Workaround of AP Accrual Write-Off

The accrual write off standard functionality is very primitive and does not entirely happen systemically. It is more from a reporting control than from an accounting control. The way it operates is by using the following in conjunction:

• The accrual (rebuild) reconciliation Report
• The Goods Received UnInvoiced Report
• The Accrual Write off form
• Manual Journal Entry Process

The process is extremely cumbersome and controls are inappropriate. Let me quickly list down the demerits of each of these.

The accrual Rebuild reconciliation report: This report takes an extremely long time to run. It becomes also difficult to browse through the item, which needs a correction. The only useful portion is the summary but the summary is good only from a reporting perspective than its user friendliness for actions.

The goods received uninvoiced report: is simple lacks some simple features like grand totals and many times is known to carry figures despite corrections.

The Accrual write off form: is the most ridiculous one, which does not give any controls except that it gives a report to support journal entry, which has been ticked as written off. However anyone can go and set it back by ticking it off. In effect though it needs to be at tandem with the Accrual Rebuild Reconciliation Report, it seldom serves the purpose nor is useful from a control perspective.

The Manual Journal entry process by the very name is manual and is not of any use if the write off transactions are finally to be journalized manually.

Keeping this in mind a simple yet effective solution is devised to carry out the AP Accrual Write Off transactions.

Let us make the steps simple so that it ambles in easily in terms of the logic. 

Invoices write off

When an AP Invoice is not received or supposed to be received for some business reasons for either part or full Goods Receipt after a sufficient amount of time has surpassed and the business makes a call that it has to be written off.


Goods Receipts write off
The uninvoiced goods received report will be fired and the PO numbers reported in those will be marked for write off.


Setups required

• Set up a Bank called Accrual Write off bank and configure the minimum details
• Set up a Bank account under this called Accrual Write off bank account
• Set this up as an Internal Bank
• Set up the GL account to a write off account (Income a/c)
• Configure this bank as a Multi currency Receipts and payments bank if you deal with Multi currency AP Invoices
• Configure the Payables documents with payment method as clearing so that it does not need any format to support
• Enter the document series by leaving sufficient gap in the numbering.

Planning write off

• Make a list of all write offs for the month or a fortnight
• Have the Invoice batch named in such a way that all write off batches follow a particular sequence
• Configure the invoice batch with payment terms as immediate and payment method as clearing

Executing the write off

• Create a dummy Invoice like a regular Invoice for the write off Amount
• Match it to the Purchase Order for the part or full Qty for which it needs to be taken off from the Uninvoiced Goods Receipts report
• Carry out the distributions
• Validate and account the batch
• Create a payment batch for this Invoice batch only
• Use the Accrual Write off bank account created for this purpose
• Complete the payment batch- until confirmation

Consequences

• The dummy Invoice and corresponding matching takes the item off the goods received uninvoiced report
• The Invoice accounting actually squares the AP accrual account
• The dummy payment batch squares the AP liability account since we are processing the payment batch immediately.
• The payment accounting puts it actually to an Income account for the write off instead of a bank account since it is configured that way.
• The entire transaction takes systemically without manual control.

Cash Management Option

If Cash Management option is used there is an additional step of reconciliation which can be done by manually clearing all transactions pending for the dummy AP accrual bank account in one go by using the option “Find and Mark”. This will clear all in one go.

The reconciliation accounting does not cause any harm since there is no clearing account, which is involved, and it debits and credits the same income account again.

Summary of Benefits

• No Manual Entry, completely handled through system Payment Method Clearing does not require any Payment Format
• Reconciliation is purely a dummy accounting
• Most of Setups are one time (Bank, Bank account, Payables documents etc)
• The process is quite systematic.
• It caters to the reporting and accounting needs

About the Author

Vijay Gopal
Project Lead
Systems Task Group International Ltd
Vijay.gopal@stgil.com