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In this article we will try to understand accounting involved in Fusion Payables. As we know default accounting for taxes for Payables transactions is based on the nature of the tax, tax recoverability, and the tax account assigned to relevant tax configuration. Accounting for Payables transactions is dependent on the categories like-

  • Unmatched standard invoices
  • Purchase order matched invoices
  • Receipt matched invoices
  • Prepayments

Let us know look at individual categories one by one to understand debit and credit accounts. 

Unmatched Standard Invoices- Below table describes the accounting for taxes for unmatched standard invoices:

Nature of Tax Recoverability Debit Account Credit Account Notes
All taxes Recoverable Tax Recoverable  Payables Recoverable tax account is derived from the tax recovery setup. If it is not defined there, it is derived from the tax rate.
All taxes Nonrecoverable Tax Expense  Payables The debit to the tax expense account applies only when the tax expense account is specified for the tax rate. If it is not defined, then the debit is applied to the charge account for the transaction line.
Deferred to tax point of Payment Recoverable Interim Tax  Payables Recovery for these taxes is deferred until payment. On payment, the interim tax account is credited with a debit to the tax recovery account.
Deferred to tax point of Payment Nonrecoverable Tax Expense  Payables  
Self-assessed Recoverable Tax Recoverable or Liability Tax Recoverable or Liability As these taxes are to be assessed and paid by the first party organization. The credit is posted to the tax liability account instead of the payables account.
Self-assessed Nonrecoverable Tax Expense Tax Recoverable or Liability  
Offset tax Recoverable Tax Recoverable or Liability Payables Offset taxes are always 100% recoverable. These taxes are defined with a negative rate and an invoice distribution with negative amount is created. The Payables amounts between the base tax and the offset tax are negated. What remains is the debit to tax expense or tax recovery account and negative debit to tax liability account.

 

 

Purchase Order Matched Invoices- Tax accounting approach for purchase order matched invoices is similar to unmatched invoices. Below are the key areas where PO matched invoice varies from unmatched invoice accounting-

  1. When there is no tax expense account specified for the tax rate, the charge account that is used to account for the corresponding item line is used.
  2. When there are differences in taxes between the purchase order and the invoice, these are identified as variances and are accounted accordingly. Tax variances are accounted only for nonrecoverable tax amounts. Recoverable tax amounts are accounted as mentioned in above table. The variance accounts are defined as a part of Oracle Fusion Payables configuration.
  3. Account derivation for the Tax Invoice Price Variance and the Tax Rate Variance depends on the item used and the accrual method as described in the following table-
Item Type Accrue at Receipt: Enabled Accrue at Receipt: Disabled
Expense Purchase order charge account is used Tax expense account is used
Inventory Purchase order variance account that is defaulted from the Oracle Fusion Inventory organization parameters receiving accounts Purchase order variance account that is defaulted from the Inventory organization parameters receiving accounts
       

The accounting treatment of tax variance is:

Nature of Tax Recoverability Variance Type Debit Account Credit Account Notes
All taxes Nonrecoverable Tax Rate Variance Tax Expense, Charge Account Payables Invoice distribution for tax rate variance is posted to the account that is used for accounting for nonvariance tax amounts. If the tax rate has a tax expense account then the same account is used. If not, the charge account (used for accounting for the item line) is used.
All taxes Nonrecoverable Invoice Price Variance Invoice Price Variance Account Payables This is the difference in tax amount between the purchase order and the invoice due to invoice price changes. This amount is posted to the invoice price variance account. The account is the same as the one used for accounting for the variance with the item line.
All taxes Nonrecoverable Exchange PO Rate Variance Exchange PO Rate Variance Gain or Loss Account Payables This is the difference in tax amount between the purchase order and the invoice due to exchange rate changes. This amount is posted to the exchange rate variance gain or loss account. The account is the same as the one used for accounting for the variance with the item line.

Receipt Matched Invoices- The only difference in accounting between the regular Payables invoices and receipt matched invoices is the account to which nonrecoverable taxes are debited. This amount is debited to the Payables accrual account instead of the expense or charge account. The following table describes the accounting treatment for a receipt matched invoice:

Nature of Tax Recoverability Debit Account Credit Account
All taxes Nonrecoverable Payables Accrual Account Payables

Accounting treatment for variances applicable to a receipt matched invoice is the same as a purchase order matched invoice.

Prepayments- When the applied amount handling for a tax is Recalculated, taxes are recalculated on the prepayment application. The difference in the tax amount between the prepayment and the invoice is posted to the tax difference account. Depending on the amount change, positive or negative, the amount is either credited or debited to this account. If the tax is partially recoverable then only the nonrecoverable tax amount is posted to the tax difference account.

The tax difference account is applicable only when there is one-to-one full application of the prepayment to the invoice and when there is difference in the tax amount involved.


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