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Multi-Period Accounting using SLA

Posted by Thomas Simkiss

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Oct 18, 2011 3:00:01 PM

Multiperiod accounting is a flexible, powerful tool available with Release 12 of the Oracle e-Business Suite which allows users to systematically record accounting entries across multiple periods. This blog entry will focus on real world applications of this functionality, and present the detailed steps required to implement the functionality within Payables and Purchasing.

Subledger Accounting

With Release 12 of the e-Business Suite, Oracle has dramatically changed and improved the way in which accounting is performed and recorded within the Oracle Applications. Gone is the Set of Books (SOB) with the traditional three Cs (currency, calendar, and chart of accounts) which had been the backbone of Oracle since inception; it has been replaced with Ledger and Ledger Sets and the four Cs (same as the three Cs with the inclusion of Accounting Convention).

The introduction of ledgers and the notion of accounting convention allows users to control the creation and recording of accounting transactions across different currencies, or calendars, or chart of accounts, or even accounting conventions (US GAAP vs. IFRS). The mechanism to effectuate this control is Subledger Accounting. With Oracle Subledger Accounting, users can define how journal entries are created at the subledger level. This allows user to define multiple accounting representations for the same transaction, across different ledgers and one of the different Cs. Thus for one transaction you could have one accounting presentation in a primary ledger (a primary ledger is the main transactional ledger for your functional currency and primary accounting method) and a different presentation in another, secondary ledger.

Components of Subledger Accounting

The primary component of the SLA is the Accounting Methods Builder (AMB), which consists of a set of tools for use in defining or modifying components of SLA.

The AMB consists primarily of the following components[1]:

Journal Line Types – Method of recording the accounting for particular subledger events. Among other things journal lines types may be used to determine whether an amount is a debit or a credit, affects actual, budget, or encumbrance balances, or how a transaction will post in the GL. Journal lines types are associated with accounting event classes such as an invoice or a payment.

Journal Line Description – Used to derive a description for the type of transaction generated and recorded in the subledger. Users may utilize various sources such as segments of the chart of accounts, the application owner, or transaction components to define a journal description. E.g. (Company Value, Check number, Supplier Name may all be used to create a journal description.

Mapping Sets – Tool used to associate an output value (either a constant or derived from another source) with a particular value in the accounting Flexfield.

Account Derivation Rules – Used to determine the Accounting Flexfields for subledger journal entries. In addition, specify the conditions under which these rules apply. Using these capabilities, develop complex rules for defining accounts under different circumstances to meet their specific requirements.

Journal Line Definitions – Used to create line assignments for an event class or an event type. The line definitions may then be shared across multiple accounting definitions.

Multiperiod Accounting – Enables users to create accounting for a single accounting event, across multiple accounting periods.

Application Accounting Definition – Use application accounting definitions to assign journal lines definitions and header descriptions to event classes and event types. E.g. for the subledger Payables, an accounting definition of ACCRUAL, is associated with the Event Class of Credit Memos or Invoices. Those event classes are associated with journal line definitions, which determine how the accounting for a specific event is created.

Subledger Accounting Method – Grouping of application accounting definitions for multiple subledgers used to comply with a particular set of accounting standards. E.g. A subledger accounting method entitled French GAAP can be defined to group application accounting definitions that are accounted for using French GAAP criteria. As another example, a Cash Basis Accounting Method can be defined to group application accounting definitions that are used to account for transactions on a cash basis. (Melanie Featherstone, 2006)

Subledger Accounting Configuration

In order to facilitate the management reporting as described above it is necessary to utilize Oracle Subledger Accounting, Secondary Ledgers and Multiperiod Accounting.

Secondary Ledger

The secondary ledger is an optional, additional ledger that is associated with the primary ledger for an accounting setup. Secondary ledgers can be used to represent your primary ledger's accounting data in another accounting representation that differs in one or more of the following from the primary ledger:

  • Chart of accounts
  • Accounting calendar/period type combination
  • Currency
  • Subledger accounting method
  • Ledger processing options[2]

There are four different conversion levels for data when transferring to secondary ledgers:

  • Subledger
  • Journal
  • Balance
  • Adjustments Only

In order to achieve the management reporting referenced above it will be necessary to convert at the subledger level as this is what will allow the spread to occur across multiple periods. As stated previously, the goal is to report on transactional data on a weekly basis, so while our secondary ledger can share the same currency and chart of accounts, it will be necessary to have a different calendar and accounting convention.[3] Steps to create the accounting convention are below, the seeded Weekly Calendar type will be used for the accounting Calendar. This configuration will then have multiple accounting periods in the secondary ledger mapping to one accounting period in the primary ledger. Journal entries spread in the management ledger will still fall into a single accounting period as per the primary ledger. Note: You cannot modify seeded Oracle Accounting Definitions so all changes must be made to new accounting methods or copies of existing accounting methods. When defining the secondary ledger initially, you can select the Standard Accrual Accounting Convention, and then update to the new one created for management reporting as required.

Accounting Setup Manager (from General Ledger Super User: Setup à Financials à Accounting Setup Manager à Accounting Setups)

New Accounting Convention

  1. a. Copy existing accounting convention[4]

Cost Management – SLA à SLA à Accounting Setup à Accounting Methods Builder

Query Method Code: STANDARD_ACCRUAL. Click Copy on the Subleger Accounting Method form, enter the required information on the Copy form and click Done.

  1. b. Copy existing Applications

Select the application or applications which you intend to extend and click Application Accounting Definition.

Note: If you will be required to specify different accounts, or utilize the advanced account generation features of SLA, you should specify the Transaction and Accounting Charts of Accounts.

  1. c. Repeat as required for additional Applications

Associate the new Application Accounting Definition you have just created with the appropriate Application. By default, the standard application definition will be associated with the default Oracle owned definition until it is updated by the user.

  1. d. Click Application Accounting Definition, select the Event Class or Classes to Modify, Select Journal Line Definition

In order to spread PO expense receipts and AP invoices across multiple accounting periods in the management ledger the following Accounting Events were selected and modified:

Application Event Class
Cost Management Delivery to Expense Destination
Payables Invoices
Debit Memos
Credit Memos

The Accounting Events may only be copied / modified from within the owning application, i.e. Cost Management may only be modified from Cost Management – SLA, Payables may only be modified from Payables Manager.

  1. e. Copy the definition

The next step is to determine the line type or types which must be modified to achieve the desired result. It has been decided that for management reporting, it would be meaningful to spread the cost of PO Expense receipts and certain AP Invoice transactions over multiple accounting periods in the management ledger. For the flash or management reporting described above, we are only focused on items which effect the profit and loss statement or revenue and expense items. This is why only PO Expense receipts are spread across periods and not receipts for inventory items.

For Delivery to Expense Destination there are two Journal line types, one for the charge account and one for the receiving inspection account. Whether an item passes inspection or not, the charge should not remain in that account for very long thus, there is no need to spread that charge across periods. Thus, the only line type which has to be spread for expense purchase receipts is the Charge Line Type.

For Payables the invoice, credit memo and debit memo event classes each have numerous journal line types below each. If you are only trying to modify the invoice distribution, as we are in this example, then the only Journal Line Type which need be updated in “Item Expense”.

  1. f. Select the Line Type or Type to modify and select copy

The first line type you create should have the name ‘Accrual’ indicated some place. This line type will be used to create the initial journal to an accrual account to be defined below. Update the Muliperiod Flag to ‘Accrual’ and leave all other fields as they were copied.

Repeat Step f, however this time in the Line Type Code, Name and Description, the name Recognition should appear. Once copied, click the conditions button and remove all conditions for this journal line type, set the Multiperiod Flag to Recognition and save.

Repeat the above steps for each application and journal line type for which you want to recognize distributions across multiple periods.

  1. g. Assign the Accrual Line type created above to the journal line definition, and disable the default line type

The requirement is to have the initial journal entry debit some type of accrual account on the balance sheet, have multiperiod accounting run and debit the correct charge account as entered on the purchase order or payables invoice. In order to accomplish this, we will need to create an Account Derivation Rule to over ride the natural account entered on the po or invoice with a derived or hard coded account for use as an accrual account.

  1. h. Account Derivation Rule

Click on the Account Derivation Rule button and once the form opens arrow down to a new record. Create a rule for the natural account segment of your chart of accounts that defaults to an accrual account.

  • In order for the Segment that is specific to your chart of accounts to be available the Accounting chart of accounts must be specified in this step.
    • If you have cross validation rules which require that a balance sheet account not be charged to a cost center, you will also have to create a Derivation Rule to default in a separate cost center.

Once Multiperiod Accounting is setup for Cost Management to be used on the PO Receipts, we will have to return to this rule to add a condition such that this account derivation rule will only be called when the Deferred Accounting Option (multiperiod flag) is set to yes. This step can only be performed after step b under multiperiod accounting is completed.

Repeat this step as needed for other Applications and Business Events for which you wish to use multiperiod accounting.

  1. i. Assign the Derivation Rule to the Journal Line Defintion

On the VIS12 Mgt Delivery to Exp Destination Journal Line definition, it is now required to assign the Journal Line type VIS12 Mgt Charge – Accrual. To that line type we must assign the account derivation rule VIS12 Mgt Natural Account for the natural account segment of our chart of accounts. The combination of these three elements will tell cost management to charge a PO receipt to the accrual account XXXXX when the deferred accounting option is set to yes. This step will have to be repeated for all other applications and business events for which you need to use multiperiod accounting.

For additional steps and configurations see R12 Multiperiod Accounting: A Users Guide

By: Thomas J. Simkiss, Jr., JD, CPA, Collaborate 10

[1] Definitions come from the Subledger Accounting implementation guide

[2] Oracle General Ledger Implementation Guide, pg. 1-111

[3] Steps to create a new accounting convention are listed in the Oracle Subledger Implementation Guide or they may also be found in Introduction to the Subledger Accounting Engine on Oracle R12 by Thomas Simkiss, Collaborate 08.

[4]The Responsibility Cost Management – SLA and Payables Manager will be used for all steps herein

Topics: E-Business Suite, Oracle Application Services