**Accounts & Accruals Overview**
1. Inventory and Expense Accruals
Inventory Accruals: Inventory and Purchasing provide you with visibility and control of your accrued liabilities for inventory items. Purchasing automatically records the accrued liability for your inventory items at the time of receipt as perpetual accruals.
Expense Period-End Accruals:Purchasing optionally accrues uninvoiced receipts of non-inventory items at period end when you run the Receipt Accruals - Period End Process. This program automatically creates a balanced journal entry for each uninvoiced receipt. Purchasing creates a reversing entry for the encumbered amount corresponding to the expense while creating an accrual entry for the receipt in the general ledger if you are using encumbrance at your site.
Expense Perpetual Accruals: Purchasing optionally provides you with the ability to accrue non-inventory liabilities at the time of receipt. If you choose at time of receipt, Purchasing records an accrued liability and charges your receiving inspection account for each non-inventory receipt. Purchasing creates a reversing entry for the encumbered amount at the time you deliver the goods to the final inventory or expense destination.
Document: 429105.1 Impact of R12 Design in Procure To Pay Accounting Flow. Review this document to understand the functional design of the accounting flow, processes and new features of Release 12.
2. Understanding the accounts being used
Expense A/P Accrual Account: This account accumulates the payable accrual for your purchasing installation. This is the account used by Purchasing to accrue your accounts payable liability for expense items.
Navigation: Purchasing responsibility > Setup > Organizations > Purchasing Options
Inventory A/P Accrual Account: It accumulates the inventory accounts payable accrual for this organization. This is the account used by Purchasing to accrue your payable liability when you receive your items.
Receiving account: This account records the current balance of material in receiving and inspection.
Purchase Price Variance Account: This account accumulates the purchase price variance for this organization. The purchase price variance account is usually an expense account. This is the variance that you record at the time you receive an item in inventory, and is the difference between the purchase order cost and an item's standard cost. Purchasing calculates purchase price variance as: PPV = (PO unit price - standard unit cost) X quantity received.
Invoice Price Variance Account: This account accumulates the invoice price variance for this organization. This is usually an expense account. Invoice price variance is the difference between the purchase order price for an inventory item and the actual invoice price multiplied by the quantity invoiced: Invoice Quantity x (Invoice Price - PO Price) x Invoice Exchange Rate.
Exchange Rate Gain or Loss Accounts: This account accumulates exchange rate gains or losses for this organization. These are usually expense accounts. Exchange rate gain or loss accounts are used to record the difference between the exchange rate used for the purchase order and the exchange rate used for the invoice.
Document: 563100.1 Brief Overview of Receipt Accounting. Review this document to understand how each account is debited or credit depending on the type of transaction.
**Process Transactions**
1. Complete All Transactions for Oracle Purchasing
a) Complete Requisitions
b) Complete Purchase Orders and Releases
c) Complete Receipts and Returns
Submit the Confirm Receipts Workflow Select Orders process in Purchasing to send notifications through the Web, email, or Notification Details Web page (accessible through the Notifications Summary menu in Purchasing) to requestors or buyers who create requisitions in Purchasing or iProcurement. The Confirm Receipts workflow sends notifications for items with a Destination or Deliverable To Type of Expense, a Routing of Direct Delivery, and a Need By date that is equal to or later than today's date. Requestors can create receipt transactions by responding to the notification.
2. Review the Current and Future Commitments (Optional)
Run the Purchase Order Commitment by Period Report to show the monetary value of purchased commitments for a specified period, and the next five periods. You can use the report sorted by buyer to monitor buyer performance. You can also use the report when negotiating with a supplier by limiting the commitments to a specific supplier.
3. Review the Outstanding and Overdue Purchase Orders (Optional)
Run the following reports:
a) Purchase Order Detail Report
b) Open Purchase Orders (by Buyer) Report
c) Open Purchase Orders (by Cost Center) Report
These reports can be used to review all, specific standard, or planned purchase orders. The quantity ordered and quantity received is displayed so the status of the purchase orders can be monitored.
4. Follow Up Receipts - Check With Suppliers
For purchase orders not received, the appropriate department can use the details obtained from the Purchase Order Detail Report, to follow up the status of the ordered items with the suppliers. If the goods have been received, but the receipt has not been entered into Oracle Purchasing, the receipt transaction needs to be entered by the appropriate personnel. It is recommended to use the Transaction Status Summary (Purchasing – Receiving – Transaction Status Summary) to locate any receiving transactions which may have not been processed. Actions should be taken to reprocess the transactions.
Attention: Where you have selected to accrue receipts at period end, make sure that all receipts have been entered for a specific period, before creating receipt accruals for that period.
Document: 1610656.1 What are the new ROI enhancements on Transaction Status Summary form ? ( in Release 12.1.3 backported from Release 12.2.2 )
5. Identify and Review Uninvoiced Receipts (Period-End Accruals)
Run the Uninvoiced Receipts Report to review receipts for which the supplier invoice has not been entered in Payables. Receipt accruals can be reviewed by account and by item. This report indicates exactly what has to be accrued, for what amount, and helps in the preparation of accrual entries.6. Follow Up on Outstanding Invoices
For any items identified to have been received but not invoiced, the appropriate department can then follow up with the supplier, using the details from the Un-invoiced Receipts Report. Entering of invoices, matching of unmatched invoices, and resolution of any invoice holds, where possible, should be carried out at this point in the period-end process.
1. Complete the Oracle Payables Period-End Process
Complete the steps to close the Oracle Payables period, which corresponds to the Oracle Purchasing period being closed, to enable the creation of receipts accrual entries. Performing the Oracle Payables Period-End process effectively prevents any further invoices or payments being entered into Oracle Payables for the closed period.
Tip: Review the Payables tab in the Period Close Advisor for more details.
2. Run the Receipt Accruals - Period End Process
This process will create period-end accruals for un-invoiced receipts, for Expense distributions for a specific purchasing period. Each time the process is run, Oracle Purchasing creates a batch in Receiving Subledger for your receipt accruals. It also creates accounting events in SLA. Journal entries are created for the amount of the receipt liabilities, debiting the charge account and crediting the Expense AP Accrual Account.
If you are using encumbrance, Purchasing creates another set of accounting events in SLA in your General Ledger corresponding to the encumbrance reversal entries for the uninvoiced receipts you accrued.
Purchasing never accrues your uninvoiced receipt twice. Each time you create accrual entries for a specific uninvoiced receipt, Purchasing marks this receipt as accrued and ignores it the next time you use the Receipt Accruals - Period-End process provided that the purchasing period is closed. Purchasing creates accrual entries only up to the quantity your supplier did not invoice for your partially invoiced receipts.
3. Run Create Accounting Receiving to create accounting in SLA
Attention: If the purchase order is set to accrue at period end, Create Accounting program will spawn another program 'Subledger Multiperiod Accounting and Accrual Reversal' to create accrual reversal in the next period, when the end date parameter includes the first day of the next month. Otherwise this process needs to be manually run (See Close Period section).
Diagnostic: 1580316.1 R12: SLA Unprocessed/ Invalid Records Analyzer Diagnostic Script for Cost Management.
4. Transfer to General Ledger from SLA
Use Transfer Journal Entries to GL - Cost Management for Process Category Receiving. You can provide the General Ledger batch name while transferring so that you can identify the batch in General Ledger.
5. Post Accrual and Encumbrance Reversal journal entry batches in your General Ledger
Use your General Ledger system to reverse all the receipt accrual and encumbrance reversal batches you created for your period-end accruals.
6. Perform Year End Encumbrance Processing (Optional)
Oracle Financials provides a number of facilities for the processing of outstanding encumbrances as part of year end processing.
The default processing for Oracle Financials at year end is to extinguish any outstanding encumbrances or unused funds when you close the last period of the Financial Year within Oracle General Ledger.
The carry forward process enables managers to carry forward encumbrances for existing transactions (purchases / requisitions), carry forward encumbrances and the encumbered budget, or carry forward the funds available as at the end of the year.
You can also use mass allocations to bring forward part of the funds available or carry forward budgets into the current appropriation budget, or to a separate budget to identify between current year and carry forward amounts if required. Mass budget processing also allows you to combine these budgets.
The steps required to complete year end encumbrance processing in Oracle Purchasing are:
a) Identify Outstanding Encumbrances
Print the Encumbrance Detail Report to review the requisition and purchase order encumbrances, if the encumbrance option for requisitions or purchase orders has been enabled, and requisitions and purchases have entered and approved. Use this report to review the accounts encumbered.
The Encumbrance Detail Report reflects activity from General Ledger, not Purchasing or Oracle Payables. Therefore, use the Encumbrance Detail Report in a way that matches the accounting method:
- Receipt accrual - Generate the Encumbrance Detail Report as needed when the Accrue at Receipt option is used. Upon entering receipt delivery information, an automated process transfers the receipt information to General Ledger using the Journal Import Process.
- Period-end accrual - Generate the Encumbrance Detail Report at period-end. During the period, the encumbrance detail on the report is based on invoice matching information from Payables, not on receiving information. After the Receipt Accruals - Period-End process is run; the Encumbrance Detail Report reflects the true period-end receipt information.
- Cash basis - If cash-basis accounting is used, the encumbrances on the Encumbrance Detail Report remain until payment information from Payables is transferred to General Ledger. When cash-basis accounting is used and the Payables Transfer to General Ledger process is submitted, Payables transfers only accounting information for paid invoices to the General Ledger.
Based on this report you can identify those transactions that you wish to carry forward into the new financial year. Refer below to the steps required to cancel transactions that are not to be carried forward.
b) Perform Mass Cancel in Oracle Purchasing (Optional)
Mass Cancel enables the cancellation of requisitions and purchase orders on the basis of user selected criteria. The Define Mass Cancel window is used to nominate a date range for transactions, as well as Document Type, Supplier Name or Accounting Flexfield Range.
This process will automatically generate a Mass Cancel listing report identifying the following:
- Unable to Cancel Requisitions (reasons provided)
- Unable to Cancel Purchase Orders (reasons provided)
- Partially in Range Documents
- Fully in Range Documents
When this process is run, Oracle Purchasing creates journal entries to zero out the encumbrances associated with the cancelled requisitions and purchase orders.
1. Identify the period-end balances of the following accounts in the General Ledger
a) Purchase Price Variance
b) Invoice Price Variance Account
c) AP Accrual Account
d) Inventory Account
Reconcile the balance of the Purchase Price Variance account using the Purchase Price Variance Report.
Manually remove the Invoice Price Variance amount from the AP Accrual Account using your General Ledger. Identify the Invoice Price Variances amount and Accrued Receipts amount in the AP Accrual Account.
Run the Invoice Price Variance Report for the current period. Identify the invoice price variance for all purchase orders charged to the Inventory AP Accrual Account and compare it with the balance of the Invoice Price Variance account in the General Ledger.
2. Analyze the balance of the AP accrual accounts
At any given time, Uninvoiced Receipts, Over-invoiced Receipts, or Errors (Invoices or inventory transactions charged to this Account by mistake) can account for the balance in the AP accrual account. You need to analyze the balance of the AP accrual accounts, distinguish accrued receipts from invoice price variances, and identify errors.
3. Run the Accrual Reconciliation Load Run program
This program is used to populate the accrual reconciliation table with all the necessary transaction data for you to perform the reconciliation process. The load program can be run for an operating unit incrementally. The program requires the two parameters from date and to date. These two dates represent the transaction dates that are used to fetch the transaction information from the transaction tables. All the affected purchase order (PO) distributions (in the case of AP/PO transactions and individual transactions in the case of miscellaneous transactions) transaction information are loaded into the accrual reconciliation tables.
4. Run the Summary Accrual Reconciliation report
Use this report to identify any differences between your Oracle Purchasing (PO) receipts and Oracle Payables (AP) invoices. This report shows which accounts have balances in them provides a partial breakdown of the balance source. You can see whether related AP and PO transactions and/or miscellaneous AP and Oracle Inventory transactions are contributing to the balance. Furthermore, the report shows the amount of write-offs already performed against the accrual account.
5. Run the AP and PO Accrual Reconciliation Report
This report provides a transactional breakdown of each accrual account with a net balance greater than zero in a summarized or full transaction details version. In summarized mode, for each accrual account, only the distribution information and PO, AP, WO (Write-Off) and Total Balances are displayed. For detailed mode, the individual transaction details for each distribution are also shown. You can also see the age of the distribution on this report. The report is first grouped by accrual account, then by aging bucket and then by purchase order distribution ID. Aging bucket is calculated depending on user specified value of Aging Period Days while submitting the report. Transactions are grouped according to their age into aging buckets. See: AP and PO Accrual Reconciliation Report.
6. Run the Miscellaneous Accrual Reconciliation Report
This report shows all the miscellaneous AP (not matched to PO or PO receipts) and Oracle Inventory transactions hitting accrual accounts. The report is first grouped by accrual account, then by each accrual code that hits the specific accrual account and then by purchase order distribution id.After you have researched the reported accrual balances, you can use the AP and PO Accrual Write-Offs window to indicate which AP and PO transactions you wish to write off and remove from the AP and PO Accrual Reconciliation Report. You can use the Miscellaneous Accrual Write-Offs window to indicate which miscellaneous AP (not matched to PO) and Oracle Inventory transactions you wish to write off and remove from the Miscellaneous Accrual Reconciliation Report.
7. Open the Next Oracle Purchasing Period
Open the next purchasing period in the Control Purchasing Periods window.
1. Close the Purchasing Period
When you close a purchasing period, Purchasing automatically un-marks all the Expense – Period End based receipts you previously accrued to make sure you can accrue these receipts again if they are still uninvoiced in the next period. The process that resets the accrual flag is titled Reset Period End Accruals and it is launched automatically when the period is closed.Run Complete Multiperiod accounting which automatically reverses the accrual entries on the first day of next period. This step is only needed if the end date execution parameter of the Create Accounting program did not include the first day of the next month.