The P2P cycle is an integrated accounting system in the Oracle ERP environment, linking procurement activities to financial records. This indicates that the Cost records and the Financial records are integrated into this process. Importantly, the various roles at each stage are unique, such as who initiates the requisition and who is accountable for making the payment. The separation of the roles is very important because it enforces a strong internal control system, prevents errors and fraud, and makes sure accountability exists at every stage of the procurement process. The total integration between Oracle Fusion procurements and accounting gives the organizations more clarity and accuracy to provide efficiency for better management of their whole P2P workflow.
A Detailed Walkthrough:
♦ Purchase Requisition:
√ Concept: Purchase requisition is a document that is used to request goods or services from a supplier.
√ Accounting Entry: There is no journal entry for the requisition process because it is an internal process of the organization.
♦ Purchase Order Process:
√ Concept: The next step in the P2P cycle is the purchase order. The purchase order is a document that is used to order goods or services from a supplier.
√ Accounting Entry: There is no journal entry for the purchase order process because it is also an internal process of the organization.
> Receiving of Goods (The goods are received from the supplier, and the system needs to recognize the receipt of the goods.)
Inventory / Goods Received A/c ………………..Dr.
To Accrual/ Goods Clearing A/c…………………. Cr.
- Note**:- This journal entry is used to recognize the goods that have been received into the inventory while the liability is still in the goods clearing account.
> Receipt of Goods (Inventory Transfer) (Transfer of goods from receiving location to the designated warehouse or storage location.)
Material /Inventory Valuation A/c……………….. Dr.
Inventory / Goods Received A/c ………………..Cr.
Note**:- This journal entry reflects the goods transferred from receiving location to inventory, ready to be used or sold.
♦ Receiving the Invoice
√ Concept: The fourth step in the P2P cycle is the invoicing process. The invoicing process is the process of receiving an invoice from a supplier.
√ Accounting Entry: When a supplier sends an invoice, it must be recorded in the system to recognize the liability of the goods/services received.
Accrual/ Goods Clearing A/c ……………Dr.
To Supplier`s Liability A/c………………….Cr.
Note**:- This entry accounts for the fact that the company now owes the supplier for goods that have been delivered and invoiced.
♦ Making Payment
√ Concept: The fifth step in the P2P cycle is the payment process. The payment process is the process of making a payment to a supplier.
√ Accounting Entry: There is one journal entry for the payment process. The journal entry is to record the payment in the bank account.
Supplier`s Liability A/c ………………………Dr.
To Bank Clearing A/c…………………………..Cr.
Note**:- This reflects the actual payment being made to settle the supplier liability, reducing the balance in the supplier liability account and reflecting the cash outflow.
♦ Payment Reconciliation
√ Concept: The sixth and final step in the P2P cycle is the payment reconciliation process. The payment reconciliation process is the process of reconciling the bank account with the accounts payable account.
√ Accounting Entry: There is one journal entry for the payment reconciliation process. The journal entry is to record the reconciliation in the bank account.
Bank Clearing A/c ……………………………….Dr.
To Bank A/c…………………………………………..Cr.
Summary: P2P (Procure-to-Pay) is an integrated accounting system, part of the Oracle ERP, which links the cost and financial records together seamlessly. This improves the control mechanism of the organization by making it transparent and responsible throughout the entire process. An important feature of this system is segregation of duties whereby the person requisitioning will be different from the one giving approval for payment. This structure reinforces the internal control system to ensure the integrity of the financial operations protected from errors and even fraud.
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