Procure to Pay (P2P) Concept is a Process that is followed by an organisation for Procuring a Product or Services from the supplier/vendor and make payment for it. The following is the flow for Procure to Pay(P2P) Cycle.
1) Requisition.2) Request For Quotation (RFQ).
3) Receiving Quotations.
4) Quotation Analysis
5) Purchase Order (PO)
6) Receiving
7) Receiving Transaction (Delivery).
8) Create Invoice
9) Payment.
10) Clear the invoice in Cash Management.
11) Transfer to Geneal Ledger.
Requisition: Depending on the requirement of the organization, the required department raises the requisitions material.
Request for Quotation (RFQ): Based on Requisition, the organization will approach the supplier for quotations.
Receiving Quotations: Based on the RFQ’s the supplier will be sending the quotations.
Quotation Analysis: After receiving quotations are received from supplier, Select the best quotations by which all requirement are fulfilled.
Purchase Order: Once the best quotation is finalized, raise purchase order against that supplier for delivering the goods/services. There are four types of purchase orders
1. Standard Purchase Order.
2. Planned Purchase Order.
3. Blanket Purchase Order.
4. Contract Purchase Order.
Receipt: Based on the Purchase Order, The supplier will deliver the goods/services to the organization. The organization will receiving the goods and will be placed at the staging area.
Receiving Transactions: Moving the goods from staging area to particular rack or warehouse.
Invoice: Creating invoice in payables modules against supplier for supplying goods and services.
Payment: Make payment to supplier for invoice amount.
Reconciliation: It means clearing the transaction in cash management Module.
Transfer to General Ledger: Accounting will be transferred from purchasing, Payables, Cash Management modules to GL.
Now, Let's see how accounting is generated in P2P CycleAccounting defers based on item type (Expense Item, Inventory Asset Item, Inventory Expense item). The following is the accounting entries generated by the system for Expense item type.
1) Requisition.2) Request For Quotation (RFQ).
3) Receiving Quotations.
4) Quotation Analysis
5) Purchase Order (PO)
6) Receiving
7) Receiving Transaction (Delivery).
8) Create Invoice
9) Payment.
10) Clear the invoice in Cash Management.
11) Transfer to Geneal Ledger.
Requisition: Depending on the requirement of the organization, the required department raises the requisitions material.
Request for Quotation (RFQ): Based on Requisition, the organization will approach the supplier for quotations.
Receiving Quotations: Based on the RFQ’s the supplier will be sending the quotations.
Quotation Analysis: After receiving quotations are received from supplier, Select the best quotations by which all requirement are fulfilled.
Purchase Order: Once the best quotation is finalized, raise purchase order against that supplier for delivering the goods/services. There are four types of purchase orders
1. Standard Purchase Order.
2. Planned Purchase Order.
3. Blanket Purchase Order.
4. Contract Purchase Order.
Receipt: Based on the Purchase Order, The supplier will deliver the goods/services to the organization. The organization will receiving the goods and will be placed at the staging area.
Receiving Transactions: Moving the goods from staging area to particular rack or warehouse.
Invoice: Creating invoice in payables modules against supplier for supplying goods and services.
Payment: Make payment to supplier for invoice amount.
Reconciliation: It means clearing the transaction in cash management Module.
Transfer to General Ledger: Accounting will be transferred from purchasing, Payables, Cash Management modules to GL.
Now, Let's see how accounting is generated in P2P CycleAccounting defers based on item type (Expense Item, Inventory Asset Item, Inventory Expense item). The following is the accounting entries generated by the system for Expense item type.
Note: Requisition, Request for Quotation, Receiving Quotations, Quotation Analysis and for Raising Purchase Order (Till Step 5) no accounting is generated. Accounting will be start generating from Receipt ( From Step 6).Receipt at Purchasing Module:
Receiving Inventory A/c ..................................Dr
To AP Accural A/c......................Cr
At Delivery at Purchasing Module:
Expenses A/c .................................Dr
To Inventory Receiving A/c ..........Cr
To Purchase Price Variance ..........Cr
Note: Purchase Price Variance (PPV) is the difference between PO price and Standard Cost.
Payable invoice when matched to PO:
AP Accural (92001) A/c..........................Dr
To Liability A/c..................................Cr
To Invoice Price Variance ............... Cr
Note: Invoice Price Variance (IPV) is the difference between Invoice Price and PO Price.
Payment made to Supplier/ Vendor in Payables modules:
Liability A/c .............................Dr
To Cash Clearing A/c ...................Cr
When Payment is cleared in bank
Cash Clearing A/c ..............................Dr
To Cash A/c ..................................Cr
Receiving Inventory A/c ..................................Dr
To AP Accural A/c......................Cr
At Delivery at Purchasing Module:
Expenses A/c .................................Dr
To Inventory Receiving A/c ..........Cr
To Purchase Price Variance ..........Cr
Note: Purchase Price Variance (PPV) is the difference between PO price and Standard Cost.
Payable invoice when matched to PO:
AP Accural (92001) A/c..........................Dr
To Liability A/c..................................Cr
To Invoice Price Variance ............... Cr
Note: Invoice Price Variance (IPV) is the difference between Invoice Price and PO Price.
Payment made to Supplier/ Vendor in Payables modules:
Liability A/c .............................Dr
To Cash Clearing A/c ...................Cr
When Payment is cleared in bank
Cash Clearing A/c ..............................Dr
To Cash A/c ..................................Cr
