ORACLE APPLICATIONS WHITE PAPER ACCOUNTING IN R12 ORACLE PAYABLES SEP 2011
Author:
Mohamed Nazih CPA, PMP, Oracle Financials Consultant
[email protected]
Version
1.0
Accounting in Oracle EBS Payables © 2011
Contents About the Author ................................................................................................... 3 Introduction ........................................................................................................... 3 Purpose.................................................................................................................. 3 Scope ..................................................................................................................... 3 Audience ................................................................................................................ 4 Accounting in R12 Oracle Payables ........................................................................ 5 Determinants - Accounts ................................................................................................................... 5 Financial Options Accounts....................................................................................................................................... 6 Payables Options - Currency ..................................................................................................................................... 7 Payables Options - Invoice ........................................................................................................................................ 8 Payables Options - Interest....................................................................................................................................... 9 Supplier Site Accounting ........................................................................................................................................... 9 Bank Account Control ............................................................................................................................................. 10 Withholding Tax ...................................................................................................................................................... 10
Determinants - Options ................................................................................................................... 11 Payables Hierarchy ................................................................................................................................................. 11 Payables Options .................................................................................................................................................... 12
Payables Journal Entries .................................................................................................................. 14 AP-1 Invoice ............................................................................................................................................................ 14 AP-2 Prepayment .................................................................................................................................................... 16 AP-3 Prepayment Application ................................................................................................................................. 16 AP-4 Payment ......................................................................................................................................................... 16 AP-5 Payment maturity ........................................................................................................................................... 17 AP-6 Clearing........................................................................................................................................................... 17
Out of Scope Accounts ..................................................................................................................... 18 Information Sources ......................................................................................................................... 18 Page 2 of 18
Accounting in R12 Oracle Payables
About the Author Mohamed Nazih is a proficient functional consultant in Oracle e-Business Suite with more than seven years of experience of solutions design, configuration, testing and documentation and three full life cycle implementations. Prior to Oracle, he worked as a certified accountant and auditor for six years. This experience gave him an advantage to team up with financial staff in many companies in delivering high quality professional services, such as consulting, support, and training. While not working, Mohamed Nazih takes care of his family. Furthermore, he is a self-learner and avid reader in project management, change management, business intelligence, science, and environment issues. Mohamed Nazih values an atmosphere of ethics, punctuality, and team-working.
Introduction Accounting Journal Entries are embedded in every aspect of Oracle Financials Applications. Since they are “Financials”, you must have a good understanding of how these journals are generated and integrated. This understanding affects how you design and implement solution and it is the ground of discussion with customer’s representatives in this sector. They may have little knowledge of Oracle but, mostly, are good accountants.
Purpose This whitepaper will provide a detailed overview of accounting events, entries, and source. Such an overview may help: • Customer’s representatives design a better chart of accounts • Consultants justify decisions taken to setup system parameters and options
Scope This whitepaper will cover Oracle R12 Payables except for transactions related to: • Encumbrances • Oracle Internet Expenses • XML Gateways and iSuppliers • Automatic Offsetting Page 3 of 18
Accounting in R12 Oracle Payables
•
Cash Pooling
Audience This whitepaper is aimed to super users and functional consultants and implementers as well as applications’ auditors.
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Accounting in R12 Oracle Payables
Accounting in R12 Oracle Payables Determinants - Accounts Payables’ Journal Entries are controlled by the definition of: 1. Financials options 2. Payable options 3. Supplier Site 4. Bank Account 5. Withholding Tax 6. Invoice 7. EB-Tax Account
Qualifier
Financials Options
Liability
Prepayment
Asset
Bills Payable
Liability
Discount Taken
Expense
PO Rate Variance Gain
Revenue
PO Rate Variance Loss
Expense
Expenses Clearing
Expense
Miscellaneous
Expense
Retainage
Liability
Realized Gain
Revenue
Realized Loss
Expense
Rounding
Expense
Freight
Expense
Tax Difference Account
Liability
Interest Expense
Expense
Interest Liability
Liability
Liability
Payable Options
Supplier Site
Bank Account
Cash
Asset
Cash Clearing
Asset
Bank Charges
Expense
Bank Errors
Expense
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Invoice
Accounting in R12 Oracle Payables
Financial Options Accounts
Figure 1
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Accounting in R12 Oracle Payables
Payables Options - Currency
Figure 2
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Accounting in R12 Oracle Payables
Payables Options - Invoice
Figure 3
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Accounting in R12 Oracle Payables
Payables Options - Interest
Figure 4
Supplier Site Accounting
Figure 5
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Accounting in R12 Oracle Payables
Bank Account Control
Figure 6
Withholding Tax
Figure 7 Page 10 of 18
Accounting in R12 Oracle Payables
Determinants - Options Payables Hierarchy If an account can be defined in more than one place, Oracle Payables applies the following hierarchy, where lower level can override higher level(s):
Figure 8
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Accounting in R12 Oracle Payables
Payables Options Have a role in determining accounts to be defaulted for: • • • •
Prepayment Bills Payable Discount Interest
Payables Options – Accounting Options
Figure 9
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Accounting in R12 Oracle Payables
Payables Options – Withholding Tax
Figure 10
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Accounting in R12 Oracle Payables
Payables Journal Entries Oracle Payables has the following accounting events: 1. Invoice 2. Prepayment 3. Prepayment application 4. Payment 5. Payment maturity 6. Reconciliation
AP-1 Invoice 20B
Accounts
Debit
Expense (or AP Accrual) (1)
X
Tax (2)
X
P
P
Freight (3)
Credit
X
P
Retainage (4)
X
Liability (5)
X
P
P
Invoice Price Variance (IPV) (6) P
Quantity Variance (7) P
PO Exchange Rate Variance (ERV) (8) P
Tax Variance (9) P
Accounts
Debit
Retainage (10)
X
Tax
X
P
Liability
X
Accounts Interest Expense (11) P
Interest Liability
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Credit
Debit
Credit
X X
Accounting in R12 Oracle Payables
(1)
Expense account is usually used if invoice is entered manually. AP Accrual account is defaulted by system if invoice matched against Receipt/PO for goods items
(2)
Tax (e.g., Sales Tax or VAT) is defined in Oracle EB-Tax and inserted upon invoice validation
(3)
Freight account is defaulted if a line of type “Freight” is used and allocated to line(s) of type “Item”
(4)
Retainage account is defaulted if invoice is matched to a service procurement PO/Receipt
(5)
Liability account is sourced from Supplier’s Site
(6)
Quantity Variance results if, upon matching invoice to PO/Receipt, quantity entered for invoice is different from this specified in PO. For inventory items, variance booked to Inventory AP Accrual Account defined in Organization Parameters window in Inventory. For expense items, it booked to Expense AP Accrual Account
(7)
Invoice Price Variance results if, upon matching invoice to PO/Receipt, price entered for invoice is different from this specified in PO. For inventory items, variance booked to Invoice Price Variance Account defined in Organization Parameters window in Inventory. For expense items, it booked to Charge Account
(8)
PO Exchange Rate Variance results if, upon matching invoice to PO/Receipt, Foreign Currency Exchange Rate entered for invoice is different from this specified in PO. For inventory items, variance booked to Exchange PO Rate Variance Gain or Loss Account. For expense items, it booked to Charge Account
(9)
Tax variance results if, upon matching invoice to PO/Receipt, tax on invoice is different from tax on PO. Three tax-related variances can occur: •
Tax Rate Variance (TRV) – when there is a difference between invoice and PO distributions due to difference in tax rate. For inventory items, variance booked to Invoice Price Variance Account defined in Organization Parameters window in Inventory. For expense items, it booked to Charge Account
•
Tax Invoice Price Variance (TIPV) – when there is a difference between invoice and PO distributions due to price variance. For inventory items, variance booked to Invoice Price Variance Account defined in Organization Parameters window in Inventory. For expense items, it booked to Charge Account
•
Tax Exchange Rate Variance (TERV) – when there is a difference between the invoice and PO distributions due to exchange rate variance. For inventory items, variance booked to Exchange PO Rate Variance Gain or Loss Account. For expense items, it booked to Charge Account
•
Tax Quantity Variance (TQV) is calculated, but is shown as a non-variance distribution
(10) Retainage account is debited upon creating an invoice of type “Retainage Release” (11) Interest Expense account is debited for system created invoice of type “Interest” on condition that Payables Option for interest = System Account. If “Prorate Across Invoice” selected, original invoice distribution(s) will be debited
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Accounting in R12 Oracle Payables
AP-2 Prepayment Accounts Prepayment (12)
Debit
Credit
X
Liability
X
(12) Prepayment account is sourced from Supplier’s Site
AP-3 Prepayment Application Accounts Liability
Debit
Credit
X
Prepayment
X
Tax Difference (13)
X
(13) Tax Difference account is defaulted if tax applied for invoice is greater than this applied for prepayment. If it is lesser, workaround is needed to prohibit crediting Tax difference account (review 3-198 of Oracle Payables User's Guide)
AP-4 Payment (Maturity date = Current date) Accounts Liability
Debit
Credit
X
Cash Clearing (14)
X
Discount Taken (15)
X
Withholding Tax (16)
X
Realized Gain/ Loss (17)
(14) Cash Clearing account is sourced from Bank Account (15)
Discount Taken account is defaulted if an accelerated cash payment term (e.g., 2/10, net/30) is used and payment is made during the discount period
(16) Withholding Tax account is credited upon payment on condition that Apply Withholding Tax = At Payment Time
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Accounting in R12 Oracle Payables
(17) Realized Gain or Loss results if Foreign Currency Exchange Rate upon payment is different from this used upon accrual (in invoice)
(Maturity date = Future date) Accounts Liability
Debit
Credit
X
Withholding Tax
X
Bills Payables (18)
X
(18) Bills Payables account is default from either Bank Account (Organization Access> Payables Options) or Supplier’s Site according to option specified in Payables Options (Note: instead of “Bank Account”, the form erroneously used “Payment Document” which is no longer available in R12)
AP-5 Payment maturity Accounts Bills Payables
Debit
Credit
X
Cash Clearing
X
Discount Taken
X
Realized Gain/ Loss (19)
(19) Realized Gain or Loss results if Foreign Currency Exchange Rate upon maturity is different from this used upon payment
AP-6 Clearing Accounts
Debit
Cash Clearing
X
Bank Charges / Errors (20)
X
Cash Realized Gain/ Loss (21) Rounding (22)
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Credit
X
Accounting in R12 Oracle Payables
(20) Bank Charges or Error account is used for difference between cleared amount and transaction amount. Cash Management checks the Tolerance Differences parameter (in Bank Account Controls region of Bank Account) to determine whether the difference is due to charges or errors. (21) Realized Gain or Loss results if Foreign Currency Exchange Rate upon clearing is different from this used upon maturity (22) Rounding account may be used upon payment, maturity, or clearing if: •
Multiple currencies are used with bank account and payment currency does not round within payment currency precision.
•
Functional currency amount of payments do not equal amount of liability.
Out of Scope Accounts •
Expenses Clearing: is used as a temporary account to record credit card transaction activity related to Oracle Internet Expenses.
•
Miscellaneous: Used only when importing invoices submitted in XML Gateway.
•
Foreign Exchange Charges: used with Cash Management Cashflow as on option to account for differences between cleared amount and transaction’s amount
Information Sources o Oracle Payables User's Guide Release 12.1 Part No. E12797-04 o Oracle Payables Implementation Guide Release 12.1 Part No. E12795-04
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