Complete SAP Purchase Cycle Till Financial Accounting (FI)

If you're working with SAP and want to understand how the purchase cycle flows all the way to Financial Accounting (FI), this breakdown will walk you through each key step—start to finish. Think of it like following a real-world order—from requesting materials to paying the final invoice.

1. Purchase Requisition (PR)

When a department—say, production or stores—needs a material, the process kicks off with a Purchase Requisition (PR). This is an internal request to the purchasing department to procure goods or services. Tcode: ME51K (for account-assigned PR) Goal: Trigger the procurement process.

2. Material Search & Determination

Once a PR is in place, the purchasing team gets to work. They first determine what material is required and whether it’s already available in stock or needs to be sourced. This includes identifying availability, lead time, and specifications.

3. Vendor Identification

Next, the focus shifts to vendor selection. Who can supply the material? At what cost? With what delivery terms? The objective here is to get competitive quotes and choose the right supplier. This still falls under the broader material determination process but now includes vendor evaluation.

4. Tendering Process

If needed, a formal tender process is conducted. This is where requests for quotations (RFQs) are floated and responses are evaluated.

Tcode: ME41 for RFQ creation

Vendor quotations are compared, and the best fit is finalized.

5. Purchase Order (PO) Creation

Once the vendor is selected, a Purchase Order (PO) is issued. This is the official document that commits your company to the purchase.

Tcode: ME21N

At this stage, no accounting entry is made. It’s purely a logistical document.

6. Goods Receipt (GR)

When the materials arrive, they are received and verified against the PO. This is called Goods Receipt.

For Goods Receipt: Use MIGO
For Service Entry: Use ML81N

Journal Entry:

Inventory Account
– Dr GR/IR

Clearing Account
– Cr Purchase Account
– Dr Purchase Offset Account
– Cr The GR/IR

Clearing Account is especially important. Think of it as a temporary holding account that connects the goods receipt to the vendor invoice. It bridges the gap between material and financial flows. Also, this account may include:

1. Assessable Value
2. Sales Tax 3. Surcharge (if any)

These components show up unless CENVAT is applicable.

7. Excise Invoice & CENVAT Credit

After receiving the goods, the Excise Invoice (if applicable) is handed to the Central Excise or tax team. This is where your company claims CENVAT credit—a duty benefit. Not always mandatory, depends on how your system is integrated with tax handling.

Accounting Entry:

CENVAT Clearing Account – Cr
RG23A Part II Account – Dr
RG23A Part II Cess Account – Dr

This step is crucial for companies operating under excise regulations, as it enables duty credit utilization.

8. Invoice Receipt (IR)

Now comes the Invoice Receipt stage. After materials and excise paperwork are validated, the invoice is entered into the system for payment processing.

Tcode: MIRO This action creates two documents:

1. MM Document – Material Management posting
2. FI Document – Financial entry
Journal Entry:
Vendor Account – Cr GR/IR
Clearing Account – Dr CENVAT
Clearing Account – Dr

This matches the actual invoice with what was ordered and received, closing the loop in three-way matching (PO + GR + IR).

9. Final Payment to Vendor

The last leg of the journey—vendor payment. Once the invoice is approved, payment is processed.

Tcode: F-53 (Manual Payment Posting)

Or use F110 for automatic payment runs

Journal Entry:
Vendor Account – Dr
Bank Account – Cr

This completes the cycle. At this point, all systems—MM, FI, and possibly even Tax and Excise—are in sync.

Summary of the SAP Purchase Cycle Till FI

Step	Description	Tcode	Key Account Entries
1	Purchase Requisition	ME51K	None
2	Material Determination	Internal Process	None
3	Vendor Selection	Internal Process	None
4	RFQ/Tender	ME41	None
5	Purchase Order	ME21N	None
6	Goods Receipt	MIGO / ML81N	Inventory Dr, GR/IR Cr
7	Excise Entry (Optional)	Manual / Auto	RG23A Dr, CENVAT Cr
8	Invoice Receipt	MIRO	Vendor Cr, GR/IR Dr, CENVAT Dr
9	Payment	F-53 / F110	Vendor Dr, Bank Cr

Pro Tips

Always match PO, GR, and IR to ensure data accuracy. This is called 3-way matching.

Use ME23N to display POs and trace their status.
If the GR/IR account doesn’t reconcile, it usually points to quantity or price mismatches—recheck MIGO vs. MIRO entries.
Automate repetitive steps (like payments) with F110 for smoother operations.

Final Thoughts

Understanding the end-to-end Purchase Cycle till FI isn’t just about knowing t-codes. It’s about grasping how procurement, inventory, tax, and finance work together seamlessly in SAP. Once you see it as a flow rather than siloed steps, everything starts making sense. If you're in materials, finance, or even audit—this process forms your operational backbone.

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