Variance Accounts

Accrual Method

If you accrue at receipt, also known as perpetual accrual, the accrual is recorded when you receive the item. When you create accounting for the invoice, the accrual is reversed and the accounts payable liability is recorded.

If you accrue at period end, run the Create Period End Accruals process to create accrual journal entries for all uninvoiced receipts. The entries are automatically reversed in the next period. When you create accounting for the invoice, the expense and accounts payable liability is recorded.

Item Type

You must use the receipt accrual method for inventory items. For expense items, set the Accrue Expense Items option on the Manage Common Options for Payables and Procurement page to receipt or period end. If the option is set to receipt accrual, you can change it to period end on the purchase order (PO) schedule.

Variance Accounts for Expense Items

Variance distributions are created at invoice validation time.

This table lists the variance accounts for expense items by accrual method.

Accrual Method	Invoice Distribution Combination	Quantity Variance	Invoice Price Variance	Conversion Rate Variance
At receipt	Expense accrual account	Expense accrual account	Invoice price variance account	Conversion rate variance gain or loss account
Period end	PO charge account	PO charge account	PO charge account	PO charge account

Variance Accounts for Inventory Items

This table lists the variance accounts for inventory items.

Accrual Method	Invoice Distribution Combination	Quantity Variance	Invoice Price Variance	Conversion Rate Variance
At receipt	Inventory accrual account	Inventory accrual account	Invoice price variance account	Conversion rate variance gain or loss account

How Accrual Method Affects Nonrecoverable Tax

Tax rate variance is calculated from the nonrecoverable portion of the tax in the following cases.

There’s a difference between the tax amounts of the PO and the invoice.
There’s a difference the computed taxes (for example, an extra tax calculated on invoices, but not on PO)

Consider an invoice that’s matched to a PO (or a receipt), and for which you haven’t opted to accrue at receipt. The accounting for this invoice uses an existing subledger journal rule called Nonrecoverable Tax. It has the following conditions.

( "Invoice Distribution Type" = Nonrecoverable tax 'Or' "Invoice Distribution Type" = Tax conversion rate variance 'Or' "Invoice Distribution Type" = Tax invoice price variance 'Or' "Invoice Distribution Type" = Tax rate variance ) 'And' "Accrue on Receipt Option" != Yes 'And' "Self-Assessed Tax Indicator" != Yes 'And' "Invoice Distribution Multiperiod Accounting Start Date" Is null

So, if you calculate the nonrecoverable tax only for this invoice, the application creates the tax rate variance lines because the same nonrecoverable tax doesn’t exist for the PO (or receipt).

You can ensure the following to avoid creating tax rate variance lines:

There should be no tax in the PO, and no tax calculated on the invoice in Payables.
Same tax is calculated in both the PO and the invoice in Payables.
Tax calculated in the PO is 100% recoverable. In this case, even if you do not calculate tax on the invoice, you don’t see tax rate variance.