AP Basic Module

SAS AP Team Basic Module.

Presentation on Procure to Pay cycle.
Brief description on purchase order.
AP accounting entries.
AP accrual entries.
Objective.

SAS Team AP training Basics 1

Objectives
After this module, you should be able to:
• Obtain a general overview of Buy to Pay process.
• Setting up of Supplier Database.
• Pay site (addresses) and payment terms.
• Demand of Material / Services and Sourcing Dept.
• Setting up of Purchase Order.
• Receiving, Scanning and Entry of Invoices.
• Types of Invoices
• Workflow notifications to the buyers / requestors.
• Payment of Invoices

SAS Team AP training Basics 2

 Procure/Buy to Pay - With PO

Requirement for Create agreement

Requisition sent to
materials / services or communicate
Sourcing Department
arises Purchase Order to
supplier

Payables
department verifies
invoice and makes
payment Receipt of invoice from
the Supplier in mailbox.

Vendor ships
materials

Scanning & Data entry of

Invoice and its approval

SAS Team AP training Basics 3

Procure/Buy to Pay - Without PO

Requirement for Requisition sent to

materials / services Sourcing Department Vendor ships
arises materials

Create agreement
or communicate
Purchase Order to
supplier

Receipt of invoice from

Payables department Scanning & Data entry of the Supplier in mailbox.
verifies invoice and Invoice and its approval
makes payment

SAS Team AP training Basics 4

Supplier Database – Supplier Set up

Supplier database contains the information related to the

suppliers.
A company may have thousands of the suppliers from
which it purchases goods and services. Therefore we need
to maintain the vendor data base to have a complete
information about the all the vendors we deal with.

Supplier Number 1022541

Name of Supplier Raddison Hotel Sweden
Parent Supplier Raddison Hotel Group
Reportable 1099/1042 Yes / No
State Where Reportable Palo Alto, CA

SAS Team AP training Basics 5

Supplier Database – Supplier address details

Supplier database also contains the information related to

the addresses for placing the purchase orders and making
the payments.
These addresses (Sites) are linked to the Supplier Header
Database. Every site has one address marked as :
Purchasing site – Address to place the purchase Order.
and
Pay site – Address where payments can be remitted. It
may contain a bank account number of supplier, in the
cases where payment has to go electronically to supplier’s
bank account.

SAS Team AP training Basics 6

 A supplier can have multiple purchasing and pay sites depending upon the
location of the business

Supplier Number 1022541

Name of Supplier Raddison Hotel Sweden
Parent Supplier Raddison Hotel Group
Reportable 1099/1042 Yes / No

State Where Reportable Palo Alto, CA

Purchasing Purchasing Payment Payment Purchasing

Site: Site: Site: Site: Site:
Palo Alto Fort Collins Palo Alto Fort New Jersey
Collins
SAS Team AP training Basics 7
Supplier Database – Supplier site contents

Site Code ABC Taxable Y/N

Site Name Palo Alto TIN Number 12-3425623
Site Type Payment Payment Method Check
Supplier Address 12XXXXXX Payment Terms Net 35
Bank Account xxxxxxxxxx Description abcdefghijk
Liability Account xxxxxxxxxx Alternative supplier
Name

Site Code XYZ Taxable Y/N

Site Name Fort Collins TIN Number xxxxxxx
Site Type Purchasing Payment Method xxxxx
Supplier Address 12XXXXXX Payment Terms Net 35
Bank Account Blank Description abcdefghijk
Liability Account xxxxxxxxxx Alternative supplier
Name

SAS Team AP training Basics 8

Demand of Material / Services and Sourcing Dept.
Demand of materials and services are raised at various production department and
a requisition is sent to the Purchasing/Procurement/Sourcing Dept.

Sourcing is the first phase in the Procurement process, where information is

gathered and research is done in order to enable the best procurement decision.

Let’s take a look at the purchasing process:

Please Note: In some companies Procurement and Sourcing departments are combined as one department

SAS Team AP training Basics 9

The different steps in Purchasing are:

Requisition - This is a request for materials.

Request for Quotation - This is used for soliciting quotes from the
supplier regarding prices, terms and conditions of the item. There are
3 sub types of ‘Request for Quotation’ (RFQ):
• Bid
• Catalog
• Standard

Quotation - It is a sales offer from the supplier.

Sometimes the Sourcing department already has the list of vendors
and their list prices. In that case the sourcing department directly
recommends the vendor name having most appropriate terms /price.

Raising of PO - Now the Procurement/Purchasing Dept. raises a Purchase

Order to the supplier to purchase the material.

SAS Team AP training Basics 10

Setting up of Purchase Order

Purchase Order (PO) - The request issued by a buyer to a vendor for

goods or services. In most cases, purchases will be made utilizing a PO. It
is also referred to as a Customer Order. Each PO is assigned a PO
number

A PO is an information sharing vehicle provided to vendors

which specifies:

• Who is making the purchase

• Who the vendor is
• Where the goods/services are to be delivered
• Whom to bill
• Payment terms (Collected from purchasing site)
• Shipping terms and instructions
• Due date / Need by date
• Natural Account # to which the purchase will be charged
• Authorizing Signature (if necessary)
• Specifications regarding the purchase (including Product Code) its

SAS Team Quantity, Color, Cost, Basics

AP training Size, weight and unit of measure 11
Contents of Purchase Order

PO Header
It displays the master information about the purchase order raised. It has:
• The PO number of the Order raised.
• Name of Supplier and Purchasing Site address (From Supplier
database)
• Amount of Purchase Order.
• Currency of Purchase Order. We normally have SEK for Sweden
Suppliers.
• Name of Buyer (A person from Procurement creating this PO)
• Notes to the Purchase Order

SAS Team AP training Basics 12

Receiving of Goods

Supplier sends the goods to our company which is received and

stored in the warehouse. The goods (Units) received are entered in
the PO Shipments (3 Way match).

Products: Goods like medical equipment, computer peripherals, industrial

instruments, etc. are examples of products purchased
Services: Invoices raised on services like repairing, cleaning, telephone
service, etc.
For example, installation carried out by technicians/engineers…PO is not
raised for utility services like gas, fuel, electricity, etc (in some systems –
Otherwise we issue PO for all the goods/services purchase. For services and
indirect materials (in some systems) we do show the receiving in the PO
Shipments

SAS Team AP training Basics 13

 Raising of Invoice from Supplier
Supplier sends the invoice to
ACS box number. Supplier can
also send invoices through
email.

See the image Collection of Invoices and

of the invoice Scanning at ACS site
and enter into
the software
(Computous-
WIS) or Oracle

SAS Team AP training Basics 14

Entry of invoice into the system

Invoice having PO number on the image can pull most of the relevant
information from the PO number itself.
1. Open the invoices screen.
2. Enter the Purchase Order number
3. Supplier Name, Supplier number, payment site and payment terms is
placed on the invoice from the system itself.
4. Enter the Image number, Amount and date of the invoice.
5. Create the invoice lines matching to the items / lines in the purchase
order.
6. Invoice lines also contains the Account debited from the Purchase Order.
7. Don’t enter the tax lines. System calculates the tax automatically as per
the taxable item mentioned in the Purchase order. Taxability on the
invoices will be discussed later.
The invoices entries into the system differ from one system to another
SAS Team AP training Basics 15
Types of Invoices

Standard Invoice:
A normal invoice submitted from the supplier billing our company for
the goods and services provided is a standard invoice. A standard
invoice contains:
• Name of supplier
• Billed to Address / Ship to location
• Invoice date
• PO number (Issued by us to the vendor)
• Description of the Goods supplied, Qty , unit price and amount.
• Tax on the Invoice
• Invoice Total
• Reference name or number

SAS Team AP training Basics 16

Credit Invoice / Credit Note or Memo
This is a negative invoice from the supplier. This credit memo is
issued by the supplier when:
1. Goods are returned to the vendor after making the payment
(Purchases returns).
2. Payment made for full stock ordered but partial shipment is
received from the supplier.
3. Payment made to supplier but no shipment is received.
4. Order cancelled after payment.
5. Supplier is overpaid (may be Twice or more).
In simple terms the Supplier is crediting our Account in his books.

SAS Team AP training Basics 17

Debit Memos (From Supplier)
It is a supplementary invoice from the supplier for Debiting our account in
their books, for extra amount not covered in previous invoice. It is issued
when:
1. Short billing previously.
2. Extra goods supplied by the supplier as per revised agreement.

Debit Memos (From our side):

It is a negative invoice generated from our side to recover the money from the
supplier. Only authorized employees can issue this memo to Debit the
supplier account in our books. It is issued when:
1. Goods returned to the supplier, but no credit memo is received from the
supplier side.
2. Over payment made to the supplier
3. Payment made for full stock ordered but partial shipment is received from
the supplier.
4. Payment made to supplier but no shipment is received.
5. Order cancelled after payment.
SAS Team AP training Basics 18
Workflow notifications to the buyers / Requestors

The information sent by the system to the buyers and requestors

about the working against their owned Purchase order is called
workflow notification.
Depending on the functionalities set in the system, the invoices
booked against the GL code sends the information to the buyer and /
or requestor about the booking of invoice.
These notification could be:
Active Notification – Sometime after entering the invoices into the
system requires active acceptance from the buyer / requestor to be
paid to seller. The invoices remains on hold and cannot be paid until
it is approved.
Passive / Informational – Provides the information to the
buyer/requestor about booking of invoice against their PO.

SAS Team AP training Basics 19

 Notification for over billing – This notification is informational which
provides the information to the buyer or requestor about the over-billing
of their purchase order. This notification could be Active or Passive.
Asset Notification – Usually any invoice booked against the purchase
order booked for Fixed Asset generates such notification. This
notification requires the Requestor to enter the necessary information
required to be entered in the Fixed Asset register.

SAS Team AP training Basics 20

 Payment of Invoices

All those invoices which are due to be paid are picked up by

the payment run program. After this the suppliers are paid by
way of Check , Wire or Automated Clearing House (ACH –
Electronic Funds transfer to Supplier’s bank account within
home country.
To pay a particular invoice these things need to be checked:

Payment date of an invoice depends on the invoice date and

payment terms.
For example:
An Invoice having Invoicing date as 24-Mar-2010 with payment
terms as NET 45 would have a payment date as 02-May-2010.

SAS Team AP training Basics 21

 • Payment run program check all the invoices having closer
payment date (4-5 days from today’s date).
• It complies the file of the invoices due to be paid.
• This information is sent to our bank to issue the checks to the
supplier (s) or make payment through electronic system to
supplier’s bank account.
• After one or two days we get the confirmation from the bank about
the payment details to the suppliers.
• After this invoices show the status as paid.
• In payment details of the invoice we can see the check number
issued to the supplier. Until the check remains un-presented, it
shows the NEGOTIABLE status. Once it is presented and paid,
the status becomes RECONCILED.
Please Note: Payment Run program picks only those invoices which are in
Approved / Validated status. Any invoice on hold due to pending approval from
proper authority is not picked by the payment run program.

SAS Team AP training Basics 22

Basic AP Concept

 2 way matching concept in used for Utility

expenses
Purchase order Invoice

 3 way matching concept is used for expenses

where goods are received.
Purchase order GRN Invoice

SAS Team AP training Basics 23

Accounting Entries
Flow of entries in accounts payable:
When good received
Inventory A/C Dr
To GRN A/C Cr
When Invoice received
GRN A/C Dr
To Vendor A/C Cr
When Payments are made
Vendor A/C Dr
To Bank or Cash A/C Cr

SAS Team AP training Basics 24

AP accounting flows in SAS
 When good/services are purchased
Good/Services A/C Dr
To Purchase Control A/C Cr (2410)
 When Invoice is received
Purchase Control A/C Dr (2410)
To AP A/C Cr
 When payment is made
AP A/C Dr
To Disbursement control A/C (2421) Cr
 When payment goes out of treasury
Disbursement control A/C Dr (2421)
To Bank A/C (1940) Cr
SAS Team AP training Basics 25
AP Accrual Entries
 Accrual entries are passed to account the expenses that have taken place but
not yet recorded at the end of the month. These are also called the
unaccounted transactions.

For example expenses incurred in the month of Apr’10 but the invoice was not
booked gets accrued in the month of Apr’10.

Apr’10: Expenses A/C Dr

To Accrual for expenses A/C Cr

May’10: Reversal entry

Accrual for expenses A/C Dr
To expenses A/C Cr
: Actual booking
Expenses A/C Dr
To A/P A/C Cr

SAS Team AP training Basics 26

Objective of accounts payable
 Managing working capital of the business.
a. Paying suppliers on time, but not earlier.
b. Availing discount where it is in the interest of the company.
c. Preventing duplicate payment

 Maintain a clean vendor data.

 Preventing frauds & embezzlements from within & outside the
organization.
 Reconciliation of vendor account & reply to their query.
 Have better control & compliance in vendor payments.

SAS Team AP training Basics 27

 Thank You!!!!

All feedback are welcome……

SAS Team AP training Basics 28