INVOICE BOOKING & SETTLEMENT OF ADVANCE
The concept of authorizing the document entry can be achieved by the standard SAP functionality creating and authorizing the payment request. Payment request will be created by one person and authorized by another person to keep the control.
It is also possible to post invoices from FI without the necessity of purchase order. That can be used to fulfill the requirement of postings like miscellaneous payments, employee related payments, travel agent payments, hotel bills and consultancy payments.
Settlement of down payments to the vendor account and clearing of Invoice against,Down Payment
Vendor A/c Dr
Vendor A/c (Spl. G/L: Down Payment) Cr
Wherever, WHT is applicable, the WHT will be deducted at the time of down-payment to the vendor and will be adjusted at the time of settlement of advances.
4.2.5. CREDIT PERIOD FOR VENDOR PAYMENTS:
Terms of Payment will be defined by the Company, which will be updated in the Vendor Master for each vendor and will be defaulted in the PO and Invoice level. Where the payment terms have been changed in the invoice level, the due dates will over-ride the original due date (calculated based on Purchase Order).
Terms of payment will define the credit period, due date and cash discount, if applicable. The due date will be calculated from a baseline date as per the payment terms, which will be either of the following dates:
Document Date
Posting Date
No Default
4.2.6. VENDOR NORMAL PAYMENT
By using the SAP standard functionality all the check payments can be managed. The typical procedure under SAP with respect to check will be:
a) Defining the check lots for house bank of X COMPANY b) Entering the vendor invoice
c) Entering the vendor payment by clearing the open item created by invoice d) Attach check to the payment document number generated in step (C) e) Check the check register to see the check updated/3
Vendor Payments can be manual or automatic. The general aspects related to vendor payment are Terms of Payment, Method / Media of Payment, manual payment & Automatic Payment
X COMPANY has to make payments to vendors during their course of transactions, vendors invoice due date is checked and if it is due, then the payment process begins. Prior to making any payment down payments if any are to be checked and cleared against the invoices. Only then Payment process can be carried out.
The payment can be full payment or part payment or residual payment. In case of full payment, the system clears the open item. In case of part payment, the open item is not cleared and has to be cleared manually subsequently, when the entire amount is paid. In case of residual payment, the original invoice is cleared and the balance amount is created as fresh open item.
Availability of the funds is checked before making the payment. In case funds are not available, after making the funds available, the payment has to be carried out.
Payments can be made through automatic payment program or through manual payment.
Check payment can be made through automatic payment program or through post plus print option transaction. In case of automatic payment program, the parameters have to be entered and the system prints the checks for all the vendors who are due as per specified parameters. In both cases, the check is printed.
In case of post plus print option, the individual vendor has to be selected and payments are to be made by selecting the required open items and with that reference of payment document check can be printed.
4.2.7. AUTOMATIC PAYMENTS:
The payment program is designed so that you can pool and process outgoing payments. The payment program processes domestic and foreign payments for vendors and customers. It creates payment documents and supplies data to the payment medium programs. These payment medium programs print either a payment list, payment forms (for example, checks).
The payment program processes the open line items in three steps:
It determines the open items to be paid according to the parameters entered and creates a proposal list. You then have the ability to edit the proposed payments before the transactions are posted. Any items that you do not want to pay can be blocked for payment, however, if you need additional items to be included in the proposal list, the previous proposal must be deleted, the parameters changed to pick up the additional transactions and the payment program rerun.
The payment program makes the payments based on the edited proposal list. Only the open items contained in the proposal list are taken into consideration. The payment program posts documents, sets up data for the form printout (check), the remittance advice, and the payment summary as required.
Payment program will automatically update the check register (if used) and the relevant general ledger accounts and also clear the vendor invoice for which payment run is executed.
Considering the need of paying multiple vendors at a time and generating ‘.csv’ file, automatic payment program would be used for X Company.
The payment parameters that need to be specified include:
Company Code
Vendors to be paid (and customers for refunds)
Posting and document date for open transaction items that must be included in the proposal list
Defining the bank from which the payments will be made
Payment methods that are permitted (e.g. Check, EFT)
Currency
During the payment run accounting document is generated clearing the vendor open item.
4.2.8. MANUAL PAYMENT
With manual payments you can print checks without running automatic payment program. There are two ways of doing this:
You can print a check for a payment already posted. This may be necessary if a check is damaged during printing.
Check is prepared manually i.e outside the SAP system and then check details are updated to the payment document which updates the check register.
4.2.9. VENDOR FOREIGN PAYMENT
In case of Import materials, Purchase orders will be processed and sent to the selected vendor with all terms and conditions. Upon the receipt of the goods in the customs area, they would be released after the payment of duty. In SAP the customs authority would be considered as vendor and a liability towards customer duty would be recognized in the system. This would be called as customs invoice verification.
Then after payment of subsequent duties, goods would be released from the customs area. Goods receipt would be booked once the goods are received in company’s storage location. Then import vendors commercial invoice would be booked in the system.
If goods received are as per the PO order quantity, Goods receipt will be posted with reference to purchase order when material is physically received. Invoice verification will be processed with reference to goods receipt and vendor invoice receipt as per the payment terms stated in purchase order. Vendor payment will be processed with reference invoice verification posted in Materials Management by Financial Accounting.
For such an IR, the exchange rate is picked up from the PO in which we have defined a fixed exchange rate.
All import purchase orders are to be raised in foreign currency but the transactions are to be recorded in INR. The import vendor invoice would be booked in the system in foreign currency. System would pick up the exchange rates maintained in the system for the currency pair for e.g. USD to INR. The exchange rate can be changed in the document, if required. At the time of payment, the system would automatically calculate the exchange gain/loss and book it to relevant GL A/c.
4.2.10. DEBIT NOTE & CREDIT NOTE
All the support/relevant documents will be submitted by purchase to generate the debit/Credit note on the identified process like discounts on the qtypurchase.
Cross Functional with MM:
Credit Memo:
A credit memo can be entered with reference to a purchase order or a goods receipt. Purchase Dept/AccountsDept enter a credit memo for a purchase order item when the goods are returned to the vendor. First MIGO is to be posted for the return quantity and then credit memo to be posted in MIRO for the return PO.
Accounting Entries will be for Credit Memo (returned goods) Goods Receipt - MIGO
GR/IR A/c Dr Inventory A/c Cr
Posted for the returned quantity, stock value & quantity is reduced.
Invoice Posting – MIRO
Vendor A/c Dr GR / IR A/c Cr VAT Receivable A/c Cr
4.2.11. ADJUSTMENT / CLEARING PROCESS
Open items reflect unfinished transactions. For example, a Liability that has not been settled remains in the Liability account as an open item until it is settled.
The open items of an account can only be cleared once you post an identical offsetting amount to the account. In other words, the balance of the items assigned to each other must equal zero.
During clearing, the system enters a clearing document number and the clearing date in these items.
Open items can only be cleared if they are posted to accounts that are managed on an open item basis. Open item management is automatically set for customer and vendor accounts. For GL accounts, however, you have to set the open item management option in the master record.
Open items of an account can be cleared manually using the Account Clearing function, or they can be cleared automatically by the system. Automatic clearing is especially useful for clearing accounts in the GL account area.
Users will clear open items from GL accounts by running the clearing program. This program uses predefined criteria to group together open items per account. If the balance of the group of open items equals zero in local or foreign currency, the items are marked as cleared.
The clearing program is used to automatically clear open items based on predefined criteria. Manual clearing of open items is therefore not usually necessary.
Automatic clearing (i.e. clearing based on SAP-defined fields such as assignment, amount, ref. field).
Manual clearing (i.e. matching of amount performed by users).
4.2.12. CORRESPONDENCE
All evaluations and reports sent to business partners are considered as correspondence. Correspondence for both customers and vendors includes:
Account statements and open items lists in letter form
Individual letters and standard letters
Balance confirmations
Document extracts
Since standard reporting format of above correspondence does not meet X COMPANY requirement, need to be developed
Vendor master creation
Yes
Yes
Create Vendor No
Centrally ?
Purchasing view created?
Vendor is created No
Start
Decide the account
group M
Create vendor in that account group S
Create accounting
views S
Stop Materials
management process
S
Create Accounting
Yes View
No
Park and post vendor invoice:
X COMPANY requires day to day accounting of the transactions that take place in the organization. This application component is required for entering vendor invoices that arise in the accounts payable module of financial accounting.
In case, where materials management is involved, the entering of the invoice is done in the logistics invoice verification of the materials management.
Authorized to post?
Yes
End Vendor invoice
entered S Start
Post the
invoice S Yes
No
Park the invoice S
Authorized person accesses the parked invoice
S
Accept?
Yes
Authorized to post?
No Correct the invoice S
Post the invoice S No
Authorized person accesses the invoice
S
Vendor down Payment
X COMPANY has to pay, during their course of transactions, advance payments to the vendors. Advance payments are known as down payments in SAP. Down payment request can be created by the materials management department and the same can be viewed by the accounts payable person. After checking the purchase order terms, the down payment is made by the accounts payable person.
The system posts the down payment transaction as a special general ledger transaction in the vendor account. Hence, it will not appear in the regular balance but only in special general ledger balance. Once, the down payment is cleared against an invoice, the balance is shifted from the special general ledger balance to the regular vendor account balance.
At the time of document entry, the appropriate special general ledger indicator needs to be chosen.
Flow diagram for vendor down payment
Down payment to be made?
Yes Stop No
Vendor Account updated Down payment
request from Purchase Department
S Start
Read the purchase
order M
End Make down payment
through check/
transfer
S
Flow diagram Vendor Payment Process