Order-to-Cash (O2C) Cycle: Accounting Entries
The Order-to-Cash (O2C) cycle for accounting entries follows these steps:
A Sales representative creates a Sales Quote.
This quote is converted into a Sales Order (SO).
The SO is booked, and the items are picked, packed, and then shipped to the customer.
An Accounts Receivable (AR) Invoice is created.
Revenue is recognized.
An AR Receipt is generated.
Cash Management performs a reconciliation, if necessary.
SO-Based Invoices
SO Booking
Accounting Entry: No accounting entry.
SO Shipping
Deferred Cost of Goods Sold (COGS) A/c: Debit (Dr)
Source of Account: Inventory Organization Parameters
Inventory Valuation A/c: Credit (Cr)
Source of Account: Inventory Organization Parameters
AR Invoice Creation
Receivable A/c: Debit (Dr)
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr)
Source of Account: Account derived based on AR Auto Accounting Rules.
After running Revenue Recognition and COGS Recognition programs
Cost of Goods Sold (COGS) A/c: Debit (Dr)
Source of Account: Inventory Item used in Sales Order.
Deferred Cost of Goods Sold (COGS) A/c: Credit (Cr)
Source of Account: Inventory Organization Parameters.
Receipt with Remittance
AR Receipt
Receipt Confirmation A/c: Debit (Dr)
Source of Account: Receipt Class.
Unidentified Receipt A/c: Credit (Cr)
Source of Account: Receipt Class.
Unidentified Receipt A/c: Debit (Dr)
Source of Account: Receipt Class.
Unapplied Receipt A/c: Credit (Cr)
Source of Account: Receipt Class.
Unapplied Receipt A/c: Debit (Dr)
Source of Account: Receipt Class.
Receivable A/c: Credit (Cr)
Source of Account: From the Invoice against which the receipt is created.
AR Receipt Reconciliation Via Cash Management
Cash/Bank A/c: Debit (Dr)
Source of Account: Bank Account setup.
Receipt Confirmation A/c: Credit (Cr)
Source of Account: Receipt Class.
Receipt with No Remittance and Clearance Method of Direct
AR Receipt
Cash A/c: Debit (Dr)
Source of Account: Receipt Class.
Unidentified Receipt A/c: Credit (Cr)
Source of Account: Receipt Class.
Unidentified Receipt A/c: Debit (Dr)
Source of Account: Receipt Class.
Unapplied Receipt A/c: Credit (Cr)
Source of Account: Receipt Class.
Unapplied Receipt A/c: Debit (Dr)
Source of Account: Receipt Class.
Receivable A/c: Credit (Cr)
Source of Account: From the Invoice against which the receipt is created.
Different Kinds of AR Invoices
AR Credit Memo
Revenue A/c: Debit (Dr)
Source of Account: Account derived based on AR Auto Accounting Rules.
Note: If the profile option "AR: Use Invoice Accounting for Credit Memos" is set to 'Yes', the system uses
the accounts from the Original Invoice.
Receivable A/c: Credit (Cr)
Source of Account: Account derived based on AR Auto Accounting Rules.
AR Debit Memo
Receivable A/c: Debit (Dr)
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr)
Source of Account: Account derived based on AR Auto Accounting Rules.
AR Chargeback
Receivable A/c: Debit (Dr)
Source of Account: Account derived based on AR Auto Accounting Rules.
Chargeback Clearing A/c: Credit (Cr)
Source of Account: Account derived from Chargeback Receivable Activity.
Chargeback Clearing A/c: Debit (Dr)
Source of Account: Account derived from Chargeback Receivable Activity.
Receivable A/c: Credit (Cr)
Source of Account: Receivable account of the invoice against which Chargeback invoice is created.
Commitments
i) AR Deposit
Receivable (Deposit) A/c: Debit (Dr)
Source of Account: Account derived based on AR Auto Accounting Rules.
Offset A/c: Credit (Cr)
Source of Account: Use the "AR: Deposit Offset Account Source" profile option to determine how
Receivables derives the Offset Account to credit for this deposit.
When cash is received against this Deposit:
Cash/Bank A/C: Debit (Dr)
Receivable (Deposit) A/c: Credit (Cr)
When you apply the above Deposit against an AR Invoice:
Offset A/c: Debit (Dr)
Receivables A/c: Credit (Cr)
Source of Account: Account from Original Invoice.
ii) AR Guarantee
Unbilled Receivable A/c: Debit (Dr)
Source of Account: Account derived based on AR Auto Accounting Rules.
Unearned Revenue A/c: Credit (Cr)
Source of Account: Account derived based on AR Auto Accounting Rules.
When you enter an Invoice against this Guarantee:
Unearned Revenue A/c: Debit (Dr)
Unbilled Receivable A/c: Credit (Cr)
Invoicing Rules
In Advance - 3 Month Fixed Duration Rule
Initial Invoice:
Receivable A/c: Debit (Dr) 3000
Source of Account: Account derived based on AR Auto Accounting Rules.
Unearned Revenue A/c: Credit (Cr) 3000
Source of Account: Account derived based on AR Auto Accounting Rules.
First Month Revenue Recognition:
Unearned Revenue A/c: Debit (Dr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
At the start of the second month:
Unearned Revenue A/c: Debit (Dr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
At the start of the third month:
Unearned Revenue A/c: Debit (Dr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
In Arrears - 3 Month Fixed Duration Rule
At the end of the first month:
Unbilled Receivable A/c: Debit (Dr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
At the end of the second month:
Unbilled Receivable A/c: Debit (Dr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
At the end of the third month:
Unbilled Receivable A/c: Debit (Dr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
Revenue A/c: Credit (Cr) 1000
Source of Account: Account derived based on AR Auto Accounting Rules.
Invoice Creation at the end of the third month for total amount:
Receivable A/c: Debit (Dr) 3000
Unbilled Receivable A/c: Credit (Cr) 3000
