If you use accrual basis accounting, and have Oracle Purchasing installed, then Payables records variances when you validate and create accounting entries for an invoice distribution matched to either a purchase order or receipt. Variances are the differences between the purchase order and invoice in price, quantity, and, for foreign currency transactions, exchange rate. Invoice variances include nonrecoverable tax. Variance is calculated based on the invoice amount, not including any prepayment distributions.
The following formulas show how Payables calculates the invoice amount, purchase order amount, and the variance amounts.
| Amount | Forumula |
|---|---|
| Purchase Order Amount | PO Qty x PO Price x PO/Receipt Rate |
| Invoice Distribution Amount | Invoice Qty x Invoice Price x Invoice Rate |
| Expense or Accrual Amount All in functional currency if this is a foreign currency transaction. | Invoice Distribution Amount - (Invoice Price Variance + Exchange Rate Variance) |
| Invoice Price Variance (IPV) | Invoice Qty x (Invoice Price - PO Price) x Invoice Rate |
| Quantity Variance | (Invoice Qty - PO Qty) x PO Price x PO Rate |
| Exchange Rate Variance (ERV) | Invoice Qty x PO Price x (Invoice Rate - PO/Receipt Rate) |
Note: The balancing entry to encumbrances is the reserve for encumbrances. The associated encumbrances use the same formulas; for example, the encumbrance for a purchase order is calculated according to the formula PO Qty x PO Price x PO Rate.
During Invoice Validation, Payables applies holds to purchase order matched invoices that exceed tolerances you defined for price, quantity, and exchange rate differences in the Invoice Tolerances window.