Example of Tax Accounting for a Simple Procurement Transaction

This example illustrates tax accounting performed by Oracle Receipt Accounting and Oracle Cost Accounting for a simple procurement transaction that uses a tax point basis of delivery, that is, taxes are accounted at receipt of the goods.

Scenario

The supplier makes a shipment to the inventory organization based on a purchase order (PO) for USD 1,000, with the following tax details:

• Tax A delivery basis = 10%. Recoverable and nonrecoverable portions are both 50%

• Tax B invoice basis = 20%. Recoverable and nonrecoverable portions are both 50%

Tax Details at Receipt and Invoice

Tax details at the time of receipt of goods are:

• Tax A delivery basis = 15%, which is changed from 10% estimated at the time of purchase order. Recoverable and nonrecoverable portions are both 50%, which is equal to USD 75 (that is, USD 1,000 * 15% * 50%).

• Tax B invoice basis = 25%, which is changed from 20% estimated at the time of PO. Recoverable and nonrecoverable portions are both 50%, which is equal to USD 125 (that is, USD 1,000 * 25% * 50%).

Tax details at the time of invoice are:

• Tax A delivery basis = 20%, which is changed from 15% reported and accounted on receipt. Recoverable and nonrecoverable portions are both 50%, however taxes are not recalculated because this transaction uses a tax point basis of delivery.

• Tax B invoice basis = 30%, which is changed from 25% estimated on receipt. Recoverable and nonrecoverable portions are both 50%, which is equal to USD 150.

Analysis

Receipt Accounting and Cost Accounting create accounting distributions when the goods are received and when the invoice is accounted.

Tax Accounting Entries

Receipt Accounting and Cost Accounting generate the following accounting entries at the time of receipt:

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency	Cost Element	Basis of Amount
Receipt Accounting	PO Receipt	Receiving Inspection	1,000	USD	Material	PO Price
Receipt Accounting	PO Receipt	Receiving Inspection	75	USD	Tax	Tax A Delivery-Based Nonrecoverable: USD 1,000 * 15% * 50%
Receipt Accounting	PO Receipt	Tax Recoverable	75	USD	Tax	Tax A Delivery-Based Recoverable: USD 1,000 * 15% * 50%
Receipt Accounting	PO Receipt	Receiving Inspection	125	USD	Tax	Tax B Invoice-Based Nonrecoverable: USD 1,000 * 25% * 50%
Receipt Accounting	PO Receipt	Supplier Accrual	-1,275	USD	Not applicable	Not applicable
Cost Accounting	PO Delivery	Inventory Valuation	1,200*	USD	Not applicable	Not applicable
Cost Accounting	PO Delivery	Receiving Inspection	-1,200*	USD	Not applicable	Not applicable

*PO price plus nonrecoverable taxes A and B.

Accounts Payable generates the following accounting entries for the supplier when invoice is created:

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency	Cost Element	Basis of Amount
Accounts Payable	Invoice	Supplier Accrual	1,275	USD	Not applicable	Not applicable
Accounts Payable	Invoice	Tax Recoverable	150	USD	Tax	Tax B Invoice-Based Recoverable: USD 1,000 * 30% * 50%
Accounts Payable	Invoice	Tax B Rate Variance*	25	USD	Not applicable	Difference between tax estimated at 25% and actual calculated at 30%
Accounts Payable	Invoice	Supplier Liability	-1,450	USD	Not applicable	Not applicable

*Tax variance due to the difference between rates at time of delivery versus invoice.

Receipt Accounting and Cost Accounting generate the following accounting entries when invoice is accounted:

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency
Receipt Accounting	Invoice Price	Receiving Inspection	25	USD
Receipt Accounting	Invoice Price Adjustment	Tax B Rate Variance*	-25	USD
Cost Accounting	Acquisition Cost Adjustment	Inventory Valuation**	25	USD
Cost Accounting	Acquisition Cost Adjustment	Receiving Inspection	-25	USD

*Tax variance due to the difference between tax rates at time of delivery versus invoice.

**Inventory acquisition cost adjustment for nonrecoverable tax B.