Saturday, September 26, 2015

Oracle Applications Financial Concepts

Introduction:
Every Responsibility in Oracle Applications are tagged to an Operating Unit (“MO:Operating Unit” profile value). By this concerned and specific transactions only can be accessed from those responsibilities, like Customer Sites, Supplier Sites, Bank Accounts, AR & AP Invoices, Inventory Material Transactions (Transactions of all the Subinventories of that Operating Unit), Purchase Orders, Sales Orders etc. But Period Statuses are at Set of Books Level, whereas Inventory Period Statuses are at Inventory Warehouse Level.

Only GL Responsibilities are at Legal Entity level not at OU level (“GL:Sets of Books Name” profile value). That means, from a GL Responsibility we can to drill-down to sub-ledger transactions of different OU’s under the same legal entity.

Value Sets, Independent Value Set Values, Customer Header, Supplier Header, Banks (not Bank Accounts) can be accessed from all operating units (means from every Responsibility).

Important Accounts:
·         Customer Balance (Receivables Account): Receivables Account signifies the Customer Account Balance, i.e. at any point of time Customer Balance can be known by summing the total amount against receivables Account.  
§  Customer Balance = Invoices+DM+Adj–CM-Receipts–Adj. (will be in Dr)
§  Query for all the Invoices, DM, CM & Receipts, against that Customer in the AR Invoices Screen & AR Receipts sum the amount against Receivables Account gives you the Customer Balance as on that date.
§  Note: Customers Name (customer Header) can be accessed across all the Operating Units. Where as Customer Site are OU specific can be accessed from any Responsibilities tagged to that Operating Unit only. (“MO:Operating Unit” profile value)

·         Supplier Balance (Liability Account): Liability Account signifies the Supplier Account Balance, i.e. at any point of time Supplier Balance can be known by summing the total amount against Liability Account.
§  Supplier Balance = Invoices-DM-CM-Payments (will be in Cr)
§  Query for all the Invoices, DM, CM & Payments, against that Supplier in the AP Invoices Screen & AP Payments sum the amount against Liability Account gives you the Supplier Balance as on that date.
§  Note: Suppliers Name (Supplier Header) can be accessed across all the Operating Units. Where as Supplier Site are OU specific can be accessed from any Responsibilities tagged to that Operating Unit only. (“MO:Operating Unit” profile value)

·         Bank Account Balance (Cash or Bank Account): Cash or Bank Account signifies the Bank Account, i.e. at any point of time Bank Account balance can be known by summing the total amount against Cash or Bank Account.
§  Bank A/C Balance = Opening Balance + Receipts – Payments. (Will be in Dr)
§  Query for all the Payments & Receipts against that Bank Account in the AP Payments Screen & AR Receipts Screen gives you the Bank Account Balance as on that date.
§  Note: Bank Name (Bank Header) can be accessed across all the Operating Units. Where as Bank Accounts are OU specific can be accessed from any Responsibilities tagged to that Operating Unit only. (“MO:Operating Unit” profile value)

·         On-Hand Quantity: Query for all the Material Transactions for an item against that Ware House in Inventory -> Material Transactions Screen. Sum the ±Transaction Quantity gives you the On-Hand Quantity as on that date of that Item in that Ware House.
§  On-Hand Qty = Opening Balance+Material In (Receipts)–Material Out (Issues)
§  On-Hand Value = (ON-Hand Qty * Item Price)

·         Inventory Value (Material Account): Whenever we are defining Inventory (Inventory->Setup->Subinventories), we will give the sub-Inventory Material Account this signifies that Sub-Inventory Valuation. When a Material Transaction has been done against a warehouse 1. It increases or decreases the Inventory On-Hand Qty. 2. Financial Transactions will be done against that Warehouse i.e. ±Amount (Qty*price) value against Material Account of that warehouse.

Important Transactions:
·         Revenue Account: When ever an Item or Service provided to external customer or Internal Customer (i.e. An Organization within Legal Entity or outside Legal Entity of a same company) Revenue will be recognized. (Source -> AR Invoices Screen)
§  Revenue Recognized due to a Customer for a particular period can be found out by Querying for Invoices and Credit Memo’s against that Customer in AR Invoices Screen. And the Revenue Recognized will be sum of amount against Revenue Account.
§  Revenue Recognized due a specific Item in a particular period can be found by totaling amount of all the transactions against a Sales Account defined for that Item. (Items Definition Screen -> Invoicing Tab -> Sales Account).

·         Expenditure Account: When ever an Item or Service has been received from External or Internal Supplier then the Expenditure will be recognized. (Source -> AP Invoices Screen (for Service Invoice), PO Receipts Screen (for Expense PO) etc).
§  In the Item Definition Screen we will give the Expense Account, will be useful in determining the Expense incurred due that Item for a particular period.
§  For Expense Item like Stationery Items (Where Inventory valuation and Stock maintenance is not required) the expenditure will be incurred at the PO Receipts Screen (A/C will be Expense Account defined in the Item Definition).

§  For Inventory Item the expenditure will be recognized while shipping of the Item from the Inventory.

§  For Asset Item the Expenditure will be recognized as per the Depreciation defined. 

·         Customer Balance: Customer Balance has been affected when ever a transaction has been against that Customer. Sources -> Service or item given to Customer (AR Invoice), Discount given to Customer (AR CM), Interest has been charged (AR Invoice and the effect will be seen in Earned Discount A/C), Material returned by the Customer (AR CM), Payment received from the Customer (AR Receipt), Advance given by the customer (AR Deposit). Adjustments have been done to the Customer Transactions (AR Adjustment), Customer Advance Refund (AR Debit Memo). Check reversed or bounced (Reversing AR Receipt) etc.

·         Supplier Balance: Supplier Balance has been affected when ever a transaction has been against that supplier. Sources -> Service or items given by the Supplier (AP Invoice), Discount given by the Supplier (AP credit memo), Supplier Balance has to be reduced for charging more (AP Debit memo as we intimate the Supplier), Payment to the Supplier (AP Payment), Advance given to the Supplier (AP Prepayment), check bounced (Voiding AP Payment) etc.

·         Bank Account Balance: Bank Account Balance will be affected when ever a transaction has been done against Bank Account. Sources -> Money Deposited into Bank A/C (Inter Bank Transfer from Cash to Bank A/C), Money withdrawn from the Bank A/C (Inter Bank Transfer from Bank to Cash A/C), Customer Payment (AR Receipt), Supplier Payment (AP Payment), Reversing AR Receipt, and Voiding AP Payment etc.

§  Note: When Cash Management has been installed, Bank A/C Account will be affected at Cash Management module only, for all the above transactions Cash Clearing A/C will be affected first. (Cash Clearing A/C to Bank or Cash A/C will be done in Cash Management Module with the Clearing Transactions against that Bank account)

§  Inventory On-Hand Qty: Material Transactions In (Receipts) or Out (Issues) done against that Sub-Inventory. Source-> INV:Material Transactions Screen.

Customizations (Scenarios):
  1. Inter Bank Transfer:
Sources-> Money withdrawn from a Bank, Money Deposited in the Bank, Funds transferred between Banks.
Being Money is also a Bank. In this scenario there is an impact both Bank Account Balances.

·         Solution1: Using GL Journal Entry.
                                                                                    Dr                       Cr
Bank A A/C (Receiving Bank)                      1000
Bank B A/C (Giver)                                                                         1000

Disadvantages: If Cash Management also has been used, the Journal entries made in GL won’t reflect in Cash Management Module. Before loading e-statement from the Bank these transactions must be avoided from loading (as these transactions in APPS directly hits Bank A/C not Cash Clearing A/C). Or as is loading of the Bank Statement into Cash Management needs GL Journal entries for Cash Clearing A/C and manual clearing of transactions is required in CM module. There won’t be check number trace in the transaction, as physically Check has been used from the Check Book.

·         Solution2: Using AR Miscellaneous Receipt (Best solution for Cash Deposit scenario)

AR Miscellaneous Receipt: Distribution Entry (Bank A will be chosen in the AR Payment Method LOV)
                                                                                Dr                           Cr
Bank A A/C (Receiving Bank)                 1000
Bank B A/C (Giver)                                                                          1000

Disadvantages: If Cash Management also has been used, the other Bank (not Payment Method Bank i.e. Bank B) in the Distribution won’t reflect in Cash Management Module. Before loading e-statement from the Bank these transactions must be avoided from loading (as these transactions in APPS directly hits Bank A/C not Cash Clearing A/C). Or as is loading of the Bank Statement into Cash Management needs AR Distribution entries for Cash Clearing A/C and manual clearing of transactions is required in CM module. There won’t be check number trace in the transaction, as physically Check has been used from the Check Book.

·         Solution 3: using AP Invoice, AP Payment and AR Miscellaneous Receipt – Best Solution lengthy one.

As this transaction, impacts both the Bank Accounts only. So, while creating AP Invoice there should be Dummy Supplier (whose balance should be nullified immediately).

AP Invoice: Dummy Supplier name will be Receiver’s Bank Name for proper convention
                                                                                 Dr                          Cr
Dummy Reconciliation Account 1000
Liability A/C                                                                                      1000

AP Payment: Advantage is that issued check number trace also will be there.

                                                                                 Dr                          Cr
Liability A/C                                                      1000
Bank B A/C (giver)                                                                           1000

Note: As both the AP Invoice and AP Payment occur at the same time and also created by the same person generally, always makes dummy supplier account balance to zero. Dummy Reconciliation account signifies the not matched inter-bank transactions i.e. the other entry has not been made yet.

AR Miscellaneous Receipt: Bank A will be chosen in the Payment Methods LOV
                                                                                 Dr                          Cr
Bank A A/C (Receiver)                    1000
Dummy Reconciliation A/C                                                         1000
(Distribution entry)

Advantages: The Cash Management module can trace these Bank Account Entries, so clearing of the transactions is not a problem (replace all bank accounts by Cash clearing account). Even Check number tracing will be available from AP & CM modules.

Disadvantages: Manual communication is required for the receiver’s entry, i.e. AR Miscellaneous Receipt. Lengthy Solution, involves creation of 3 entries.

  1. Customer Balance and Supplier Balance Netting
Sources-> If physically same person doing business with the Organization as Supplier as well as Customer.

Requirements: This transaction must impact Customer Account Balance (decreasing by the Supplier balance amount), Supplier Account balance (decreasing by the amount owed to the Supplier).

Supplier A Balance   - 600 Cr (comprises of Invoice 1, Invoice2, Invoice 3)
Customer A Balance – 1000 Dr (comprises of 2 sale Invoices - Inv1, Inv2)

Physically supplier A is same as Customer A.

Transactions:
§  AP Debit or Credit Memo: Supplier A Balance will be reduced by Creating AP Credit or AP Debit memo. (Not by AP Payment, which impacts Bank account Balance also with unnecessary transactions.)

§  AR Credit Memo: Customer A Balance will be reduced by creating AR Credit Memo.

AP Credit Memo: While making any further payments to Supplier A after Netting the Balance we need to consider Invoices & CM, DM’s together.

                                                                                Dr                           Cr
Dummy Reconciliation A/C                         -600
Liability A/C                                                                                      -600


AR Credit Memo: This Created Credit Memo must be applied against open invoices of that customer (to avoid from aging)

                                                                                Dr                           Cr
Receivables A/C                                               -600
Dummy Reconciliation A/C                                                         -600

In Case of Supplier A Balance is more (i.e. the organization needs to pay that Supplier), the transaction amount of Credit Memo’s will be Customer A Balance (Which will be nullified after netting).

Note: Standard facility AP-AR Netting can be used for this scenario. (The System creates both AR Credit Memo & AP Credit Memo automatically).


3. Customer Payments or refunding money to Customer:

Sources -> Customer paid more by mistake (i.e. Invoice Amount 1000, Receipt Amount 1500).

Transactions:
Here Customer Balance is in Negative (i.e. Net Receivables A/C is in -ve)
§  AR Debit Memo (Here Revenue should not be realized in this scenario), to nullify the Customer Balance.
§  AP Invoice created against Supplier, who represents physically the same person i.e. customer. (By this the nullified Customer Balance is carried to AP Invoice i.e. Supplier Balance which will be nullified by the AP Payment that means refunding money to the Customer)
§  AP Payment: Making payment for the above AP Invoice (Advantage is that Check number tracing, and the payment info will be reflected in the Cash Management)

Note: Similar to the reverse of AP-AR Netting process.

§  AR Debit Memo: Against Customer A. Create a separate Transaction type for this process for better tracking.
                                                                                Dr                           Cr
Receivables A/C                                               500
Dummy Reconciliation A/C                                                         500

§  AP Invoice: Against Supplier A.
                                                                                Dr                           Cr
Dummy Reconciliation A/C                         500
Liability A/C                                                                                      500
§  AP Payment: Against Supplier A
                                                                                Dr                           Cr
Liability A/C                                                      500
Cash or Bank A/C                                                                            500

Disadvantages: There is no standard process available in the Oracle. Manual intervention is more (i.e. requires human presence) between Receivables and Payables Department. Process is lengthy.

  1. Holding Security Deposit amount from supplier Payments: (Heritage Customization)
In Heritage, before making payments to the Suppliers for the supply of Milk the company does Partial Payments only by holding some amount of money for Security Deposit. The amount, which has been hold, must be in the separate Liability Amount.

  • Transactions:  (The Expense incurred must not be effected with this customization)
§  AP Invoice: The total original amount which to be paid to the Supplier.
§  AP Credit Memo: To reduce total amount to be paid.
§  AP Invoice: The Invoice Which holds the remaining amount for Security Deposit.

AP Invoice: Total Amount to be paid to Supplier A is 1500. In that 300 will be hold for Security Deposit.
                                                                                Dr                           Cr
Expense A/C                                                      1500
Liability A/C                                                                                      1500

AP Credit Memo: While making Payment to the above invoice we need to consider this Credit memo also. Which reduces the total amount to be paid. Thus holding Security Deposit amount.
                                                                                Dr                           Cr
Dummy reconciliation A/C                          -300
Liability A/C                                                                                      -300

AP Invoice: Represents the invoice for Security Deposit. The Organization will pay for this invoice when they want to refund the Security Deposit amount to Suppliers.
                                                                                Dr                           Cr
Dummy reconciliation A/C                          300
Sec-Deposit Liability A/C                                                              300

With the last transaction holding Sec-Deposit amount into another Liability A/C can be achieved.


Disadvantages: There is no Standard Process available from Oracle. Customized Process is required for creating AP Credit Memo & AP Invoice (Security Deposit Invoice). 

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