Flow of Accounting Entries in Oracle Applications

Introduction: The Opening Balance of Assets and Liabilities except the Receivables, Payables and Inventory will be loaded through a Journal in any Implementation. The Payables balances will be created from Accounts Payable and Receivables will be created from Accounts Receivables and Inventory will be created from Inventory module using cycle counting adjustment entries.

The Vision Instance will have certain transactions already created and those transactions will have the period end balances as Opening balance. Hence for this exercise ignore the Period beginning balance and period closing balance and ensure the Period do not contain any transactions.

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Oracle General Ledger

Others/ Requests

Parameter: Balancing Segment: Company

Period: Nov-07

Currency: USD

    

This clearly shows there are no transactions created for the period Nov-07

 

1. Creation of Item, Item Costs and Bill of Material (BOM)

I have explained in my Procure to Pay - Order to Cash - End to End Cycle Functional Documents in detailed steps on How to create an item, Item costs and Bill of Material in detail. So please replicate the same steps to get the cost of an Item

The Cost of the Item is as follows after we define the Item, Item costs, Resources, Departments, Routings and Bill of Material

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Manufacturing Vision Operations

Choose Inventory Organization as M1 Seattle Manufacturing

Bill of Materials / Bill of Material

Query for Item Caramilk

Click on Tools Click on Roll up costs

Choose Cost type as Pending and Run the Report

View the concurrent Request when it is completed Normal

2. Loading of Opening Balances

The Opening Balances will be loaded through Journal as on 31-Oct-2007 as per the Balance sheet provided in the case study. The Asset and Liability balances are entered as it is and only for Receivables and Payables it is entered in Sub ledgers and transferred to GL and cleared the Clearing account instead of using Revenue and Expenses Account

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General Ledger Super User

Journals / Enter

The Accounts Payables (Account code 2210) and Accounts Receivables (Account code 1210) have not been entered instead the Accounts Payables clearing Account (Account code 2220) and Accounts Receivables clearing Account (Account code 1247) to which the balances are created which will be knocked off by the entries created from the Sub Ledgers which will reflect the Open Invoices for Aging Purposes.

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Payables Vision operations

Invoices / Entry / Invoices

Create Invoices as per your individual supplier details and choose the GL Date in Distribution Lines as 1-Nov-2007 which is the Opening Balances Date and choose the distribution Line account as Accounts Payable Clearing Account.

 

Now post the above Transactions to General Ledger

This will create unposted Journal Entry as follows

Accounts Payables clearing A/c Dr 50000

Accounts Payables A/c                         Cr 50000

 

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Receivables, Vision Operations

Transactions

Create Invoices equivalent to your open balances with various dates and create a Transaction type of open Balances and attach in the revenue account Accounts Receivables Clearing Account (Account code 1247) and create an Invoice and save the Transaction and post the transactions to General Ledger

This will create following accounting entry

Accounts Receivables (1210) A/c                       Dr 20000

Accounts Receivables clearing (1247) A/c           Cr 20000

The objective of doing this is to create Aging Reports in Receivables and Payables Module.

Run the Concurrent Program in Receivables

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Receivables, Vision Operations

Interfaces / General Ledger

View the accounting Entries in General Ledger

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General Ledger, Vision Operations

Journals/ Enter / Journals

 

Review the Journals

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General Ledger, Vision Operations

Journals/ Enter / Journals

Query for Status Unposted and period Nov-07

Post these Journals which completes the Opening Balances are ready

Note: This way we can load the opening Balances of Receivables and Payables. I have not covered Loading the opening Balances of Inventory which can be done using Miscellaneous Transactions or using Cycle counting adjustments.

 

Let us review the Trial Balance to view the opening balances of the Transactions created

Let us View the Aging Reports in Payables and Receivables

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Payables, Vision Operations

Others/ Requests / Run

Single Request

Choose Invoice Aging Report

Aging Report in Receivables

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Receivables, Vision Operations

Reports / collections

Aging Report 4 Bucket

Let us run the Balance sheet and ensure that the Opening Balances are correct

Note:  As I mentioned before, please consider only the Period Balances for this case study and ignore the YTD balance which are Vision Operations Entry Balances

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General ledger, Vision Operations

Reports / Financial

Company Balance sheet

3. Transactions Creation

Let us execute the Transactions one by one as mentioned in the case study and view their Accounting Impact

1)

a) Purchased Inventory as follows

i)      Milk 500 Ltrs @ 12USD per Ltr – 6000 USD

ii)     Sugar 500 Kgs @ 10USD per Kg – 5000 USD

iii)    Cocoa 500 Kgs @ 25 USD per Kg – 12500 USD

We will create a PO for the above through supplier Nestle Ltd.

Important Note:  There is No actual accounting Entry Generated, when you create a Purchase Requisition (PR) or Purchase Order (PO). If you have enabled budgetary control in GL Set of books and Encumbrance Accounting in Financial Options, then Encumbrance entries are created in Purchasing Module. Encumbrance is not covered in this Exercise.

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Purchasing, Vision Operations

Purchase orders / Purchase orders

The PO 4420 is created with Status incomplete and we need to get this approved by clicking Approve Button

Note: The Standard cost of Milk is 10 USD per Ltr and I have created PO with the rate of USD 12 to get the Purchase price variance account getting created. We will check when we receive the Inventory Account at the time of inventory receipt.

 

Create Receipts for the Inventory Items

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Purchasing Vision Operations

Receiving / Receipts

Choose Inventory Org M1

Enter Purchase Order field 4420

Click on Find Button

Select the check box for the inventory Received and enter the Sub inventory as Stores and Save the Record. Receipt 9610 is created.

To view the Accounting Distribution Lines created go to

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Purchasing Vision Operations

Receiving / Receiving Transactions Summary

Enter Receipt Number as 9610 and click on Find Button

Click on Transactions Button

Receipt Transactions Summary form Opens. Click on Tools / View Accounting to view the Accounting Entries created

Important Note:  The Destination Type is showing as receiving for the first line Receive transaction type and Second Line Destination Type is showing as Inventory for deliver transaction type. The Functionality of this is as follows. The First line is created when you receive inventory in main Inventory Organization and when you do enter Receiving Transactions; it will change it from Main Inventory Organization to Sub Inventory. It depends on the Receipt Routing what you enter in PO Receiving control form. When You set it as Direct delivery both lines will get created simultaneously and  when you set it as Standard Receipt, then the first line will get created when you enter Receipt and second line will get created when you do Receiving transaction and choose the Sub inventory.

The Significance of this from Accounting Perspective is the destination type of receiving (i.e.) First line only you can view the accounting in Purchasing Module. The Second line where the Destination type is Inventory, you can view only in Inventory Module. If you Keep the Cursor in second line and click on Tools, the View Accounting is disabled.

This has created following Accounting Entry in Purchasing Module

Material Inspection Account Dr

Inventory AP Accruals Account Cr

To view the Inventory Module Accounting Entries 

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Inventory Vision Operations

Transactions / Material Transactions

Give Date Range to find Transactions and choose the Milk distribution Line

It has created following accounting entries

Inventory A/c                             Dr 5000

Purchase Price variance A/c       Dr 1000

Material Inspection A/c              Cr 6000

You Can View the Accounting Entries for Sugar and Cocoa also for which No Purchase Price Variance created because there is no difference between Standard Cost and the PO price

4. Material Returned to Supplier

Returned Materials to Supplier is 50 Ltrs of Milk

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Purchasing, Vision Operations

Receiving / Returns

Enter 50 Ltrs against the Receipt Number and Save the Transactions

To view the Accounting Distribution Lines in Purchasing created go to

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Purchasing Vision Operations

Receiving / Receiving Transactions Summary

Enter Receipt Number as 9610 and click on Find Button

To view the Inventory Module Accounting Entries 

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Inventory Vision Operations

Transactions / Material Transactions

Give Date Range to find Transactions and choose the Milk distribution Line

5. Create Supplier Invoice and Make payment to Supplier

Made Payment to Suppliers for Milk and Sugar

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Payables, Vision Operations

Invoices / Enter / Invoices

An Invoice Received from Cadbury for 10900 USD. Create an Invoice for 10900 USD and match to PO 4420

Click on Match Button and Choose the PO and enter the Quantities as per the Invoice

Click on Match Button Now

 

You will get the following lines in the distribution Lines of invoice

Click on Actions Button and Validate and then run the Create Accounting Button.

You can see that system has created an Invoice Price Variance for USD 500

 

Now we need to make payment for the Invoice

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Payables, Vision Operations

Invoices / Enter / Invoices

Query the Invoice Number 1561

Click on Actions Button and check the pay in Full check Box

Click on OK button

The Payment Form opens and chooses the document number, it reserves the Document and click on Actions Button and enable the check box, Format, Print and Create Accounting. You will get the following screen

Click on Tools / View Accounting Screen to view the Accounting Entries generated

Log on to Cash management Module and Create a Bank Statement for this amount and Clear the Transaction

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Cash Management, Vision Operations

Bank statements / Manual Clearing / Clear transactions

Choose the Transaction and click on clear transactions button. You will find the transaction is vanished which means it is cleared.

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Payables, Vision Operations

Payments / Entry / Payments

Query for the payment Number 2473

You will find Accounted Status changed to partial

Click on Actions Button and Enable create Accounting check box and click on OK button

Click on Tools / View Accounting to view the Accounting Entries Created

This Completes the Procure to Pay cycle Accounting Transactions. We will proceed for Manufacturing Transactions.

6. Create Discrete Job for Coffeebite, Caramilk and Lactoking

During the month 7 kgs of Caramilk, 12 Kgs of Coffee Bite and 6 Kgs of Lackto King Chocolates the Discrete job is created

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Manufacturing, Vision Operations

WIP / Discrete / Discrete Jobs

Create a New Discrete Job for each of the Product as mentioned above and change the status from Unreleased to Released

For detailed steps of creating Discrete Job Refer my Previous Document “Procure to pay and Manufacturing Cycle”

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Manufacturing, Vision Operations

WIP / Move Transactions / Move Transactions

Enter the Job order 90003 and in Quantity column enter the Completed Quantity as 10 and save the transaction.

Again enter the same Job Order 90003 and move the Balance Two Kgs as Rejected item to view the accounting Impact on Rejected Transactions

Go back to Following Navigation Path and Search for Job order 90003

Navigation Path

Manufacturing, Vision Operations

WIP / Discrete / Discrete Jobs

You will find the Job status as Complete and Completed Quantities as 10. The remaining balance 2 Kgs Reject is Reworkable and the Job is still in released status and the job is not yet closed.

Go back to Following Navigation Path and Search for Job order 90003

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Manufacturing, Vision Operations

WIP / Discrete / WIP Value Summary

 

First we will complete the other two Orders also and Set one of the Job order to Scrap and See how the Scrap Accounting Takes places

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Manufacturing, Vision Operations

WIP / Move Transactions / Move Transactions

For Job Order 90002 we make 5kgs as completed and Balance 2 kgs, we will make it as Scrap and view the accounting Impact

Balance Two Kgs of Caramilk moved to scrap as follows

Job Number 90004 for Lactoking           

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Manufacturing, Vision Operations

WIP / Move Transactions / Move Transactions

Next we need to close the Job Orders for the Variances to get relieved

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Manufacturing, Vision Operations

Discrete / Close Discrete jobs/ Discrete Jobs Forms

Enter Job order ranges 90002 and 90004

Status changed to closed

Let us view the WIP Valuation Summary for the Scrap and Rejection Accounting variances

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Manufacturing, Vision Operations

WIP / Discrete / WIP Value Summary

Job Order 90002 Where as Scrap Account accounting Distributions        

Job Order Number 90003 WIP Value Summary showing cost of 1000 USD for the Rejected goods not yet reprocessed

Job Order 90004 for the Lactoking which is completed in full

7. Create Sales Order, Book the Order, release and Ship confirm the Goods

Sales Made during the Month is 5 Kgs of caramilk and, 10 Kgs of Coffee Bite and 4 Kgs of Lacto King

Important Note: Order management does not generate any accounting entries and when we do ship confirm Goods Inventory Module Generates the Accounting entries

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Order management Super user, Vision Operations

Orders, Returns / Sales Orders

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Order management Super user, Vision Operations

Orders, Returns / Sales Orders

Book the Sales Order number 56700

Next step is to Release the sales Order 56700

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Order management Super user, Vision Operations

Shipping / Release Sales Orders / Release Sales Orders

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Order management Super user, Vision Operations

Shipping / Transactions

Query sales Order 56700

Ship confirm the Goods

Order Line status changed to Shipped

Let us check the Cost of Goods Sold Entries created for this Transaction. View the Quantity details in Inventory Module under Material Transactions Form

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Inventory, Vision Operations

Choose Inventory Org M1

Material distributions

Enter Source Type as sales Order and Order Number as 56700

Run the WF Background Process to generate Invoice in Receivables

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Order Management Super User (Vision Operations)

View / Requests/ Single Request

WF Background Process

Log on to Receivables and run the Auto invoice Process to generate Invoice for the same

Receivables, Vision Operations

Transactions / Transactions

Query in Reference column with SO number 56700

Let us view the Distribution Entries

8. Payment received from Customers only for Coffeebite

Log on to Receivables Vision Operations

Receipts / Receipts

Click on Apply button and choose Invoice Number 10020678 and apply to line number 3

Go Back to Header to view the Accounting Entries

9. Out of the Items sold 1 kg of Caramilk was spoiled for which the Customer has sent back the material

Log on to Order Management Super user, Vision Operations

Orders / Returns

Sales orders

Create a Sales Order with Negative Quantity of 1 for Item caramilk

Book the Order

Now we need to Receive Inventory as it is an RMA (Return Material Authorization order)

Log on to Purchasing, Vision Operations

Receiving/ Receipts

Choose Inventory Org M1 Seattle Manufacturing

Go to Customer Tab and Enter RMA number 56701

Click on Find Button

Receipt 9611 created.

Log on to Inventory Module to View the Accounting Entry

Navigation Path

Inventory, Vision Operations

Transactions / Receiving / Material Transactions

Query for Item Caramilk in Sub inventory FG Stores

Click on Distributions

10. One Kg of Lactoking was spoiled in Transit for which Customer need to be issued a Credit note as Material non-returnable

Log on to Receivables Vision Operations

Transactions / Transactions

Complete the Transaction

11. During the month the company paid following expenses

(1)   Packing Material –100 Paid by Cash

(2)   Advertisement – 250 Paid by Bank to Org Marg Company

For Transaction (i) Create a Supplier with the Name Petty cash and Create a Bank Account also with the Name petty cash and in cash Account attach the Petty Cash Account

Navigation Path: Payables, Vision Operations

Invoices / Entry / Invoices

Click on Action and Check the check box Pay in Full

We need to create a Bank Statement and Clear this Payment against Statement to Clear the Transaction

Navigation Path: Cash Management, Vision Operations

Bank Statements / Manual clearing / Clear transactions

On the basis of same steps as above, we need to do the second step of making Payment to Org Marg Company. The Difference between the two is to show How a Petty Cash Payment can be handled in Accounts Payables. The cash Receipt of Petty cash can be seen in Next step

Navigation Path: Payables, Vision Operations

Invoices / Entry / Invoices

12. Company withdrew 1000 USD for Office use

This is a Petty Cash withdrawal which can be handled through Prepayment Invoice

Navigation Path: Payables, Vision Operations

Invoices / Entry / Invoices

Create a Prepayment Invoice for 1000 USD for Petty cash Supplier and make Payment.

13. Interest Income received for the month is 100 USD

Navigation Path: Vision Operations, Receivables

Receipts / Receipts

Create a Miscellaneous Receipt for 100 USD for Interest Income.

14. Bank charges for the month is 5 USD

Navigation Path: Receivables, Vision operations

Receipts / Receipts

Create a Miscellaneous Receipt with the Negative amount of 5 USD. Then system treats the Transaction as payment to Bank. Only for the Type of Miscellaneous Receipt system will allow you to create Negative Entry.

This is another way you can use Petty cash functionality using Miscellaneous Receipts.

15. Provision for Tax to be made 500 USD

Navigation Path: General Ledger, Vision Operations

Journals / Enter

 

16. Employees Travel Expenses Provision to be made 300 USD

Navigation Path: Payables, Vision Operations

Invoices / Entry / Expense Reports

Enter Employee Expense for 300 USD

Import the Expense Report as an Invoice through Concurrent Program

View the Concurrent Request output

Check the Invoice, Validate and Account for the Same

17. Sub Ledger Entries Transfer to General Ledger

We have executed all the Transactions. Now we have to transfer all the Sub ledger Module entries to General Ledger

Modules to be transferred

           

1. Purchasing – It is transferred through a Profile set up called

RCV: Processing Mode: If it is set to Online, it is pushed immediately to GL Interface and we just need to import from GL Interface to GL Journals

Import the Transactions to GL

Navigation Path: General Ledger, Vision Operations

Journals / Import / Run

Choose the Source as Purchasing

View the Concurrent request Output

View the Journals in General Ledger Module in Unposted Status

2. Inventory: Transfer from Inventory Module

Run the Concurrent Process Transfer Transaction to GL

Import the Journals

Navigation Path: General Ledger, Vision Operations

Journals / Import / Run

Choose the Source as Inventory

View the Journals created in unposted status

3. Manufacturing: – No Accounting Entries are generated in this case from Manufacturing Module in this case
4. Order Management: – No Accounting entries are generated from Order management at any point of time. The cost of Good Sold account is debited and Finished Goods Entry is credited in Inventory Module when we do the Ship confirm of Goods in Order management. The Entries are created in Inventory Module and not in Order management Module.
5. Accounts Payables:

Navigation Path: Payables, Vision Operations

View / Requests / Simple Request

Choose Payables to General Ledger Concurrent program

Run the Request it will create unposted Journal Entries in GL as we have set the parameter Submit Journal Import to Yes

View the concurrent Request output

View the Unposted Journals in GL for Purchase Invoices

View the Journals created for Payments

View the Journals created for Reconciliation Entries

6. Accounts Receivables:

Navigation Path: Receivables, Vision Operations

Interfaces / General Ledger

Run General Ledger Transfer Program with the Parameters

This will create Unposted Journals in GL as we set the Journal Import to Yes

View the Journals created in General Ledger for sales Invoices

View the Journals created for Receipts

View the Journals created for Credit Memos

View the Journals created for Miscellaneous Receipts

7. Cash Management: – No Accounting entries are created in Cash Management. The Reconciliation Payment and Receipt entries are created in Payables and Receivables Module

We have to Post these Journals now to update the General Ledger balances

Let us have a complete view of all unposted Journals

18. Posting in General Ledger

We need to post these Journals to update GL Balances

Navigation Path: General Ledger, Vision Operations

View Requests / Single Request

Run the concurrent Program – Automatic Posting and choose the Parameter Post all Journals.

View the Posted Journals

Navigation Path: General Ledger

Journals / Enter / Journals

Query for Period Nov-07 and status as Posted

19. Running of Trial Balance, Profit and Loss Account and Balance Sheet

Running the Trial Balance

Navigation Path: General Ledger, Vision Operations

Run the Income and Expenditure Account and Balance Sheet from FSG

Navigation Path: General Ledger, Vision Operations

Reports / Financial

View the Output of the Income and Expenditure Account or Profit and Loss Account

View the output of the Balance Sheet

Please review the attached Report Documents which clearly depicts the accounting transactions are created and their Impact in GL with the closing Trial Balance.

Conclusion: The above Document will help you to clearly understand the importance of Accounting and how it is being handled in Oracle Applications. I trust this will help the novice user to expert to understand the concept of Accounting pretty well including Oracle Technical Consultants