Procure to Pay (P2P) – Accounting Entries

1. Enter purchase order
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.
2. Receive
When you process a receipt, no accounting is created for period end accruals. Receipts that are accrued at period end will always be for a destination type of expense.
3. Deliver and cost
When you deliver a receipt to its final destination, no accounting is created. The expense will be recorded after matching to the purchase order, running the Payables Accounting process and subsequently running the Payables Transfer to General Ledger process.
4. Period end accrual
If an invoice is not entered by period end, the Receipt Accruals - Period End process will generate accruals and transfer the accounting for them to the GL Interface. Use the Journal Import program to create unposted journals. This journal is created with a reversal date in a subsequent period. The journal must be reversed so your receipt liability is not overstated.
5. Reverse accrual in the general ledger
In the subsequent period, reverse the prior period accrual.
6. Invoice and match
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 entire 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. The AP Liability account is cleared when a payment is processed.

As you know "procure to pay" Business Flow start Purchasing requisition till paying to vendors and most important, in all the case the purchase is made for basic element called Items.

As you know there are three types of items:

• Inventory Expense Item
• Inventory Asset Item
• Expense item

Definition of above Items used in Purchasing can be best understood as:

Definition of above Items used in Purchasing can be best understood as:

Asset flag means means it is an asset and the items value will show in your inventory valuation.

Inventory Item

Expense Item

These are one which is used for consumable items purchase for your organization. More importantly , for creating an expense item you have to perform following setup doing in the Master Item form.Go to same path in oracle inventory

Oracle Inventory -> Items -> Master Items

When master items form open Go to Inventory Menu you need to tick followings

1.   Inventory item

2.   Stock able

3.   Transactble

4.   Resolvable

And you can also setup in Costing and purchasing menu account code as per your requirement.

Asset Item

As discussed above , the following attributes need to be enabled for such an item.

·         Inventory item

·         Stock able

·         transact able

·         Costing flag

·         Inventory asset value

For entering on purchase orders
It should have purchased and purchasable flags enabled and you have to make sure you are assigning this item to the Purchasing org which you have defined at

Oracle Purchasing > Setup > Organizations >
Financial Options > 'Supplier-Purchasing' alternate region 'Inventory Organization' field.

The accounting can be best described for such kind of items is;

Is there any effect on Step 5 in all three cases, that mean do matching have different accounting entry?

The answer is no; as per my understanding purpose of setting the PO to a 2way, 3 way or 4 way match is to ensure that the corresponding hold is generated on the invoice.

The holds are basically designed for control purposes, they do not have any accounting effects.