Purchase order processing in Jiwa create General Ledger journal entries as goods are received and supplier invoices are processed.
This article explains the journal entries created during the purchase order process when the Use Cost of Goods Ledger system setting is enabled. This setting is commonly enabled in new Jiwa databases and affects how purchase-related costs are posted to the General Ledger.
The journal entries created may differ depending on your Jiwa configuration, the type of item being purchased, and whether the item is physical or non-physical.
We recommend reviewing the article Physical Item vs Non-Physical Item alongside this article so that you understand how item type can affect the accounting treatment.
Note
The examples in this article assume that the Use Cost of Goods Ledger system setting is enabled. If this setting is not enabled in your Jiwa database, the journal entries created during the purchase order process may differ.
Physical Items
When purchasing stock from local suppliers the purchasing workflow typically has the following steps, some of which generate journal entries in Jiwa and update the related ledgers.
General Ledger Journals Created
|
Step |
DR/CR |
Account |
Description |
|---|---|---|---|
|
Save Purchase Order |
N/a |
|
This step does not generate any journal entries. |
|
Change PO Status to Sent |
DR CR |
Expected Asset Value Expected Liability Value |
The expected ordered stock and liability value excluding GST are taken up in the Balance Sheet. If you do not want to see this the value of outstanding purchase orders in the Balance Sheet these control accounts can be set to the Stock on Hand account |
|
Create GRN |
N/a |
|
Creating a GRN does not update the stock ledger or the General ledger |
|
Activate GRN |
DR CR DR CR |
Expected Liability Value Expected Asset Value Delivered Asset Value Delivered Liability Value
|
When stock is received the accrual value of the quantity received on the purchase order is reversed from the Expected asset/liability accounts. The stock ledger is updated with the quantity received at the price on the GRN. The asset value in the Balance Sheet is increased and the supplier invoice value excluding GST is accrued |
|
Create Purchase Invoice |
N/a |
|
Creating a purchase invoice does not update the creditors ledger or the General ledger |
|
Activate Purchase Invoice |
DR CR DR DR CR |
Delivered Liability Value Delivered Asset Value Inventory Value GST Paid Trade Creditors |
When the purchase invoice is activated the GRN journal entries taking up the asset value and supplier invoice accrual are reversed. The Creditors ledger is updated with the supplier invoice including GST if applicable. Inventory value in the Balance Sheet is increased and the liability is taken up in Trade Creditors |
Lets have a look at this in our Balance Sheet as each journal is created for the following purchase order.
When the purchase order status is changed to Sent the following journal set is created
The entries as they appear in the Trial Balance report for the month.
The order is received in full and a GRN (Goods Receipt Note) is created for the full order quantity, when the GRN is Activated the following journal entries are created.
As you can see the expected Asset and Liability journal is reversed and the Delivered Asset and Liability account are updated.
We can see this movement in our Trial Balance report
The creditors invoice is received and the purchase invoice is created, when the purchase invoice is Activated the following journal entries are created.
As you can see the Delivered Asset and Liability journal is reversed and the Inventory value and Trade Creditors taken up.
We can see the movement in our Trial Balance.
Non Physical Items
Non Physical Items do not impact any stock (inventory) value accounts because there is no stock movement.
The cost is therefore only taken up when the purchase invoice is Activated.
The cost account used is the Cost of Sales control account from Inventory Maintenance.
General Ledger Journals Created
|
Step |
DR/CR |
Account |
Description |
|---|---|---|---|
|
Save Purchase Order |
N/a |
|
This step does not generate any journal entries. |
|
Change PO Status to Sent |
N/a |
|
This step does not generate any journal sets for non-physical items |
|
Create GRN |
N/a |
|
|
|
Activate GRN |
N/a |
|
This step does not generate any journal sets for non-physical items |
|
Create Purchase Invoice |
N/a |
|
|
|
Activate Purchase Invoice |
DR DR CR |
Cost of Sales Account GST Paid Trade Creditors |
When the purchase invoice is activated the GRN journal entries taking up the asset value and supplier invoice accrual are reversed. The Creditors ledger is updated with the supplier invoice including GST if applicable. Inventory value in the Balance Sheet is increased and the liability is taken up in Trade Creditors |