Financials Setup accounts details

This forum is to discuss different features/issues of Oracle Financials modules ( GL - General Ledger, AP - Accounts Payable, AR - Accounts Receivable, FA - Fixed Assets & CM - Cash Management ).
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AmanKhan
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Location: Pakistan

Financials Setup accounts details

Post by AmanKhan »

HI.

I want description of some Oracle Financials Setup accounts details with practical scenario/examples:

1. Realized Gain/Loss (Payables Options currency Tab)
2. Rounding (Payables Options currency Tab)
3. PO Rate Variance Gain/Loss (Payables, Financials options Accounting Tab)
4. Invoice Price Variance
5. Entered Currency Balancing Account (GL, ledger setup)
6. Inventory AP Accrual & Expense AP Accrual
7. Proceeds of Sale Clearing (FA, Book Controls Natural A/c Tab)

Description is available in UG & SG but i want practical cases.
Can anyone provide some description with practical examples that when particular account will be debit/credit ? What will be the accounting entry ?

Regards,

Aman
tgs100
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Post by tgs100 »

Simple ones first...

1 and 3 in your list are frequently used (if multiple currencies are used). Inventory AP Accrual/Expense AP Accrual is used for all PO transactions.

PO Rate Variance Gain/Loss and Realized Gain/Loss
======================================
1. Create a PO with currency (Ex: GBP) other than ledger currency (Ex: USD)

PO QTY-----PO Rate (GBP)-----Exch Rate-----PO Rate(USD)
=============================================
1------10------1.6-----16

2. Create Receipt for the PO. Accounting entry will be
Inventory - Dr 16 USD
To Accrual - 16 USD

3. Create Invoice and match with this PO/Receipt. Assume that the exchange rate on the invoice date is 1.7 (1 GBP = 1.7 USD). Accounting entry will be
Accrual - Dr 16 USD
PO Rate Variance Loss - Dr 1 USD
To Liability - 17 USD

4. Make Payment for that invoice. Assume that the exchange rate on the invoice date is 1.8 (1 GBP = 1.8 USD). Accounting entry will be
Liability - Dr 17 USD
Realized Loss - Dr 1 USD
To Cash - 18 USD

Invoice Price Variance
=======================
1. Create a PO

PO QTY-----PO Rate (GBP)
=========================
1------10

2. Create Receipt for the PO. Accounting entry will be
Inventory - Dr 10 GBP
To Accrual - 10 GBP

3. Create Invoice and match with this PO/Receipt. Assume that the rate mentioned in the invoice is 11 GBP (PO rate could be wrong). While matching with the PO/Receipt, change the po rate to 11. Now the invoice amount is 1 * 11 = 11 GBP.

Accounting entry will be

Accrual - Dr 10 GBP
Invoice Price Variance - Dr 1 GBP
To Liability - 11 GBP

4. Make Payment for that invoice. Accounting entry will be

Liability - Dr 11 GBP
To Cash - 11 GBP

Clear now?

More in the next one...
AmanKhan
Posts: 387
Joined: Wed Sep 26, 2007 2:51 am
Location: Pakistan

Post by AmanKhan »

HI TGS,

Thanks for your valuable comments, your explanation of GL accounts is simple and perfect and it covers P2P cycle.

Waiting for more in next one...
tgs100
Posts: 624
Joined: Tue Jun 13, 2006 3:42 am
Location: USA
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Post by tgs100 »

Entered Currency Balancing Account is explained below.

Entered Currency Balancing Account
=======================
Entered currency balancing account is used when cross currency receipts are done in AR. i.e receipt currency is different from invoice currency. Receipt currency can be invoice currency or ledger currency or any other currency.

1. Create AR invoice. For example, create an invoice with GBP currency (Ledger currency is USD).

Invoice Amount(GBP)-----Exch Rate-----Inv Amount(USD)
=====================================
1000-----1.6-----1600

Now the accounting entry will be

Account Event - Dr/Cr - Entered Amount - Accounted Amount
-----------------------------------------------------------------------
Receivable - Dr - 1000 GBP - 1600 USD
Revenue - Cr - 1000 GBP - 1600 USD

Upto this, there is no change.

2. Assume that the customer made payment in USD. Enter the receipt in USD and apply this USD amount against the invoice GBP amount.

Receipt Amount(USD)-----Applied Amount(GBP)-----Allocated Amount
=========================================
1600-----1000-----1600

The accounting entry will now be

Account Type- Dr/Cr - Entered Amount - Accounted Amount
-----------------------------------------------------------------------
Unconfirmed Cash - Dr - 1600 USD - 1600 USD
Receivable - Cr - <b>1000 GBP</b> - 1600 USD

Now look at the entered currency amount for the above two lines. It is unbalanced now. To balance the entries, system will create the balancing entries as given below

Account Type- Dr/Cr - Entered Amount - Accounted Amount
-----------------------------------------------------------------------
Balance - Dr - 1000 GBP - 1600 USD
Balance - Cr - 1600 USD - 1600 USD

Thus system will create two JVs in GL for this receipt. One with GBP currency and another with USD currency.

GBP currency JV will have the following lines

Balance - Dr - 1000 GBP - 1600 USD
Receivable - Cr - 1000 GBP - 1600 USD

USD currency JV will have the following lines

Unconfirmed Cash - Dr - 1600 USD - 1600 USD
Balance - Cr - 1600 USD - 1600 USD

The above is a simple example. If you receive less or more USD amount due to exchange rate fluctuations, you will also have exchange rate gain/loss account.

Proceeds of Sale Clearing in Next one.

Cheers,
Saravanan
AmanKhan
Posts: 387
Joined: Wed Sep 26, 2007 2:51 am
Location: Pakistan

Post by AmanKhan »

Good explanation of Entered Currency Balancing Account in AR module,

There is similar kind of treatment of Entered Currency Balancing Account in AP module as well. Let me explain in detail:

1. Create AP invoice. For example, create an invoice with USD currency (Ledger currency is PKR).

Invoice Amount(USD)-----Exch Rate-----Inv Amount(PKR)
=====================================
1000----- 70 ----70000

Now the accounting entry will be

Account Type - Dr/Cr - Entered Amount - Accounted Amount
------------------------------------------------------------------------------

Expense - Dr - 1000 USD - 70000 PKR
Liability - Cr - 1000 USD - 70000 PKR

2. Assume that the Payment made to supplier in invoice currency USD. Enter the payment in USD. Now exchange rate is also changed

Payment Amount (PKR)-----Exch Rate (PKR)-----Payment Amount
=========================================
1000-----75-----70000

The accounting entry will now be
------------------------------------------------------------------------------

Liability - Dr - 1000 USD - 70000 PKR
Loss - Dr - - 5000 PKR
Bank Clearing - Cr - 1000 USD - 75000 PKR

In AP Entered currency amount for the above two lines are balanced but functional currency amounts are unabalanced due to realized gain/loss. System will charge difference to realized gain/ loss account in PKR to balance entry in functional currency.

3. When payment cleared in Cash management, system will generate two journal entries. One with USD currency and another with PKR currency:

First entry will be with Entered Currency Balancing Account for USD currency:
------------------------------------------------------------------------------

Bank Clearing - Dr - 1000 USD - 75000 PKR
Balance - Cr - 1000 USD - 75000 PKR

Second entry will be for PKR currency:
-------------------------------------------------------------------------------

Balance - Dr - 75000 PKR
Bank - Cr ? 75000 PKR

In simple words, System will create the balancing entries as given below
-----------------------------------------------------------------------

Balance - Dr - 1000 USD - 70000 PKR
Balance - Cr - 70000 PKR - 70000 PKR

The above example also explain realized exchange rate gain/loss treatment. Ultimately the Entered Currency Balancing Account will be 0. as per my understanding, balance in this account should be 0.

Regards,

Aman
AmanKhan
Posts: 387
Joined: Wed Sep 26, 2007 2:51 am
Location: Pakistan

Post by AmanKhan »

can anyone explain Proceeds of Sale Clearing (FA, Book Controls Natural A/c Tab) ????
tgs100
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Post by tgs100 »

Proceed of Sale Clearing
=========================
Proceed of sale clearing is an interim account linking AR invoice with the Asset Retirement.

Before getting into oracle apps (for the time being forget oracle apps), what would be the accounting entries when an asset is retired.

It will be
Accumulated Depreciation - Dr
Net Book Value Retired - Dr
To Equipment (Asset Cost)

In addition to the above, if the asset is sold, then the accounting entry will be
Cash - Dr
To Asset sale Revenue

Now we will see the process and accounting entries in oracle apps.

For better understanding, let us consider 3 examples here.

1. Total Asset Cost is 10000 USD. Accumulated Depreciation is 7000 USD. Asset is sold for 3000 USD (Sale value equal to NBV).

Step1: We need to first create an AR invoice for the Asset sale. The important point is that the revenue account should be "Proceeds of Sale Clearing" Account. Then create receipt, remittance and reconciliation for this invoice as usual. The final accounting entry will be
Cash - Dr - 3000
To Proceeds of Sale Clearing - 3000

Step2: Retire the Asset and create accounting entries.
The accounting entries will be
Accumulated Depreciation - Dr - 7000
Net Book Value Retired - Dr - 3000
Proceeds of Clearing - Dr - 3000
To Asset Cost - 10000
To Sale Revenue (Proceeds of Sale Gain) - 3000

2. Total Asset Cost is 10000 USD. Accumulated Depreciation is 7000 USD. Asset is sold for 4000 USD (Sale value > NBV).

Step1: We need to first create an AR invoice for the Asset sale. The final accounting entry will be
Cash - Dr - 4000
To Proceeds of Sale Clearing - 4000

Step2: Retire the Asset and create accounting entries.
The accounting entries will be
Accumulated Depreciation - Dr - 7000
Net Book Value Retired - Dr - 3000
Proceeds of Clearing - Dr - 4000
To Asset Cost - 10000
To Sale Revenue (Proceeds of Sale Gain) - 4000

3. Total Asset Cost is 10000 USD. Accumulated Depreciation is 7000 USD. Asset is sold for 2000 USD (Sale value < NBV).

Step1: We need to first create an AR invoice for the Asset sale. The final accounting entry will be
Cash - Dr - 2000
To Proceeds of Sale Clearing - 2000

Step2: Retire the Asset and create accounting entries.
The accounting entries will be
Accumulated Depreciation - Dr - 7000
Net Book Value Retired - Dr - 3000
Proceeds of Clearing - Dr - 2000
To Asset Cost - 10000
To Sale Revenue (Proceeds of Sale Loss)- 2000

------------------------------------------------------------------
Note1: If there is a balance in proceeds of sale clearing, it means that either invoice is created and retirement is not done or retirement is done but invoice is not created.

Note2: In the above example, I have not considered the cost of removal.

Cheers,
Saravanan
AmanKhan
Posts: 387
Joined: Wed Sep 26, 2007 2:51 am
Location: Pakistan

Post by AmanKhan »

HI Saravanan,

Thanks for your valuable comments on above topic as these are helpful for me and i have better understanding of the Financials setups and details.

I believe, Oracle APPS Implementation consultant should have good understanding of Setups accounts and their accounting effect.

Regards,
AmanKhan
Posts: 387
Joined: Wed Sep 26, 2007 2:51 am
Location: Pakistan

Post by AmanKhan »

If anyone have some good understanding and knowledge of Financials setups accounts then Plz share your comments with all members of the forum !!!
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