A purchase order is typically used when we want to purchase an item from a party. The party selling the item becomes 'Vendor' in this case. Hence we can say, that we are buying the items from the vendor.
Now when a user decides to buy an item, a Purchase Order (PO) is created in Dynamics AX 2012.
I am going to walk-you through each and every step of PO creation till invoicing and how is it impacting our financial statements.
Lets start with PO creation.
1) Create a PO
Now when a user decides to buy an item, a Purchase Order (PO) is created in Dynamics AX 2012.
I am going to walk-you through each and every step of PO creation till invoicing and how is it impacting our financial statements.
Lets start with PO creation.
1) Create a PO
- To create a PO, go to Account Payable > Common > Purchase Orders > All Purchase Order.
- Click on New
- Select a vendor account.
- Site and warehouse, if configured will come automatically else we can manually select that.
- Click on OK
A purchase order form will open.
2) Adding lines to a PO
- On the purchase order, click on add line and select an item. I have selected item 0003 for the demo.
- By default, the qty will be 1. So change the qty if needed.. Check the unit price of the item.
- The site and warehouse will be populated on the lines from the header, as can be seen in below screenshot:
3) Confirm PO
Once the PO is created, we have to confirm the PO. Confirmation of a PO is just an acknowledgement from the vendor that he is good with the qty and the price of the item.
For this, go to Purchase tab > Click on Confirm.
A confirmation journal will be created.
Please note, that the status of PO is still open order.
4) PO receipt:
When vendor delivers the purchase order, we create PO receipt. Until this time item is not been received and hence no journal impact is there.
Once item is delivered, our asset increases and it will become the liability of the company to pay the vendor.
Thus, when a PO receipt is done then
Asset (Inventory un-invoiced) Dr.
To Accounts Payable (A/P uninvoiced) Cr.
To create a PO receipt,
- Click on Receive tab > Product receipt
- Enter the receipt number
- Click on OK
A product receipt will be generated
We can check that the order status will change to "Received"
Financial impact of Product Receipt:
- Click on product receipt journal
- In overview tab, click on Voucher.
We can check that 140100 i.e. inventory account has been debited and 200140 i.e. Accrued Purchases- received not invoiced has been credited.
Now, the question is how AX picks these accounts. This is a separate configuration, which we will see at the end.
5) PO invoicing
When the product is received by the company and company agrees to pay for the products received, then invoicing is done or invoice is posted. Now until the invoicing is done, company hasn't agreed to pay for the product. To create an invoice:
- Go to Invoice tab > Generate Invoice
- Enter the invoice number in invoice form and enter the invoice date
- Click on "Post"
The PO will be invoiced and the status of the PO too will change from 'Received' to 'Invoiced'.
Financial impact of Invoicing:
As soon as invoicing is done, the packing slip entries will be reversed. Now the company has the liability to pay the vendor, as the payment has not been done. But that inventory un-invoiced and accrued purchases will be reversed.
Hence now the entries will be something like:
Accounts Payable (A/P uninvoiced) Dr.
Asset (Inventory un-invoiced) Cr.
Asset (Inventory) Dr.
Accounts Payable (AP Invoiced) Cr.
The above entry holds true when the amount is same during product receipt and invoicing.
In our example, to check the transactions in AX2012, open the invoiced journal and click on voucher.
We can see that product receipt amount was $104.95 while the invoiced amount is $112.56. The difference between the two ($112.56-$104.95) is due to the sales tax. Thus sales tax is $7.61.
Now, in the voucher transactions, the earlier entry is reversed and hence
140100 i.e. inventory account has been credited and 200140 i.e. Accrued Purchases- received not invoiced has been debited with $104.95
While 140200 i.e. inventory account is debited, since inventory is received and we have an asset. While 200100 i.e. Account payable is credited since a liability is created.
The dr and cr is with invoice amount $112.56
A balance entry is made for sales tax account too i.e. 600170 sales tax account is credited and debited with $7.61.
Accounts configuration:
Now, we will see how AX is picking accounts for product receipt and invoice and where can we configure same.
Posting profile: Vendor posting profile is used to describe the accounts to be used for each vendor. To configure vendor posting profile,
- Go to AP> Setup > Accounts payable parameters
- Click on ledger and sales tax.
- Check the posting profile in General tab.
The posting profile is Gen in our case.
Now, check the vendor group of the vendor. For this,
- Go to AP> All vendors > Select the vendor .
- In general tab, check the vendor group of the selected vendor.
In our case, vendor group is 10.
Now, we have to set the accounts in posting profile "Gen" for this vendor group.
Go to AP> Setup > Vendor posting profiles.
Now we can see that account is not configured for vendor group 10, hence accounts configured for 'All' will be picked.
Now, if we backtrace then during invoicing, the new accounts used are :
140200 i.e. inventory account , debit account
200100 i.e. Account payable , credit account
600170 i.e. sales tax account is credited and debited.
So, the summary account configured here i.e. 200100 is our Accounts payable account.
Now, from where were the other accounts picked, for this we have to check the item group.
Like the vendor group, we have item groups too.
Item groups:
- Go to product and information management > Common > Release products > Open the product
- Click on manage cost > check the item group.
Here, the item group is actionsport.
Now, we will view the item group details:
- Go to inventory management > Setup > Inventory > Item groups.
- Select the item group of the item i.e. Action Sport.
- Click on Purchase order tab.
Here, we can check the accounts configured for each action:
During invoicing, accounts impacted were:
- 140200 i.e. inventory account , debit account - Purchase inventory receipt.
- 200100 i.e. Account payable , credit account - Summary account in vendor posting profile
During packing slip, accounts impacted were:
- 140100 i.e. inventory account invoiced has been debited - Product receipt
- 200140 i.e. Accrued Purchases- received not invoiced has been credited. - Purchase accrual.
So we can say that during packing slip, entry is
Product receipt Dr.
To Purchase accrual Cr.
During invoicing, the entries are:
Purchase accrual Dr. (Reverse entry)
Purchase inventory receipt Dr.
To Product receipt Cr. (Reverse entry)
To Account Payable Cr. (Summary account in Vendor posting profile)
The accounts posting of sales tax will be discussed in next post.
Till then, happy leaning AX.. :)
