The three way matching of invoice, good receipt and the purchase order is what is referred to as the logistic invoice verification (LIV) process. The process matches the supplier invoice received with the Goods Receipt in terms of quantity, and with the Purchase Order in terms of prices.
The LIV process may lead to the following outcomes:
a) A perfect match of debit and credit in the GR/IR account, because the quantity ordered, is delivered and invoiced, or
b) A balance in the GR/IR account, due to quantity difference between the Invoice receipt and the Goods Receipt, representing a delivery surplus or an invoice surplus.
In this week’s post, we will discuss the SAP logistics invoice verification process and the resulting Goods receipt/invoice receipt (GR/IR) account maintenance, including the necessary configuration settings.
1) Logistics Invoice Verification Process Explained
As explained above, the LIV process is the classic three way matching of Invoice, Goods Receipt and Purchase Order. The process matches the supplier invoice received with the Goods Receipt in terms of quantity, and with the Purchase Order in terms of prices.
For the system to perform this three-way match, the flags of the Good Receipt and Invoice Receipt must be set in the Purchase order as below:
The indicator “Good Receipt” should be flagged in the PO. Locate this field on the delivery tab of the PO screen, as above.
The indicator “Invoice Receipt” should be flagged in the PO. Locate this field on the Invoice tab of the PO screen, as above.
2) Defaulting Good receipt and Invoice Receipt flag in Configuration settings
The Goods receipt and invoice receipt flags may be set by the user when creating a purchase order. However, it is better that end users are not left to determine on their own whether goods receipt and Invoice receipt transactions are to be performed for the purchase order. These settings should be defaulted in configuration and not set within the purchase order.
The defaulting of these two fields (Good Receipt and Invoice Receipt) in the Purchase order can be done in configuration by following the menu path below:
IMG — Materials Management – Purchasing — Account Assignment — Maintain Account Assignment Categories
Double click on the relevant account assignment category.
Flag the goods receipt and invoice receipt indicator, and also maintain the relevant field selection and save.
3) Illustration of The Accounting Treatment During The Three-way Match
As the name implies, the GR/IR accounts record both the Goods Receipt and Invoice Receipt documents. The GR document is recorded on the credit side of this account and the Invoice Receipt document on the debit side.
In the simplified situation, where the quantity ordered is delivered and invoiced, the balance in this account is zero.
A balance in the GR/IR account represents either a good received but not yet invoiced (delivery surplus- credit balance) or goods invoiced but not yet received (invoice surplus- debit balance).
Consider a scenario where we ordered stationery (quantity of 100 units, price USD 20 per unit).The supplier delivers say 80 units. The system records this by:
Now, consider also that the supplier sends in an invoice equaling the value of the good receipt (80 units) at price of USD 20. The system records this as:
Note that in this example the GR/IR account is zero after the posting of the invoice. This simply means that all the goods that all the received are invoiced.
It should be noted that, this may not always be the case, and in most cases, you will have a variation either in prices (between the PO and Invoice), or in quantity (between quantity delivered and Invoiced).
4) Treatment of Price Differences
Price differences is the difference in price as in the Purchase order with the price quoted on the invoice. The way the system treats this will depend on which event happened first, between the posting of the goods receipt document and the posting of the invoice document.
a) Treatment of the Price Difference When Good Receipt Document is Posted First
In this case, the amount of the GR Document is a function of the price quoted in the PO multiplied by the quantity of the goods delivered. The difference in price is used to adjust the charge to the expense account (in our case stationery- the account assignment object in the PO). See the illustration below:
Assume in our example above that the supplier/vendor sends in an invoice equaling the value of the good receipt (80 units) at price of USD 18 (instead of the PO price of USD 20). The system will record this as:
Note again that the balance in the GR/IR is zero after the invoice Posting.
b) Treatment of the Price Difference When Invoice Document is Posted First
In this case, the amount of the GR Document is a function of the price quoted in the Invoice multiplied by the quantity of the goods delivered. See the illustration below:
Assume in our example above that the supplier/vendor sends in an invoice before delivery of the goods, for a quantity of 80 units at price of USD 22 (instead of the PO price of USD 20). The system will record this as:
Now if the Vendor delivers all the goods invoiced, the GR document will be recorded as:
Note that the invoice price of USD 22 is used in this case instead of the Purchase order price of USD 20.
Note also that the balance in the GR/IR is again zero after the invoice Posting.
It is important to note therefore that the difference in the GR/IR account is not caused by difference in prices (between the PO and invoice) as such difference will be adjusted to the purchase order line account assignment. The difference in the GR/IR account is caused by quantity difference between the Goods receipt and Invoice.
5) Two-way Invoice Verification
Another invoice verification approach (which is not relevant in GR/IR maintenance) but useful to mention, is the “two-way match invoice verification”. This approach simply matches both the price and quantity on the invoice to the ones quoted on the Purchase Order. For the system to do this you will have to make sure, the Goods Receipt flag is unchecked in the PO. This means that no Goods Receipt document is created in the verification process.
The system simply expensed/charged the account assignment on the Purchase Order line item during invoice entry instead of at the time of the GR.
Taking our example above, the following accounting entry will take place:
6) Non-Valuated Goods Receipt
Under this approach, the whole process of the three-way match applies. The only difference is that, as the name suggests, no accounting document is created during goods receipt. This means that the three-way matching of price against the PO and quantity against the GR is carried out, but the GR document is not generated. Therefore, the accounting entries of the non-valuated GR is the same as the two-way match (above).
We use the non-valuated GR approach, if more than one account assignment are to be used for one purchase order line item. Meaning a single PO line item distributed to multiple GLs, cost centers or other account assignment objects.
The non-valuated GR flag is located in delivery tab of the purchase order line item as below:
7) GR Based Invoice Verification
In terms of the accounting treatment, this option is the same as the three-way match invoice process. The difference though is on the details. Purchase Orders under this approach captures and retains information about all GR documents posted against specific PO items.
Just like the IV flag, the GR based invoice verification flag can be found in the Invoice tab of the purchase order line item, as below:
8) Dealing with the Quantity Difference- The GR/IR Maintenance
The GR maintenance has to do with clearing the Good Receipt, invoice receipt (GR/IR) account. The GR/IR accounts records the receipt of goods on its credit side and the invoice on the debit side. In the simplified situation, where the quantity ordered, is delivered and invoiced, the balance in this account is zero.
As stated above, a balance in the GR/IR account represents either:
a) Goods received but not yet invoiced (delivery surplus- credit balance) or
b) Goods invoiced but not yet received (invoice surplus- debit balance).
By nature, the GR/IR account is a clearing account that has to be zero at the conclusion of the relevant business process cycle (in our case the purchasing cycle). Therefore, upon the conclusion of each purchase cycle the accounting impact of that transaction should be zero on the GR/IR account.
If this is not the case because of one of the reasons listed above, then we have to deal with the clearing of this account. The balance on the GR/IR account may be cleared through:
1) Manual Clearing (MR11)
2) Automatic Clearing (F.13)
9) GR/IR Account Configuration
Before we continue with the end user process of GR/IR account maintenance, we will go through the necessary GR/IR account related configuration steps.
a) Configure Automatic Postings
In this step, we maintain the configuration settings for Inventory Management and Invoice Verification transactions for automatic postings to G/L accounts.
Follow the menu path below to configure automatic postings:
IMG — Materials Management — Logistics Invoice Verification — Configure Automatic Postings
Or use transaction OMR0
Click on account assignment.
Double click on GR/IR Clearing Account.
Enter your GR/IR Clearing account here.
The above configuration steps may also be access directly through FI as below:
IMG — Financial Accounting (New) — General Ledger Accounting (New) — Periodic Processing – Integration — Materials Management — Define Accounts for Materials Management
b) Characteristics of the GR/IR GL Account
It is preferable for your GR/IR account to have the following features:
1) The GR/IR Account should be created as an “Open Item Management” account.
2) It should be a Line item Display account.
3) Preferable to select “Sort Key” option 14 (purchase order).
4) Preferable to select field status group G045 (Goods/invoice received clearing account).
c) The GR/IR Clearing Account Maintenance Configuration
In this step, we maintain the configuration settings for GR/IR account maintenance. The step involves:
i. Maintain Number Assignments for Accounting Documents
Here we maintain settings necessary to generate documents in Financial Accounting in the GR/IR clearing maintenance process. This configuration step involves:
a) Defining a document type for our GR/IR maintenance transactions. The standard provided by SAP KP is for account maintenance.
b) Assign number ranges to the document type in FI. The standard provided by SAP KP 48.
c) Defaulting the document type in the account maintenance transaction (MR11).
The following menu path is followed to maintain this setting:
IMG — Materials Management — Logistics Invoice Verification — Clearing Account Maintenance –Maintain Number Assignments for Accounting Documents
Document Type: We use the standard document type KP.
Number Range for Document type in FI: maintain your number range (48) here.
Document Types in Invoice Verification: Defaulting the document type in the account maintenance transaction.
ii. Maintain Number Range for Account Maintenance Document
Here you assign number ranges to you document type for your account maintenance document. Follow the menu path below:
IMG — Materials Management — Logistics Invoice Verification — Clearing Account Maintenance — Maintain Number Assignment for Account Maintenance Documents — Maintain Number Range for Account Maintenance Document
iii. Maintain Number Range Interval for Account Maintenance Document
Here maintain number range intervals for your assigned number range above.
IMG — Materials Management — Logistics Invoice Verification — Clearing Account Maintenance — Maintain Number Assignment for Account Maintenance Documents — Maintain Number Range Interval for Account Maintenance Document
10) Manual Clearing (MR11)
When there is a balance sitting in the GR/IR account (whether a delivery or invoice surplus), the first thing to do is to investigated the nature and cause of the difference. We need to determine whether all GR and invoice receipt documents are posted, or whether further GR or Invoice documents are expected. Based on the outcome we either execute the MR11 or wait for the natural conclusion of the transaction.
The GR/IR clearing account is usually cleared at the end of a period, as part of the period closing exercise, for those order items that no further goods receipts or invoices are expected.
a) Clearing the delivery Surplus- (GR/IR credit balance)
Execute Transaction MR11 or follow the menu path:
Logistics — Materials Management — Logistics Invoice Verification — GR/IR Account Maintenance — Maintain GR/IR Clearing Account
Make your selections as highlighted in the screen shot above and execute. Note we could select both the delivery and invoice surplus in one run. However, since we are now demonstrating the delivery surplus scenario, we only select that.
GR/IR Clearing Account Clearing: If you flag this indicator, the purchase order items for which quantity differences still exist between goods receipt and invoice receipt postings, are selected
Clearing of Delivery Cost Accounts: If you set this indicator, the purchase order items for which quantity differences for the planned delivery costs still exist between the goods receipt and invoice receipt postings, are selected.
Last movement before key date: Normally, the system date is defaulted here. This field ensures that transactions are selected only if the posting date of the GR and Invoice documents is earlier than the date specified here.
Quantity variance less than/equal to: Enter here the maximum variance in percentage (%) between the quantity delivered and the quantity invoiced of the selected PO. All variances less than or equal to the specified percentage are selected by the system.
Value variance less than/= to: This is the same as the above, except that the specification here is variance denominated in monetary value instead of percentage.
Select any PO and click on the Purchase Order icon above to analyze the chain of events.
Click on the status tab to display the status of this particular procurement.
i. We see that there was a PO for 1200 boxes of A4 Size paper.
ii. 800 boxes were delivered in 3 GRs (see the second half of the screen-purchase order history tab).
iii. 500 boxes was invoiced in 2 invoice receipts.
iv. This means that the system is expecting an additional invoice.
v. If we are able to determine upon investigation that there will be no more invoice to be received from the vendor, then we can go ahead and clear this manually with MR11.
vi. However, if we look further, we can see that this invoice was actually received and is currently being processed, hence the parked invoice (see the last line item of the screen shot). It means therefore, that it will be better not to clear this GR/IR balance manually and wait for the full cycle of the transaction to run its course.
Let us look at one more example of delivery surplus by selecting another PO on our screen shot.
In this example, we see that 6 GR documents in the value of 32,148 are created as against 5 Invoice documents totaling 26,790. The system expects and additional invoice document.
Assuming that upon investigation it is determined that no further invoice will be received.
We can now manually clear the GR/IR account by exiting the PO screen and going back to the GR/IR maintenance screen.
Click on post after highlighting the PO line item you want to clear.
b) Displaying or Cancelling the Account Maintenance Document
Use Transaction MR11SHOW to Display/Cancel Account Maintenance Document, or follow the menu path below.
Logistics — Materials Management — Logistics Invoice Verification — GR/IR Account Maintenance — Display/Cancel Account Maintenance Document
Click on follow-on documents to display.
Double click on accounting document.
The GR/IR account is debited to clear the balance to zero for this PO line item, and the expense is credited to restate the value for the invoice that will no longer be received.
For any reason that you want to cancel this account maintenance document, click on Item list.
Click on Reverse to cancel the GR/IR maintenance document.
c) Clearing the Invoice Surplus- (GR/IR Debit balance)
Here you run the MR11 and make the exact selection as in (a) above, except that instead of selecting delivery surplus you select Invoice surplus.
The difference in accounting treatment is that, instead of the does an exact opposite entry as in delivery surplus.
11) Automatic Clearing
We have discussed above, the manual clearing of the GR/IR clearing account. In this section, we will discuss the automatic clearing process. We will go through the automatic clearing configuration and execute the automatic account clearing transaction (F.13).
To configure the automatic account clearing, follow the menu path below:
IMG — Financial Accounting (New) — General Ledger Accounting (New) — Business Transactions — Open Item Clearing — Prepare Automatic Clearing
Click on new entries or copy from an existing entry.
Enter your chart of account, account type and the GR/IR Clearing GL account.
Enter the criteria you want the system to use to select Open items. We used the purchase order document (EBELM) and the purchase order line item (EBELP) as our clearing criteria.
Save your entries.
12) Automatic Clearing Account Execution (F.13)
To carry out the automatic clearing of the balances on the GR/IR account, execute transaction F.13, or follow the menu path:
Accounting — Financial Accounting — General Ledger — Periodic Processing — Automatic Clearing — Without Specification of Clearing Currency
Enter all necessary selections (as above) and execute the program first in test run, by flagging the test run option. If everything is okay, execute the life run.
Note: For the real run, this may be done in background, by clicking on program, execute in background.
A lot can still be written about this topic, but that will make the post very long. Please do share your thoughts on this topic. We would love to hear your comments and suggestions.
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