Clearing Accounts

Receiving Inventory Account

The Receiving Inventory Account is a clearing account. The account is used for perpetual (on receipt)
accruals. After receiving transactions are processed and the Transfer Transactions to GL process is
run, the Receiving Inventory Account is cleared and the Material account is charged with the cost of
the capitalized inventory. Specify this account when you define Receiving Information for your
inventory organizations.

Inventory AP Accrual
This is the account used by Purchasing to accrue your payable liabilities when you receive items you
will capitalize as inventory. This account represents your un-invoiced receipt liability and is usually
part of your Accounts Payable Liabilities in the balance sheet. Payable relieves this account when
the invoice is matched and validated. Specify this account when you define Inventory Information
for your inventory organizations in the Other Accounts tab.

AP Liability
This defaults from the supplier site and is credited when a standard invoice is entered or debited when
a credit memo or debit memo is entered. The account is relieved when the invoice is paid.

Expense AP Accrual
This is the account used by Purchasing to accrue your payable liabilities when you receive items you
will expense. This account represents your un-invoiced receipt liability when you run the Receipt
Accruals - Period End process. Specify this account on the Accrual tab when you set up Purchasing
Options.

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Material
An asset account that tracks material cost. For average costing, this account holds your inventory and
in transit values. Once you perform transactions, you cannot change this account. Specify this account
when you define Inventory Information for your inventory organizations in the Valuation Accounts
region for the Costing Information tab.

Charge Account
This is the charge account is the account that will be charged for the purchase on either the balance
sheet or income statement. If the destination type for the distribution is Inventory, this account will be
the Material account associated with the sub inventory and you cannot override it. This is the balance
sheet account that will be charged after inventory is capitalized. If the destination type is expense, you
can specify this account (provided it isnt project related) and override any defaults. This account will
be either an asset clearing account that will be included on the balance sheet or an expense account
that will be included on the income statement. This account is either created or specified when you
create a purchase order. Charge Account* is one, where the Material will be Valued or expensed out,
PO Receipts Increase the debit balance of the Material/Expense account.

Purchase Price Variance

This account is used to record differences between purchase order line price and standard cost. The
Purchase Price Variance is calculated when items delivered to inventory are costed. This account is
not used with the average cost method. For example, assume the purchase order line price for an item
was set at $10 per item but standard cost was set to $12 per item and you purchased 10 items. The
Purchase Price Variance would be $20. Specify the Purchase Price Variance account when you define
Inventory Information for your inventory organizations in the Other Accounts tab.

Invoice Price Variance

The variance account used to record differences between purchase order price and invoice price. This
account is used by Payables to record the invoice price variance for inventory items. For expense
items, the account generator uses the charge account to record any invoice price variance. For
example, assume the purchase order line price for an item was set at $10 per item but you were
charged $12 per item and you purchased 10 items. The Invoice Price Variance would be $20. Specify
this account when you define Inventory Information for your inventory organizations in the Other
Accounts tab.

Accounting options in Financials Options in AP.

Liability. Payable assigns this account as the default Liability Account for all new suppliers you
enter. You can override this value during supplier entry. If you use Accrual Basis accounting, then the
Liability Account for an invoice determines the liability account(s) charged when you create
accounting entries for invoices.
Prepayment. The Prepayment account and description for a supplier sites invoices. The Financials
option value defaults to new suppliers, and the supplier value defaults to new supplier sites.
Future Dated Payment. If you use future dated payments, then enter a value for Future Dated
Payment account. This value defaults to all new suppliers and new bank accounts. The supplier value
defaults to all new supplier sites. The bank account value defaults to new payment documents.
When Payables accounts for future dated payments, it uses the Future Dated Payment Account from
either the supplier site or the payment document, depending on the option you select in the Payment
Accounting region of the Payables Options window. If you relieve liability payment time, this should
be an asset account. If you relieve liability at future dated payment maturity, then this should be a
liability account.

Discount Taken. If you choose to distribute your discounts to the system Discount Taken Account,
Payables uses this account to record the discounts you take on payments. Use the Payables Options
window to select your method for distributing discounts for your invoices.
PO Rate Variance Gain/Loss: Payable uses these accounts to record the exchange rate variance
gains/losses for your inventory items. The variance is calculated between the invoice and either the
purchase order or the receipt, depending on how you matched the invoice. These accounts are not
used to record variances for your expense items. Any exchange rate variance for your expense items is
recorded to the charge account of the purchase order. Payable calculates these amounts during
Payables Invoice Validation.
Expenses Clearing: This account is optional when you use the Company Pay payment option of
Oracle Internet Expenses. Payable uses this as a temporary account to record credit card transaction
activity. Payable debits this account when you create an invoice to pay a credit card issuer for credit
card transactions. Payables credits this account with offsets to the original debit entries when you
submit Expense Report Import for an employee expense report entered in Internet Expenses that has
credit card transactions on it. If you enter an expenses clearing account in this field and in the
Expenses Clearing Account field of the Card Programs window, the account entered in the Expenses
Clearing Account field of the Card Programs window takes precedence.
*Charge Account* is one, where the Material will be Valued or expensed out, PO Receipts Increase the debit balance of
the Material/Expense account.

*Liability Account* is one, where you recognize your supplier outstanding Balance. AP Invoices increase the Credit
Balance of the Liability Accounts. Debit Memo/Credit Memo, Payments and Prepayment applications decrease the
Supplier Liability Account Credit Balance.

Receiving Inventory Account and AP Accrual Accounts are Clearing Accounts. Once you receive the Material against a
PO where Accrue at Receipt Flag is set to yes the Following Accounting Entry is generated.

Receiving Inventory Account Dr

To AP Accrual Account. Cr.

If you Create Invoice through the Pay-On Receipt or through Matching PO/Receipt the Following Accounting entry is
generated.

AP Accrual Account Dr.

To Supplier Liability Account Cr.

So the Clearing account (AP Accrual Account) is knocked-off.

Same way when you deliver the receipt the following accounting entry is generated

Material Valuation Account Dr.

To Receiving Inventory Account Cr.

Here also the Clearing account (Receiving Inventory Account) is knocked-off.

Final outcome is:

Material Valuation Account (PO Charge Account) Dr

To Supplier Liability Account Cr.