NetSuite Purchase Order delivers functionality that simplifies the purchasing and receiving process for greater accuracy. Purchase order items can be received into a warehouse directly or through an inspection warehouse, but how do you handle differences attributable to quantity, pricing and exchange rate differences? In this blog I will address how to use Post Vendor Bill variance to reconcile item receipts and vendor bill variances.
In a perfect world, you issue a purchase order for an item with a certain quantity and cost. You then receive the item with same quantity and cost. Your vendor bills you for the same quantity and cost. That is nice because everything matches to the exact quantity and dollar value. There are no reconciliation headaches. However, this is not the real-world situation.
Generally, when you issue a purchase order for a specific quantity and price, you may receive the item for a lesser or greater quantity and at a different price than what you initially ordered. You may also receive an invoice from your supplier for quantity and price different from item already received. Here is a typical illustration:
|Activity||Quantity||Unit Cost||Extended Cost|
|Purchase Order issued||10||4||40|
What then is the accounting impact on the variance resulted from the purchasing activity?
General Ledger Accounting Impact
Issuing purchase orders results in no General Ledger accounting impact but orders received and vendor bills do have a General Ledger impact illustrated below:
What happened to the $32 variance sitting in the accrued purchases account resulting from the price variance? NetSuite uses Post Bill Vendor Variance to reconcile the difference.
Post Vendor Bill Variance
Post Vendor Bill Variances reclass the variance in the accrued purchases account into variance accounts assigned on the item record. NetSuite has 2 methods to Post Vendor Bill Variance:
- Based on Vendor Bill Lines using Match to Bill Receipts checkbox
- Based on Purchase Order lines no Match to Bill Receipts checkbox
Here I will discuss Posting Based on Vendor Bill Lines with Match to Bill Receipt checkbox.
To apply ‘Post Variance Based on Vendor Bill Lines with Match Receipts checkbox checked’, you set three variance accounts on the item record consisting of:
- Price Variance Account
- Quantity Variance Account
- Exchange Rate Variance Account
On Entering Purchase orders, (Transactions=>Purchases=>Enter Purchases Orders) check MATCH BILL TO RECEIPT on the purchase order lines.
Once Purchase Order, Receive Orders and Bill Purchase Orders processes have been completed, you Post Vendor Bill Variances (Transactions=>Payables=>Post Vendor Bill Variances) to generate Journal entries to clear out the Accrued Purchases Account.
|Price Variance Account||32|
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