Difference between “Cash Clearing Account” and “Clearing Account” in AR

This is in response of one offline mail as one of consultant asked some more information for Cash Clearing Account and Clearing Account, so thought to share here. His question was:
What is difference between "Cash Clearing Account" and clearing account in AR?
If you are using Oracle Cash Management, you need to define

• Bank Errors Account
• Bank Charges Account
• Cash Clearing Account

That mean for each bank account you plan on reconciling by using Cash Management. If you use Payables, you can override these accounts for
each payment document you define.Right.
If you set up Oracle Receivables to account for payments at clearing time, enter the cash clearing account you are associating with a bank account. When you create accounting entries for your unreconciled invoice payments, you credit your cash clearing account using this account. After you reconcile your invoice payments using Oracle Cash Management, when you create accounting entries for the cleared payments, you debit this cash clearing account and credit this bank account's cash account. The account you enter here defaults to the Cash Clearing Account field in the GL Accounts region of the Payment Documents window.
If you are using future dated payment methods, enter the clearing account you are associating with a payment document. When you pay an invoice with a payment document that uses a Manual Future Dated or Future Dated payment method and post payments within Payables,Receivables automatically debits your liability account and credits this account. When you clear this payment using automatic or manual reconciliation within Oracle Receivables or Oracle Cash Management then post payments within Payables, Receivables debits this cash clearing account and credits this bank account's cash account.
Clearing Accounts are used for AutoInvoice

The clearing account is for your imported transactions. Receivables uses the clearing account to hold any difference between the specified revenue amount and the selling price times the quantity for imported invoice lines. Receivables only uses the clearing account if you have enabled his feature for the invoice batch source of your imported transactions.
Normally, cash clearing account is used if your accounting is accrual Based.
Is there any relation between Cash Clearing and Reconciliation?
Cash clearing and reconciliation have no relation. You can use cash clearing if you want to account for the payment after its cleared in the bank and not on payment issue.
More over, you should note that reconciliation is a activity of matching a Payment / Receipt with bank statement.

Procure to Pay (P2P) – Accounting Entries

This post highlights some of key accounting entry in each steps with respect to.
As you know "procure to pay" Business Flow start Purchasing requisition till paying to vendors and most important, in all the case the purchase is made for basic element called Items.
As you know there are three types of items:

• Inventory Expense Item
• Inventory Asset Item
• Expense item

Definition of above Items used in Purchasing can be best understood as:




Asset flag means means it is an asset and the items value will show in your inventory valuation.
Inventory Item



Expense Item
These are one which is used for consumable items purchase for your organization. More importantly , for creating an expense item you have to perform following setup doing in the Master Item form.Go to same path in oracle inventory
Oracle Inventory -> Items -> Master Items
When master items form open Go to Inventory Menu you need to tick followings

1. Inventory item
2. Stock able
3. Transactble
4. Resolvable

And you can also setup in Costing and purchasing menu account code as per your requirement.


Asset Item

As discussed above , the following attributes need to be enabled for such an item.

• Inventory item
• Stock able
• transact able
• Costing flag
• Inventory asset value

For entering on purchase orders
It should have purchased and purchasable flags enabled and you have to make sure you are assigning this item to the Purchasing org which you have defined at
Oracle Purchasing > Setup > Organizations >
Financial Options > 'Supplier-Purchasing' alternate region 'Inventory Organization' field.
The accounting can be best described for such kind of items is;

Is there any effect on Step 5 in all three cases, that mean do matching have different accounting entry?

The answer is no; as per my understanding purpose of setting the PO to a 2way, 3 way or 4 way match is to ensure that the corresponding hold is generated on the invoice.
The holds are basically designed for control purposes, they do not have any accounting effects.

Key accounts – P2P Cycle

Here are some of the key accounts used in P2P(Procure to Pay) Cycle.
RECEIVING INVENTORY ACCOUNT

This is one of the clearing account.
The account is used for 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 .
You can 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 uninvoiced receipt liability and is usually part of your Accounts Payable Liabilities in the balance sheet.
Oracle payables relieves this account when the invoice is matched and validated.
So, you have to specify this account when you define Inventory Information for your inventory organizations in the Other Accounts tab.

AP LIABILITY ACCOUNT

This account 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.
When you are creating an invoice, the liability account will get defaulted based on the hierarchy i.e., it can be from Financial options/Supplier /Supplier site.However you will still have an option to modify the Liability account by replacing the defaulted account.
(0r) do you see a different account getting defaulted during Invoice creation

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 uninvoiced receipt liability when you run the Receipt Accruals - Period End process.
When you receive the goods,the accounting entry will be
Receiving Inv Dr
To Expense Accrual Cr
In Payables
Expense Accrual Dr
To Liability Cr.
So the Expense Accrual will knock-off
You can specify this account on the Accrual tab when you set up Purchasing Options.

MATERIAL ACCOUNT

An asset account is used for to tracks material cost .
In the average costing, this account holds your inventory and in transit values. Once you perform transactions, you cannot change this account.

You can 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 subinventory 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 isn’t 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.

Look at the Material Account on the destination inventory organization, or (if specified), destination subinventory.
Under Inventory: Setup/Organizations/Parameters or Sub inventories

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.
You should note, this account is not used with the average cost method.
For example, assume the purchase order line price for an item was set at $100 per item but standard cost was set to $120 per item and you purchased 10 items. The Purchase Price Variance would be $200.
You can 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.
You can understand with this set of example, how its works;
1). Create a purchase order with expense type item having the above
Navigation: Purchasing->Purchase Orders->Purchase Orders
2). Receive the goods for this PO.
Navigation: Purchasing->Receiving->Receipts
3). Login as Payables manager, create an invoice and match it to the PO created in step 1.
Navigation:Payables->Invoices->Entry-Invoices
for example
PO Quantity=100
PO Price = 5
Now you match an invoice to the PO and Invoice(match) details are as follows:
Matched Quantity=100
Price on Invoice= 1
in this case, probably you have set the Invoice price variance account in define Organization Parameters form( alternate region: other accounts) same as the expense account on the PO
Invoice Price Variance= (PO Price - Invoice Price) x Qty. Invoiced
You can specify this account when you define Inventory Information for your inventory organizations in the Other Accounts tab.