Procure to pay cycle and accounting document at each step


Below picture explain procure to pay (PTP) cycle and corresponding accounting entry at each step.

procure to pay (PTP) cycle in sap

Purchase requisition:

There are various departments in an organization. Departments may require certain material or services. Employee belonging to the department needs to raise purchase request or purchase requisition. This purchase requisition needs to have information like name of material/ services, quantity, expected date of delivery and expected price. Purchase requisition may also need to be approved by head of department before initiating finance department approval. Once finance department officer approves the purchase requisition, purchasing group creates the purchase order for purchasing department to act on it.

 

Purchase order:

Once purchase order is created, purchasing department initiates the procurement process. Purchasing department gives purchase order to vendor; vendor supplies the goods or services to the company and bills the company accordingly.

A purchase order has information like: Order type, vendor, material/ services, quantity, purchase price, delivery date, terms of payment etc.

 

Goods receipt (GR):

When organization receives the goods, Good receipt (GR) is posted in sap using T code: MIGO

Below accounting entry is posted in sap

DR.  Inventory account

CR.  GR/IR account

 

Invoice receipt (IR):

When organization receives the bill from vendor, invoice receipt (IR) is posted in sap using T code: MIRO

Accounting document for vendor invoice is posted in sap as below

CR.  Vendor

DR.  GR/IR

Liability (accounts payable) is created to pay vendor.

 

Vendor Payment:

Vendor needs to be paid on time. (Organization may have large number of vendor with huge number of invoices due for payment. Hence, provides the functionality to automate the payment process.)

Automatic payment program (APP) is executed. It picks up the invoices due for payment and processes them for payment.

Below accounting entry is posted as a result of APP:

DR.  Vendor

CR.  Bank clearing account

Once organization receives bank statement online, bank statement is loaded into sap and automatic bank reconciliation happens which results in below accounting document:

DR.  Bank clearing account

CR.  Main bank account

 

 

Overall procure to pay cycle can be summarized as below:

Purchase requisition--> Purchase order--> GR-->IR-->Payment