Understand accounting methods

An accounting method defines the terms of your business relationship with vendors regarding settlements. It specifies the conditions under which you procured goods or services and agreed to settle payments with your vendors.

The following are the available accounting method options.

• Blank: This implies that there is no settlement after receipt. Both parties negotiate and agree on a purchase price. Purchase orders are created for this price. After receipt, the vendor will send an invoice with the corresponding purchase value, to be matched with the purchase receipt.
• Grade Out: This implies that a settlement process is in place, which is done after the receipt of goods and a follow-up classification process. Following the classification process, prices are typically defined per grade/quality/size (or any other dimension). A settlement is calculated in which the quantities and prices per class are presented and communicated to the vendor in the form of a grower return document.
  The accounting method Grade Out implies self-billing. As opposed to the accounting method None, the settlement can be posted which will result in a purchase invoice creation by the company.
• Pack Out: This accounting method also involves self-billing. The only difference is the settlement calculation, and the grower return document resulting from it reports back on the quantities and items sold to customers. While the accounting method Grade Out is about reporting back on intermediate goods, Pack Out is about reporting back to vendors based on finished goods.
• Account Sale: This accounting method also involves a settlement process with self-billing. Unlike the accounting methods Grade Out and Pack Out, the purchase price is determined dynamically (i.e., per purchase transaction) based on the revenue received and the costs paid by the trading company when selling the acquired lot number on behalf of the vendor. This contrasts with having a predetermined price set by the vendor and trading company.
  A vital feature of this trading model is that the vendor retains ownership of the product while the trading company sells it on behalf of the vendor. Working on a commission basis or trading on an open price are industry denotations for purchase orders with the accounting method of Account Sale.
• Pooling: This accounting method also supports a settlement process with self-billing using a dynamically determined purchase price. Additionally, the purchase lines within a settlement can belong to different purchase orders and have different vendors.
  In the acccounting method Pooling, the purchase lines of various vendors are pooled together (usually across a specific time interval like a week, month, or a season), and all revenue, claims, costs, and commissions retrieved by the settlement calculation are summarized and averaged evenly across all purchase lines. This means the vendors that are pooled together share the risks and rewards generated by the trading company.

Settlement process

Ensure to perform the required setups to calculate settlements. For more information, see General setup.

If you are using dynamic pricing to calculate settlements, with the Accounting Method field set to Account Sale or Pooling, ensure to perform the required setups. For more information, see Dynamic pricing setup.

You can calculate settlements for a specific accounting method on the Settlement page . For more information, see Maintain settlements.

While creating purchase orders for vendors, the system automatically applies the default accounting method setup in the Accounting method field on the Vendor Card page. If that value is blank, the system applies the default accounting method setup in the Accounting Method field on the Grower Return Setup page. You can change the accounting method for a purchase order header as required. Subsequently, this will be the accounting method for the new purchase lines created for the header. You can apply different accounting methods for the purchase order lines. The accounting method applied on the purchase order lines can be changed up until it is invoiced.

You must reopen the purchase order after posting it for receipt to change the accounting method.

You cannot change the accounting method:

• After the purchase order is invoiced.
• When the purchase order is in the Released state.

Exceptions

• Manual creation and posting of invoices for a purchase order are only permitted if the Accounting method field for the purchase line is set to Blank. This check ensures that you cannot manually create an invoice when invoicing from a purchase order or using the Get Receipt Lines action on the Lines FastTab of the Purchase Invoice page. However, this check is not applicable if a purchase invoice is created via the Settlements page.
• When the accounting method is set to Account Sale on a purchase order header, you cannot select a different accounting method for individual purchase lines.