oracle adjust prepayment

How to apply a Credit Memo to a Prepayment

in Payables?

Version 12.1

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Detailed Business Scenario:

Client XYZ has planned to procure goods/services worth 1200 USD from a

supplier, they have an existing Credit memo in the system amounting to 200 USD.

As per the terms of the Supplier, advance payment needs to be done before

delivery of goods/services, hence XYZ made an advance payment of 1000 USD

instead of 1200 USD, since there is a Credit Memo available for the difference

which was intimated to the supplier, and mutually agreed.

In short,

Advance Payment is 1000 USD

Credit memo is 200 USD

Actual Invoice is 1200 USD

Now how to perform the above in Oracle Financials ??

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Step 1 – Create a Prepayment Invoice for 1000 USD

Step 2 – Make payment to Prepayment Invoice for 1000 USD

Step 3 – Create a Standard Invoice for 1200 USD

Step 4 – Create a Credit Memo for 200 USD and match to the Standard Invoice

Step 5 – Apply Standard Invoice to the Prepayment

Step 6 – Knock off Standard Invoice and Credit Memo by creating Zero

Payment

Step 7 – Create Accounting and Review the entries ……

Steps for handling the Business Scenario in Oracle Payables…

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Step 1

Create a Prepayment Invoice for 1000 USD

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Switch responsibility to Payables

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Navigate to Invoices > Entry > Invoices

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Create Prepayment Invoice for 1000 USD

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Enter Line level information for the Prepayment Invoice

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Distribution details would be automatically fetched (only for

Prepayment Invoice)

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Validate the Prepayment Invoice … Currently it is in Unvalidated Status

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Now the Status is changed to “Unpaid”

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Step 2

Make Payment to the Prepayment Invoice

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Select the prepayment Invoice and click ACTIONS button

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Select “Pay in Full” option and click OK

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Enter the mandatory information required to complete the Payment

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Now the status is changed to “Available”

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Step 3 – Create Standard invoice for 1200 USD for the same Supplier

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Create Standard Invoice for 1200 $

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Enter the Line level information for the Standard Invoice…

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Enter the Distribution level information for the line

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Click Actions button

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Validate the Invoice

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Invoice Status is now Validated

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Step 4 – Create Credit Memo for 200 USD and match with the

Standard Invoice for the same Supplier

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Create Credit Memo for 200 USD

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Select the Match Action as Invoice and click Corrections button

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Below screen would appear …..

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Select/Enter the Invoice Number for which this Credit Memo is created…

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Below Screen would appear…

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Click on the select Checkbox

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Enter the amount for which Credit Memo is created and click Correct button

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System would display the below NOTE….

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Changes are Saved …

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Click Lines TAB

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Line Level information is automatically entered ….

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Distribution Level is automatically entered ….and the account codes are

populated from Standard invoice…

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Validate the Credit Memo

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Credit Memo is now Validated …

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Step 5 – Apply Standard Invoice to the prepayment Invoice

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Select your Standard Invoice and click Actions button

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Select “Apply/Unapply Prepayment” checkbox and click OK

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The available prepayments are displayed….

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Select the Prepayment and apply the amount … Amount to Apply should be your

Standard Invoice Value – Credit Memo value, in our case it is 1200 – 200 = 1000 USD,

hence I have stated that amount in the field…

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Click “Apply/Unapply” button…

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Prepayment is now applied ….

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The standard Invoice now requires revalidation, click Actions button

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Select validate and Click OK…

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Step 5 – Pre-requisite for Knocking off remaining Standard Invoice

Balance and Credit Memo

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Navigate to Setup > Payment > Bank Accounts….

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Select your Bank Account and click GO button…

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Select your Bank Account from the query results..

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In the Payables Controls region, make sure “Allow Zero

Payments” option is set to YES….

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Step 6 – Create a Payment …..

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Navigate to Payments > Entry > Payments

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Make a payment for Zero amount and click on Enter/Adjust Invoices button

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Click on the LOV button in order to select the Invoices …

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I am selecting the standard Invoice amount which has 200 USD due, to be

paid to the supplier …

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Insert another row and click on the LOV button …..

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Now select the Credit Memo and click OK

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Now the summation of Invoice and Credit Memo amounts to Zero

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Save the Payment ….

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Step 6 – Review Accounting and Transactions…

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There is no Amount remaining for the Credit Memo

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There is no Amount remaining for the Standard Invoice

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There is no Amount remaining for the Prepayment

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Accounting Entries for Prepayment Invoice

Accounting Entries for Payment made to Prepayment Invoice

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Accounting entries for Credit Memo

Accounting entries for Standard Invoice with Prepayment Applied

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When Prepayment Invoice got created, below accounting entry was generated :

Debit 01-000-1340-0000-000 ( Prepaid Expenses) 1,000

Credit 01-000-2210-0000-000 ( AP Liability ) 1,000

When Standard Invoice got created, below accounting entry was generated :

Debit 01-000-7740-0000-000 (Actual Expenses) 1,200

Credit 01-000-2210-0000-000 ( AP Liability ) 1,200

When Credit Memo Invoice got created, below accounting entry was generated :

Debit 01-000-2210-0000-000 ( AP Liability ) 200

Credit 01-000-7740-0000-000 (Actual Expenses) 200

When Standard Invoice applied to Prepayment, below accounting entry was generated :

Debit 01-000-2210-0000-000 ( AP Liability ) 1,000

Credit 01-000-1340-0000-000 ( Prepaid Expenses) 1,000

When prepayment Invoice was paid, below accounting entry was generated :

Debit 01-000-2210-0000-000 ( AP Liability ) 1,000

Credit 01-000-1110-0000-000 ( Cash / Cash Clearing) 1,000

Net Entry after knocking off others

Review of the entire set of Accounting entries generated by the system

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Conclusion:

It is not possible to apply a credit memo to a prepayment transaction, which is a system

restriction. Hence we are to make sure the balances of standard invoices and credit memos

are adjusted in such a fashion, that without the need of applying credit memo to the

Prepayment Invoice, we should settle the transactions.

This workaround has been suggested by Oracle…….

References:

1078938.6 - How do you apply a prepayment to a standard invoice and a credit memo?

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