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Intercompany / Intracompany Accounting in Oracle R12

Posted by Thomas Simkiss

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Aug 22, 2011 3:41:43 PM

If you are using R12 you may have encountered a requirement to setup all your legal entities with intercompany accounting for each. That is, for each legal entity, whether your setup requires that you configure intercompany relationships for each entity you have, or you are able to use the all other setup, it can still be a lot of work to configure.

One of the many benefits of R12 is that the new legal entity structure provides the ability to track intercompany transactions as a very granular level. Per the Oracle Financials Implementation Guide, there are different types of intercompany journals. The Balancing API first determines the type of the intercompany journal (one-to-one, one-to-many, many-to-one, or many-to-many) with respect to the legal
entities. However, for intercompany balancing there is no clearing company usage and all legal entities are balanced by summary net with respect to each other.

Intercompany accounting for transactions performed between separate legal entities that belong to the same corporate enterprise.

Intracompany balancing for journals that involve different groups within the same legal entity,
represented by balancing segment values. A group could be a profit center, manufacturing plant, a warehouse, a cost center, or any other organization that represents a subset of a legal entity. Often, these transactions pass through a clearing organization, which is also represented by a balancing segment value.

In 11i, it was possible to use a clearing account or company, whereby a company can use a single account or company to own all its intercompany (or intracompany in R12 parlance) transactions.

This situation can look like this:

Parent Company is a holding company represented by value 1000. Parent Company pays the invoices on behalf of its subsidiaries, Child 1001 and Child 1005. Rather than have transactions flow across legal entities, Parent company wants all due to and due from to flow through it.

So, when an invoice is entered and paid for Child 1001, the journal entry would be this:

1001.Expense.0000 100
1000.A/P.0000 100
1000.I/C.1000 100
1001.I/C.1001 100

This is a relatively straightforward configuration which can be achieved via standard intercompany configuration.

However, what if there is a transaction between 1001 and 1005. Standard I/C setup will not allow a clearing account, so the intercompany would be between 1001 and 1005.

If you configure Legal Entity Parent Company, and assign value 1000 to it, and then assign the balancing segments for 1001 and 1005 to the Legal Entity Parent, you can achieve the desired result.

Using Intracompany accounting, for a source of Other, category of Other, allows you to configure all intracompany transactions to use the default clearing company of 1000.

The journal entry for a transaction between 1001 and 1005 would then look like this:
1001.Expense.0000 100
1005.Expense.0000 100
1005.I/C.1000 100
1001.I/C.1000 100

The journal above represents transactions run through the 1000 parent as per the requirements.

NOTE: If you are required to configure the 1001 or 1005 Legal entity for reporting purposes or bank ownership, this method will not work.

Topics: E-Business Suite, Oracle Application Services