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:
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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%).
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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:
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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.
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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.