Topic 3 – Accounting cycles

2.0 Acquisition  – page 55

2.1 Purchase Order process – page 54

 

– What steps are normally checked by an organisation before creating a purchase order

• The organisation will determine from the AIS or warehouse inventory information system which inventory items must be ordered and quantity required.
• The quantity required will be determined on the basis of the inventory quantity on hand and the inventory quantities that should be available.

 

– What steps are normally completed by the supplier on receipt of a purchase order

The supplier will receive the purchase order and process the order according to their own internal processes

• to determine how much an order may cost
• when inventory or services can be delivered
• if inventory is available

 

– What AIS reports for purchase orders can be generated in the AIS – (Mark 2)

An outstanding/open purchased order report can be printed to show all purchased orders not yet converted into GRN.

Inventory Received – page 57

 

Goods received Notes

 

– What steps are normally completed by an organisation on receiving inventory

On receipt, the organisation will compare the items received with the items listed on the supplier delivery note and the organisation own purchased order.

Any differences in quantity, types of items and quality will be clearly indicated on the delivery note before it is signed by the organisation as acknowledgment of receipt.

• The supplier delivery note will be used to create the GRN
• The GRN will be linked to the purchased order and the purchased order closed if the complete order was received.
• If the complete purchase order was not received the organisation will have the option to close the complete purchase order and inform the supplier that they no longer want the items or to only close the purchase order line items actually received.
• In the matter of the second instance, the undelivered purchase order will then still be open but will only show all the items still on order
• The supplier delivery note is an external document that serves as proof of which items were delivered

 

– What accounting transaction takes place in the AIS – (Mark 2)

Once the inventory items have been received, risk and ownership are transferred to the organisation which now has a liability to pay.

To reflect the actual substance of the transaction an accrual account is used to record the liability until such time that the actual invoice is received and recorded.

The accrual is based on estimates only because the supplier invoice with the actual prices and so forth has not yet been received at this stage.

 

Note – in Pastel the GRN account is classified as an accrual account and holds the value of the delivered inventory quantity amount temporarily until the supplier’s invoice has been received.

 

– What inventory transaction takes place in the AIS – (Mark 2)

Because inventory was physically received and is now available for selling…

• The inventory quantity on hand that’s available will increase
• The quantity on order will decease

 

– What AIS reports can be generated in the AIS – (Mark 2)

• Purchase analysis reports which can be extracted, based on purchases per supplier, document type, journal, invoices due reports indicating unpaid invoices that are due, based on the supplier payment terms
• supplier statements, age analysis and detailed ledger showing all supplier invoices recorded
• vat reports showing the input vat for all purchase transactions
• general ledger accounts details showing the accounting entries for the selected general ledger accounts

 

Invoice Received – page 61

 

The purchases journal will be used to capture the transactions.

 

– What steps are normally completed by an organisation on receiving the suppliers Invoice

 

• The organisation receives the suppliers tax invoice
• The organisation is obliged to pay the invoice
• check that the details are correctly captured
• check that there is a vat number on the document
• check that the value and quantities correlate to the quoted prices
• convert the goods received note into a suppliers invoice
• close the goods received note

Physical Items

Service Items

 

Inventory Returned – page 68

 

Return and Debit Note

 

If the organisation receives the inventory and finds the goods defective or incorrect they are returned to the supplier and a credit note received from the supplier.

 

– What steps are normally completed by an organisation for creating a Return and Debit Note

 

• The supplier credit note received is used to create a return & debit note in the ais and the return & debit note is linked to the corresponding ais supplier invoice.
• The supplier invoice and linked return debit note will remain open until payment has been made.
• The risk of the inventory items is transferred back to the supplier

 

Note – a debit note can also be used to correct incorrectly captured supplier invoices or supplier invoices captured according to the source document received

 

– What steps are normally completed by the supplier on receiving a Return and Debit Note

• The supplier receives the items and gives the organisation credit for the items received by issuing a credit note.
• The credit note must be matched to the debit note received from the organisation.

Bear in mind that if trade discount was granted on the original supplier invoice, the same discount, if applicable on the returned items, should also be captured on the return debit note.

Any trade discount must be netted off (deducted from) inventory and trade payables amounts.

 

– What AIS Return and Debit reports can be generated in the AIS – (Mark 2)

 Debit note analysis reports that can be extracted, based on debit notes per supplier, item supplier statements, supplier age analysis and supplier detailed ledger, which will include the debit note

Inventory reports

• Vat reports showing the output vat for all debit note transactions
• General ledger accounts details showing the accounting entries for the selected general ledger accounts

 

Payments – page 73

 

– What steps are normally completed by the supplier after delivering the inventory

 

• The supplier will send a statement with a payment remittance advice monthly or more frequently to the organisation.
• The statements will indicate the ageing of the outstanding balances and other information based on the supplier processing method (open item or balance forward).
• After the payment and the remittance advice have been received, the supplier will update his or her records.

No vat transaction is recorded with the payment because the vat entries were recorded during the recording of the supplier invoice.

 

Payment to Supplier

 

You can use two methods of integration:

 

If you choose to use partial integration:

When you process

 

Sales transactions –

• Pastel updates the customers balances
• Pastel updates the customer control account in the g/l

 

Purchase transactions –

• Pastel updates the supplier balances
• Pastel updates the supplier control account in the g/l
• Pastel updates the inventory balances

 

The inventory control account, a balance sheet item, is not affected.

If you do not fully integrate and you want to see a meaningful balance sheet, you need to manually enter journals to bring the inventory account in the general ledger up to date.

• You would derive the value of these journals from your inventory reports.
• You would need to match the inventory valuation account with the stock control account with the inventory valuation report by passing journals between the cost of sales account and the stock control account.
• You would need to do a stock take at each period end and pass a journal to cost of sales so that your actual stock as per your stock take is equal to that of the inventory general ledger control account. The equation for working out your cost of sales is:

 

Cost of sales = opening stock + purchases – closing stock

 

If you choose to use full integration:

Pastel creates additional entries to the general ledger to achieve full integration.

With this method, Pastel maintains an inventory balance sheet account, which reflects the inventory average cost value. This method is sometimes called the perpetual inventory method.

 

When you process

 

Sales transactions –

• Pastel updates the customer’s balances
• Pastel updates the customer control account in the g/l

 

Purchase transactions –

• Pastel updates the supplier balances
• Pastel updates the inventory balances
• Pastel updates the supplier control account in the g/l
• The inventory control account, a balance sheet item, is affected.

Pastel passes a journal between the inventory control account and the cost of sales account automatically once the batch is updated.