From Jim Wimsatt , Oasis Solutions Group Project Manager
For customers that use MAS90’s Purchase Order and Inventory modules, it seems monitoring and reconciling the Purchases Clearing account is the greatest challenge.
The function of the Purchases Clearing account is to allow the receipt of purchase order items into inventory prior to receiving an invoice for the goods from the vendor.
When items are received using the Purchase Order Module, Receipt of Goods process: the received quantities are added to inventory, the assigned inventory general ledger account is debited for the value of the item received, and the assigned purchases clearing account is credited for an amount equal to the inventory debit. Once the invoice is entered using the Purchase Order Module, Receipt of Invoice function: the vendor invoice is added to Accounts Payable Open
Invoices, the accounts payable general ledger account is credited for the amount owed to the vendor, and the purchases clearing account is debited for the original unit cost of the items on the purchase order equal to the quantity invoiced. If the vendor invoice unit cost differs from the cost on the purchase order, and the amount originally credited to the purchases clearing account when goods were received, then the difference between the two amounts are posted to the assigned purchase variance account to keep the entry to the general ledger balanced.
Purchases Clearing Report
In order to reconcile the balance of the assigned purchases clearing general ledger account, Sage provides the purchases clearing report. The purchases clearing report is located under the Purchase Order module, Period End folder. Best practice is to include the reconciliation of the report to the general ledger balance as part of your month end tasks. For customers that process a high volume of receipt transactions, reconciling the amounts on a weekly basis may make more sense. The report only includes PO lines where the quantity received is not equal to the quantity invoiced. Since the processes of receiving goods and receiving invoices post the credits and debits to the purchases clearing general ledger account, when the two quantities are not equal, then the difference in the quantities times the unit cost should be a part of the purchases clearing general ledger account balance and included on the report.
Historical Problems with the Purchases Clearing Reconciliation
A likely reason that purchases clearing is a struggle to reconcile is that some many things can go wrong, and usually do. Working with MAS90 for 15 years, below are the three most common issues that can go wrong.
- Entering the PO invoice in Accounts Payable Module – When entering the invoice in the accounts payable module, the purchases clearing account is never debited, and often the inventory amount is posted twice to the general ledger. Even if the purchases clearing account is selected as the expense account during the accounts payable invoice entry, the purchase order line item will continue to appear on the Purchases Clearing Report because the quantity received does not equal quantity invoiced.
- Reconciling a Purchases Clearing Report containing special and miscellaneous items – General Ledger postings to the assigned purchases clearing account are only accomplished when receiving inventory items and inventory invoices. While the purchases clearing report can be run to include special and miscellaneous items, only the value of inventory items should be reconciled against the assigned purchases clearing general ledger account.
- Not confirming Purchase Order Line quantity invoiced to quantity received – Often the same item will be listed multiple times on a purchase order. Often times the goods will be received on one purchase order line, and the invoice on another line. While the amounts posted to the general ledger are correct, the two lines will both appear on the purchases clearing report. It rarely resolves itself and often times one line is used to receive the invoice for the total number of the same item, while the receipt of items is done on each line of same item.
Other mistakes that can occur include changing the unit cost of the item on the PO after it has been received and prior to receiving the invoice. Doing so can sometimes post incorrect values to the purchases clearing general ledger account. Again, the recommended best practice is to reconcile the amounts as part of the monthly close process for the purchase order module. Letting the process go for a several months can make it very difficult and sometimes impossible to reconcile the amounts.
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