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*Fixed Asset Item (Accounting Entries)*

*Receiving:*

*Dr. Receiving Inspection account @ PO price


XX *

* Cr. Expense A/P Accrual account @ PO price


XX*

*Delivery:*

*Dr. Asset clearing accounts(PO Charge A/c) @ standard cost


XX*

* Cr. Receiving Inspection account @ PO price


XX*

*Invoice:*

*Dr. Expense A/P Accrual account*

* Cr. Supplier Liability A/C*

*POST Mass addition:*

*Dr. Asset Cost A/C*

* Cr. Asset Clearing A/C*

*Depreciation :*

*Dr. Depreciation expense A/C*

* Cr. Accumulated Depreciation Exp*

Difference between expense item and inventory item in Oracle.

Expense Item:

Captive consumption of the organization


it will not be transferred (Stockable & Transactable ) to the inventory and
hence will not hit the inventory valuation account.

Inventory Item:

it will hit the inventory as well as inventory valuation account and


it will be used in production of finished goods.

Difference between expense item and inventory item

Those Item that needs to maintain stock and tracking are inventory Items. Creating
unique Item coding for each SKU's

Non-Stock able Items that is direct IN & OUT, are expense items. For such items no
need to create Item code for all. Only few codes can be created and in PR & PO
description can be change

For example

Inventory items: Machine parts, Raw Materials, Any Trading Items etc

Expenses Items: Assets, services, Projects, consumables (Office Stationery) etc.

You cannot define an item as expense and inventoried at the same time. But you
can define the item as inventory item.

And when you want to use it as expense, move it to an expense subinventory.

We need to uncheck the attribute "Asset Subinventory" in the specified


subinventory.

You should uncheck the asset flag for that subinventory. Make sure that the
subinventory accounts are setup correctly.

The terminology of items is rather confusing from an Purchasing/Inventory point of


view:

For easy understanding these will be referred below points.

These Expense Items have attributes checked

a - Purchasable

b - Purchased

These Inventory Expense Items have the following attributes checked

a - inventory item = YES

b - stockable

c - transactable

d - Inventory Asset Value = NO

e - Costing Enabled = No

These Inventory Asset Items have the following attributes checked

a - inventory item = YES

b - stockable.

c - transactable

d - Inventory Asset Value = YES

e - Costing Enabled = YES

As you know "procure to pay" Business Flow start Purchasing requisition till paying
to vendors and most important, in all the case the purchase is made for basic
element called Items.

As you know there are three types of items:


Inventory Expense Item
Inventory Asset Item
Expense item

According to the State of Small Business report, an incredible 46% of small


businesses dont track their inventory or use a manual process to do so.
Inventory and fixed assets are sometimes treated as assets on a companys
balance sheet, though not all assets are inventory. With these practices, its
not surprising that about 1/2 of all new small businesses dont survive past
the first five years. Inventory and assets are actually very different things.
Inventory is what is sold to make a profit, and assets are what help the
company obtain, maintain and sell off their inventory. When deciding
between a fixed asset or inventory management system, this difference is
crucial to understand, particularly for brick and mortar companies.

THE BASICS

Whats the difference between the two? The key difference is that
inventory is the materials, work-in-progress goods and finished products a
company intends to sell to earn revenue. It is the companys product, or it is
a component used to create the companys product. In order to stay in
business, the company must sell inventory, send it into the distribution
channel, or use it in production. Fixed assets, on the other hand, may be
used in production of the companys products, such as equipment or
machinery, but they are not part of the companys normal revenue stream or
product line. They are rarely sold under a years time, unless the company is
upgrading equipment or selling a facility or, in a worst case scenario, closing.
Wasp Inventory Control Tour
Why is keeping track of inventory important? Inventory is considered a
current asset by the companys accounting team, which means that the
company plans to sell the asset in the short term.
Over time, some inventory may become obsolete, or there may be too much
on hand to sell within a reasonable period. An inventory system must include
the ability to identify excess and obsolete inventory so that the company can
adjust for this slow moving or non-moving inventory. Conversely, if your onhand inventory is too low, you may lose sales due to inability to meet
demand. This is where knowledge of your inventory turnover ratio comes in
handy.
Why is keeping track of fixed assets important? Fixed assets, also
known as hard assets, are considered long-term assets on the balance sheet.
This means that the company expects to profit from use of the asset for a

long time often referred to as its useful life. However, fixed assets do have a
finite useful life, and accountants must record the decline in usefulness (the
assets value) by recording periodic depreciation. Over time, each assets
value is reduced, but financial statements will continue to use the original
cost of the asset rather than its current market value. To know how much
value your assets are worth at any given time, youll need a tracking system.

INVENTORY: INVENTORY IS PRODUCTS YOUR BUSINESS SELL

ASSETS: ASSETS ARE ITEMS THAT YOU COMPANY OWNS AND


INTERNALLY (COMPUTERS, COPY MACHINES, SOFTWARE)

TRACKING SYSTEMS
What do inventory tracking systems account for? There are several
reasons to track inventory. One important function is to monitor sales.
Inventory tracking systems can follow your products as they move in and out
of stock or production, as well as when they sell it in order to calculate the
cost of goods sold. You can also ensure the safety of your inventory (via
surveillance or alarms) and maintain your inventory turnover ratio by
ensuring the accuracy of your databases and eliminating excess stock. Unlike
fixed asset management systems, inventory systems normally do not include
the ability to plan and schedule maintenance on items in stock, even if such
items would normally require periodic maintenance while they are in service.
For example, companies that sell machinery and equipment dont perform
maintenance on the equipment in inventory, despite recommending that
customers who use the equipment maintain it regularly. Equipment in
inventory is not in use for its intended purpose, so it does not require
maintenance until it is sold and the customer begins using it.
What do fixed asset systems need to track? A fixed asset system must
have the ability to calculate and record each assets depreciation. The best
fixed asset systems have multiple depreciation methods they can use to
calculate periodic depreciation. The most common depreciation method is
known as straight-line depreciation, which is the initial cost of an asset
divided by its useful life. Other methods include double declining balance
and sum of the years digits. To combat depreciation, fixed asset
management systems should have the ability to track required and

preventive maintenance on equipment. This allows companies to plan and


schedule necessary repairs, calibrations, and tune-ups to equipment; thereby
prolonging the useful life of its assets. Fixed asset systems that include
enterprise asset maintenance answer this need. Finally, fixed asset
management systems can monitor the check-out/check-in process of said
assets according to company policy. Examples of fixed assets that can
require a check-out/check-in process include durable tools or equipment such
as computers or projectors. When fixed assets that go through these
processes arent properly tracked, they can become lost, stolen or otherwise
unprepared for use when needed. Private companies and the public sector
alike can benefit from a centralized database that automates the tracking
process.
Asset Tracking Software
When selecting a system to manage your companys assets, it pays to
understand whether what you own consists of consumable inventory or fixed
assets, even if some of the processes and terminology are the same. You
should never overlook the importance of maintaining records of these assets.
*****************************************************************************

Fixed Asset Purchase


Quick Link
Fixed Asset Purchase

Scope
This procedure covers requesting and approving the purchase of a fixed asset from a supplier.
This procedure does not cover fixed assets transferred from the fixed assets pool or from another unit.

Policy
A fixed asset

may consist of either a single item or components purchased as separate items but intended to
function together as a unit (e.g., personal computer components)

has both a total cost greater than $500 (including freight) and a useful life of at least 3 years.

An asset tag number

is the number used to uniquely identify each fixed asset

helps reference the fixed asset in the database

is assigned to each fixed asset after it is placed in service

may not be reused when a fixed asset is retired

is assigned by the Accountant responsible for the fixed asset database

An asset tag

is the identification device bearing the asset tag number

is permanently affixed (whenever practical) to each fixed asset after it has been placed in service

is not affixed to a fixed asset when doing so either is physically impossible or would impair the
use of the fixed asset
is removed when the fixed asset is disposed of

A Purchase Requisition

must be completed for each fixed asset purchased

serves as the document authorizing the purchase of a fixed asset

must be accompanied by a written justification

The approvals required to purchase a fixed asset are

based on the total cost of the fixed asset and whether the purchase conforms to the capital
budget (that is, whether the fixed asset is in the budget and within the budgeted amount)

Fixed assets are maintained in the fixed assets module of Oracle.

Responsibility
The Budget Officer is responsible for

approving and forwarding the purchase requisition to the Chief Financial Officer
ensuring that the correct fixed asset account has been used and other details as specified in the
procedure

The Chief Financial Officer is responsible for

verifying the completeness of all requests for the purchase of a fixed asset

the capital budget

deciding when approval by the Executive Staff is required for fixed asset purchases that do not
conform to the capital budget (that is, are not in the capital budget or have a total cost greater than
the budgeted amount)

The Purchasing unit is responsible for

checking for purchase requisitions that are for fixed assets

ensuring the correct account has been used

confirming that the Chief Financial Officers approval is also recorded on the requisition Approval
History

rejecting the requisition if any of the above criteria is not met

The Materials Management & Logistics Manager is responsible for

ensuring that all criteria for fixed asset purchases are met on the purchase order

rejecting the purchase order if any criteria is not met

approving and forwarding the purchase order to the Computing Services Manager if computer
equipment is being purchased

approving and forwarding the purchase order for the asset to the supplier and subsequent follow
up

The Computing Services Manager is responsible for

reviewing all computer equipment purchase orders forwarded from the Materials Management &
Logistics Manager.

approving or rejecting such purchase orders depending whether they conform to computing
service purchasing policy

Distribution
Budget Officer*
Buyer

Chief Financial Officer*


Computing Services Manager*
Materials Management & Logistics Manager*
Requestor*

Ownership
The Chief Financial Officer is responsible for ensuring that this document is necessary, reflects actual
practice and supports IITA policy.

Activity Preface
This activity is performed whenever a fixed asset is requested.
The approval levels in this procedure are consistent with the approval levels for Purchasing.
The approvals required to purchase a fixed asset are based on two criteria: (1) the total cost of the fixed
asset and (2) whether the purchase conforms to the capital budget (that is, whether the fixed asset is in
the budget and within the budgeted amount).
The total cost of a fixed asset includes all costs required to purchase it, take title to it, and make it ready
for use.
The purchase price of a fixed asset consists of the total of all components intended for use as a unit.

Requestor
1.

Request the purchase of a fixed asset.

The request should be discussed with your Budget Officer before completing the purchase Requisition.
The Chief Financial Officer responsible for Capital Budget should also be consulted.
Complete a Purchase Requisition requesting the item(s) ensuring you adhere to the following rules :

Select the Category on the form as CAPITAL.

Choose the correct account distribution for the purchase.

Capital Purchases for IITA should be charged against account 9951-9957. For example,
request for purchase of a motorcycle for cost center 1320 would be written as
01.9954.1320.000000000.0000000, where 9954 is listed as FA Budget Vehicles.

Purchases made for CG-Inter-Centre Projects should be charges against account 75107570. Using the above example with cost center 4011, it would be
01.7540.4011.000000000.0000000

Send for approval to your Budget Officer. Add a note when sending for approval such as Fixed
Asset Purchase Request.

Refer to Purchase Requisitions (RFP) - Initiating and Approving [PRO4003Y] and Valid IITA Purchasing
Accounts [REF4003Y] for further information.

Budget Officer

2.

Review details of purchase requisition.

Ensure that the Requestor has completed the purchase requisition correctly.

Check that the correct fixed asset account has been used as described above. You will need to
view the requisition from Requisitions Summary to view the account distribution.

Refer to Requisitions Finding Requisitions [NAV4007Y].


3.

Decide on appropriate action on the requisition.

If you wish to approve, goto task #5. Otherwise, goto task #4.
4.

Reject the requisition as the approval action indicating the reason in the note field.

Goto task #1.


5.

Approve and Forward the requisition to the Chief Financial Officer.

As a fixed asset purchase you must forward the document to him/her for approval.

Chief Financial Officer


6.

Review the fixed asset purchase requisition.

7.

Confirm that there is available capital budget for such a purchase.


Decide appropriate action on the requisition.

If you wish to approve, goto task #9. Otherwise, goto task #8.
8.

Reject the requisition.

You should state a reason on the Note field indicating to the requestor why the request is being rejected.
The requestor will receive notification informing them that it has been rejected.

Goto task #1.

Buyer
9.

Review purchase requisition for correctness.

For fixed asset purchases you should check for the following :

The Category chosen should be CAPITAL for each line.

The account used should be either 9951-9957 for Capital Assets or 7510-7570 for external assets
normally on CG Inter-Centre projects (cost centers 8XXX).

The Chief Financial Officers name should be seen on the Tools > View Action History as
Approve.

If the details are incorrect, goto task #10. Otherwise, goto task #11.
10. Return the requisition to the requestor.
Enter the reason for return such as Approval for Fixed Asset Purchase must by the Chief Financial
Officer.
Goto task #1.
11. Create the purchase order as usual and send for approval.
Include a note when sending to the Materials Management & Logistics Manager that it is a fixed asset
purchase.

Materials Management & Logistics Manager


12. Review the purchase order for correctness.

You are checking for the same things as the buyer above.

If it is correct, goto task #14. Otherwise, goto task #13.


13. Reject the purchase order.
Goto task #9.
14. Review the items requested for purchase
If it is computer equipment, goto task #16. Otherwise, goto task #15.
15. Approve the purchase order.

End of activity.
16. Approve and Forward to the Computing Services Manager.

Computing Ser vi ces Manager


17. Review the price and type of computer equipment requested on the purchase order.
If the equipment is suitable, goto task #18. Otherwise, goto task #19.
18. Approve the purchase order.
End of activity.
19. Reject the requisition stating the reason for the rejection.
End of activity.

************************************************************************************

DIFFERENCE BETWEEN EXPENSE ITEM AND


INVENTORY ITEM
Those Item that needs to maintain stock and tracking are inventory Items. Creating unique
Item coding for each SKU's

Non-Stock able Items that is direct IN & OUT, are expense items. For such items no need to
create Item code for all. Only few codes can be created and in PR & PO description can be
change

For example

Inventory items: Machine parts, Raw Materials, Any Trading Items etc

Expenses Items: Assets, services, Projects, consumables (Office Stationery) etc.

You cannot define an item as expense and inventoried at the same time. But you can define
the item as inventory item.
And when you want to use it as expense, move it to an expense subinventory.

We need to uncheck the attribute "Asset Subinventory" in the specified subinventory.

You should uncheck the asset flag for that subinventory. Make sure that the subinventory
accounts are setup correctly.

The terminology of items is rather confusing from an Purchasing/Inventory point of


view:

For easy understanding these will be referres to as A , B and C,

A - Expense Items
B - Inventory Expense Items
C - Inventory Asset Items

A - These items have attributes checked


a - Purchasable
b - Purchased

B - These tems have the following attributes checked


a - inventory item = YES
b - stockable
c - transactable
d - Inventory Asset Value = NO
e - Costing Enabled = No

C - These items have the following attributes checked


a - inventory item = YES
b - stockable.
c - transactable
d - Inventory Asset Value = YES
e - Costing Enabled = YES

As you know "procure to pay" Business Flow start Purchasing requisition till paying to vendors and
most important, in all the case the purchase is made for basic element called Items.
As you know there are three types of items:

Inventory Expense Item

Inventory Asset Item

Expense item

Definition of above Items used in Purchasing can be best understood as:

Asset flag means means it is an asset and the items value will show in your inventory
valuation.
Inventory Item

Expense Item
These are one which is used for consumable items purchase for your organization. More importantly ,
for creating an expense item you have to perform following setup doing in the Master Item form.Go to
same path in oracle inventory
Oracle Inventory -> Items -> Master Items
When master items form open Go to Inventory Menu you need to tick followings
1.

Inventory item

2.

Stock able

3.

Transactble

4.

Resolvable

And you can also setup in Costing and purchasing menu account code as per your requirement.

Asset Item
As discussed above , the following attributes need to be enabled for such an item.

Inventory item

Stock able

transact able

Costing flag

Inventory asset value

For entering on purchase orders


It should have purchased and purchasable flags enabled and you have to make sure you are assigning
this item to the Purchasing org which you have defined at
Oracle Purchasing > Setup > Organizations >
Financial Options > 'Supplier-Purchasing' alternate region 'Inventory Organization' field.
The accounting can be best described for such kind of items is;

Is there any effect on Step 5 in all three cases, that mean do matching have different
accounting entry?
The answer is no; as per my understanding purpose of setting the PO to a 2way, 3 way or 4 way
match is to ensure that the corresponding hold is generated on the invoice.
The holds are basically designed for control purposes, they do not have any accounting effects.

1. What is the setup for expense item?


Ans: Disable the asset and costing flags in Item master costing tab

2. Significance of Purchasable & Purchased option?


Ans: Purchasable is an item defining attribute, it tells that item can be purchased from
external Suppliers
Purchased is an item status attribute, item can be purchased in this status

3. Significance of Customer Ordered & Customer Orders enabled?


Ans: CO: Item defining attribute
COE: item status attribute

***********************************************************************
Types of Items

1. Expense Items Stationery (in this example Paper has been used as a stockable item but it
differs from client to client based on business nature)
2. Inventory Expense Items Stockable Items depends on the company
3. Inventory Asset Items To capitalize the item

Let us see the Inventory Expense Items


Inventory Expense Item should be configured/migrated with the following check boxes

Inventory Expense
Item

Inventory TAB

Inventory Item

Stockable

Enable the check box

Purchasing TAB

Purchased

Purchasable

Enable the check box

Transactable

Create an Item

Cost Group, Cost Types etc can be created in Inventory itself.


Create and Approve PO

Receive the goods

If it is 2 way matching, we dont need to do Receiving Transactions. If receipt routing Direct


Delivery, we dont need to do Receiving Transactions.
In the above example it is Direct Delivery.
Check the Receiving Transaction Summary

Keep the cursor as below

Entry at this time will be

Line

Accountin
g Class

Account

Debit

Accrual

01-000-2410000

200

Receiving 01-000-1400Inspection
000

Credit

200

Run the costing process for inventory valuation


Run the Cost Manager from Inventory Setup>Transaction>Interface Manager or
Cost Management>Setup>Interface Manager
Launch the cost manager

Run the Create Accounting from Cost Management

Entry will be created at this time

Line

Accountin
g Class

Account

Inventory 01-000-1410Valuation
000

Receiving 01-000-1400Inspection
000

Debit

Credit

200
200

You can view the same entries in GL as well.


Other Entries
At the time of Creation of AP Invoice by matching against the PO

Line

1
2

Accountin
g Class

Account

Debit

Accrual

01-000-2410000

200

Liability

01-000-2210000

Credit

200

At the time of making payment in AP (if cash management is not implemented)

Line

1
2

Accountin
g Class

Account

Debit

Liability

01-000-2210000

200

Cash

01-000-1210000

Credit

200

OR
At the time of making payment in AP (if cash management is being implemented)

Line

1
2

Accountin
g Class

Liability

Account

Debit

01-000-2210000

200

Cash 01-000-1220Clearing
000

Credit

200

After Bank Statement is being reconciled in Cash Management

Line

1
2

Accountin
g Class

Account

Debit

Liability

01-000-2210000

200

Cash

01-000-1210000

P OS TE D B Y RAGH U S AT 1 3 :2 7 :00

Credit

200