Detailed Notes on Accounts Payable and Inventory Management

Accounts Payable and Asset Management

• When purchasing, the reconciliation account used is Accounts Payable (AP).
• Inventory is treated as an asset, which increases when purchased.
• The double entry accounting process involves:
  • Debit: Inventory (asset) increases.
  • Credit: Accounts Payable (liability) increases (due to the obligation to pay).

Transaction Steps

1. Transaction 1: Purchase

   • A purchase of 100 items at $75 each leads to:
     • Debit Inventory: $7500 (100 items x $75)
     • Credit Accounts Payable: $7500

2. Transaction 2: Invoice Verification

   • This can be a two-way or three-way match to verify invoice against the goods received.
   • Upon successful verification, the liability to the vendor is confirmed.
   • Debit Vendor Account and Credit Accounts Payable for the verified amount.

3. Transaction 3: Payment to Vendor

   • Payment made through bank account (asset decreases):
     • Credit Cash/Bank Account: $7500
     • Debit Vendor Account: $7500 (reducing the liability to zero).
     • Automatically impacts the AP reconciliation account.

Invoice and Goods Receipt Processing

• When verifying invoices:

  • Ensure the quantity and price match actual orders and receipts.

• Recurring Calculations for Moving Average Price:

  • Initial moving average price is calculated as ext{Average Price} = rac{ ext{Total Value}}{ ext{Total Quantity}} .
  • Whenever goods are received, average price must be recalculated. Example:
  • Initially 200 items valued at $12000 gives an average price of $60.
  • After receiving 100 items at $7500, new average price becomes:
    rac{12000 + 7500}{200 + 100} = rac{19500}{300} = 65 .

Tax Considerations

• When invoices include tax (e.g. $8000 with $7500 being the cost and $500 as tax):
  • The breakdown during verification:
  • Credit total bill ($8000).
  • Credit account for the purchase ($7500).
  • Debit input tax account ($500).

Vendor-specific Configurations

• Vendor account linkage allows for reconciliation with accounts payable.
• When making vendor payments, the process must capture:
  • The appropriate source of funds from bank or cash reserves.
  • Maintain tracking of any applicable taxes separately.

Automatic Posting Mechanisms

• The system automatically posts transactions from subledger to general ledger accounts, linking accounts payable and vendor accounts.
• System configuration determines how different accounts relate (e.g., account category reference to valuation classes).

Master Data Management

• Data is organized at client, plant, and stored levels to avoid duplication and improve transaction efficiency.
• The purchasing data is kept at the plant level while accounting data is at the company code level.

Business Partner Configuration

• There are three types of business partners:
  1. Individual (employees, agents)
  2. Organizational
  3. Group (customers or vendors sharing similar characteristics)
• Multiple roles and characteristics associated with a single business partner entry.

Summary of Accounting Procedures

• Transaction Keys manage the automatic account determination process:
  • Example Codes:
  • BSX: Inventory Accounts
  • WRX: Goods Receipt/Invoice Receipt Accounts

Conclusion

• The lecture provides insights into accounting in procurement systems, double-entry bookkeeping in transaction processes, and how vendor management integrates within accounting frameworks.