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PO amounts should never include taxes or freight. Taxes and freight charges are GL’ed separate from the PO line when AP keys the invoice in Oracle, so the PO does not need to include these amounts. If tax or freight is included in the PO amount, it has potential to negatively affect the branches P&L.

An accrual is automatically generated by Oracle when there is an unpaid invoice or receipt amount against the PO. If your PO amount includes taxes or freight charges, you risk accruing for those charges even after the invoice has been paid. That’s a negative on the P&L that shouldn’t be there!

Example: Outside repair service

Scenario 1: John takes a piece of equipment to an outside repair shop and is given an estimate of $2000 to complete the repairs, so he creates a PO for $2000. The vendor fixes the equipment and gives John the above invoice with a total of $1984.88.  John does the receipt for the full amount $1984.88 and sends the invoice to Herc Rentals AP who matches the invoice to the PO. The amount before taxes and freight $1908.92 is matched to the PO line, and the tax amount $75.96 is GL’ed separately.

What’s wrong? Because only $1908.92 was invoiced against the PO, but a receipt was done for $1984.88, once the invoice pays there will be an accrual for $75.96 (1984.88 – 1908.92) against the branch that will not stop until the receipt is corrected* or closed manually. John should have only received $1908.92.

*To learn more about correcting receipts, visit hercprocurement.happyfox.com and search “correct receipt.”

Scenario 2: John obtains a quote from the repair shop, which totals $1908.92 before taxes and freight, so he creates a PO for $1908.92. Once the service is completed, he does a receipt for the full amount of $1908.92. The vendor sends the above invoice to Herc Rentals AP, who matches the invoice to the PO. The amount before taxes and freight $1908.92 is matched to the PO line, and the tax amount $75.96 is GL’ed separately. The amount $1908.92 accrues until the invoice is paid.

Good job, John! He obtained a quote, and created a PO for only the amount before taxes and freight charges.

Scenario 3: John estimates an equipment repair at an outside vendor will cost $2000, so he creates a PO for $2000. The vendor completes the service and gives John a copy of the above invoice. He does a receipt for the amount before taxes and freight $1908.92. The vendor also sends the invoice to Herc Rentals AP, who matches the invoice to the PO. The amount before taxes and freight $1908.92 is matched to the PO line, and the tax amount $75.96 is GL’ed separately. The amount $1908.92 accrues until the invoice is paid. The unused $91.08 on the PO does not accrue, because it has not been received.

Good job, John! Although his PO amount was for more, he only received what was invoiced before taxes and freight charges.