Using an AP Suspense Account

There are two options for the GL behavior produced by receiving Purchase Orders and entering the associated Vendor invoices. The mechanics of receiving and entering the Vendor invoice are the same in both cases, but they differ in their GL results, AP reporting, and the techniques for entering adjustments to invoices that are dated in a prior, closed period. The option used by DEACOM is determined by whether an AP Suspense account is specified on the Accounts tab in System > Options and on individual Vendor records via the Order Defaults tab.

The main case for not specifying an AP Suspense account on specific Vendors is that those Vendors, such as utilities companies, may not require this account. That is because they provide a service instead of a good and the order will be received, invoiced, and paid all at once.

Configuration

To utilize the aspects of an AP Suspense account, an account must be defined. The account is then selected in the "AP Suspense" field on the Accounts tab in System > Options. Additionally, there is the option to create and assign AP Suspense accounts specific to individual Vendors, which are assigned on the Order Defaults tab of the Vendor record.

Process

Not specifying an AP Suspense account

With this option, the AP account is credited directly upon receipt of the Purchase Order. Entering a Vendor invoice with no adjustments creates no additional GL entries, since the AP account has already been credited. Entering a Vendor invoice with adjustments debits the Adjustment accounts and credits the AP account for the adjustment amounts on the date of receipt, maintaining the synchronization between the Purchase Orders and the AP account balance.

The Accounting "Payables Summary" and "Payables Detail" reports are run for Purchase Orders with receipt dates on or before the selected End Date, and therefore tie to the AP account balance on that same date. The Payables Summary and Payables Detail reports include both “Invoiced Not Paid” and “Received Not Invoiced” payables, since both are combined in the AP account balance. Only “Invoiced Not Paid” payables are visible in the Check Run or Manual Checks functions.

Example GL postings with no AP Suspense account specified

A Purchase Order is created on 7/13 for $1,000 and the inventory is received on 7/15. The invoice is received on 8/5 for $1,200.

GL ledger postings on the day the inventory is received (7/15):

Account	Debit	Credit
Inventory	$1,000
Accts Payable		$1,000

If the invoice is received before the period is closed, the GL ledger posting for the adjustment will be made on the original PO receipt date (7/15) and will look as follows:

Account	Debit	Credit
AP Adjustment	$200
Accts Payable		$200

If the invoice is received after the period is closed, the adjustment cannot be backdated to 7/15. A new Purchase Order should be created for the adjustment amounts, then received and invoiced on 8/5. The GL postings from the adjustment invoice will be made on its receipt date (8/5), and will look the same as if the invoice is received before the period is closed.

Advantages of not specifying an AP account

Since the invoice date is not used to date the GL postings, and plays no part in the synchronization between the AP account balance and the subsidiary ledger of Purchase Order data, the user is free to set the invoice date to match the Vendor’s invoice date, even if that date is in a prior closed period.

Disadvantages of not specifying an AP account

If many invoices are received that need adjustment after the prior month has been closed, then additional Purchase Orders will need to be entered for the adjustment amounts. This situation can be made worse by:

Incorrect Purchase Order pricing
Vendors not honoring a Purchase Order
Incorrect DEACOM security for AP data entry personnel
Closing the prior month too soon

Specifying an AP Suspense account

With this option, the AP Suspense account, not the AP account, is credited upon receipt of the Purchase Order. Entering a Vendor invoice moves the liability by crediting the AP account and debiting AP Suspense on the invoice posting date. Entering a Vendor invoice with adjustments debits the Adjustment accounts and credits the AP account for the adjustment amounts on the invoice posting date.

The Accounting "Payables Summary" and "Payables Detail" reports are run for Purchase Orders with invoice posting dates on or before the selected End Date, and therefore tie to the AP account balance on that same date. Payables Summary and Detail reports include only "Invoiced" payables, since only those are in the AP account balance. Both reports bucket payables relative to Terms, which are calculated by adding the due days or date of the Terms definition to the Vendor’s invoice date.

The addition of the Vendor’s invoice date to the Enter Vendor Invoice form allows for the possibility of posting the invoice adjustments in the current open period, while still dating and aging the invoice with the Vendor’s invoice date even though it is in a prior period. The Vendor’s invoice date will default to be the same as the invoice posting date, but can be changed. The default Date to Pay will be calculated from the Vendor’s invoice date, but can be changed.

When a Purchase Order in a foreign currency is received using one rate and invoiced using a different rate, the AP Suspense account is now debited using the received rate and the AP account is credited using the new rate. The difference goes to the Gain/Loss account. All discounts, freight, and adjustments are also posted at the new rate.

Example GL postings with an AP Suspense account specified

A Purchase Order is created on 7/13 for $1,000 and the inventory is received on 7/15. The invoice is received on 8/5 for $1,200.

GL ledger postings on the day the inventory is received (7/15):

Account	Debit	Credit
Inventory	$1,000
AP Suspense		$1,000

If the invoice is received before the period is closed, the GL ledger posting for the adjustment will be made on the original PO receipt date (7/15) and will look as follows:

Account	Debit	Credit
AP Suspense	$1,000
AP Adjustment	$200
Accts Payable		$1,200

Advantages of specifying an AP account

Because the GL posting to the AP account is made on the invoice date, invoicing in the current month allows invoicing adjustments to be made without trying to post in a prior closed period, or entering additional Purchase Orders for the adjustments.

Since the invoice posting date is used to date the GL postings to the AP account, and is a key part of the synchronization between the AP account balance and the subsidiary ledger, the user must use an invoice posting date that is in an open period, typically just the actual date that the invoice is being entered. Since the Vendor’s invoice date is not linked to the GL posting, it can be set back into a prior closed period, and the default date to pay can be calculated.

Disadvantages of specifying an AP account

Because the due date will be calculated from the Vendor’s invoice date, any delay in the transmission of the Vendor’s invoice will reduce the effective number of days before the invoice reaches the due date. An invoice posted today, with a Vendor’s invoice date of a month ago, with Net 30 terms, will be due today. Since the Payables Summary and Payables Detail reports age the payables relative to Terms, in an extreme case there could be a situation where an invoice entered yesterday is already in the “Past Due 0-30 days” column.

Because the payables liabilities are split between the Invoiced payables already posted to the AP account and the Received Not Invoiced payables posted to the AP Suspense account, two reports from the subsidiary ledger are needed to validate the two account balances. The "Payables Summary" and "Payables Detail" reports, along with a Purchasing > Order Reporting report for a Status of "Invoiced Not Paid", are used to validate the AP account balance, while a Purchasing > Order Reporting report for a Status of "Received Not Invoiced" is used to validate the AP Suspense account balance.