The use case

Overview

The key points to consider for the use case are:

The purchase order (PO) and PO receipt transactions are generated in an asset management system and is referred to as the source enterprise application.
Methods of tracking an item are stocked and non-stocked.
In creating a PO, you can indicate the type of the item, whether stocked or direct item.
The journal entries of these transactions are maintained in a general ledger system which is referred to as the GL system.
Functional or base currency is USD, while transaction currency is EURO. Item master unit prices are denominated in the base currency.
An accounting period is considered to be one month.
The accounting year consists of 12 months, and runs from January 1st through December 31st. The organization uses only one calendar and accounting chart.

Analysis of events and their accounting treatment

The creation of a PO is the event that requires commitments entries to be recorded for items which are tracked as stocked-type. The entry to record this transaction is a debit to commitment suspense account and a credit to commitment payable. PurchaseOrder is the business document needed for this transaction while the master data referenced in this transaction include the ItemMaster.

Another event in the flow that requires accounting is the receiving of items. It is classified into receipt with PO and receipt without PO, where each has their own requirement for recording of accounting entries. It is necessary to identify what information in the transaction indicates the transaction type, since this is going to be part of the IGFC setup.

For the purpose of this example, we shall only deal with receipt with PO. This transaction will cause the reversal of the related PO commitment entries and recognition of the inventory, charged to accrual. For this transaction, ReceiveDelivery is the relevant business document to use.

In the GL system, commitment entries and reversal of commitments are included in ledger type C (commitment), while recognition of inventory is charged to ledger type A (actual). These two transactions are recorded in separate journal types, which are represented in the journal as AccountingJournalReference attribute. The general ledger dimensions include item class and buyer. Both are applicable to commitment accounts only.

Analysis of information needed to create journal entries

To understand the requirements of each element and attribute of the journal entry, you must know the computation of the transaction amount or the logic to determine the account number.

These are the specific considerations necessary for accounting:

Account numbers are determined from a combination of tracking method (stocked or non-stocked) and PO item type (stocked or direct items).
Functional amount is derived from PO unit price converted to base currency * PO line quantity.
Transaction amount is also recorded and derived directly from the PO line’s extended amount.
Posting date is derived from the PO header effective date and the related accounting period and year are derived based on the calendar setup.
Dimension codes that are relevant to a commitment account are item class and buyer.

For PO receipt, these are the specific line details necessary for accounting:

Account numbers are determined from a combination of tracking method (stocked or non-stocked), PO item type (stocked or direct items), and costing method (moving average and standard).
Functional amount is derived from PO unit price converted to base currency * received quantity.
Transaction amount is derived from PO line unit price * received quantity.
Posting date and dimension codes are derived the same way as for PO transactions above.

You must complete this analysis to include the requirements of other journal entry elements. For more information, refer to the BOD documentation of the GL system’s inbound SourceSystemJournalEntry.

Relevant to this analysis, and based on the type of transaction and the requirements of the organization, you need to establish the source attributes and how they are going to be captured.

This table shows the source attributes held in source business documents, either transaction or master data.


Journal entry elements	Source attributes	Source business documents
Line accounting period	Period ID	FinancialCalendar
Line accounting period	Document date	PurchaseOrder and ReceiveDelivery
Line accounting year	Accounting year	FinancialCalendar
Line accounting year	Document date	PurchaseOrder and ReceiveDelivery
Line posting date	Document date	PurchaseOrder and ReceiveDelivery
Source document ID	Document ID	PurchaseOrder and ReceiveDelivery
Functional currency	Functional currency code	ItemMaster
Transaction currency	Transaction currency code	PurchaseOrder and ReceiveDelivery
Line description	Description from the header	PurchaseOrder and ReceiveDelivery
Debit/credit flag	Business rules that states when to debit and when to credit a transaction	AccountReference
Account number	Tracking method	ItemMaster
	PO item type	PurchaseOrder and ReceiveDelivery
	Costing method	ItemMaster
Functional amount	PO unit price	PurchaseOrder
	PO quantity
	Received quantity	PurchaseOrder
	Exchange rate	ReceiveDelivery
	Exchange rate	PurchaseOrde
Transaction amount	PO extended amount	PurchaseOrder
	PO unit price
	Received quantity	PurchaseOrder
	Received quantity	ReceiveDelivery
Dimension code – item class	Classification code = MRO Classes	ItemMaster
Dimension code – item class	Item	PurchaseOrder and ReceiveDelivery
Dimension code – buyer	Buyer code	PurchaseOrder and ReceiveDelivery
Tracking indicator	Tracking indicator	Item Master
Tracking indicator	Item	PurchaseOrder and ReceiveDelivery
Costing method	Costing Method Code	Item Master
Costing method	Item code	PurchaseOrder and ReceiveDelivery
Item type	Item	PurchaseOrder and ReceiveDelivery
Item type	POLineType	PurchaseOrder
Transaction type	Transaction Type	AccountReference

BODs and custom master data

These business documents are identified as relevant to these events and can be registered in IGFC:


Document type	Verb	BOD	Description
Transactional	Sync	ReceiveDelivery	Transaction business documents that will be processed.
	Sync	PurchaseOrder	Transaction business documents that will be processed.
	Process	SourceSystemJournalEntry	The output of IGFC processing. Registration is required.
Master data business documents referenced by transactions	Sync	SupplierPartyMaster	Identifies the supplier
Master data business documents referenced by transactions	Sync	ItemMaster	Source of information on the item costing method, Item Class, tracking method, and others. These are used in generating a journal and could also be a source of dimension code information.
Accounting master data business documents	Sync	AccountingEntity	Conveys information on the accounting entity or company.
	Sync	AccountingChart	Defines the chart of accounts.
	Sync	ChartofAccounts	Defines the individual ledger accounts that belong to the chart.
	Sync	CurrencyExchangeRateMaster	Identifies the exchange rate between two currencies.

Note: When there is no specific business document that provides the account number, then a custom master data is used. It involves mapping the relationship of transactional data and master data references to get the account number. This is explained further in the section for registering custom master data.