Executing Purchase Order with Down Payment

Objective

After completing this lesson, you will be able to create a Purchase Order with Down Payment

Down Payment Process

My name is Kevin Miller. I have been working in various roles at the Bike Company for several years. Now, I am an accounts payable accountant. In my current process, I deal with down payments for suppliers.

Our company is currently focused on improving the down payment process and I am leading the project to redesign and optimize this business. To achieve this, I'm investigating the down payment process.

Kevin is browsing the employee portal looking for potential support. He comes across Monica’s profile from the support department. Surely, she can describe the procurement process with down payment to him.

To learn how Monica can help, press play.

Kevin notes the most important points of the conversation with Monica.

The figure outlines the process of handling a purchase order and payment in five steps. First, a purchase order is created and down payment information is entered. Second, a down payment request is posted using special G/L indicators, the down payment is made, and the request is cleared. Third, the goods are delivered. Fourth, the vendor invoice is entered and the down payment is cleared against the invoice. Finally, the open payable is cleared by paying the remaining amount.

Special G/L Indicator: F, Down Payment Requests

To make payments with the payment program, we need a due invoice. However, this does not exist for a down payment. To make the down payment automatically using the payment program, you need a down payment request. This is a noted item that does not lead to the update of account balances and only serves as a posting template for a down payment.

When you enter a down payment request, you enter the information that the payment program requires. Among other things, you must enter a target special G/L indicator. It is the special G/L indicator with which the down payment is to be posted later. This is required by the system to determine the correct special G/L account for down payments. The master record of the down payment account to be posted to later, determines which fields are relevant for entering a down payment request and how entries are to be handled.

The figure shows in T-account view how transactions in the Accounts Payable subledger are posted to the Payable reconciliation account in the general ledger. Each vendor master record includes a reconciliation account for posting. Down payments to vendors are posted to an alternative reconciliation account using a special G/L transaction to keep them separate from regular payables.

Special G/L indicator: A, Down Payments, Current Assets

Transactions in the subledger, Accounts Payable, are posted to the Payable reconciliation account in the general ledger.

In each supplier/vendor master record, you must enter the reconciliation account to which you want to post. The Reconciliation Account field is in the company code segment of the vendor master record.

If down payments are made to a vendor, an alternative reconciliation account must be posted, since down payments must not be reported in the balance sheet together with payables for goods and services. You can do this using the special G/L transaction.

If subledger account assignments are made using a special G/L indicator, these are posted to alternative reconciliation accounts, for example, special G/L accounts. These transactions are then displayed separately.

Purchase Order

Kevin checks the input options of Down Payment in Purchase Order Processing.

A Purchase Order (PO) using the Create Purchase Order – Advanced app. The option to enter down payment information within the PO is highlighted. A standard PO is shown, with header details such as supplier information and document date. The payment processing tab is selected. It includes fields for retention, down payment category, down payment percentage, amount, and due date.)

You can store the down payment data in the Create Purchase Order Advanced app. The down payment is entered in the header data on the Payment Processing tab.

The figure illustrates the process of creating a purchase order using the Create Purchase Order – Advanced app. It highlights the option to enter down payment information in items level, showing a dropdown menu for selecting the down payment category, which includes options for Mandatory Down Payment, No Down Payment, and Voluntary Down Payment.

Alternatively, the payment can be entered at the item level of the purchase order in the Invoice tab.

Create a Purchase Order with Down Payment

The supplier of electric motors from the bike company expects a down payment before delivery. Support Kevin in creating the purchase order.

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