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ORACLE APPLICATIONS WHITE PAPER ACCOUNTING IN R12 ORACLE RECEIVABLES OCT 2011 Author: Mohamed Nazih CPA, PMP, Oracle Financials Consultant [email protected] Version 1.0

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ORACLE APPLICATIONS WHITE PAPER

ACCOUNTING IN R12 ORACLE RECEIVABLES

OCT 2011

Author: Mohamed Nazih

CPA, PMP, Oracle Financials Consultant

[email protected]

Version 1.0

Accounting in Oracle EBS Payables © 2011

Page 2 of 28

Contents

About the Author ................................................................................................... 4

Introduction ........................................................................................................... 4

Purpose .................................................................................................................. 4

Scope ..................................................................................................................... 4

Audience ................................................................................................................ 5

Accounting in R12 Oracle Receivables ................................................................... 6

Determinants - Accounts .............................................................................................................. 6

System Options Accounts ......................................................................................................................................... 7

Transaction Type ....................................................................................................................................................... 8

Customer Bill-To Site ................................................................................................................................................ 9

Remittance Bank ..................................................................................................................................................... 10

Receivables Activities .............................................................................................................................................. 11

Salesperson ............................................................................................................................................................. 11

Standard Line – Inventory Item .............................................................................................................................. 12

Standard Line – Memo Lin ...................................................................................................................................... 12

Determinants - Options .............................................................................................................. 13

AutoAccounting ...................................................................................................................................................... 13

Receivables Journal Entries ........................................................................................................ 14

AR-1 Regular Invoice ............................................................................................................................................... 14

AR-2 Bill in Arrears Invoice...................................................................................................................................... 14

AR-3 Bill in Advance Invoice .................................................................................................................................... 15

AR-4 Debit Memo ................................................................................................................................................... 15

AR-5 Credit Memo .................................................................................................................................................. 16

AR-6 Apply credit memo to invoice, debit memo, or chargeback .......................................................................... 16

AR-7 Apply credit memo to commitment ............................................................................................................... 16

AR-8 On-account credit .......................................................................................................................................... 17

AR-9 Apply On-account credit to invoice ................................................................................................................ 17

AR-10 Adjustment to invoice .................................................................................................................................. 17

AR-11 Deposit ......................................................................................................................................................... 17

AR-12 Invoice applied to Deposit............................................................................................................................ 18

AR-13 Guarantee .................................................................................................................................................... 18

AR-14 Invoice applied to Guarantee ....................................................................................................................... 19

AR-15 Unidentified Receipt .................................................................................................................................... 19

AR-16 Unapplied Receipt ........................................................................................................................................ 20

AR-17 Applied Receipt ............................................................................................................................................ 20

AR-18 On Account Receipt ...................................................................................................................................... 20

AR-19 Receipt with Discount .................................................................................................................................. 21

AR-20 Miscellaneous Receipt ................................................................................................................................. 21

AR-21 Receipt Write-Off ......................................................................................................................................... 21

AR-22 Receipt requiring Remittance ...................................................................................................................... 21

AR-23 Standard Remittance.................................................................................................................................... 22

AR-24 Clearing of Remitted Receipts ...................................................................................................................... 22

AR-25 Factoring Remittance ................................................................................................................................... 22

AR-26 Maturity of Factored Receipts or Eliminating Risk ....................................................................................... 22

AR-27 Clearing Factored Receipts ........................................................................................................................... 22

AR-28 Non-Invoice related Claim ............................................................................................................................ 23

Notes Receivable ........................................................................................................................ 24

NR-01 Note Receivable requiring Remittance ........................................................................................................ 24

NR-02 Standard Remittance ................................................................................................................................... 24

NR-03 Clearing of Remitted Notes Receivable ....................................................................................................... 24

NR-04 Factoring Remittance ................................................................................................................................... 24

NR-05 Maturity of Factored Receipts or Eliminating Risk ....................................................................................... 24

NR-06 Clearing Factored Receipts .......................................................................................................................... 25

Special Accounts ......................................................................................................................... 26

Cross Currency Rounding ........................................................................................................................................ 26

Header Rounding .................................................................................................................................................... 26

AutoInvoice Clearing Account ................................................................................................................................. 27

Information Sources ................................................................................................................... 28

Accounting in R12 Oracle Receivables

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About the Author

Mohamed Nazih is a proficient functional consultant in Oracle e-Business Suite with more than seven years of experience of solutions design, configuration, testing and documentation and three full life cycle implementations.

Prior to Oracle, he worked as a certified accountant and auditor for six years. This experience gave him an advantage to team up with financial staff in many companies in delivering high quality professional services, such as consulting, support, and training.

While not working, Mohamed Nazih takes care of his family. Furthermore, he is a self-learner and avid reader in project management, change management, business intelligence, science, and environment issues.

Mohamed Nazih values an atmosphere of ethics, punctuality, and team-working.

Introduction

Accounting Journal Entries are embedded in every aspect of Oracle Financials Applications. Since they are “Financials”, you must have a good understanding of how these journals are generated and integrated. This understanding affects how you design and implement solution and it is the ground of discussion with customer’s representatives in this sector. They may have little knowledge of Oracle but, mostly, are good accountants.

Purpose

This whitepaper will provide a detailed overview of accounting events, entries, and source. This overview may help designing better chart of accounts and justifying decisions taken to setup system parameters and options

Scope

This whitepaper will cover Oracle R12 Receivables accounting except those of: • Bills Receivable • Credit Cards • Trade Management and Claim Investigation

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Audience

This whitepaper is aimed to super users and functional consultants and implementers as well as applications’ auditors.

Accounting in R12 Oracle Receivables

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Accounting in R12 Oracle Receivables

Determinants - Accounts

Receivables’ Journal Entries are controlled by the definition of: 1. System options 2. Transaction Type 3. Customer Bill-to Site 4. Remittance Bank 5. Receivable Activity 6. Sales Person 7. Standard Line

Account Qualifier System options

Transaction Type

Customer Bill-to Site

Remittance Bank

Receivable Activity

Sales Person

Standard Line

Receivable Asset Revenue Revenue

Freight Revenue Clearing Asset Unbilled receivable Asset Unearned revenue Liability Tax Liability Realized Gain Revenue Realized Losses Expense Unallocated Revenue Revenue Cross Currency Rounding Expense Header Rounding Expense Offset Asset Cash Asset Bank charges Expense Receipts Confirmation Asset Remittance Asset Factoring Asset Short Term Debt Liability Unapplied Receipts Asset

Accounting in R12 Oracle Receivables

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Account Qualifier System options

Transaction Type

Customer Bill-to Site

Remittance Bank

Receivable Activity

Sales Person

Standard Line

Unidentified Receipts Asset On Account Receipts Liability Unearned discount Expense Earned discount Expense Adjustment (write-off) Revenue Bank Error Expense Finance Charges Revenue Refund Liability Misc. Cash Revenue

System Options Accounts

Figure 1

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Transaction Type

Figure 2

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Customer Bill-To Site

Figure 3

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Remittance Bank

Figure 4

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Receivables Activities

Figure 5

Salesperson

Figure 6

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Standard Line – Inventory Item

Figure 7

Standard Line – Memo Lin

Figure 8

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Determinants - Options

AutoAccounting If an account can be defined in more than one window, AutoAccounting Setup determines which account segment will be picked from which source. That does apply only to transactions’ accounting since receipts’ accounting has one source (i.e., Receipt Class - Remittance Bank). AutoAccounting applies to the following accounts:

• AutoInvoice Clearing Account • Freight • Receivable • Revenue • Tax • Unbilled Receivable • Unearned Revenue

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Receivables Journal Entries

Oracle Receivables has the following accounting events:

AR-1 Regular Invoice Accounts Debit Credit

Receivables X

Revenue X

Tax X

Freight X

AR-2 Bill in Arrears Invoice

(Every Period within the Accounting Rule)

Accounts Debit Credit

Unbilled Receivables X

Revenue X

(Last Period)

Accounts Debit Credit

Receivables X

Unbilled Receivables X

Tax X

Freight X

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AR-3 Bill in Advance Invoice

(First Period)

Accounts Debit Credit

Receivables X

Unearned Revenue X

Tax X

Freight X

(Every Period within the Accounting Rule)

Accounts Debit Credit

Unearned Revenue X

Revenue X

AR-4 Debit Memo Accounts Debit Credit

Receivables X

Revenue X

Tax X

Freight X

Accounts Debit Credit

Receivables X

Late Charges (1) X

(1) Late Charges account is defined in a Receivable Activity of type Finance Charges. This activity assigned to System options and can be overridden on customer Bill-To site.

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AR-5 Credit Memo Accounts Debit Credit

Revenue X

Tax X

Freight X

Receivables (2) X

(2) The profile option AR: Use Invoice Accounting for Credit Memos determines how JE for credit memos are generated. If Yes, Receivables credits original transaction. If No, Receivables uses AutoAccounting to determine accounts.

AR-6 Apply credit memo to invoice, debit memo, or chargeback Accounts Debit Credit

Receivables (3) X

Receivables (4) X

(3) Credit Memo account

(4) Invoice account

AR-7 Apply credit memo to commitment Accounts Debit Credit

Revenue (5) X

Receivables (6) X

(5) Credit Memo account

(6) Invoice account

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AR-8 On-account credit Accounts Debit Credit

Revenue X

Tax X

Freight X

Receivables (7) X

(7) JE is the same as this of Credit Memo

AR-9 Apply On-account credit to invoice Accounts Debit Credit

Receivables (8) X

Receivables (9) X

(8) On-account credit account

(9) Invoice account

AR-10 Adjustment to invoice Accounts Debit Credit

Adjustment X

Receivables (10) X

(10) This is a negative adjustment

AR-11 Deposit Accounts Debit Credit

Receivables (11) X

Offset (12) X

(11) Deposit account

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(12) Offset account can be an account such as unearned revenue and is controlled by profile option = AR: Deposit Offset Account Source (AutoAccounting or deposit's transaction type)

(Cash is received against Deposit)

Accounts Debit Credit

Cash X

Receivables (13) X

(13) Deposit account

AR-12 Invoice applied to Deposit Accounts Debit Credit

Receivables (14) X

Revenue X

Tax X

Freight X

Offset X

Receivables (15) X

(14) This is the invoice part of the transaction

(15) Invoice account

AR-13 Guarantee Accounts Debit Credit

Receivables (16) X

Revenue (17) X

(16) Unbilled Receivables account can be used

(17) Unearned Revenue account can be used

Accounting in R12 Oracle Receivables

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AR-14 Invoice applied to Guarantee Accounts Debit Credit

Receivables (18) X

Revenue X

Tax X

Freight X

Revenue X

Receivables (19) X

(18) This is the invoice part of the transaction

(19) Invoice account

(Cash is received against Guarantee)

Accounts Debit Credit

Cash X

Receivables (20) X

(20) Guarantee account

AR-15 Unidentified Receipt Accounts Debit Credit

Cash X

Bank Charges (21) X

Unidentified Receipt X

(21) Bank Charges can be entered if profile option "AR: Create Bank Charges" = Yes and receipt's creation status is 'Cleared' (clearance method of receipt class is set to 'Directly').

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Change from unidentified to unapplied

Accounts Debit Credit

Unidentified Receipt X

Unapplied Receipt X

AR-16 Unapplied Receipt Accounts Debit Credit

Cash X

Bank Charges X

Unapplied Receipt X

Change from unapplied to applied

Accounts Debit Credit

Unapplied Receipt X

Receivables X

AR-17 Applied Receipt Accounts Debit Credit

Cash X

Bank Charges X

Receivables X

AR-18 On Account Receipt Accounts Debit Credit

Cash X

Bank Charges X

On Account X

Accounting in R12 Oracle Receivables

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AR-19 Receipt with Discount Accounts Debit Credit

Cash X

Earned / Unearned Discount X

Receivables X

AR-20 Miscellaneous Receipt Accounts Debit Credit

Cash X

Bank Charges X

Misc. Cash (22) X

(22) This usually a revenue account

AR-21 Receipt Write-Off Accounts Debit Credit

Unapplied Cash X

Write-Off (23) X

(23) This usually a revenue account

AR-22 Receipt requiring Remittance Accounts Debit Credit

Receipt Confirmation X

Receivables X

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AR-23 Standard Remittance Accounts Debit Credit

Remitted Receipt X

Receipt Confirmation X

AR-24 Clearing of Remitted Receipts Accounts Debit Credit

Cash X

Bank Charges X

Remitted Receipt X

AR-25 Factoring Remittance Accounts Debit Credit

Factored Receipt X

Receipt Confirmation X

AR-26 Maturity of Factored Receipts or Eliminating Risk Accounts Debit Credit

Short-Term Debt X

Factored Receipt X

AR-27 Clearing Factored Receipts Accounts Debit Credit

Cash X

Bank Charges X

Short-Term Debt X

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AR-28 Non-Invoice related Claim Accounts Debit Credit

Claim Investigation X

Unapplied Cash X

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Notes Receivable

NR-01 Note Receivable requiring Remittance Accounts Debit Credit

Notes Receivable X

Receivables X

NR-02 Standard Remittance Accounts Debit Credit

Notes Receivable X

Notes Receivable X

NR-03 Clearing of Remitted Notes Receivable Accounts Debit Credit

Cash X

Bank Charges X

Remitted Notes Receivable X

NR-04 Factoring Remittance Accounts Debit Credit

Factored Notes Receivable X

Notes Receivable Confirmation X

NR-05 Maturity of Factored Receipts or Eliminating Risk Accounts Debit Credit

Short-Term Debt X

Factored Notes Receivable X

Accounting in R12 Oracle Receivables

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NR-06 Clearing Factored Receipts Accounts Debit Credit

Cash X

Bank Charges X

Short-Term Debt X

Accounting in R12 Oracle Receivables

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Special Accounts

Cross Currency Rounding Is used to record rounding error amounts created during a cross currency receipt application for currencies that have a fixed rate relationship. These errors:

• May occur because there are usually more decimal places defined for an exchange rate than for the standard precision of functional currency. When a receipt amount is multiplied by an exchange rate and then rounded to match standard precision, the result can be slightly different from the transaction amount specified in the transmission file.

• May be expected if receipt in foreign currency (USD) is to be applied to invoices in different foreign currency (EUR) while functional currency is EGP.

Header Rounding Is used to record any rounding differences occur upon converting foreign currency transactions to functional currency.

Upon creating a transaction with several line items, total amount in the two currencies may vary slightly (usually by the minimum accountable unit defined for functional currency). These differences occur due to rounding.

Example: Item Amount in EUR Exchange Rate Amount in EGP A 15 8.639 129.59 B 12 8.639 103.67 C 23 8.639 198.70 431.96 Total 50 8.639 431.95 Rounding Difference 0.01

Total amount of lines after conversion is EGP 431.96 while header amount is 431.95. This results in a rounding difference of 0.01. The journal entry would be:

Accounts Debit Credit

Receivables 431.95

Header Rounding 0.01

Revenue 431.96

Accounting in R12 Oracle Receivables

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Unless it’s a legal requirement, Header Level Rounding is not recommended. If so, Receivables rounds amounts at line level (EUR 50), multiply by exchange rate (EGP 8.693), and posts any rounding difference to the Receivables account. When more than one receivable account is used – according to AutoAccounting setup – the account with largest amount is affected by the rounding difference.

Accounts Debit Credit

Receivables A 129.59

Receivables B 103.67

Receivables C 198.96

Revenue 431.95

AutoInvoice Clearing Account

If “Create Clearing” option is enabled for imported transactions batch source, this account will be used to hold any difference between the specified revenue amount and the selling price times the quantity for imported invoice lines. In other words, (quantity * unit price) ≠ extended price.

Finance charge

Accounting in R12 Oracle Receivables

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Information Sources

o AutoAccounting Setup White Paper [ID 215376.1]

o Oracle Recivables User's Guide Release 12.1 Part No. E13522-04

o Oracle Payables Implementation Guide Release 12.1 Part No. E13510-04