Questions and Answers

Q: This article provides a basic understanding of how purchase and sales order processes affect Inventory Control (IC) and General Ledger (GL).

A:

Purchase Order Process

1. Enter and save purchase order for given quantity of an item, at a given price.
2. Receive the purchase order.
3. In Accounts Payable (AP), select the option to Invoice PO Receipts. This creates an AP invoice for the purchase order receipts. Refer to the table below for more information:

 

Process	Effect on IC	Effect on GL
Enter or Save purchase order	None	None
Receive purchase order	Increase quantity	Debit Item Control Credit PO clearing
Invoice purchase order receipt in AP	None	Debit PO clearing Credit Accounts Payable

Note: If the price changes from the purchase order to the AP invoice, the system will post the difference to the purchase variance account. This account is set up in AP.

Sales Order Process

1. Enter a sales order for the item.
2. Ship the sales order. (If linked to AR automatically creates AR invoice). Refer to the table below for more information:

 

Process	Effect on IC	Effect on GL
Enter sales order	Item is allocated	None
Ship sales order	Allocations reduced, quantity reduced	Debit COGS Credit Inventory Debit AR Credit Sales (revenue)
AR invoice	Quantity is reduced	Debit to COGS Credit Inventory Debit AR Credit Sales (revenue)

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