Activities that Create General Ledger Transactions Version

Contents

Overview

This topic describes how transactions of various types are recorded in the General Ledger (GL). 

You can view General Ledger transactions from the Materials Management main Contents Inventory function.

Financial Reporting Fields

Inventory Transaction Types

One group of General Ledger transactions relates to the physical movement of inventory. A requisition alerts the materials department of a need for inventory, but it does not actually move the inventory. A purchase order alerts a vendor of an organization's need to purchase goods; however, it does not actually add a quantity of items to inventory. The activities that actually "move" inventory are:

• Receipt of goods

• Issue of goods

• Cancellation of receipt

• Inventory adjustments such as finalizing the count in a physical inventory, returns to vendors, and others.

Considering that Inventory is an asset and the PO Liability account is a liability, the General Ledger activity for each "movement" or adjustment of inventory can be summarized as follows.

Receipt of goods

When an organization receives inventory that it has ordered, the organization increases an asset and increases a liability.

The PO Liability account is an accrued liability. The accrual of the liability represents the "promise to pay" in the period for which the goods were received, even though an invoice for the goods has not yet been received.

Issues of Goods

The activity of confirming a pick triggers the actual issue. When an item is issued, the department expense is incurred. Therefore, the expense is increased and the asset is decreased.

Cancellation of Receipt

The cancellation of the receipt of goods essentially reverses the receiving transaction. The asset is decreased and the PO Liability is decreased.

Inventory Related Adjustments

Different types of inventory adjustments are possible. They are Return to Inventory, Return to Vendor, Physical Inventory Adjustments, and
Resolution of Invoice Quantity Exceptions. Each inventory adjustment type is explained below.

Return to Inventory (Credit Requisition)

A credit requisition is used to return items from a department to inventory. The departmental expense that is incurred when the goods are issued is reversed and the inventory (asset) account is increased again. These transactions occur when a credit requisition is submitted for approval, and completed.

Return to Vendor (Credit Purchase Order)

When goods are returned to a vendor, a purchase order is completed. The transaction that occurred when the goods were received is reversed. Thus, the PO Liability account is decreased and the asset that was recorded in the receipt is decreased.

If the credit purchase order is for a non-file item, then an additional transaction takes place:

The additional transaction reverses the issue transaction and the receiving transaction.

Physical Inventory Adjustments

When a physical inventory is conducted, the books must be adjusted to reflect the actual inventory count. An expense type of account is used to record these adjustments. (Recall that if an expense increases, the account is debited. If an expense decreases, the account is credited.)

Add Inventory

If a physical count is taken and the recorded amount of inventory is less than the actual amount of inventory, then the inventory difference is "added back" into the General Ledger.

Remove Inventory

If a physical count is taken, and the recorded amount of inventory is more than the actual amount of inventory, then the inventory difference is "removed from" the General ledger.

Set To

Set to either increases or decreases the inventory and the inventory adjustment expense account, depending on whether the adjusted quantity is greater than or less than the system's on-hand quantity.

Resolution of Invoice Quantity Exceptions

Quantity Exceptions: Stock Items

If the invoice quantity is greater than the receipt quantity, and the invoice quantity is correct, when the invoice exception is cleared, the system creates a receipt for the invoice quantity that is in excess of the receipt quantity. The receipt created is a regular receipt, and the General Ledger transaction is the same as for any regular receipt:

Quantity Exceptions: Non-Stock Items

If the invoice quantity is greater than the receipt quantity, and the invoice quantity is correct, the system creates a receipt for the invoice quantity that is in excess of the receipt quantity when the invoice exception is cleared. The receipt created is a regular receipt, and the General Ledger transaction is the same as for any regular receipt. 

At the same time, since the item is a non-stock item, the system issues the item if any quantity remains on backorder for the item and the associated PO. If no quantity is backordered to a department, the quantity remains on hand in inventory, and the system does not issue it. (A requisition would need to be created to issue the quantity of the item.) 

The combined General Ledger transaction is:

See Handling Exceptions for more information on the resolution of invoice price exceptions

Invoicing

Invoices created in Supply Chain have General Ledger account numbers on them. These invoices are eventually exported to Accounts Payable. When invoice exceptions are cleared, a cost adjustment receipt or a regular receipt may be created. These receipts are normal GL transactions, and are posted to the General Ledger.

General Ledger Transactions Created when Accounts Payable Posts to the General Ledger

When an invoice arrives and is matched with receipts, the liability is moved from the PO Liability account to the AP Liability account. The AP Liability account holds the dollar amount of open invoices. This account's balance is reconciled using reports from Accounts Payable. The transaction decreases PO Liability and increases AP Liability.

If price exceptions exist, when the exceptions are cleared, the appropriate GL adjustments are made to the PO Liability account to ensure that the amounts moved from the PO Liability account to the AP Liability account are accurate.

To view file inventory transactions:

1. From the Materials Management main Contents, click Inventory > File Item Transactions.
   - The File Inventory Transactions list appears.
2. Click GL Transactions to view the transactions associated with the item. 

To view non-file inventory transactions:

1. From the Materials Management main Contents, click Inventory > Non-file Item Transactions.
   - The Non File Item Transactions list appears.
2. Click GL Transactions to view the transactions associated with the item. 

To view all GL transactions:

From the Materials Management main Contents, select Imports / Exports & Financials > GL transactions. The list of GL transactions appears.

Transaction Types

In using some report objects, you can select the field "Transaction Type." This field is usually an integer value, rather than a description of the transaction. Here is a list of transaction types, and the matching number type.

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