PURCHASES PAID ON BEHALF BY EMPLOYEES

Created by Jason Margahal, Modified on Mon, 7 Oct, 2024 at 3:07 PM by Jason Margahal

A2000 ONLINE SUPPORT DEPARTMENT

KNOWLEDGE BASE

DESCRIPTION How Do I Enter Purchases Which Were Bought & Paid On behalf of The Company by Employees?

1. WHY IS THIS A COMMON TRANSACTION?

In many SMEs, purchases are usually done on a need-to basis by the business owners or at times by employees. Some examples are:

URGENT PURCHASES: In the midst of a project, the employee may be short of certain materials. To expedite the job completion, he may turn to nearby hardware shops to purchase the items, and then make a claim in the office later on.

FOREIGN BUYING: A business owner on an overseas sourcing trip may buy products his company trades in, using his own cash. When he returns to office, he can submit a claim for the items that the company may sell.

PETTY CLAIMS: Some employees may have travel claims (like air-tickets, hotel, taxi etc.) that are paid during the course of work. These items need to be captured into the system as purchases, and reimbursements made accordingly to the employees.

2. HOW DO I ENTER INTO THE SYSTEM?

There are 4 common methods that can be used to enter. As they depend on circumstances, like level of control or how easy the company wants this process to be, there is no one method that is the best. Users are advised to understand the pros and cons of each method to use.

We will illustrate how the various methods can apply, through a case example.

CASE: Mr. Tan is a business owner who need to buy $200 of products for his company. With 8% GST, he pays $216 with his cash. This product is needed for his trade. Mr. Tan submits his bill of $216 for reimbursement from the Account Dept.

METHOD 1 Using Journal Vouchers

With a journal voucher (GJ transaction), the accountant enters as follow:

GJ Transacftion	Debit	Credit
Purchase Expense A/c	$200.00
GST Expense A/c	$16.00
Amount Owing to Mr. Tan A/c		$216.00

This method is the most expeditious. However, journal vouchers cannot be accepted as an entry into the GST Form 5 Report as IRAS regulation require that to recognize input tax, there has to be a tax-invoice received from a counterparty.

As journal vouchers are used for accrual and adjustments, they are not suitable for entries for GST recognition. Note that the above journal entry treats the GST component as a GST Expense (not claimable as Input Tax). This is very useful for non-GST registered company.

METHOD 2 Using CASH BOOK VOUCHER

With a cash book voucher (GC transaction), the accounts department must setup a Cash Account called PETTY CASH (MR. TAN), and map this cash account to the GL A/c - Amount Owing to Mr. Tan

For all employee purchases made by Mr. Tan, the accountant then selects Cash Account = PETTY CASH (MR. TAN) and enters a debit to the Purchase Expense A/c. The resultant double entries are as follow:

GC Transaction	Debit	Credit
Purchase Expense A/c	$200.00
GST Input Tax or Expense A/c	$16.00
Amount Owing to Mr. Tan A/c		$216.00

Subsequently, assuming that all of Mr. Tan’s multiple claims are processed (as above), and the final total is $800 owing to Mr. Tan. The accountant can reimburse Mr. Tan through a GC transaction, from DBS SGD Bank A/c - as follow:

GC Transaction	Debit	Credit
DBS SGD Bank A/c		$800.00
Amount Owing to Mr. Tan A/c	$800.00

This method is expeditious. Cash vouchers also allow entry of GST to be captured into the system. This is very useful for both GST-registered and non-registered company as well. However, the downside of using the Cash Book, is there is no transparency how much purchases are going to which supplier.

METHOD 3 Using PAYABLES INVOICE TRANSACTION

Using the Payable transaction, user may enter via a PI transaction to capture the purchase. The accountant selects the Supplier and enters a debit to the Purchase Expense A/c. The resultant double entries are as follow:

PI-Transaction	Debit	Credit
Purchase Expense A/c	$200.00
GST Input Tax or Expense A/c	$16.00
Trade Creditor A/c		$216.00

A second transaction through the Payables – Payment Voucher (PV) transaction is needed to knock off the payables incurred by above PI transaction. Assuming the accountant uses PETTY CASH (MR. TAN) to pay this PI, the double entries are:

PV-Transaction	Debit	Credit
Amount Owing to Mr. Tan A/c		$216.00
Trade Creditor A/c	$216.00

The downside is this method is not so straightforward as it involves a PV transaction to knock off the PI from the payables list. However, the benefit is that user can track the volume of purchases from each supplier through the payable reports.

METHOD 4 Using PURCHASE INVOICE$ (CASH PURCHASE)

Using the Purchase Module, user may enter via a SA transaction to capture the purchase.

To use this module, user must create the respective products to buy, and each of these products mapped to a GL account. For example, user may create a service product called PURC – Purchase Expenses. Unlimited products may be created for different purposes in the Products & Service Maintenance.

The accountant selects the Supplier and selects PURC as the product to buy. Since it is a Cash Purchase, and pre-paid by employee Mr. Tan, the accountant can select PETTY CASH (MR.TAN) to buy the product. The resultant double entries are as follow:

SA-Transaction	Debit	Credit
Purchase Expense A/c	$200.00
GST Input Tax or Expense A/c	$16.00
Amount Owing to Mr. Tan A/c		$216.00

As this is a Cash Purchase, there are no more payables due. The second step to knock off payables is no longer necessary in this transaction.

Since the PV is not necessary, this method is more straightforward as compared to METHOD 3. Furthermore, the benefit is that user can track the volume of purchases from each supplier, including what the products bought through the purchase reports.

* END *

Disclaimer: The information provided here is provided on an as-is basis without warranty of any kind, either expressed or implied, including warranties of merchantability and fitness for a particular purpose. In no events shall A2000 Solutions Pte Ltd or its agents, distributors and suppliers (collectively known as A2000) be liable for any damages whatsoever including direct, indirect, incidental, consequential, loss of business profits or special damages, even if A2000 have been advised of the possibility of such damages. The names of actual companies and products mentioned herein may be the trademarks of their respective owners. All third party trademarks are the property of their respective owners.