Track accrued expenses using user-defined books

Use additional postings on user-defined books to streamline your processes when you need to create a GL entry for month-end expense accruals.

Say your organization uses purchasing approvals. When your accounting department receives a bill from a vendor, you follow the best practice to book the expense to Accounts Payable only after the recipient of the purchased services or goods provides approval. As part of a monthly accounting process, you need to make a journal entry to accrue expenses for invoices received but not validated and approved, or for invoices not received.

This topic describes an example of a workflow that makes gathering part of that data easy. With this workflow, which uses three transactions, you can:

  1. Track the bills as they are received by posting them to a user-defined book for Accrued Expenses.
  2. As the bills are approved, move them out of the Accrued Expenses book and into the accrual reporting book as they are entered into Accounts Payable.
  3. Report on the expenses that remain in the Accrued Expenses book, along with the dimension information, to create a month-end accrual entry month after month.

Prerequisites

The following three prerequisites are required to set up the workflow described in this example:

  1. A subscription to Purchasing with advanced workflow enabled. If your company is not already using an advanced workflow, learn more in Configure Purchasing.
  2. A user-defined book with at least one journal in the General Ledger. This allows you to track your accrued expenses. Learn more in Set up user-defined books.
  3. GL accounts for the expense accounts and for an accrued expenses account (a liability account in the balance sheet).

Setup overview

After you set up your user-defined book and journals, you'll create three transaction definitions. Then, you'll assign the two posting transaction definitions to the user-defined journal and create an approval policy for the non-posting transaction definition.

  1. Set up a user-defined book and two journals to track accrued expenses posting from Purchasing. You might name the user-defined book "Accrued Expenses" and the journals for the book "EXP-IN" and "EXP-OUT".
    While you could use a single user-defined journal, using two journals (one for the in and one for the out) is recommended for the best reporting and tracking.
  2. Create three Purchasing transaction definitions on the Transaction definitions: Purchasing page.
    1. Bill Receipt: Posts the unapproved expense in the Accrued Expenses user-defined book, using the EXP-IN user-defined journal.
    2. Bill Approval: Enters the approval cycle for confirmation that the purchased services or goods have been received. This transaction definition does not post.
    3. Vendor invoice: After approval occurs, posts the approved expense to Accounts Payable in the Accrual book. It also reverses the expense from the Accrued Expenses user-defined book, using the EXP-OUT user-defined journal.
  3. Assign the posting transaction definitions to the user-defined journals on the Documents configuration tab of the Configure Purchasing page.
  4. Set up an approval policy for the Bill Approval transaction definition.

Set up your transaction definitions

Use the following detailed steps to configure each of the three transaction definitions in the workflow:

This transaction definition posts the unapproved expense to the Accrued Expenses user-defined book.

Set up the transaction definition as follows:

  1. Go to Purchasing > Setup tab > More select Add (circle) next to Transaction definitions.

  2. On the General tab:

    1. Enter a Template name. For example, "Bill Receipt".
    2. For Template type, select Order. This classifies the transaction as an order in the workflow.
    3. For Transaction posting, select General Ledger. This ensures the transaction has no impact on the Accounts Payable subledger.
    4. Enter the rest of your information as desired.

  3. On the Posting configuration tab in the Transaction posting GL account mapping table:
    • Post the unapproved expenses to the appropriate GL accounts. Debit one or more expense accounts and credit the Accrued Expenses liability account.
  4. Select Save.
    5. For more information on configuring your transaction definition, see Purchasing transaction definitions.

Select a user-defined journal:

  1. Go to Purchasing > Setup tab > Configuration and select the Documents configuration tab.
  2. In the Purchase journal column, assign the transaction definition to a user-defined journal associated with your new user-defined book. For example, assign the Bill Receipt transaction definition to EXP-IN—a user-defined journal for the Accrued Expenses user-defined book.
  3. Select Save.

Create a second transaction definition for the approval.

To add this transaction definition into your workflow:

  1. Go to Purchasing > Setup tab > More and select Add (circle) next to Transaction definitions.

  2. On the General tab:

    1. Enter a Template name. For example, "Bill Approval".
    2. For Template type, select Order. This classifies the transaction as an order in the workflow.
    3. For Transaction posting, select Do not post. This ensures the transaction has no impact on the General Ledger or the Accounts Payable subledger.
    4. In the Transaction conversion table in the Workflow section, select the Bill Receipt transaction definition.

  3. On the Security setting tab, select Convert only for Convert policy. This ensures the transaction cannot be created as a standalone document and enters the transaction workflow only by being converted from a Bill Receipt.

  4. Select Save.

Create an approval policy for the transaction definition:

  1. Go to Purchasing > Setup tab > More and select Add (circle) next to Approval policies. The Purchasing Approval Policy page appears.
  2. For Transaction definition, select Bill Approval.
  3. Enter the details for the approval policy. For example, for Rule type, select Transaction Department Approval. The manager of the department selected in the transaction will need to confirm whether the purchased services or goods have been received.
  4. Select Save.
Learn more about creating Approval policies.

The third transaction posts the approved expense to Accounts Payable in the Accrual book and reverses the expense from the Accrued Expenses user-defined book. (The approved amount is the amount that is reversed from the Accrued Expenses book.)

To add this transaction definition into your workflow:

  1. Go to Purchasing > Setup tab > More and select Add (circle) next to Transaction definitions.

  2. On the General tab:

    1. Enter a Template name, for example, "Vendor invoice".
    2. For Template type, select Invoice. This classifies your transaction as an invoice in the workflow.
    3. For Transaction posting, select Accounts Payable to ensure the approved is booked to the subledger in an accrual book.
    4. Select Enable additional posting to ensure GL entries are posted to the Accrued Expenses user-defined book to reverse the unapproved expenses that were posted to the Accrued Expenses user-defined book in the Bill Receipt transaction.
    5. In the Transaction conversion table in the Workflow section of the General tab, select the Bill Approval transaction definition.

  3. On the Posting configuration tab:
    • In the Transaction posting GL account mapping table, post the approved expense to the appropriate GL accounts. For example, credit Accounts Payable and debit one or more expense accounts.
    • In the Additional GL account mapping table, enter appropriate account mappings. Debit and credit the opposite accounts in the Additional GL account mappings table for the Bill Receipts transaction definition. That is, debit Accrued Expenses liability account and credit the expense accounts.

  4. On the Security setting tab, select Convert only for Convert policy. This ensures the transaction cannot be created as a standalone document to prevent erroneous reversals to the Accrued Expenses user-defined book.

  5. Select Save.

Select a user-defined journal:

  1. Go to Purchasing > Setup tab > Configuration and select the Documents configuration tab.
  2. In the Additional posting journal column, assign the transaction definition to a user-defined journal associated with your new user-defined book. For example, assign the Vendor invoice transaction definition to EXP-OUT—a user-defined journal for the Accrued Expenses user-defined book.
  3. Select Save.

Generate a report

Later, when it's time to create a GL entry for month-end expense accruals, you can generate a report on the expenses that are left in the Accrued Expenses user-defined book.

Learn more about reporting on other books (compliance, tax, and user-defined).