Hello World! “What is GR/IR process in SAP System?” This is an interesting topic that I would like to expound in this article.
SAP System
Case one:
In MM module of an SAP system, GR/IR stands for Goods Receipt/Invoice Receipt process. When the receiving department of the company receives the goods from a supplier, the said goods received and accepted should be posted in SAP even if the supplier’s invoice have not yet received. The entry that will be created and automatically posted in Financial Accounting is:
Dr. Inventory xxxx
Cr. GR/IR Clearing Account xxxx
Case 2:
In other cases, when supplier’s invoice receives first than the goods the said invoice should be posted also in the system. Then entry entry that will be created and automatically posted in Financial Accounting is:
Dr. GR/IR Clearing Account xxxx
Cr. Vendor’s Payable xxxx
Please do note that the GR/IR clearing accounts are automatically cleared during the invoice verification process which is upon received of the supplier’s invoice (in case 1) and goods/inventories (in case 2). In case 1, the GR/IR clearing account is debited and the vendor’s payable account is credited. In case 2, the GR/IR clearing account is credited and Inventory account is debited.
Why is there a need to do separately the processes above? Here’s the explanation based in accounting point of view.
ACCOUNTING POINT OF VIEW
The process of GR/IR clearing has already an impact in Financial Accounting. It already created an entry that is directly posted in the books of the company. There is a principle in accounting that “Ownership of the good purchase is determined who has the risk and rewards of ownership over the goods”. What does that mean.
Risk – Who shoulder the risk of losing the goods?
Reward – Who benefit from selling the goods?
The risk and reward should go hand in hand. If risk and rewards over the goods have already transferred to the buyer, then the buyer should record the goods in it’s book. In both case 1 and 2 above, it is assumed that the risk and rewards is with the buyer. So the buyer is mandated to record an asset and a liability for the transaction. The two cases demonstrate a usual business scenario that an SAP consultant and user should very well understand.
In case 1, since the good is already received then the inventory should be updated. The corresponding entry of liability is the GR/IR clearing account since an invoice has not yet recevied.
In case 2, the invoice have received first. So, a liability to vendor should be recorded. The corresponding entry of asset is the GR/IR clearing account since the inventory have not yet received.
You might be confuse why in case 1, the GR/IR clearing account is a liability; whereas in case 2, it is an asset. It’s very simple, during month-end processing you need to run a transaction for GR/IR clearing to temporarily classify as “Good received but not yet invoiced – LIABILITY” (case 1) and “Invoiced received but goods have not yet received – ASSET” (case 2). The G/L accounts assignment should be configured in the system.
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