Identifying Vendor Transactions in the Payables Management and in the General Ledger

José realized that each supplier receives its own account within the system. Now he wants to navigate to the postings he made. This is where he realizes that the outstanding posted invoices can be analyzed on each separate supplier account within the payables management work area. However, he remembers that each supplier transaction also needs to be represented within the General Ledger, because General Ledger is an overview of all company’s financial operations. He dives into the system and realizes that Payables Management and General Ledger are connected via reconciliation accounts.

The payables management process for an invoice with a purchase order involves matching the invoice to the corresponding purchase order and goods receipt before processing payment to ensure accuracy and prevent discrepancies.

The payables management process for an invoice without a purchase order involves directly validating the invoice details against vendor agreements and services received before processing the payment.

Supplier invoices may or may not originate from a purchase order. Depending on a situation the invoice items will be posted differently in the system.​

​If we receive invoices with a purchase order, it means that our company has ordered stock that needs to be tracked in our balance sheet on a material account.​

​In the payables management, the suppliers and their balances are listed separately. In other words, every supplier has their own account, ​where the gross invoice amounts are credited. These amounts also need to be represented in the ​General Ledger. ​​

Payables are summarized or reconciled on a payables reconciliation account in the General Ledger. The reconciliation account comes from the supplier master record and is mandatory for each supplier. You cannot make postings directly to a reconciliation account.​​

The input tax amount travels directly to the input tax G/L account.​

Since we have a purchase order in place and the material delivery is expected, the net amount gets debited to the Goods Receipt / Invoice Receipt (GR/IR) account, which is used for clearing in terms of the Source-to-Pay process​.

If there is no purchase order in place, it would mean that the ordered items don’t need to be recorded in the company’s balance sheet.​ In this situation, the net amounts are posted as expenses.​

After learning about reconciliation accounts and their role in connecting Payables Management and General Ledger, José would like to discover where can he find its supplier transactions in the Bike Company’s financial statements, like balance sheet and profit and loss statement. He needs to do that to make sure that Bike Company’s external reporting is consistent.

Payable values for invoices with purchase orders are reflected in the financial statements once the invoice is matched, verified, and posted against the corresponding purchase order and goods receipt.​

Payable values for invoices without purchase orders are recorded in the financial statements upon validation and approval of the invoice details, reflecting liabilities based on vendor agreements.​

Your invoice items will be represented differently in the company’s financial statement depending on whether your supplier invoice originate from a purchase order or not.​

​If there is a purchase of not, your​ gross invoices amounts always get credited to the payables reconciliation account, which is found on the liabilities side of the balance sheet. The structure of the balance sheet and the names of the balance sheet items may differ depending on the ​financial statement version you are using, which depends on the underlying accounting principle.​

​In you have a purchase order, the net amounts are debited to the Goods Receipt / Invoice Receipt account, which is located in the Notes section. Since this account is only used for clearing, it does not directly belong to the balance sheet. Once the Goods Receipt is credited to this account, the net amount travels to the material account in balance sheet​

​If there is no purchase order in place, then the net amounts need to be recorded as expenses directly in the Profit & Loss Statement. Depending on the expense type, it may be debited to one or the other relevant expenses account.​

The structure of the profit and loss statement and the names of the profit and loss statement items also may differ depending on the financial statement version you are using, which ​depends on the underlying accounting principle.

Working with many supplier invoices every day you might want to have a Big Picture view on you company’s supplier operations. So does José too. After processing multiple supplier invoices, he would like to generate a few reports with the most important supplier-related key performance indicators (KPIs). Luckily SAP provides functionality that José is looking for.

SAP provides several valuable apps with embedded analytics functionality that deliver important insights on the company’s operations.

In the Payables Management there is a central app that showcases all important payables management KPIs – Accounts Payable Overview. With this analytical overview app, you can monitor important accounts payable indicators and access further accounts payable analytical apps. This is a central entry point for the payables management accountant or a payables management manager to get a holistic big picture overview on one screen.

From this app you may navigate to further analytical apps for more detailed information. App like:

• Days Payable Outstanding: The representation of an average amount of days your company takes to pay its invoices to the suppliers
• Payable Aging (Aging Analysis)
  • The representation your outstanding invoice’s lifetime since the posting date
  • Can be represented as an overdue or not yet due report
• Due Invoices Free for Payment: The representation of your posted invoices released for payment

There are also many more analytical apps not included in the accounts payable overview. One worth to mention would be the Overdue Payables app. With this app you can check the overdue payable amount to your vendors by vendor company code, vendor group, vendor, and reason for payment block. You can monitor the status of the overdue payments for critical vendors in your area of responsibility. You can also find out about the potential risks and notify the responsible persons to take action.

José learned a lot of fundamentals about Payables Management. He is able to describe all main functions of this work are including supplier master data creation and invoice posting. However, this is just the beginning. José will continue exploring Payables Management to expand his skills and knowledge. But already now he is ready to tackle new challenges as a payables management accountant.