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Understanding Prepayment Processing

This section discusses:

Prepayment Overview

Down payments and prepayments are common practice worldwide. Most organizations, at one time or another, must pay for goods or services before an invoice is received. For example, when a company sets up a new customer account with a supplier, the supplier may require prepayment on the first one or two orders before extending credit to the buyer. The prepayment functionality in PeopleSoft Payables:

  • Allows a payment to be made to a supplier without an invoice.

  • Creates accounting entries for the prepayment.

  • Applies VAT and withholdings to the prepayment.

  • Facilitates the application of the final voucher to the prepayment.

Use prepayments to create payments for suppliers before receiving an invoice:

  1. Enter and pay a prepaid voucher immediately.

  2. Enter it as a regular voucher when the invoice is received.

  3. Apply or link the regular voucher and prepaid voucher prior to payment of the regular voucher.

    The system deducts the payment made on the prepaid voucher from the regular voucher's scheduled payment and remits the balance to the supplier.

  4. Post both the prepayment voucher and the prepayment to create the appropriate accounting entries once the prepayment has been made.

    The voucher and payment posting processes reverse the prepayment entries and charge the final accounts when the regular voucher is posted.

The prepayment voucher has all the attributes of a regular voucher, including document sequencing, VAT, and withholding. The actual prepayment has all the attributes of a regular payment with the exception of discounts and split payments.

Prepayment application can be performed in batch processing (part of voucher posting) or manually using the Apply Vouchers to Prepayment page. You can apply multiple vouchers to one prepayment, as well as one voucher to multiple prepayments.

The order in which you process prepayment application is flexible. You can enter and post a regular voucher before you enter the prepaid voucher. When you run voucher posting, the two transactions are applied (assuming they meet the application criteria). Or, you can manually apply the regular voucher to the prepaid voucher immediately after the prepaid voucher has been paid.

Note: For automatic application, either the prepaid voucher or the regular voucher must be picked up by the Voucher Posting Application Engine process (AP_PSTVCHR) to be applied. If both vouchers are already posted, voucher posting does not process them, and no application occurs. In this scenario, you can manually apply the regular voucher to the prepaid voucher using the Apply Vouchers to Prepayment page. Voucher posting creates the apply accounting entries the next time it is run for that business unit.

Prepayment Application and Payment

Complete the following steps to apply and pay regular and prepaid vouchers:

  1. Create the prepaid voucher.

  2. Pay the prepaid voucher.

    Note: Prepaid vouchers must be paid before a regular voucher can be applied to them. They do not need to be payment-posted.

    The accounting entries that are created for prepaid voucher during voucher posting include

    • Prepaid expense account (122000): 1000.00 Debit.

    • Accounts payable account (200000): 1000.00 Credit.

  3. Create a regular voucher.

    Note: Regular vouchers must be approved before they can be applied to prepaid vouchers using either the batch or manual application processes.

  4. (Optional) Manually apply the regular voucher to the prepaid voucher.

  5. Run the Voucher Posting process for the regular voucher.

    The Voucher Posting process calls the AP Prepayment Application Application Engine process (AP_PPAY_APPL), which applies regular vouchers to prepayments.

  6. Run the Pay Cycle Application Engine process (AP_APY2015) to pay the regular voucher payment.

    The Pay Cycle process pays the regular voucher payment schedule, which was reduced in prepayment application.

    An advice routine selects invoice information from applied prepaid vouchers, so they appear on the payment advice. This advice lists regular vouchers that are applied to prepayments.

Note: If you run the Pay Cycle process before running the Voucher Posting process for the regular voucher, the regular voucher is paid in full, because the AP Prepayment Application process will not have been run. Use the manual application process to run the Pay Cycle process before the Voucher Posting process.

Prepayment Posting

When you run the Voucher Posting process for the regular voucher:

  1. The Voucher Posting process calls the AP Prepayment Application process, which processes the vouchers in the following order:

    1. Auto-apply prepayments with matching references.

    2. Auto-apply prepayments with the Auto-Apply check box selected.

  2. The AP Prepayment Application process loops through the available prepaid vouchers by invoice date (oldest first).

  3. For each prepaid voucher, the process loops through the regular vouchers that are being processed in the current run or were previously posted but are not fully paid or applied.

    It searches for vouchers that match the invoicing supplier and transaction currency of the prepaid voucher and processes regular vouchers by scheduled payment date (oldest first).

    Note: The AP Prepayment Application process does not update application links that have been made manually. For example, if you have partially applied a prepayment to a regular voucher, the system does not apply the rest of the prepayment when you run the AP Prepayment Application process.

  4. When a match is found, rows are created in the PS_VCHR_PPAY_XREF table that link to prepaid and regular vouchers.

    Note: Vouchers with payment schedules on hold are not applied.

  5. The scheduled payment (PS_PYMNT_VCHR_XREF) on the regular voucher is reduced by the amount of the applied prepaid voucher.

  6. To balance the payment amounts on PS_PYMNT_VCHR_XREF to the voucher gross amount, a row is inserted into PS_PYMNT_VCHR_XREF with PREPAID_STATUS of A (applied), and the amount is applied against the prepaid voucher.

  7. If voucher posting encounters regular vouchers which are applied to prepaid vouchers, reversal accounting entries are created for the prepaid vouchers.

  8. A posting status field (REV_POST_STATUS) on PS_VCHR_PPAY_XREF tracks whether the reversing accounting entries have been created.

    Note: In the case where the regular voucher is smaller than the prepaid voucher, voucher posting prorates the prepayment reversals so that only the portion of the prepaid voucher, which is applied to the regular payment, is reversed.

    Note: The prepaid voucher must be posted before the regular voucher for the Voucher Posting process to create the prepaid reversal entries.

  9. The accounting entries created for the posted, applied regular vouchers during voucher posting are:

    Description

    Account

    Debit

    Credit

    Expense

    631000

    5000.00

     

    Accounts Payable

    200000

     

    5000.00

    Prepaid Account

    122000

     

    1000.00

    Accounts Payable

    200000

    1000.00

     

Unposting Prepaid and Applied Vouchers

When a regular voucher that is applied to a prepaid voucher is unposted, the prepayment application is reversed. The system updates PS_VCHR_PPAY_XREF to show that no vouchers are applied.

There are no additional restrictions on voucher unpost for prepayments.

Prepaid and Regular Voucher Cross-Reference Record

The PS_VCHR_PPAY_XREF record stores the linkage between prepaid vouchers and regular vouchers which have been applied to one another. This is how information is processed:

  1. A row is inserted into PS_VCHR_PPAY_XREF when a new prepaid voucher is entered.

  2. This row is updated with the relevant linkage data when a regular voucher is applied to the prepaid voucher.

  3. Additional rows are added to PS_VCHR_PPAY_XREF, if and when the prepaid voucher is applied to additional regular vouchers.

  4. When application occurs, PS_PYMNT_VCHR_XREF (for the regular voucher) is also updated.

    The existing scheduled payment is updated to reflect the reduced payment that is remitted to the supplier. For each prepaid voucher that is applied, a row is inserted with prepaid_status A (applied). This row keeps PS_PYMNT_VCHR_XREF in balance with the voucher gross; the row is not used to generate a payment.

  5. When payments are created, the scheduled payment generates a payment that has already been reduced by the applied prepaid vouchers.

  6. When a regular voucher is posted, unposted rows in PS_VCHR_PPAY_XREF generate a set of reversal accounting entries for the prepaid voucher.

  7. When a scheduled payment is fully applied (there is nothing left to pay the supplier), the prepaid_status is set to F (fully applied), and the pymnt_selct_status is set to S (settled). No additional row is inserted into PS_PYMNT_VCHR_XREF.

Discounts and Prepayment Application

Prepayment application evaluates regular vouchers that are fully applied by prepayments to determine whether they are eligible for a payment discount. If the regular voucher is fully applied by a prepayment and is eligible for a payment discount, the application is performed at the discounted amount. The appropriate discount accounting entries are created when the apply accounting entries are created in voucher posting.

Prepayment Cancellation

You can perform payment cancellation on prepaid vouchers and unposted regular vouchers that are applied to prepaid vouchers.

During payment cancellation, the system processes PS_PYMNT_VCHR_XREF prepaid application rows, as well as the regular payment schedule rows.

Canceling and Reissuing

The original payment schedule is identified as canceled (PYMNT_SELCT_STATUS = X) and a new payment schedule is inserted. The prepaid application rows (PREPAID_STATUS = A) are also canceled. New application rows are inserted into PS_PYMNT_VCHR_XREF, and are identical to the canceled rows except that the ORIG_PYMNT_CNT on the new applied rows is the PYMNT_CNT of the new payment schedule.

For prepayments, the payment can be canceled as long as it is not applied. PYMNT_VCHR_XREF is updated normally. If the option to reissue the payment is selected, PS_VCHR_PPAY_XREF is updated to point to the payment count of the newly scheduled payment rather than the canceled one.

Canceling and Closing

If you cancel a payment for a regular voucher that has prepaid vouchers applied to it, and you decide to close the voucher, only the unapplied portion of the regular voucher is closed. When you save, a warning message advises you that if you want to close the entire voucher, you should not proceed.

Note: Applied prepayments cannot be canceled. The prepaid voucher must be unapplied before its associated payment can be canceled. Applied prepayments do not appear in the Payment Cancellation search view.

Prepaid and Applied Voucher Closure

If you attempt to close a regular voucher that is applied to one or more prepaid vouchers, a warning message advises you of the following: Prepaid vouchers (or portions of prepaid vouchers) that have been applied to regular voucher payment schedules cannot be closed.

Unpaid regular payment schedules that are applied to prepaid vouchers can be closed, but only the unpaid and unapplied portion of the payment schedule (the amount remaining to be paid) is closed.

If a regular voucher is applied to one or more prepaid vouchers and you want to close out the entire regular voucher, you must unapply it first.

Example: Closing Prepaid and Regular Vouchers

This example assumes the following:

  • A prepaid voucher for 1000.00 USD is posted and paid.

  • A regular voucher for 5000.00 USD is created.

  • The prepaid and regular vouchers are applied to each other (manually or using batch).

  • The regular voucher's payment schedule is reduced to 4000.00 USD.

In this example, you can close the regular voucher, but only 4000.00 USD is closed. However, if you unapply the vouchers and then close the regular voucher, the entire 5000.00 USD is closed.

Note: Prepaid vouchers that are applied to regular vouchers must also be unapplied prior to closure. Applied prepaid vouchers do not appear in the Voucher Closure search view.

Manual Prepayment Application Example

Let's say you have scheduled payments for two regular vouchers (REG-A and REG-B) and you want to apply some of each of them to the scheduled payment for a prepaid voucher (PP-1).

Voucher ID

Scheduled Payment Amount

PP-1

2000.00 USD

REG-A

1000.00 USD

REG-B

3000.00 USD

If you apply 300.00 USD of REG-A to PP-1, the remaining balance of PP-1 is 1700.00 USD. You could then apply 1700.00 USD of REG-B to PP-1, and PP-1 is fully applied. The resulting final payments would be 700.00 USD for voucher REG-A and 1300.00 USD for voucher REG-B.

Accounting Entry Example 1: Prepayment Without VAT or Withholding

This scenario assumes:

  • Prepayment: 1000.00 USD.

  • Regular voucher: 5000.00 USD.

Prepaid Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Prepaid Expense

122000

1000.00 USD

N/A 

Accounts Payable

200000

N/A 

1000.00 USD

Payment (payment posting):

Description

Account

Debit

Credit

Accounts Payable

200000

1000.00 USD

N/A 

Cash

100001

N/A 

1000.00 USD

Applied Regular Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Expense

631000

5000.00 USD

N/A 

Accounts Payable

200000

N/A 

5000.00 USD

Prepaid Expense

122000

 

1000.00 USD

Accounts Payable

200000

1000.00 USD

N/A 

Payment (payment posting):

Description

Account

Debit

Credit

Accounts Payable

200000

4000.00 USD

N/A 

Cash

100001

N/A 

4000.00 USD

Accounting Entry Example 2: Prepayment with 100% VAT on Regular Voucher

This scenario assumes:

  • Prepayment for 1196.00 EUR.

  • Applied regular voucher for 3588.00 EUR.

  • VAT declaration point is invoice.

    Note: The Voucher Posting process creates similar accounting entries when the VAT declaration point is invoice, delivery, or accounting date.

Prepaid Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Prepaid Expense

122000

1000.00 EUR

N/A 

VAT Input Recoverable

206103

196.00 EUR

N/A 

Accounts Payable

200000

N/A 

1196.00 EUR

Payment (payment posting):

Description

Account

Debit

Credit

Accounts Payable

200000

1196.00 EUR

N/A 

Cash Distribution

100001

N/A 

1196.00 EUR

Applied Regular Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Expense Account

631000

3000.00 EUR

N/A 

VAT Input Recoverable

206103

588.00 EUR

N/A 

Accounts Payable

200000

N/A 

3588.00 EUR

Prepaid Expense

122000

N/A 

1000.00 EUR

VAT Input Recoverable

206103

N/A 

196.00 EUR

Accounts Payable

200000

1196.00 EUR

N/A 

Payment to supplier for 2392.00 EUR.

Payment (payment posting):

Description

Account

Debit

Credit

Accounts Payable

200000

2392.00 EUR

N/A 

Cash Distribution

100001

N/A 

2392.00 EUR

Accounting Entry Example 3: Prepayment with 100% VAT on Payment

This scenario assumes:

  • Prepayment for 1000.00 EUR.

  • Applied regular voucher for 11960.00 EUR.

  • VAT declaration point is payment.

Prepaid Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Prepaid Expense

122000

1000.00 EUR

N/A 

VAT Intermediate Recoverable

206300

196.00 EUR

N/A 

Accounts Payable

200000

N/A 

1196.00 EUR

Payment (payment posting):

Description

Account

Debit

Credit

VAT Intermediate Recoverable

206300

N/A 

196.00 EUR

VAT Input Recoverable

206103

196.00 EUR

N/A 

Accounts Payable

200000

1196.00 EUR

N/A 

Cash Distribution

100001

N/A 

1196.00 EUR

Applied Regular Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Expense Account

631000

10000.00 EUR

N/A 

VAT Intermediate Recoverable

206300

1960.00 EUR

N/A 

Accounts Payable

200000

N/A 

11960.00 EUR

Prepaid Expense

122000

N/A 

1000.00 EUR

VAT Intermediate Recoverable

206300

N/A 

196.00 EUR

Accounts Payable

200000

1196.00 EUR

N/A 

Payment to supplier for 10764.00 EUR.

Payment (payment posting):

Description

Account

Debit

Credit

VAT Intermediate Recoverable

206300

N/A 

1764.00 EUR

VAT Input Recoverable

206103

1764.00 EUR

N/A 

Accounts Payable

200000

10764.00 EUR

N/A 

Cash Distribution

100001

N/A 

10764.00 EUR

Accounting Entry Example 4: Prepayment with 5% Prorated, Nonrecoverable VAT

This scenario assumes:

  • Prepayment for 1000.00 EUR.

  • Applied regular voucher for 11960.00 EUR.

  • VAT declaration point is payment.

  • VAT Type: Prorate nonrecoverable.

Prepaid Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Prepaid Expense

122000

1186.20 EUR

N/A 

VAT Intermediate Recoverable

206300

9.80 EUR

N/A 

Accounts Payable

200000

N/A 

1196.00 EUR

Payment (payment posting):

Description

Account

Debit

Credit

VAT Intermediate Recoverable

206300

 

9.80 EUR

VAT Input Recoverable

206103

9.80 EUR

N/A 

Accounts Payable

200000

1196.00 EUR

N/A 

Cash Distribution

100001

N/A 

1196.00 EUR

Applied Regular Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Expense Account

631000

11862.00 EUR

N/A 

VAT Input Recoverable

206103

98.00 EUR

N/A 

Accounts Payable

200000

N/A 

11960.00 EUR

Prepaid Expense

122000

N/A 

1186.20 EUR

VAT Input Recoverable

206103

N/A 

9.80 EUR

Accounts Payable

200000

1196.00 EUR

N/A 

Payment to supplier for 10764.00 EUR.

Payment (payment posting):

Description

Account

Debit

Credit

VAT Intermediate Recoverable

206300

N/A 

88.20 EUR

VAT Input Recoverable

206103

88.20 EUR

N/A 

Accounts Payable

200000

10764.00 EUR

N/A 

Cash Distribution

100001

N/A 

10764.00 EUR

Accounting Entry Example 5: Prepayment with Withholding

This scenario assumes the following:

  • Supplier is subject to 31 percent withholding.

  • Prepayment for 1000.00 USD gross.

    • Withholding is not postponed.

    • Payment to supplier is 690.00 USD.

    • Withholding payment is scheduled for 310.00 USD.

  • Regular voucher for 5000.00 USD.

    • 1000.00 USD of prepaid voucher is applied.

    • Payment to supplier is 2760.00 USD.

    • Withholding payment is scheduled for 1240.00 USD.

Prepaid Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Prepaid Expense

122000

1000.00 USD

N/A 

Accounts Payable

200000

N/A 

1000.00 USD

Payment (payment posting):

Description

Account

Debit

Credit

Accounts Payable

200000

310.00 USD

N/A 

Withholding Liability

203000

N/A 

310.00 USD

Accounts Payable

200000

690.00 USD

N/A 

Cash

100001

N/A 

690.00 USD

Applied Regular Voucher

Accrual (voucher posting):

Description

Account

Debit

Credit

Expense

631000

5000.00 USD

N/A 

Accounts Payable

200000

N/A 

5000.00 USD

Prepaid Expense

122000

N/A 

1000.00 USD

Accounts Payable

200000

1000.00 USD

N/A 

Payment (payment posting):

Description

Account

Debit

Credit

Accounts Payable

200000

1240.00 USD

N/A 

Withholding Liability

203000

N/A 

1240.00 USD

Accounts Payable

200000

2760.00 USD

N/A 

Cash

100001

N/A 

2760.00 USD

Recurring Prepayment Vouchers

This section discusses voucher contracts.

Voucher Contracts

PeopleSoft voucher and order contracts enable you to manage recurring voucher payments and PO releases over any time period. PeopleSoft voucher and order contracts support both product and service contracts and enable you to share contracts across business units. Use voucher contracts to establish and schedule amounts for recurring payments such as rent and lease payments, utilities, and regular supply deliveries, and you can generate the resulting vouchers. As each voucher comes due according to the payment terms of the supplier and business unit, the voucher is approved and paid. You can adjust the amount of individual vouchers during the life of the contract.

Select the Prepaid Voucher option or the Prepaid Voucher with Advance PO Contract process option in the Voucher Contracts Options group box on the Maintain Contract - Header page to associate a prepayment reference for the contract. When a recurring voucher is generated, it is applied to the prepaid voucher using either the batch or manual application processes.