Workaround for Retroactive Price Updates in Cloud

What is Retroactive Price Update?

This is functionality in EBS for updating prices on purchasing documents. Price updates are needed on purchasing documents over the period because of changes in agreements with suppliers. The Retroactive Price Update on purchasing Documents concurrent program automatically updates existing blanket releases and standard purchase orders retroactively with price changes from the parent blanket agreement or global purchase agreement.

After updating prices on purchasing document, it creates payables invoices of type Purchase Price Adjustments (PPA) with difference amount from already billed amount and new updated amounts after price updates.

This functionality is not yet available in Cloud. Therefore, we need to use invoice price corrections a workaround for this.

What are Invoice Corrections?

With corrections, you can adjust invoices that were matched to purchase order schedules, distributions, receipts or consumption advice documents. You can also adjust amounts of invoices that were not matched. The correction is the difference between the original price, quantity, or amount, and the new price, quantity, or amount.

For example, if a supplier decreases the price by 10 USD, the correction invoice is for -10 USD.

You can perform price, quantity, and amount corrections. The purchase order line type determines what type of correction you can make to a matched invoice. The purchase order line type can be amount-based or quantity-based.

For purchase price adjustments, we need to perform Invoice Price Corrections.

What is Price Correction?

A price correction adjusts the unit price of an invoice that was matched to a purchase order, receipt or consumption advice.

Following are two scenarios we need to handle for price correction:

A. Price Decrease

In this case, need to create credit or debit memo with adjustment price; this will decrease (debit) liability and balance it (credit) with price variance account in case of Goods items and item expense account in case of Services.

B. Price Increase

In this case, need to create standard invoice with adjustment price. This will increase (credit) liability and balance it (debit) with price variance account in case of Goods items and item expense account in case of Services.

Note: The calculation of the invoice price variance follow this formula: (invoice unit price – purchase order line unit price) * invoiced quantity