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Closing Purchase Orders in the Edit Purchase Order Status window may not affect Accrued Purchases account in Microsoft Dynamics GP

Hi Everyone,

I wanted to bring some attention to the process of Closing a Purchase Order in the Edit Purchase Order window and let everyone know that depending on the status of the PO line at the time of closing, you may or may not be affecting the Accrued Purchases account.  This COULD be a reason why your Accrued Purchases balance in the General Ledger doesn’t tie to your Received Not Invoiced report.  Let me illustrate the scenarios you may encounter.

The activity against your Purchase order will determine what entries, if any, get posted to the GL.  There are two scenarios you could encounter when closing a PO.

  1. Received all quantities on the line, partially invoice them, and close the PO
  2. Received all quantities on the line and close the PO 

When you review the Purchase order in the Purchase Order Processing Document Inquiry window, you need to determine if there have been any Invoice receipts posted against the Purchase order.  If there haven't been any invoice receipts posted and the Quantity Invoiced is 0, the system is designed to not update the General Ledger with adjusting entries and back out Accrued Purchases. If the PO was closed before Invoicing, then you need to adjust the Accrued Purchases and Inventory accounts by creating a manual adjustment in the General Ledger to back out the value. If the invoice quantity is greater than 0, the system will automatically update the Accrued Purchases and Inventory accounts via a General Ledger journal entry and back out the remaining value.

 

More Information

There are two different scenarios that can occur when closing a Purchase order under Transactions | Purchasing | Edit Purchase Orders.  Here is an example based on one line item.

PO information

  • PO Number: PO00044
  • Vendor: ABC
  • 1 line item for quantity of 10 @ $120 unit cost = $1200 Extended Cost 

1. Receive all quantities on the line, partially invoice them, and close the PO 

a) Receive all the items on the PO (Transactions | Purchasing | Receiving Transaction Entry - Type: Shipment)  

General Ledger Adjustment: 

Account Type

Debit

Credit

Inventory

$1200

 

Accrued Purchases

 

$1200

 

**NOTE** Posting a Shipment receipt document for an inventory item creates a new line in the Inventory Purchase Receipts Work table (IV10200) for a quantity of 10 at a cost of $120 a piece.

b) Invoice PO00044 for a Quantity of 8 in the Purchasing Invoice Entry window (Transactions | Purchasing | Enter/Match Invoices)

 

General Ledger Adjustment: 

 Account Type

Debit

Credit

 Accrued Purchases

$960.00

 

 Accounts Payable

 

$960.00

 

**NOTE**This creates a payables invoice in Payables Management for $960. 

c) Close the PO in the Edit PO transaction window (Transactions > Purchasing > Edit Purchase Orders) 

Two things occur in this scenario when closing the PO:

1. The accrued purchases account is reversed out for the remaining balance associated with the lines being closed. This is because you will no longer be invoicing the items in Purchase Order Processing.  The system assumes the purchase order is being closed for a reason and the company will never need to pay the vendor for the two remaining items received on the shipment receipt. Essentially, you are receiving more, but paying less.  Closing the PO will also remove the purchase order from the Received Not Invoiced report which is typically used to tie accrued purchases to the General Ledger.  

Gender Ledger Adjustment: 

  Account Type

Debit

Credit

Accrued Purchases

$240 (2*$120)

 

Inventory

 

$240

2. The purchase receipt cost in the IV10200 that was originally for $120 will now be updated to $96.  The system is revaluing the layer because the purchase order was received at a quantity of 10, but only 8 needed to be paid for, therefore the cost of the item per unit is less.  The IV10200 table gets updated automatically and the calculation to determine the cost of the layer is as follows:

 

Calculation: Total Extended Invoice Cost (from the last invoice matched to the shipment receipt) / Quantity Shipped. ($960/10 = $96 each)

 

Note: Transactions that get posted automatically to the General Ledger for closing the PO will have a Source Document of EDTPO.  When zooming back on the Source Document link in the Detail Inquiry window in General Ledger (Inquiry | Financial | Detail) a message will display: “Transaction history does not exist for this transaction.”  This is working as designed because no transaction history is kept in the Purchase Order Processing tables for this action.

 

To determine what PO caused the GL transaction, run the following query in SQL against your company database.

             SELECT ORDTRNUM, ORMSTRID, * FROM GL20000 WHERE JRNENTRY = 'XX'

 Note Replace XX in the above query with the correct journal entry number.

The ORDTRNUM field will show the PO number that was closed.

The ORMSTRID field will show the vendor from the PO.

 

Note If these fields are not populated, then to capture that information going forward perform the following steps: 

1. Exit Microsoft Dynamics GP

2. In the Microsoft Dynamics GP code folder, open the Data folder and edit the Dex.ini file.

3. Add the following line to the Dex.ini file.

REVALJEINDETAIL=TRUE

4. Save the Dex.ini file.

5. Perform these same steps on each workstation that would perform posting against inventory items.

 

2. Receive all quantities on the line and close the PO

a) Receive all the items on the PO (Transactions | Purchasing | Receiving Transaction Entry - Type: Shipment)  

 General Ledger Adjustment:

Account Type

 Debit

Credit

Inventory

$1200

 

Accrued Purchases

 

$1200

 b) Close the PO in the Edit PO transaction window (Transactions | Purchasing | Edit Purchase Orders)

Results of closing without Invoicing: 

When you close a PO, the system doesn’t know what the intentions are of the user, so it does not do anything other than close.  

Here are some examples of questions Microsoft Dynamics GP doesn't know the answer to and why it does not update General Ledger: 

  • Did the user mean to close the PO? 
  • Did the user want the system to update the cost of the item? 
  • Did the user already record an Invoice in Payables Management and adjust out the Accrued Purchases? 

In this scenario a balance will remain in the accrued purchases account in General Ledger.  This situation should flag accounting when trying to tie the accrued purchases from the Received Not Invoiced report to the General Ledger account.  As long as there is a balance in the General Ledger for Accrued Purchases it's a way to identify something that happened. 

The reason why we do not use the same process for both scenarios is as follows:

If Microsoft Dynamics GP chose to update the IV10200 when the PO was not invoiced, then the cost of the item would go from $120 to $0 (Extended Invoice Cost (from the last invoice matched to the shipment receipt) / Quantity Shipped) ($0.00/10 = $0.00).  Since items typically have a cost, we do not want to make this adjustment.

We also do not want to make the assumption that you have not already created an invoice in Payables Management and reversed the accrued purchases account; therefore, we do not make this adjustment. Leaving the balance in the account is also a good control check on the status of your purchase orders when you go to reconcile to GL.

I hope this explains a little more about the Edit Purchase order window and provides some insight as to when the Accrued Purchases does or does not get updated.  I always suggest taking access away from the Edit Purchase Order window or give access to someone that understands the ramifications of closings so they can make necessary adjustments to General Ledger if needed.

Warmest Regards,

Angela Ebensteiner | Sr. Technical Advisor | Microsoft Dynamics GP

Comments

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  • Angela Eckman Ebensteiner Profile Picture Angela Eckman Ebens... 1,216
    Posted at
    Hi Lisa, ~ Most welcome! Scenario 2 is not captured in the SEE30303. Two main reasons. 1) Again, we assume you are closing for a reason; maybe the user did the invoice through Payables for example. Since we don't have any link between a manually entered Payables Invoice and the PO, we don't know what the cost was that you entered on the PM invoice. So, we don't do anything. We assume you are closing for a specific reason and know why and what the ramifications are and if adjustments need to be made. 2) There may not be a cost adjustment that is even needed so we don't post anything. Since there is no link to the Payable invoice (Or maybe there just isn't one), we don't know if there should or shouldn't be a cost adjustment, so nothing is posted. Let's say you posted a shipment for 10 items @ $1.00. Then you posted an Invoice in Payables for $10.00. Then closed the PO. Technically a cost adjustment wasn't needed because the cost of the "shipment" and the cost of the " PM invoice" is the same. Had you done the invoice in POP there wouldn't have been a cost adjustment anyway and nothing would have hit the SEE30303. If you did have a scenario where the vendor did charge a different cost for the item and the Payables invoice WAS for a different cost (say $2.00 a unit instead of $1.00) again GP doesn't know that there was this difference between the Shipment and the payables invoice because there is no link due to it being manually entered so again, we don't post anything. So, in this scenario you might want to consider updating your inventory layer by using the Adjust Cost utility and changing your cost to $2.00. This will make that cost adjustment to the SEE30300 and update GL for the cost difference. This will in turn will also update the IV10200 layer's unit cost AND if that layer was sold, it will also update the Outflow records. Overall, we don't do anything or adjust SEE30303 or GL when you close the PO in Scenario 2. That is why it's SO important to only let users that understand the consequences of closing a PO into this window. Hope this helps explain it a little better! Let me know if you have further questions. Happy to answer!
  • Lisa at AonC.com Profile Picture Lisa at AonC.com 3,141
    Posted at
    Thank you, Angela, for the insightful post! Does HITB (SEE30303) capture any information in Scenario 2?