Orae fusion Procure to Pay Accounting Entries

Let me explain these accounting entries in a very beginner-friendly way.

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1. PO-Based Inventory Purchases (Procure-to-Pay - P2P Process)

This is when a company buys inventory items (e.g., raw materials or goods for resale) using a Purchase Order (PO).

Steps:

Purchase Requisition: Someone requests to buy goods.

Purchase Order: The company sends an official request to a supplier.

Goods Receipt: The goods arrive.

Invoice Booking: The supplier sends an invoice (bill).

Payment: The company pays the supplier.

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Accounting Entries

a. At Goods Receipt (when goods arrive):

Dr. Inventory A/c (Increase in inventory)

Cr. GR/IR A/c (Goods Received / Invoice Received)

What it means:

You received goods, so your inventory increases (debit). But you haven’t got the invoice yet, so you create a temporary liability (credit to GR/IR).

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b. At Invoice Booking (when invoice is received):

Dr. GR/IR A/c (Reverse the temporary entry)

Cr. Accounts Payable A/c (You now owe money to the supplier)

What it means:

Now that you received the invoice, you clear the GR/IR (debit it) and officially recognize that you owe the supplier (credit Accounts Payable).

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c. At Payment (when you pay the supplier):

Dr. Accounts Payable A/c

Cr. Bank A/c

What it means:

You are settling your debt, so reduce your liability (debit Accounts Payable) and reduce your bank balance (credit Bank).

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2. Non-Inventory (Expense-Based) Purchases

These are purchases that don’t result in inventory — like rent, travel expenses, or services.

Steps:

Invoice Booking → Payment

Accounting Entries

a. At Invoice Booking:

Dr. Expense A/c (e.g., Rent, Consulting)

Cr. Accounts Payable A/c

What it means:

You record the expense you incurred and acknowledge the money you owe.

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b. At Payment:

Dr. Accounts Payable A/c

Cr. Bank A/c

Same as before — you pay what you owe, reducing your liability and bank balance.

Hope This helps . Happy learning