Inventory Accounting Entries

All the Inventory transactions will look for the valuation class and the corresponding G.L. Accounts and post the values in the G.L accounts. For Example: during Goods Receipt Stock Account - Dr G/R I/R Account - Cr Freight Clearing account - Cr Other expenses payable - Cr During Invoice Verification G/R I/R Account - Dr Vendor - Cr When the Goods are issued to the Production Order the following transactions takes place: Consumption of Raw Materials - Dr Stock A/c - Cr When the Goods are received from the Production Order the following transactions takes place: Inventory A/c - Dr Cost of Goods Produced - Cr Price difference - Dr/Cr (depending on the difference between standard cost and actual cost) When the Goods are dispatched to customer through delivery the following transactions takes place: Cost of Goods Sold - Dr Inventory A/c - Cr When the Goods are issued to a Cost Center or charged off against expenses the following transactions takes place:

Repairs and Maintenance - Dr Inventory A/c - Cr When the Goods are stock transferred from one plant to another, the following transactions takes place: Stock A/c - Dr (Receiving location) Stock A/c - Cr (Sending location) Price difference - Dr/Cr (due to any difference between the standard costs between the two locations) When the stocks are revalued, the following transactions takes place: Stock A/c - Dr/Cr Inventory Revaluation A/c - Cr / Dr When the Work in Progress is calculated the following transaction takes place: Work in Progress A/c - Dr Change WIP A/c - Cr

Vendor Invoice Verification Accounting Entries

VENDOR INVOICE VERIFICATION The detail process related to invoice verification is documented in Materials Management Document. On receipt of vendor bill the following entry will be passed: GR/IR Account DR Freight Clearing Account DR Cenvat Clearing Account DR Vendor Account CR Invoice Verification for Foreign Vendor On receipt of vendor bill the following entry will be passed: GR/IR Account Vendor Account DR CR

Invoice Verification for Custom vendor On receipt of Vendor bill the follo wing entry will be passed: 1) RG 23A/RG 23C Part 2 A/c (CVD) A/c DR Cenvat Clearing A/c CR 2) G/R I/R A/c DR Cenvat Clearing A/c DR Vendor A/c CR 3) Cost of Material A/c DR Vendor A/c (Customs) CR Invoice Verification for Freight / Clearing Agent Cost of Material A/c DR Vendor A/c (Clearing Agent) CR Invoice Verification for Octroi Expenses Cost of Material DR Vendor A/c (Octroi) CR TDS (Work Contract Tax) for Service Orders shall be calculated and deducted accordingly. The following entry will be passed on bill passing: Expenses Account DR Vendor Account CR TDS Account CR The material shall be returned to the vendor using the Return to vendor movement type in SAP Creating a Return PO These transactions will be processed in the MM module. The accounting entries will be : Returns after GRN GR/IR A/c Dr Stock A/c Cr The accounting in respect of debit / credit memos for FI vendors, the process will be similar to that of invoice processing. The accounting entries will be: On issue of debit note Vendor Account DR Expenses Account CR

In respect of import vendor - capital goods exchange differences are to be accounted manually through a Journal Voucher for capitalization. Exchange rate differences will be accounted at HO. An example of the accounting entry in this case shall be: Invoice entry @ 40 INR: 1 USD Asset / Expense A/c DR 100 Vendor A/c CR 100 Payment Entry @ 41 INR: 1 USD Vendor A/c DR 100 Bank A/c CR 110 Exchange rate loss Capital A/c DR 10 Asset A/c DR 10 Exchange rate loss Capital A/c CR 10

A new G/L account shall be created for the special G/L transactions. The accounting entry for making the down payment shall be: Advance to supplier account Debit Bank A/c Credit When the invoice is booked the following entry is passed GR/IR account Debit Vendor account Credit Clearing of Invoice against Down Payment Vendor A/c Debit Vendor down payment account Credit Wherever, TDS is applicable, the TDS will be deducted at the time of down-payment to the vendor. Down Payment for Capital (tangible) Assets Down payment to vendors for capital acquisitions is to be reported separately in the Balance Sheet under the head Capital Work in Progress. Hence down payment for capital goods would be tracked through a separate special general ledger indicator. The procedure to be followed is: Definition of alternative reconciliation accounts for Accounts Payable for posting down payments made for Capital assets Clearing the down payment in Accounts Payable with the closing invoice.

A new G/L account shall be created for the special G/L transactions. The accounting entry for making the down payment shall be: Vendor Advance for Capital Goods Account Debit Bank A/c Credit When the invoice is booked the following entry is passed Asset A/c / Asset WIP Debit Vendor A/c Credit Clearing of Invoice against Down Payment Vendor A/c Debit Vendor Advance for Capital Goods Account Credit The Following are the TDS Rates (to be confirmed with the recent changes) Particulars Tax Rate Surcharge Rate Total Contractors 194 C 2% 5% 2.10% Advertising 194 C 1% 5% 1.05% Prof. Fees 194 J 5% 5% 5.25% Rent Others 194 I 15% 5% 15.75% Rent Company 194 I 20% 5% 21% Commission 194H 5% 5% 5.25% Interest - Others 194 A 10% 5% 10.50% Interest Company 194 A 20% 5% 21% Special Concessional Tax Works Contract Tax SECURITY DEPOSITS /EARNEST MONEY DEPOSIT RECEIVED FROM VENDORS Bank A/c DR Security Deposit Vendor CR EMD to give the age so as to enable the same to be transferred to unclaimed EMD account. PAYMENT OF TOUR ADVANCE DOMESTIC TOURS Employee Advances will be paid by the Accounts Department unit wise based on the requisition or recommendation of the respective departmental head. Employee Travel Advance A/c DR Cash / Bank Account CR

Important Accounts for Invoice Verification

As we know that the Invoice Verification is a sub-component of MM and it has its integration with other sub-component of MM Module such as Purchasing and Inventory Management. Since SAP

R/3 is an integrated system and information/Data flows from one application to other. Due to availability of integration utility within MM-FI, Postings are made to G/L accounts automatically in the case of Invoice Verification and Inventory Management transactions relevant to Financial and Cost Accounting. The following accounts are particularly important for Invoice Verification:

Vendor Accounts -We must maintain a separate account in the sub-ledger for each vendor that all amounts concerning this vendor are posted to. Normally this activity is being carried out by FI consultant. Making a posting to the vendor account is not the same as making a payment; payment is only made when the Financial Accounting department posts the vendor's payment to a bank account.

Stock Accounts (BSX) -Here we grouped together different materials with similar features are in a common account via valuation class. The account relevant for a material is defined in the material master record when a material is created via valuation class. The system only posts to the stock account when a price difference occurs for an invoice.

GR/IR Clearing Accounts (WRX) -An intermediate account between the stock account and the vendor account. At goods receipt, the net invoice amount expected is posted to the stock account. The offsetting entry is posted to the GR/IR clearing account. This posting is then cleared by an offsetting entry on the vendor account at invoice receipt.

Price Differences Accounts (PRD) -Under both the price control (S or V), there may be cases of Price differences while posting invoice, we need to post these differences in appropriate account categorized by SAP as Price Difference Accounts (PRD). Price difference can be posted as gain or losses to the business as a result of a particular transaction.

Cash Discount Clearing Account -As per the business requirement we may need to post an invoice as net, the cash discount amount is taken into account in the invoice, it reduces the value of the items; Hence we need cash discount clearing account to post the offsetting posting entry in SAP R/3. This account is cleared when payment is made to vendor.

Freight Clearing Account (FR1) -If we have made up provision in pricing procedures for freight as a planned delivery cost then we need to debit the respective stock account with the planned delivery costs at the time of goods receipt. At the time of Goods Receipt the system makes the offsetting posting to a freight clearing account. At the time of posting invoice this entry is cleared.