Accrual methods and examples
Accrual settings allow you to specify how the system handles accruals for vendor overcharged and undercharged tax amounts. The accrual settings differ for overcharges and undercharges as well as for the invoice type (for example, U.S. invoices, Canada PST invoices, Canada non-PST invoices, and invoices for all other countries).
The accrual methods include:
For example, the invoice gross amount's $4,000.00 and the vendor charged tax is $120.00 The DCT amount is $100.00. The invoice is a short pay. You'll pay the vendor only the gross amount ($4,000.00). The system provides you the calculated tax amount for the applicable authorities (such as the state, county and city) so you can directly pay the taxing jurisdiction.
For example, assume the gross amount's $4,000.00 and the vendor charged tax is $80.00. The DCT amount's $100.00. You'll pay the vendor the gross amount plus the VCT amount ($4,080.00). Since the vendor undercharged the tax, the system accrues variance of $20.00 so that you can directly pay the additional tax liability to the taxing jurisdiction.
For example, the invoice gross amount's $4,000.00 and the VCT amount is $120.00. The DCT amount's $100.00. You'll pay the vendor the gross amount plus the VCT amount ($4,120.00). The DCT amount and the VCT amount are saved but there's no accrual.
For example, if the invoice gross amount's $4,000.00 and the VCT amount is $120.00. The DCT amount's $100.00. You will pay the vendor the gross amount plus the DCT amount ($4,100.00). The DCT amount and the VCT amount are saved but there's no accrual.
- Accrue Total Tax- This accrual method applies to U.S. transactions only. No tax is paid to the vendor. The invoice is a short pay. The total DCT amount's accrued so you can directly pay the taxing jurisdiction.
- Accrue Variance- This accrual method applies to only undercharges and to U.S. transactions only. When this method is selected and the vendor undercharges the tax, you'll pay the vendor the vendor charged tax requested on the invoice. The system accrues the variance and shows the prorated amount for each taxing authority.
- Hold Payment- The transaction's put on hold. The vendor isn't paid. There's no accrual.
- Pay VCT No Accrual- The payment to the vendor's the amount requested on the invoice. There's no accrual even though the amount the vendor requested is more or less than the DCT amount. The DCT amount and the VCT amount are saved but there is no accrual.
- Pay Calculated No Accrual- This accrual method applies to overcharge and U.S. transactions only. The payment to the vendor's the state and local tax amounts calculated by the system. In this scenario, the invoice is a short pay because the vendor overcharged the tax. There's no accrual because you directly pay the full tax amount to the vendor.
Example 1 - Vendor charged no tax (accrual method for undercharges is accrue total tax) - Defaults to null flow with accrue total tax method
Field | Description |
|---|---|
Configured overcharge accrual method | Pay calculated no accrual |
Configured undercharge accrual method | Accrue total tax |
Invoice gross amount | $1000 |
Vendor charged tax | $0.00 |
DCT amount | $95 |
For various business reasons, the vendor charged no tax. The transaction runs as Buyer to calculate the buyer use tax. The configured undercharge accrual method's Accrue Total Tax. The payment to the vendor is the invoice gross amount ($1,000.00). The system accrues the DCT amount ($95.00) and prorates it to the applicable taxing jurisdictions.
Example 2 - Vendor charged no tax (accrual method for undercharges is pay VCT no accrual) - Defaults to null flow with accrue total tax method
Field | Description |
|---|---|
Configured overcharge accrual method | Pay calculated no accrual |
Configured undercharge accrual method | Pay VCT no accrual |
Invoice gross amount | $300 |
Vendor charged tax | $0.00 |
DCT amount | $28.50 |
The DCT amount's $28.50. The vendor charged no tax. The configured undercharge accrual method is Pay VCT No Accrual. Even though the accrual method's Pay VCT No Accrual, the VCTV process defaults this transaction to Accrue Total Tax. The payment to the vendor's the invoice gross amount ($300.00). The system records the payment as zero. The accrual amount's $28.50.
Example 3 - Vendor charged tax and DCT amount match (no accrual method used)
Field | Description |
|---|---|
Configured overcharge accrual method | Accrue total tax |
Configured undercharge accrual method | Accrue total tax |
Invoice gross amount | $1000 |
Vendor charged tax | $95 |
DCT amount | $95 |
The transaction runs as Seller. The configured overcharge and undercharge accrual methods are the same (Accrue Total Tax). Neither accrual method applies because the tax isn't overcharged or undercharged. The VCT amount and the DCT amount are the same. The payment to the vendor's the invoice amount (gross amount plus the vendor charged tax) ($1,095.00). The accrued amount's $0.00.
Example 4 - Vendor overcharged the tax (accrual method for overcharges is pay VCT no accrual)
Field | Description |
|---|---|
Configured overcharge accrual method | Pay VCT no accrual |
Configured undercharge accrual method | Pay calculated no accrual |
Invoice gross amount | $100 |
Vendor charged tax | $12 |
DCT amount | $9.50 |
The vendor overcharged the tax by $2.50. The configured accrual method for overcharges is Pay VCT No Accrual. The payment to the vendor's the invoice amount (gross amount plus the vendor charged tax) ($112.00) even though the VCT amount's more than the DCT amount. The accrued amount is $0.00.
Example 5 - Vendor undercharged the tax (accrual method for undercharges is accrue variance)
Field | Description |
|---|---|
Configured overcharge accrual method | Pay calculated no accrual |
Configured undercharge accrual method | Accrue variance |
Invoice gross amount | $1000 |
Vendor charged tax | $60 |
DCT amount | $95 |
The vendor undercharged the tax by $35.00. The configured undercharge accrual method's Accrue Variance. This method subtracts the vendor charged tax from the DCT amount. The remainder's accrued and prorated to the applicable taxing jurisdictions. The payment to the vendor's the invoice amount (gross amount plus the vendor charged tax) ($1,060.00). The accrued amount's $35.00.
Example 6 - Vendor undercharged the tax (accrual method for undercharges is accrue total tax)
Field | Description |
|---|---|
Configured overcharge accrual method | Accrue total tax |
Configured undercharge accrual method | Accrue total tax |
Invoice gross amount | $100 |
Vendor charged tax | $5 |
DCT amount | $9.50 |
The vendor undercharged the tax by $4.50. The configured undercharge and overcharge accrual methods are the same (Accrue Total Tax). The payment to the vendor's $100.00, and does not include any tax (the invoice is a short pay). The system accrues the DCT amount ($9.50) and prorates it to the applicable taxing jurisdictions.
Example 7 - Vendor overcharged the tax (accrual method for overcharges is accrue total tax)
Field | Description |
|---|---|
Configured overcharge accrual method | Accrue total tax |
Configured undercharge accrual method | Accrue total tax |
Invoice gross amount | $100 |
Vendor charged tax | $12 |
DCT amount | $9.50 |
The vendor overcharged the tax. The configured undercharge and overcharge accrual methods are the same (Accrue Total Tax). The payment to the vendor's $100.00, and doesn't include any tax. The system accrues the DCT amount ($9.50) and prorates it to the applicable taxing jurisdictions.
Example 8 - Vendor overcharged the tax (accrual method for overcharges is pay calculated no accrual)
Field | Description |
|---|---|
Configured overcharge accrual method | Pay calculated no accrual |
Configured undercharge accrual method | Accrue variance |
Invoice gross amount | $300 |
Vendor charge tax | $36 |
DCT amount | $28.50 |
The vendor overcharged the tax. The configured overcharge accrual method's Pay Calculated No Accrual. Regardless of the vendor overcharged tax amount, when this accrual method's applied, the payment to the vendor ($328.50) is the invoice gross amount plus the state and local tax amounts calculated by the system. The accrued amount's $0.00.
Example 9 - Vendor overcharged the tax and the DCT amount is zero (Accrual method for overcharges is accrue total tax)
Field | Description |
|---|---|
Configured overcharge accrual method | Accrue total tax |
Configured undercharge accrual method | Pay VCT no accrual |
Invoice gross amount | $1000 |
Vendor charged tax | $80 |
DCT amount | $0.00 |
The vendor overcharged the tax. For various business reasons, the DCT amount's $0.00. The configured overcharge accrual method's Accrue Total Tax. When this accrual method's applied, the payment to the vendor ($1,000.00) is the invoice gross amount, and doesn't include any tax. The system accrues the DCT amount ($0.00).
Example 10 - Vendor overcharged the tax and the DCT amount's zero (Accrual method for overcharges is pay calculated no accrual)
Field | Description |
|---|---|
Configured overcharge accrual method | Pay calculated no accrual |
Configured undercharge accrual method | Accrue variance |
Invoice gross amount | $500 |
Vendor charged tax | $55 |
DCT tax amount | $0.00 |
The vendor overcharged the tax. For various business reasons, the DCT amount's $0.00. The configured overcharge accrual method's (Pay Calculated No Accrual). When this accrual method's applied, the vendor charged tax ($55.00) is replaced with the DCT amount ($0.00). The payment to the vendor's the $500.00. The accrued amount's $0.00.
Example 11 - Default accrual method used because invoice amount was outside the invoice amount range for U.S. vendor exceptions
Field | Description |
|---|---|
Configured overcharge accrual method | Accrue total tax |
Configured undercharge accrual method | Accrue variance |
Invoice gross amount | $95 |
Vendor charged tax | $3 |
DCT amount | $7.37 |
Configured invoice amount range for U.S. vendor exceptions | $100 to <blank> |
Configured overcharge accrual method when invoice amount's within the invoice amount range | Pay calculated no accrual |
Configured undercharge accrual method when invoice amount's within the invoice amount range | Accrue variance |
The accrual settings include one configuration for U.S. vendor exceptions. This configuration's used for invoice amounts that are over $100.00. There are no configured U.S. vendor exceptions for invoice amounts that are over $100.00.
For invoice amounts that are over $100.00, the Pay Calculated No Accrual method's applied to overcharges and the Accrue Variance method's applied to undercharges.
In this example, the invoice amount's $98.00 (the invoice gross amount is $95.00 and the VCT amount is $3.00). The default accrual method (Pay VCT No Accrual) is applied because the invoice amount's under $100.00 and no U.S. vendor exception configurations exist for invoice amounts under $100.00.
It's irrelevant that the invoice amount would've been $100.00 or more (and that the Accrue Variance accrual method would have been applied) because of the following:
- The correct tax amount ($7.37) was included on the invoice. Here, the invoice amount would have been $102.37 (the invoice gross amount of $95.00 plus the correct tax amount of $7.37).
- The vendor charged tax was $5.00 rather than $3.00. Here, the invoice amount would have been $100.00.