Account Entries

Most of the candidates appeared before me for interview  have no knowledge or lack of knowledge about journal (accounting )entries passed in ERP environment (like SAP, IFS, Oracle etc.) Hence I am trying to clarify this concept. In case of all ERP environment Flow of Transaction is same however in case of SAP environment Transaction Codes (T Code) required to book entries. If you have any query, Please feel free to write.

Flow of Purchase Transactions – Purchase transaction will complete in follow
ing steps (we cannot say that Purchase A/c Debit and Supplier A/c Credit)

1.       Gate Entry (Token) –

2.       Weighment –

3.       Goods Receipt Note (GRN) –

4.       Excise Invoice –

5.       Bill Entry –

6.       Invoicing (FI Posting) –

7.        

Journal Entries when Purchase taken Place

1.       When Materials / Goods received at store (T code and description is useful for SAP users only), generally this entry passed on the basis of Challan and not on the basis of invoice.

T Code	MIGO
T Code Description	Goods Receipt Note
Journal Entry	Inventory          A/c                                 Dr     To, GR/IR Stores / Raw Material  A/c Raw Material / Stores / Consumables received from supplier

2.       Once material received in stores and booked in ERP, then we will book supplier invoice.

T Code	MIRO / MIR7 / MIR4
T Code Description	Direct Invoice Posting / Parking of Vendor Invoice / Posting of Invoice
Journal Entry	GR/IR Stores / Raw Material   A/c      Dr      To, Vendor    A/c Raw Material / Stores / Consumables received from supplier and invoice booked.

3.       Payment to Supplier

Journal Entry

Vendor   A/c                                          Dr      To, Bank   A/c Payment made to Supplier

Journal Entry For Freight Inward	Inventory A/c Dr         To, GR/IR Freight A/c
	GR/IR Freight A/c Dr Inventory A/c Dr         To, Vendor A/c         To, GST Payable A/c

Journal Entry For Service Purchase	Expenses A/c Dr         To, GR/IR Services A/c
	GR/IR Services A/c Dr         To, Vendor

CAPTIVE PURCHASE

Material Received	Inventory          A/c                                 Dr     To, GR/IR Stores / Raw Material  A/c Raw Material / Stores / Consumables received from supplier
Supplier Invoice Booking	GR/IR Stores / Raw Material   A/c      Dr      To, Captive Vendor    A/c Raw Material / Stores / Consumables received from supplier and invoice booked.

Flow of Sales Transaction

1.       Contract For Sale –

2.       Sales Order –

3.       Post Goods Issue (PGI) –

4.       Billing / Invoicing –

5.       Excise Invoice –

6.       Customer Payment Received –

7.        

Journal Entries when Sales taken Place

1.       Shipment – Materials / Finished Goods separated for sale from Finished Goods yard.

T Code	VL01N
T Code Description	Post Goods Issue
Journal Entry	COGS A/c Dr        (Cost of Goods Sold)       To, Finished Goods Inventory A/c Finished Goods Shipped

2.       Invoicing -

T Code	VF01
T Code Description	Billing / Invoicing
Journal Entry	Customer A/c Dr Brokerage A/c Dr      To, Sales A/c      To, GST Clearing  A/c      To, GR/IR Brokerage A/c Invoice issued to customer for sale

Journal Entry

GR/IR Brokerage A/c  Dr     To, Vendor A/c

Journal Entry	Bank A/c Dr      To Customer A/c Customer Payment received against sale
Journal Entry For Freight Outward (GTA = Goods Transport Agencies)	Freight Outward A/c Dr GST Receivable  A/c Dr        To, Vendor A/c        To, GST Payable A/c

CAPTIVE SALE / PURCHASE & REVERSAL

Shipment	COGS A/c Dr            (Cost of Goods Sold)       To, Finished Goods Inventory A/c Finished Goods Shipped
Invoicing	Captive Customer A/c Dr      To, Captive Sales A/c Invoice issued to customer for sale

REVERSAL OF CAPTIVE SALE & PURCHASE

Captive Sale & Stock Set off	Sales  A/c Dr       To, COGS A/c            (Cost of Goods Sold) Finished Goods Shipped
Captive Customer & Vendor Clearing	Captive Vendor  A/c Dr      To, Captive Customer A/c Invoice issued to customer for sale

Journal Entries Relating to RM Consumption & FG Production

Situation	Entries
Raw Material Inward	Inventory Raw Material A/c                          Dr     To, GR/IR Raw Material  A/c
Issue to Production Order (Internal Entry)	Inventory A/c Dr      To, Inventory Works A/c
Production Order Settlement (Open As Expense in Trial Balance)	Consumption A/c Dr       To, Inventory A/c
Production Order Settlement (Change in Stock – Increase / Decrease in stock of COGM)	Finished Goods A/c Dr       To, COGM A/c (Receipt from Internal Order)

Assets Acquision and Capitalisation:

In ERP System there are three methods for assets capitalization available-

Method I: Direct purchase and capitalize – This Method is used where a complete assets purchase e.g., Laptop,Vehicle,Flate etc.

Method II: Fabrication, Erection & Commission of Fixed Assets – In this case we purchase different types of part as CWIP (Capital Work in Progress) and after fabrication it becomes a Fixed assets.

Method III: Assets Capitalization Through Internal Order – This is nothing but Method II where an Internal Order Created for Each and Every Project Separately.

Journal Entries Relating to Fixed Assets Acquision

Method	I
T Code & T Type	F-90, T Type 100
Purchase Order Item	A ( A for Assets)
a)      Goods Receipt	Assets A/c Dr    To, GR/IR Assets A/c
b)      Vendor Invoice Booking	GR/IR Assets A/c     To, Vendor A/c
c)       Vendor Payment	Vendor A/c    To, Bank A/c

Method	II
T Code	MIGO
Purchase Order Item	General PO
a)      Goods Receipt in the Stores	Inventory A/c Dr    To, GR/IR Stores A/c
b)      Vendor Invoice Booking	GR/IR Stores A/c     To, Vendor A/c
c)       1. Issue to Assets Through Mvt Type 241	Assets A/c Dr    To, Inventory A/c
d)      2. Issue to Assets Through Mvt Type 241	CWIP A/c Dr    To, Inventory A/c
	Assets A/c Dr    To, CWIP A/c

Method	II
T Code	MIGO
Purchase Order Item	F (For Order)
Goods Receipt	Inventory A/c Dr    To, GR/IR Stores A/c
Vendor Invoice Booking	GR/IR Stores A/c     To, Vendor A/c
Issue to Internal Order	Consumption A/c   Dr      To, Inventory A/c
Issue to Internal Order -T Code – MIGO / F-02 Put Internal Order No in Given Space. For This Purpose first create an Internal order (TCode – KO01), This Internal Order wil seek AUC/CWIP  hence create with T Code –AS01
Internal Order Settlement (Monthly Basis)	AUC A/c Dr     To, AUC Clearing A/c
Final Settlement for Assets Capitalization (on Completion of Assets)	Assets A/c Dr     To, AUC A/c

Example

Extract of Profit & Loss
Profit/(loss) before tax	2,030.26
Tax expense: (i)                   Current tax (ii)               Deferred tax	480.00 -1268.15
Profit/(loss) for the period (PAT)	2818.41
Other comprehensive income
(i) Income tax relating to items that will be reclassified to profit and loss
- Re measurement of Defined Benefit Plan	4.82
- Gains and losses from investments in equity instruments designated at         fair value through other comprehensive income;	11.07
(ii) Income tax relating to items that will not be reclassified to profit or loss	-3.87
Other comprehensive income for the year	12.02
Total Comprehensive Income for the period (Comprising Profit /(Loss) and Other Comprehensive Income for the period)	2830.44

Extract of Schedule of Tax Expense (in PL A/c)
i) Current tax	480.00
ii) Deferred tax      Less: Mat Credit Total	-960.82 307.33 1268.15

Journal Entries Relating to Current/Deferred Tax & MAT Credit Entitlement

Situation	Entries
Provision made for Income Tax Expense debited to Profit & Loss Account for the period	Income Tax Expense A/c                                              Dr 480.00 To, Provision for Tax                                                       Cr 480.00
Deferred Tax Income provided as Deferred Tax Liability	Deferred Tax Liability                                                     Dr 960.82 To, Deferred Tax Expense                                            Cr 960.82
MAT Credit Entitlement Receivable	MAT Credit Entitlement (Assets)                                             Dr 307.33 To, MAT Credit Entitlement (P/L)                              Cr 307.33

Extract of Inventory Schedule

Items	SAP Value	Value Computed	Diff
Raw Materials	2,163,712,961	1,192,859,141	-970853820.8
Work in progress	910,596,706	2,404,298	-908192407.5
Finished Goods	486,935,430	840,735,503	353800073
By Products	-87,548,104	73,051,604	160599707.6

Extract of Change in Inventory Schedule

Changes in inventories	SAP Value	Add: Diff. Above	SAP Value + Diff – Closing Stock	Amount
Opening Stock
Finished Goods				579,816,900.46
Work-in-Progress				3,074,974.11
Traded Goods				21,179,453.71
By-Products				2,592,980.95
Total				606,664,309.24
Closing Stock
Finished Goods	2,076,559,391	353800073	-1589623961	840,735,503
Work-in-Progress	0	-908192407.5	910596705.9	2,404,298
Traded Goods	0	0	0	0
By-Products	-828,948,476	160599707.6	741400371.5	73,051,604
Total				916,191,404.73
Change In Stock				-309527095.5
		Opening Stock	Less Above Value (A)	(b) = Op. Stock- (A) to be adjusted with consumption
Raw Materials				-970853820.8
Work in progress		3,074,974.11	910596705.9	(90,752,173)
Finished Goods		579,816,900.46	-1589623961	216,944,086
By Products		2,592,980.95	741400371.5	(73,880,739)
Traded Goods		21,179,453.71	0	2,117,945
Total to be adjusted with Consumption				(916,424,701)