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Account invoice for Purchasing

hello I've got a request from a couple of subscribers to explain the concept of the purchase price variance and invoice price variance and hence this video in this video I will explain you what is purchase price variance and what is invoice price variance and I'll show you in the system how system calculates the purchase price variance and invoice price variance so to start with purchase price variance it's the difference between the pu price and the items standard cost price and IPV that's your invoice price variance is the difference between the purchase price and the invoice price so if you take an example if the standard cost of an item is say 100 USD and your purchase order price you say 1:05 cos T and your invoice price is 1 1 5 USD in this example your purchase price variance will be the difference between the purchase order price and standard cost so it will be $5 similarly your invoice price variance is the difference between your invoice price and pio price so in this example you can see 1 15 USD minus point 0 5 USD 10 USD so $10 is the invoice price variance and $5 is the purchase price variance now let us see how system calculates this purchase price variance and invoice price variance in vacuum so first let's navigate to your inventory vision's responsibility navigate to cost item cost so I picked up one item F 75 thousand and click on find and check the standard cost of this item the standard cost of this button right let me say 100 USD so in this example your standard cost 100 USD now I will try to create a purchase order for 1 0 5 USD and let's see how system calculates this purchase price variance so for creating of the purchase order we need to navigate to purchasing responsibility so purchasing vision services and then navigate to purchase orders purchase order so enter the basic details supplier supplier site item item is F 75,000 okay let us assume I want to purchase this item for say quantity 15 and the standard cost is $100 and let say I want to purchase it at 1:05 go to shipments go to distributions now let me try to approve this purchase order I have got the required upper limits in this environment and hence your purchase order did not go to go through the provider K it's automatically approved so this is the purchase order now I mean doing receiving of this particular purchase order and then see how system calculate the purchase price variance purchase price variance will be calculated at the time of creation of proceed so navigate to receiving receipts and my organization services put your purchase order number we can find and let's say out of 15 quantity I want to do a receiving upon the same five quantity okay so purposefully I am doing only partial received so that you can see like how system calculate your purchase price variance you can see where the system purchase price variance for the entire 15 quantity or only 5 quantity and what is the supplement 3 under which we want to do a receiving of this particular item select a sub inventory so let's say that is a be going to be common and then try to say this it's saved you'll see a message here and click on now when you do a receiving there are two steps one is receiving and other one is delivered so we have done both the parts receiving as well as deliver because we have selected the sub inventory and as far as the accounting entries has concerned for the receiving part that is the first part you can check the accounting entry in the purchasing responsibility whereas for the second part that is the delivery part you can check the accounting entry only in the inventory responsibility and your who your purchase price variance will be calculated at the deliver part but I'll show you both the accounting entries so go to receiving transaction summary and query for your purchase order number you can find the con transactions to be accounting so when you do a receiving that's the first part your genuine trip will be receiving inventory account will be debited or you can call it as an intransitive count that will be debited and your EP Akula counter AP account will be credited so you're in transit inventory value account is debited and your ap accrual account or accounts payable account whatever is being configured in the system will be credited and this account will be debited when you create your ap invoice and this receiving inventory account which is debited here will be credited when you do there were parts so when you do a delivery your inventory material valuation will be debited and this in transit account which is craved debited here will be credited and the other side goes to your purchase price variance if there is any variance so now let us check the see as for the deliverer that is this part is concerned you will not be able to see be accounting entry here you notice you continue enter here we can check the accounting entry only from the inventory responsibility so navigate to inventory vision services so go to transactions material transactions vision services is my log in transaction dates 2002 this is the latest one and here you can see the distribution button still disabled the reason being there is a cost manager program which is running in the background which so that petrol cost manager program will perform the costing of this particular transition and and and unless until the transition is costed system will not be accounting entry so if you look at here here you can see it is costed is going to know that petrol program is running in the background after every five minutes so just require this in a minute or two and then once the status changes from costed no to cost ideas then you should be able to see the distributions button enabled still grayed out we just will give for another minute or so so you can see these are the previous transactions where you can see which position button is disabled the reason being these are already Coster if you'll be able to see that it's constant and this is still not constant yeah now it's enabled and if you go here you should be able to see it's costard now click on distributions put your cursor here click on distributions here you can see the counting entry your inventory material valuation account will be debited your material value contributed and you're receiving inventory account are in transit account will be credited and the difference post your purchase price variance so in this case here you can see we the quantity is Phi and the difference between your pu price and standard item cost is $5 your a pu prices one not five and your standard cost of the item is 100 also the difference between pure price and the standard cost of the item is five dollars so five dollars x y quantity $25 here purchase price variance so remember your system has calculated the purchase price variance only for the quantity which we have received so in this example like we have received only quantity file even though he was caught remaining POS caught total quantity of 1500 remaining purchase price variance on the remaining 10 quantity will be calculated at the time of receiving of these remaining 10 quantity okay so this is how system calculate your purchase price variance now I will show you how system calculates your invoice price variance when you do it invoicing of this patter purchase order this is my purchase order and now let's get into the accounts payable responsibility and try to create an invoice against this purchase order so navigator tables vision services responsibilities invoices entry invoices enter your P remember 24/7 so as far as you enter a PIN number your supplier name number and supply side got defaulted inverse stated a state and maybe in verse number could be say ad and we will do invoicing of quantity Phi so a quantity Phi P o prices file x 1 0 Phi this is P o price okay now we will do invoicing at this particular price which is 5 x 1 1 5 C 575 okay so let us assume on your invoice and what is fine 75 now click on match and then try to find the purchase order do invoicing of only quantity fine at a price of one month Phi okay so this is your inverse place 575 save this click on lines you should be able to see the distributions auto generated by the system based on the purchase order whatever we have entered now try to validate this invoice okay and approvals also require under it has gone to leads revalidation status the reason being here you can see that invoice price x the purchase order price because in this example your invoice price is 115 and preview prices of 1 1 0 5 and looks like in this environment the we have not set the tolerance or it has exceeded the tolerance so what we can do is you can manually release the hold save this okay it's validated approved and now do create accounting and check the accounting entry here you can see the accounts payable account whatever is being selected when you do when you did the receiving got debited okay and your accounts payable I mean in this example I think we should have actually used an accrual account this is the account which is set in your receiving options so that a concorde debited and your accounts payable your liability a concorde credited and fifty dollars worth of inverse price variance you got created and this is the difference between your purchase price and invoice price for a quantity of five so in this example ten dollars multiplied by 5 so again your system has calculated the invoice price variance only for the quantity file which for which we have done the invoicing so this is how system calculate your purchase price variance and invoice price variance thank you thanks for watching my video for interesting videos on financials please do subscribe to my channel and please do not forget to click on belly button so that you get a notifications whenever I upload a new video thank you