Oracle R12 A/P Accruals
OAUG Cost Mgmt SIG MeetingMarch 15, 2011
Douglas VolzDouglas Volz Consulting
Introduction Learn about the Oracle inventory and expense
accrual processes for Release 12
Find out about the available improvements
Discuss the underlying business processes
Discuss current problems you may have
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Agenda Welcome to Our Session!
Cost Management SIG Business
Release 12 A/P Accruals
Why are these accrual processes so important? Periodic vs. perpetual accruals Basic accounting entries for the A/P accruals Setup steps for the accrual processes Using the Accrual Reconciliation Reports Using the expense accrual processes Summary of Release 12 Enhancements
Conclusions
Slide 3
OAUG Cost Management SIG Business Collaborate11 – April 10th to 14th
OAUG Cost Mgmt SIG MeetingApril 11, 2011, 9:15am to 10:15am Room W311H
Oracle OpenWorld Call for Papers – March 9th to March 27th
OpenWorld 2011 October 2-6, 2011 Call for papers url:
https://oracleus.wingateweb.com/portal/cfp/cfpLogin.ww;jsessionid=abcKMIA3cEszN7U97gH6s
Open vacancy for OAUG Cost SIG Membership Chairperson
Questions, concerns, ideas for the OAUG Cost Mgmt SIG: Doug Volz [email protected] Jerry Devore [email protected] Sharon Widmer [email protected]
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Release 12 A/P Accruals
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Why Are These Accrual Processes so Important?
Valuable integration control
Monitors accuracy of receiving and payables processes
Provides a vital barometer over these activities
Helps to ensure accurate inventory counts
Ultimately affects your profits
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What Are These Accrual Accounts?
Principle of accrual accounting
Timing difference between receiving and invoicing
Represents the accrued liability from your vendors or suppliers
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Periodic Versus Perpetual Accruals
Periodic accruals occurs at month-end
With computers came perpetual accruals
Perpetual accruals ensure that valued quantities equals accounting entries
Don’t accrue expenses upon receipt (unless you are a governmental agency or heavily into Project Control)
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Why Not Use Perpetual Accruals for Expenses?
Receiving inspection then includes both assets and expenses Have to reclass balances
Doubles the accrual entries that you need to reconcile Significantly more entries to review, research,
and correct Increased processing for the Accrual
Reconciliation programs
Slide 9
Background Information for A/P Accruals
May have multiple lines per PO
May have multiple scheduled receipts and PO releases per line
May have multiple PO distributions per line or scheduled receipt
Four stored accounts per PO distribution
PO HEADERS(PO_HEADERS_ALL)
PO LINES(PO_LINES_ALL)
PO SHIPMENTS(PO_LINE_LOCATIONS_ALL)
PO DISTRIBUTIONS(PO_DISTRIBUTIONS_ALL)
PO RELEASES(PO_RELEASES_ALL)
Slide 10
More Background Information
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Type of Account
Charge Account
Accrual Account
Variance (IPV) Account
Budget Account
Expense Destination
Inventory / WIP Destination
Cost Center or Expense Account
Default Subinv. or Org Mat’l
AcctExpense A/P
Accrual Account
Inventory A/P Accrual Account
Cost Center or Expense Account
Inventory IPV Account
Expense Budget Account
Default Subinv/Org
Encumbrance Account
Accrual Accounting Entries – Perpetual Accruals Releases 10 to 11.5.9
Purchase order receipt A/P Invoice match PO Return to vendor A/P Invoice correction PO Receipt delivery Expense A/P accrual
Release 11.5.10 Transfer to Regular (consignment) Internal Orders / Logical Transactions Retroactive Price Adjustments
Release 12
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Accounting Entries for a PO Receipt Receive one item @ $100 PO unit price
Account Debit CreditReceiving Account 100
A/P Accrual Account 100
Receiving Value Account Inventory A/P Accrual Account 100
100
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Accounting Entries for an A/P Invoice Match Same item, $80 invoice unit price, $100 PO unit
price
Account Debit CreditA/P Accrual Account 100
A/P Trade Payables 80Invoice Price Variance 20
A/P Accrual Account A/P Trade Payables 100 80
Invoice Price Variance
20 Slide 14
Accounting Entries for a PO Return to Vendor
Same item, $100 PO unit price
Account Debit CreditA/P Accrual Account 100
Receiving Account 100
A/P Accrual Account Receiving Account
100 100
Slide 15
Accounting Entries for an A/P Invoice Correction
Same item, $80 invoice unit price
Account Debit CreditNew Charge Account 80
Old Charge Account 80
New Charge Account Old Charge Account
80 80
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Accounting Entries for PO Receipt Deliveries
Account Debit CreditDelivery to stock inventory (PO Receipt)Material (Subinv/Org) AccountXXX
Receiving Account XXX
Delivery to WIP inventory (Outside Processing Receipt)
Job OSP Account XXX Receiving Account XXX
If using standard costing you may have PPV entries as well
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Purchase Order Accounting Accrual Summary by T Account
Receiving Value Inventory A/P Accrual
100 100 100 100
Material Value Invoice Price Variance
100 20
Trade Payables
80
TransactionReceipt Delivery to
Stock Invoice Match
Delivery to Stock
Invoice Match
Invoice Match
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Accounting Entries for Inventory ConsignmentAccount Debit CreditDelivery to stock inventory (PO Receipt for ”Transfer to
Regular”)Material (Subinv/Org) AccountXXX
AP Accrual Account XXX
Transfer to WIP inventory (Backflush from Subinventory above)
Account Debit CreditWIP Material Account XXX
Material (Subinv/Org) Account XXX
Available feature since Release 11.5.10
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Accounting Entries for Internal Orders
Receipt into Inventory (Internal Order Intransit Ship)Account Debit CreditSubinv. or Org Accounts XXX
AP Accrual Account XXX
Intercompany Invoice Match (Payables)Account Debit CreditI/C A/P Accrual Account XXX
Trade Payables Account XXX
Reported on Miscellaneous Accrual Report
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Month-End Period Accruals
For expenses onlyAccount Debit CreditCharge Account XXX
Expense A/P Accrual Account XXX Release 11i, run the Receipt Accruals Period End program
Creates entries directly into the G/L Interface lines Then run Journal Import
Release 12, run the Receipt Accruals Period End program Creates Receiving Accounting Distributions Then run Create Accounting Program to create SLA entries and Run Transfer Journal Entries to G/L program, or (optionally) transfer to
G/L at same time as Create Accounting is run
Next accounting Period, reverse the Accrual: R11i: In the G/L find the G/L Batch Header and click on Reverse
Batch R12: The reversal entry is automatically done for you
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Where You Setup the Accrual Processes
Setup in Oracle Purchasing
Setup in Oracle Inventory
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Setup in Oracle Purchasing Use the Define Purchasing Options Form
Set the Expense Accrual Account
Set the Accrual Options for Expenses
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Setup in Oracle Purchasing Use the Define Receiving Options for each Org:
Receiving Account
Retroactive Price Adjustment
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When Defining Purchase Orders Much safer, harder to find the Accrue on Receipt Flag
You have to set up the Accrue on Receipt field on your folder form before you
can see the Accrue on Receipt settings
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Setup in Oracle Inventory Organization Parameters ─ Inventory AP Accrual
Account
Set your Inventory A/P Accrual Account
Set your PPV and IPV Accounts
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Setup in Oracle Inventory (cont’d)
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Separate inventory and expense accrual accounts
for intercompany A/P accruals
Intercompany Accrual Accounts
New R12 Setup For A/P Accruals List of A/P Accrual Accounts to Reconcile
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Caution
Use separate accounts for each type of system account: Expense A/P Accrual Account Inventory A/P Accrual Account Receiving Account Expense Purchase Order Charge Accounts Other inventory, WIP and price variance accounts
Teach Payables staff to not use the A/P Accrual Account This account should be always assigned automatically Or set up G/L security rules to prevent use
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R12 Accrual Reconciliation and Write-OffMajor Enhancement
11i issues Poor Performance
Full data load causing years of accrual distributions being loaded and reloaded again
Inflexibility and Confusion Forms and Reports are data
dumps. Difficult to identify the transaction to write off
Data can not be exported in excel format.
Possibility for Errors Manual write-off to GL can
lead to errors and mistakes No Summary Reporting
R12 Enhancements Enhanced Performance
Incremental data load using from and to date to load data with outstanding accrual balances only
Support writing off balances Increased Usability
Headers and lines separation Summarization display AP PO data only Miscellaneous data only Data exportable to excel Will help user for investigation Mass write-off
Automatic Accounting Creation No more manual adjustment to GL Write-off will post to SLA as any
other distributions
Slide 30 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Major Enhancement Recap
Performance enhancement: Incremental load Accrual data only with outstanding balance
Usability enhancement: Information categorized using specific windows and
reports• AP and PO Accrual data• Miscellaneous AP and Inventory
Writing off accrual balance at PO distribution Ability to export Accrual data reported in excel format Mass write-off
Remove possible financial mistakes: Automatic accrual write-offs posting to the GL
Slide 31 Slides courtesy of Oracle Cost Development
New R12 Table Structure
Permanent table structures
CST_ACCRUAL_ACCOUNTS (holds valid accrual accounts)
CST_AP_PO_RECONCILIATION (matched AP/PO entries w/outstanding balances)
CST_MISC_RECONCILIATION (unmatched AP and INV entries)
CST_RECONCILIATION_BUILD (accrual load submissions)
CST_RECONCILIATION_SUMMARY (summary of CST_AP_PO_RECONCILIATION)
CST_WRITE_OFFS (write-off transaction header table)
CST_WRITE_OFF_DETAILS (write-off transaction details table)
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R12 Accrual Reconciliation and Write-Off Functional FlowFunctional Flow
Slide 33 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional FlowFunctional Flow: Define your Accrual Account
Slide 34 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional FlowFunctional Flow: Run Accrual Load Program
Slide 35 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: Accrual Load ProgramFunctional Flow: Accrual Load Program
Accrual data load run as a standalone concurrent program
Incremental load: Load is run for a specific date range. Transactional data picked up only from the data range specified
Accrual data is summarized and accrual balances are calculated at the PO distribution level
- PO, A/P and Write Off balances as well as last activity date
- Zero balance accrual data are deleted from the table, this should eliminate 80%+ of the data
Slide 36 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: Run Summary Accrual Reconciliation ReportFunctional Flow: Run Summary Accrual Reconciliation Report
Slide 37 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: Functional Flow: Summary Accrual Reconciliation
Step3 Report: Summary Accrual Reconciliation
Slide 38 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: Run AP and PO Accrual Reconciliation ReportFunctional Flow: Run AP and PO Accrual Reconciliation Report
Slide 39 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: AP and PO Accrual Example - Reconciliation Report…Functional Flow: AP and PO Accrual Example - Reconciliation Report…
We decide to write this balance off for these
un-billed receipts
Slide 40 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: AP and PO Accrual Example - Write-Off Window…Functional Flow: AP and PO Accrual Example - Write-Off Window…
Submit the Write Off and the balance disappears online
We begin by looking for the PO balance we want to write off…
Slide 41 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: AP and PO Accrual Example - Functional Flow: AP and PO Accrual Example - AP PO Write Off…
If you resubmit the AP PO Accrual Reconciliation report…
….The PO#5418 disappeared
Slide 42 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: AP and PO Accrual Example - Functional Flow: AP and PO Accrual Example - View Write Off for AP PO…
All Write off transactions for the PO Distribution balance will be displayed
If you query the write off View Window, you will find your write off transactions…
Slide 43 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: AP and PO Accrual Example - Functional Flow: AP and PO Accrual Example - Write Off Reversal …
A write-off reversal transaction has been created to offset the previous write off
You can reverse the write off transaction if you think error has been made…
Slide 44 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: AP and PO Accrual Example - Functional Flow: AP and PO Accrual Example - Write Off Reversal…
The PO balance is again available for write off
From AP PO Write Off Window, the PO balance re-appears…
Slide 45 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: AP and PO Accrual Example - Functional Flow: AP and PO Accrual Example - Write Off Reversal…
The PO balance shows up again
AP PO Accrual Reconciliation Report shows the PO balance again…
Slide 46 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Accrual Reconciliation Process: Accrual Data life Cycle
Accrual Reconciliation Data
Removed ó
DeletedUser Write Off the balance
Written Off Transaction Data
Createdó
Inserted
Reversedó
Inserted the opposite Write Off
User Reverse the Write Off transaction
Createdó
Inserted
Trigger the creation of the Write Off transaction to represent the
amount being written off
Recreate the Accrual Reconciliation data being previously written off
IncrementalLoad
Load of Accrual DataWith outstanding
balance
Slide 47 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Accrual Reconciliation: Major Benefits
Write Off Activity is tracked by a Write Off transaction Enhance the control of the write off activity Enhance audit ability
Only accrual data with outstanding balance will be kept in the accrual reconciliation tables Decrease the volume of data Enhance the performance Enhance the usability
Slide 48 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Functional Flow: Run Miscellaneous Accrual Reconciliation ReportFunctional Flow: Run Miscellaneous Accrual Reconciliation Report
Slide 49 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Miscellaneous Accrual Reconciliation ReportMiscellaneous Accrual Reconciliation Report
Slide 50 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Miscellaneous Accrual ReconciliationMiscellaneous Accrual Reconciliation: Miscellaneous Write-Off Window
Slide 51 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Miscellaneous Accrual ReconciliationMiscellaneous Accrual Reconciliation: Miscellaneous Write-Off Window
Slide 52 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Write Off transaction Accounting: Leverage Sub Ledger Accounting
Upon completion of the process the accounting report will show the status of the accounting
To post the accounting to the GL, we can execute the “Create Accounting – Cost Management” process with the process category “Receiving”…
Slide 53 Slides courtesy of Oracle Cost Development
R12 Accrual Reconciliation and Write-Off Write Off transaction Accounting: Leverage Sub Ledger Accounting – Continue…
Once posted the SLA accounting entries are viewable online in the view write off Window…
Slide 54 Slides courtesy of Oracle Cost Development
Summary Comparison for R11i and R12 R11i: Inventory A/P Accruals
Accrual Reconciliation Report – detail report Write-Off Accrual Screen/Form Accrual Write-Off Reports
R12: Inventory A/P Accruals Accrual Reconciliation Detail and Summary Reports Write-Off Accrual Screen/Form
• Separate write-off forms for AP/PO vs. Inventory transactions• When you write off entries you create Write-Off journal entries
Accrual Write-Off Reports New Reports
• AP and PO Accrual Reconciliation Report• Summary Accrual Reconciliation Report• Miscellaneous Accrual Reconciliation Report
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How to Balance the Accrual Reconciliation Report
Only picks up transactions available to the general ledger Create Accounting – Final mode has been run
Use Subledger Accounting or G/L reports to reconcile Subledger Accounting – Journal Entries Report Account Analysis Reports General Ledger summary and journal line reports
Or use original accounting distribution reports
Receiving Account Distribution Report Payables Account Analysis Report Material Distribution Summary Report
Slide 56
What to Check If the Perpetual Accruals do Not Balance
Check for any conversion issues
Check for manual G/L journal entries
Make sure create accounting has been run
Slide 57
Process Problems for Receiving
Why receipts do not equal invoices
Wrong receipt quantities (quantity and/or UOM is incorrect)
Receiving goods to the wrong PO line or PO
Trying to receive or return goods using miscellaneous inventory transactions
Routine over receipts with correct invoice quantities
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Process Problems for Payables
Why invoices do not equal receipts
Incorrect invoice quantities (UOM is wrong, etc.)
Payables not processing debit memos correctly
Expenses, invoice price or exchange rate variances miscoded
Payables matching the invoice to the wrong PO, PO line or PO Release
Not matching invoices to POs at all
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Process Problems for Purchasing
Why invoices may not be processed correctly
Purchase orders prematurely closed or “final closed” Purged purchase orders
Incorrect purchase order unit prices
Late or no purchase orders created for the receipt
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Expense A/P Accruals
Expense A/P Accruals – for both R11i and R12 Uninvoiced Receipts Report
• Supporting backup for your month-end expense accruals
• Run this report BEFORE running the Receipts Accrual – Period End program
Receipts Accrual – Period End program• This program creates your month-end expense
accruals• Payables has to be closed BEFORE you run this
month-end Purchasing program• R11i only creates entries into the G/L Interface• R12 creates Receiving accounting distributions
Slide 61
How to Run the Expense Accrual Programs and Reports
Run the Uninvoiced Receipts Report by specifying Accrued Receipts:
• No (before running the month-end process),• Yes (after running the month-end process),
Include On-line accruals: No The desired Period Name And the desired sort selection
(purchasing Category or Vendor)
Slide 62
How to Run the Expense Accrual Programs and Reports Run the Receipt Accruals – Period-End program after A/P
is closed• Enter the Minimum Accrual Amount• Leave Supplier and Item Category information blank• Select the accounting period
– Purchasing Period must be OPEN, G/L Period must be OPEN and A/P Period must be CLOSED.
• When Purchasing is closed the expense receipts are un-marked
Slide 63
How to Balance the Receipt Accrual - Period End Process
Use careful cut-off controls for receipt and invoice transactions
Close purchase orders and lines after you have reconciled the Expense A/P Accrual Account
Uninvoiced Receipts Report should agree to your Receipt Accruals - Period-End journals R11i: Goes directly into your General Ledger Interface table R12: Goes directly into your Receiving Accounting
Distributions
Make sure you match your expense A/P invoices to your expense PO receipts
Slide 64
How to Balance the Receipt Accrual - Period End Process
Caution, for earlier R12.0x and 12.1 Releases:
For both online and period-end accruals, both accounting entries use the journal category of Receiving
See Metalink Note:• How To Change The Seeded Default Journal Category from
"Receiving" to Accrual"? [ID 555547.1]
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Implementation Issues (Mistakes You Don’t Want to Make)
Sharing system accounts
Badly defined receiving and payables processes
Little or no system testing for your accrual processes
After “go live”, late review for the first Accrual Reconciliation ReportIf your company has badly defined and/or badly executed PO
Receipt and A/P Invoice Match processes you will have a mess!
Slide 66
Release 12 A/P Accrual Issues
XML or BI Publisher Reports can become quite huge(especially if your Procurement and Payment processes are broken)
Inventory A/P accrual entries are reported on the Miscellaneous Accrual Reconciliation Report, even for Inter-Company Internal Orders or Logical Shipments/Logical Receipts (depending on FOB)
Accrual Reconciliation Load Run will fail if run more than one Accrual Reconciliation Load at a time
Slide 67
Release 12 Summary - Major Rewrite for A/P Accruals Each month’s accrual entries are loaded incrementally
No more cumulative loading each month for the Accrual Temp table (no longer temporary)
PO and A/P entries which balance to zero are matched and removed
Much better performance and less tablespace too
Separately define what are valid A/P Accrual Accounts Easier to exclude invalid PO and A/P entries
Matching is done at the PO distribution level (effectively at the PO Release level when using PO Releases)
Slide 68
Release 12 Summary - Major Rewrite for A/P Accruals
Summary and Detail Accrual Reconciliation Reports Summary reporting by account Detail reporting with separate headings from
report detail Uses XML/BI Publisher – download reports into
Excel Separate reports for matching vs. non-matching
miscellaneous entries (A/P, Inventory entries)
Ability to do mass A/P Accrual Write-Offs Write-offs use SLA (sub-ledger architecture) and
now create journal entries Can do write-offs at the PO distribution level With better write-off reporting
Slide 69
Conclusions
These accrual processes are very important in ensuring your margins are accurate
Proper implementation and data conversion is essential
Requires accurate receiving and A/P matching processes
Release 12 has major enhancements to consider
Slide 70
Where to get more information Douglas Volz Consulting
Collaborate08: How to Setup and Use Your A/P Accruals (R11i) http://www.volzconsulting.com/resources.html
Oracle Corporation Metalink:
• FAQ For On Line Accruals & Accrual Reconciliation Reports [ID: 433683.1]
• Impact of R12 Design in PO Accounting, [ID: 429105.1] • R12 How To Diagnose And Reconcile Inventory AP Accrual
Transactions Using Reconciliation Reports [ID 728871.1] • Master Note For Oracle EBS Procurement Suite - Encumbrance
And Accrual Accounting [ID 1138043.1] Oracle Purchasing User Guide Oracle Cost EBS Public Forum:
http://forums.oracle.com/forums/forum.jspa?forumID=414
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Acknowledgements
You, the OAUG Cost Mgmt SIG, thanks for attending this session
Oracle Cost Development
Partners in crime at my clients over the years
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Douglas Volz ([email protected])
Professional BackgroundDoug Volz is a Senior Architect and Advisor for Oracle Application projects, with a particular interest in Cost and Project Management. He has 30 years accumulated experience, including 5 years in Oracle Development (co-designing Oracle Cost Management) and 12 years in industry in Cost and Accounting Management positions. His Manufacturing and Cost systems experience covers project management, software design/development, delivery and consulting services, for both Oracle Corporation, and multiple international consulting firms. Prior to his systems career, Mr. Volz also held numerous management accounting positions for telecommunications, defense, and electronics companies.
In his consulting roles Doug has served over 100 clients. Many of these were multi-org, multi-currency with global footprints. Countries include US, Mexico, UK, Netherlands, Belgium, Taiwan, P.R.O.C., Norway, Japan, Italy, Switzerland and Germany.
Doug leads the OAUG Cost Management Special Interest Group. He also advises and participates on the Oracle Customer Advisory Board for Fusion Costing.
Core Expertise Multi-organization, Multi-currency ERP
Implementations Project Management and Senior Project Advisor Core manufacturing processes
Cost Management Inventory Bills of Material WIP
Systems Integration and Data Conversions
Experience Sample of clients served:
Beckman Coulter (US) Matsushita (UK, Mexico) Logitech (US, Taiwan, P.R.C.) Celgene Corporation (US, Switzerland) NTL (UK, now Virgin Media) TCI International (US) Onninen AS (Norway)
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Thank You for Your Attendance and Participation