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6. Purchase Orders and Accounts Payable

In This Chapter

Purchasing is not just about ordering and paying for pencils and paper clips. Rather, purchasing is the process of making sure that a steady stream of required materials is on the way to your company when and where you need them. As a fully integrated, end-to-end business management application, SAP® Business One helps you run the purchasing process, starting with the purchase order and continuing with the rest of the purchasing documents. SAP Business One automatically captures information at each step so you always know what's on hand in inventory as well as the up-to-the-minute financial state of your business. The real-time view helps you identify potential shortages before they happen (see details about material requirements planning in Chapter 7). Precise historical information keeps track of which vendors come through for you consistently.

In this chapter we focus on the basic steps involved in executing a purchase order (PO) in SAP Business One and the other purchasing documents that flow from it.

Overview of Purchasing-A/P Process

In this section, we take you through the basic three-part process of ordering, receiving, and paying for goods or services. The flowchart in Figure 6-1 presents the "big picture" of how SAP Business One purchasing documents relate to each other, including all of the optional steps, which are discussed in the next section.


Figure 6-1: Purchasing document flow in SAP Business One

Sometimes the process doesn't take a straight path because of one problem or another. For this reason, SAP Business One allows you to create other related purchasing documents to address special circumstances. These additional purchasing documents allow you to account automatically for all changes that may occur along the A/P process path – such as having to return defective items, pay customs charges or other fees, and so on. Obviously, this will save you a lot of time and trouble because you won't have to manually match the changes to the original purchasing documents.

Definitions

The term item is used in a very specific way in SAP Business One. It refers only to goods and materials bought, produced, sold, and warehoused.

The purchase order (PO) is the document you provide to the vendor specifying the items or services you want to purchase, including agreed-to quantities and prices.

The A/P reserve invoice is similar to a PO but it includes a request for payment. It is used when the vendor requires prepayment before delivering an item or service.

The goods receipt PO is the document that denotes the delivery of goods from a vendor to a company. It is used to update the inventory quantities and values.

The goods return document is used to reverse a goods receipt PO after it has been posted. It is used whenever part or all of the goods received are returned to the vendor.

The landed costs document is used when additional costs are involved in the purchase of items, usually from abroad, such as tariffs, brokers' fees, and so on.

The A/P invoice (or A/P voucher) is the document into which accounts payable enters the vendor's invoice information and sets up the payment.

An A/P credit memo (or A/P debit) is used to reverse the A/P invoice?partially or in its entirety?after it has been posted. It credits the company for the goods returned to the vendor.

     

Getting Started – Common Structure and Key Data

All of the purchasing documents in SAP Business One share a similar structure and use much of the same data. Before diving into the documents, here's an explanation of what is the same about each document.

Common Document Structure

Each purchasing document in SAP Business One has nearly identical header and footer fields and three tabs for Contents, Logistics, and Accounting. This structure helps to ensure that all relevant data is captured as the A/P process initiated by a PO gathers steam.

Header fields appear in every window of a purchasing document. You enter vendor data and delivery dates here, if SAP Business One does not fill it in automatically as part of the process flow.

Footer fields appear in every window of a purchasing document and contain the calculated totals for the purchase, including freight costs and tax.

The Contents tab is where all the specific information about the ordered items or services is entered, such as quantity, price, item number, and description.

The Logistics tab contains the details about where the items or services as well as payments are to be sent. Shipping method is also specified here. Most of the data is pulled from preconfigured master company details and vendor data.

The Accounting tab contains the relevant general ledger (G/L) account information for the purchase pulled from the financial accounting master data. See Chapter 4 for more information about G/L account determination and how SAP Business One handles automated journal entries that come via the purchasing as well as sales and inventory modules.


Figure 6-2: Anatomy of a purchasing document in SAP Business One

Key Data

Getting the most important data right from the start ensures that the A/P processes flow smoothly and avoids unnecessary roadblocks later on – especially since SAP Business One allows you to build documents from existing ones (see "Building One Document from Another" later in this chapter). For each of the purchasing documents, therefore, it is wise to make sure that the following information is complete and correct.

Data entry alert. Only users with the proper authorization may enter or update business partner or other master data. See Chapter 10 for more information.

Key Data: Vendor

Vendor data identifies who is supplying the goods and services. Before purchasing documents can be created, the vendor must be entered in the SAP Business One list of business partners. See Chapter 4 for instructions on entering master data.

To locate existing vendor information, either click on the button to the right of the Vendor field in the document header or press the Tab key in the Vendor field. The List of Business Partners appears in a pop-up window.

If you are authorized, you can enter new vendor information while creating a purchasing document. To do so, click on the New button on the bottom of the List of Business Partners pop-up window.

Payment method alert. If you plan to issue the vendor a check using the payment wizard, make sure you have defined the payment method in the vendor business partner master data record. See Chapter 4 for more information on master data management.


Figure 6-3: Specifying a vendor

Key Data: Item

Item data identifies what is being purchased. To locate the List of Items (goods and materials), press the Tab key from the Item No. field in the document's Contents tab. From the resulting pop-up window, you can select from the list or enter new data by clicking on the New button.


Figure 6-4: Specifying an item

Usability tip. You can select multiple items from the list by holding down the Ctrl key and clicking on as many items as desired.

You can enter new or updated vendor or item information directly into the relevant fields in the purchasing document. However, you should note that this information does not update the master data record and is relevant only to the specific purchasing document into which it has been entered. If you do change the vendor's name or an item's description directly in the purchasing document, press Ctrl + Tab to proceed when you are finished. However, if you want to make a permanent change or create a new item or vendor, we recommend that you change the relevant master data record or create a new item or vendor. That way, the data you update or the new item or vendor will be available from now on.

As shown in Figure 6-5, you can change the format of any row in the Contents tab of any SAP Business One purchasing document to insert text or a subtotal of the preceding row. Simply click on the drop-down list in the Type field and select T (for text) or Σ (for subtotal). When you select T, the Text Editor pop-up window appears. From here, insert predefined text from the drop-down list or insert your own text. This is especially helpful when you want to convey specific instructions to your vendor about how items should be manufactured, handled, or shipped.


Figure 6-5: Changing the format of a row in a purchasing document

Key Data: Pay to and Ship to Addresses

It is important to understand how the Ship to and Pay to addresses are used in the purchasing process.

Ship to address: This information is displayed under the Logistics tab and is defined in one of two places in the Administration module. You can modify the Ship to address in purchasing documents to ensure that goods are shipped to the correct location.

Pay to address: This information is displayed under the Logistics tab and is defined in the vendor business partner master data record. Make sure the Pay to address is the one you want for a given purchase since this information prints on the check when payment is issued.


Figure 6-6: Where Ship to and Pay to addresses are defined

Approval alert. The Approved box is checked only if the person creating the purchasing document has the authorization to post it. See Chapter 10 for more information.

     

Taking It Step by Step

Now we look at the process in more detail, one step at a time, starting with the purchase order.

Step 1: Purchase Order

Creating a PO is the first and most basic task in any purchasing application. In a nutshell, a PO is a commercial document issued by a buyer to a seller specifying the items (goods or materials) or services – along with agreed-to quantities and price – that the seller will provide the buyer.

Creating and Posting a PO

You may create a new PO by clicking on the document name in the module menu or by basing it on an existing sales order. This latter feature is especially useful if keeping inventory in the warehouse is expensive or dangerous (such as with diamonds or flammable materials), and the company orders the product from the vendor (that is, creates a PO) only after a customer wants to buy the product (that is, creates a sales order).

If you have attended to the master data issues discussed earlier, you need to enter only the following information in your PO:

  • Delivery Date: This is the date that you would like to receive the items (or services) being ordered.
  • Vendor: See "Getting Started: Common Structure and Key Data" earlier in this chapter. Figure 6-7 shows how to specify a payment method.
  • Contents tab: In the Item/Service Type field, make sure the type you select corresponds to what you are ordering, as shown in Figure 6-8. Enter all items (or services?but note that you cannot mix the two items and services in a single purchasing document) you are ordering into the table. (See "Getting Started - Common Structure and Key Data" earlier in this chapter.)


Figure 6-7: Specifying the payment method


Figure 6-8: Purchasing an item and or a service

Once you have entered this information into the header and Contents tab of your PO, the rest of the document is populated with the data necessary to issue the PO. If you are not ready to add the PO (by clicking the Add button), you can save it as a draft (by pressing Alt + S or clicking FileSave as Draft; see Chapter 10 for more information about document drafts). In SAP Business One, the PO is the only purchasing document you can amend after it has been added.

How do I create a blanket PO? To create a blanket PO for items or services to be delivered over a specified timeframe or on a periodic basis (for example, leases for office space and equipment or service contracts), create a purchase order with as many line items as needed (for example, 12 items to cover monthly deliveries for a year). You can then close one line at a time as the items or services are delivered, until the entire PO has been used.

Optional Step: A/P Reserve Invoice

The A/P reserve invoice is similar to a PO but it also includes a request for payment. It is used when the vendor is concerned about your creditworthiness and requires prepayment before delivering an item or service.

The A/P reserve invoice is a combination of a PO and a request for payment. It can be created new or from an existing PO. Once posted, the document debits the relevant accounts in the general ledger without affecting inventory quantities and values. The A/P reserve invoice cannot be used for services.

Approval procedures tip. In SAP Business One not only can you specify who may initiate purchase orders and who needs to sign off on purchase orders, but you can also set spending limits for each person so authorized. See Chapter 10 for more information.

Accounting and Inventory Impact of a PO

When a PO is added in SAP Business One, no value-based accounting changes occur. However, the order quantities are listed in inventory management. You can view items and quantities on order in various reports and windows, such as the inventory status report and the Item Master Data window. Obviously, having such real-time access to this information can play a key role in optimizing your company's purchasing and inventory management business processes.

How PO Information Is Used Later

In the course of a garden-variety accounts payable process, when goods are received, purchase orders are matched with packing slips and vendor invoices before the invoices are paid. In SAP Business One, this process is automated: the purchase order can be linked to the goods receipt PO (information from packing slip), which then can be linked to the A/P invoice (information from vendor's invoice), allowing information to be consistent and retained throughout the process. You never have to enter data twice – especially if you have been mindful to attend to the master data issues discussed earlier.

Report reminder. The vendor liabilities aging report and purchase analysis report are essential reports in the purchasing-A/P module. The vendor liabilities aging report shows all the money a company owes and how long it has been owed. This is a key report in managing the cash flow of a company and choosing which bills to pay first in times of cash shortages. The purchase analysis report allows purchases to be listed by vendor, item, purchasing employee, and other dimensions to enable detailed analysis of purchasing patterns. Both reports are available under Purchasing Reports in the Purchasing - A/P area of the main menu.

Step 2: Goods Receipt PO

In SAP Business One, a goods receipt PO is created when you receive goods from a vendor. In most companies, the person in the warehouse or the office responsible for taking delivery of shipments executes the goods receipt PO. For services, the person for whom the services are rendered usually issues the document.

Creating and Posting a Goods Receipt PO

A goods receipt PO can be created new by selecting the document name in the module menu, or it can be built from an existing PO (Figure 6-9 shows both methods). If you are basing your goods receipt PO on an existing PO, you may copy all the data contained in the PO or use the draw document wizard (see Chapter 10) to select the data to copy from one or more existing POs. Even if you copy all data from an existing PO you can still adjust quantities and prices – as well as dates, vendor, and item information – before you post (add) the document.


Figure 6-9: Creating a goods receipt PO from scratch and from an existing PO

Regardless of how you create your goods receipt PO, there should be no differences between the data in the goods receipt PO and the vendor's shipping document (packing slip) sent with the items, because the details in the vendor's document are legally binding. If there are any discrepancies between the base PO data and the vendor's shipping document, you should resolve them with the vendor before you post your goods receipt PO.

Optional Step: Goods Return

Of course, there are always those occasions when items received are found to be defective or otherwise not acceptable and must be returned to the vendor. Since you can't change or cancel a goods receipt PO, you can create a goods return document, as shown in Figure 6-10. This purchasing document reverses in part or completely the quantity and value-based changes made by the goods receipt PO that was created when the items were received.


Figure 6-10: Creating a goods return document

Optional Step: Landed Costs

From time to time you may need to account for costs incurred when importing items from abroad, such as customs, broker, and insurance fees. For this purpose, in SAP Business One you can create a landed costs document that is used to update the cost of the imported items and is required for calculating inventory valuation, gross profit, or any other inventory-related calculation. It is mandatory that this purchasing document be based on a goods receipt PO. Since SAP Business One uses the goods receipt PO as the base reference for the entire import process, be sure to enter the item prices and quantities correctly at the time you create the goods receipt PO. After you post the landed costs document, the price of the imported items is updated. And since it also contains all the costs that were allocated, the landed costs document creates a journal entry to reflect the additional import costs in accounting.

Accounting and Inventory Impact of a Goods Receipt PO

It is essential that the quantities and prices in your goods receipt PO match the vendor's shipping document. Unlike a PO, a goods receipt PO cannot be amended after it has been added to SAP Business One because it triggers both inventory and accounting transactions.

Step 3: A/P Invoice

The A/P invoice is the purchasing document in SAP Business One that "vouches" for the invoice that the vendor sends for items or services ordered and received. The accounts payable clerk usually creates the A/P invoice that is required to request payment for the vendor. The A/P invoice results in a journal transaction that reflects an increase in the company's liability to the vendor and updates the tax account and relevant expense account(s).

Creating and Posting an A/P Invoice

You can create an A/P invoice new by selecting the document name in the module menu or by basing it on one or more POs or goods receipt POs. If you are basing your A/P invoice on one or more existing purchasing documents, you may copy all the data contained in the PO or use the draw document wizard (see Chapter 10) to select the data to copy from one or more existing POs or goods receipt POs. Even if you copy all data from existing purchasing document(s), you can still adjust quantities and prices – as well as dates, vendor, and item information – before you post the document.

Data entry tip. Use the Document Date field in the A/P invoice header to enter the vendor's invoice date. This is important for accounting and auditing reasons as the invoice date and the posting date may differ. You may also wish to change the name of the Vendor Ref. No. field in the document header to Vendor Invoice No. This field prints on the check and allows your vendor to tie the payment to their invoice. See Figure 2-15 for details.

Optional Step: A/P Credit Memo

You use the A/P credit memo in SAP Business One to reverse in part or entirely the inventory or accounting transactions posted by an A/P invoice in the case you return items later or realize you have made mistakes while entering data in previous related purchasing documents that have not been corrected. You create an A/P credit memo using the A/P invoice as your base document (as shown in Figure 6-11) if you want to establish a link between the two transactions. However, you can also create an A/P credit memo without a base document.


Figure 6-11: Creating an A/P credit memo

Usability tip. You can select multiple items to reverse by holding down the Ctrl key and clicking on as many line items as desired.

If, before you execute an A/P invoice, you have returned items and the vendor has sent you a goods return document, first create a goods return in SAP Business One that will update the inventory quantities and values. When you receive a credit memo for the returned items from the vendor, create an A/P credit memo to update the accounting transactions.

Accounting and Inventory Impact of an A/P Invoice

Once posted to SAP Business One, an A/P invoice cannot be changed, as it is the legal accounting document that generates entries in the general ledger. The posted A/P invoice also updates the related vendor accounts in accounting.

In those cases where a vendor's invoice arrives before the items are received and are for items whose purchase ordering is managed in the warehouse, the resulting A/P invoice also increases inventory quantities and values.

     

Building One Document from Another

Many of these documents have much of the same information. SAP Business One allows you to create each "target" purchasing document described here from the "base" document or documents that precede it in the process.

For example, a goods receipt PO is usually built from the PO through which the item was ordered. When one document is built from another, all the relevant information is copied from the base document to the new document. This saves you valuable time by cutting back on redundant data entry, and it also reduces data entry errors. However, you can build purchasing documents in SAP Business One from scratch by creating the document from the main menu without copying any data from an existing document.

Document type alert. When you copy one purchasing document to another, make sure that the base document and the target document are of the same type, whether items or services. Purchasing documents cannot mix items and services, and an item purchasing document cannot be copied to or from a services purchasing document.

Locating Base Documents

You can locate base documents upon which to build your target purchasing documents in several ways. See Chapter 10 for more information about document handling.

Here are the two most common methods:

  • Go to Main MenuPurchasing - A/PPurchasing ReportsOpen Items List
    • Select the type of base document you are seeking from the drop-down list
    • Select the base document you want and click to open
    • Once the document is opened, use the Copy To button's drop-down list to select the type of target document you want and click to create
  • If you would like to create your target document using data from two or more base documents, use the draw document wizard. See Chapter 10 for more information and Figure 6-11 in this chapter for an example.

         

Accounting and Inventory Impact

Summarized in the following table are the most important inventory management and accounting implications of the SAP Business One purchasing documents discussed in this chapter.

Purchasing document

Accounting impact

Inventory impact

Purchase order

No posting of value-based changes

Allows viewing of ordered quantities in various reports and windows, such as inventory status report and Item Master Data window

A/P reserve invoice

Debits accrued payable/allocation account and credits business partner's A/P control account

Allows viewing of ordered quantities

Goods receipt PO

Debits inventory account and credits accrued payable/allocation account

Increases inventory quantities

Goods return

Debits accrued payable/allocation account and credits inventory account

Reduces inventory quantities

Landed costs

Debits inventory account and credits landed-costs expense account

Updates last purchase price of imported item(s) – containing all costs that were allocated?in price lists

A/P invoice

If the A/P invoice is based on a goods receipt PO, debits accrued-payable/allocation account and credits business partner's A/P control account
If the A/P invoice is not based on a goods receipt PO, debits inventory account and credits business partner's A/P control account

Posts no changes in inventory (A/P invoice with reference to goods receipt PO)
Posts inventory changes (A/P invoice without reference to goods receipt PO)

A/P credit memo

Debits business partner's A/P control account and credits inventory account

Reduces inventory quantities only if not based on goods return

     

Purchasing Checklist

Getting Started

Vendor master data contains current vendors

Payment method is set

Item master data contains goods and/or services previously purchased

Step 1: Purchase order

Create a PO by selecting existing or entering new vendor and item data

Specify Delivery Date in document header

If vendor requires prepayment for goods or services, use an A/P reserve invoice instead of a PO

Step 2: Goods receipt PO

You receive items or services from vendor

Document receipt of items or services using the goods receipt PO

If you need to return goods after creating the goods receipt PO but before the A/P invoice has been posted, use the goods return document

If you must account for additional import-related purchasing costs, use the landed-costs purchasing document based on a goods receipt PO

Step 3: A/P invoice

You receive an invoice from vendor

Enter invoice information into an A/P invoice, which allows payment to be issued once an invoice is posted

If you return goods after an A/P invoice is posted, use an A/P credit memo

     


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