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Automatic Offsets and Pooled Accounts

Leigh Lindquist, Madeline Jones, Stephen Horgan, Tommy La Oracle Corporation
Abstract Improve your understanding of the purpose, functions, and limitations of automatic offsets and pooled accounts. Also, demonstrate the effect these options have on accounting transactions. Scope I. II. III. IV. V. VI. Purpose of Automatic Offsets Setting Up Automatic Offsets and Pooled Accounts Restrictions of Automatic Offsets Automatic Offsets and Invoices Automatic Offsets and Payments Automatic Offsets and Pooled Accounts Automatic Offsets was created for the government and higher education sectors where it is mandated by law that transactions be balanced to the balancing segment level. However, many companies may benefit from the option of having self–balancing sets of accounts. For example, if you have a product segment in your account, Automatic Offsets would allow you to track cash and AP liability by product. Important: The level of detail that Automatic Offsets provides is only recommended either if it is mandated by law or if it is necessary to produce a balance sheet at a balancing segment level. There are restrictions associated with enabling Automatic Offsets. Be sure you understand the impact of Automatic Offsets before deciding to implement this feature. Alternatively, you can set up Intercompany Accounting in Oracle General Ledger so that General Ledger automatically creates the intercompany accounting entries necessary to balance a transaction at the balancing segment level. If you choose to use Intercompany Accounting rather than Automatic Offsets, your Payables transactions that cross multiple balancing segments will not balance at the balancing segment level until you transfer them to General Ledger and submit the Journal Import program. By enabling Automatic Offsets within Payables, Payables will automatically allocate the liability, discount taken, and gain and loss entries for a given invoice across multiple balancing segments, according to the balancing segments of the invoice distributions. If you pay an invoice from a pooled bank account, Payables will also automatically allocate the cash entry across multiple balancing segments, according to the balancing segments on the invoice distributions. If you pay from a non– pooled bank account, Payables records the cash entry using the Cash Account you specify in the Banks window. Entries in accounts other than liability, cash, discount taken, or realized gain/loss must have manual journal entries made in

This paper is intended to give you an overview of the purpose and use of Automatic Offsets and Pooled Accounts. References For detailed information on automatic offsets and pooled accounts please refer to the following references. Oracle Payables Release 10SC User’ s Guide: pages 10:12-24 Oracle Payables Release 11 User’ s Guide: pages 10:12-24

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PURPOSE OF AUTOMATIC OFFSETS AND POOLED ACCOUNTS

If you enter invoices for expense or asset purchases for more than one balancing segment, you may want to use Automatic Offsets to keep your Payables transaction entries balanced at the balancing segment level. For an invoice, Payables creates offsetting liability distributions; for a payment, Payables creates offsetting cash and discount taken distributions. This helps to ensure that each set of accounts remains balanced by balancing segment.

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To use this feature.When an invoice is paid or partially paid. Prorate Discounts – To prorate discounts across your invoice distributions when you pay an invoice that crosses multiple balancing segments. Pooled Account . SETTING UP AUTOMATIC OFFSETS AND POOLED ACCOUNTS Balancing – Payables retains only the distribution’ s balancing segment when it builds an offsetting account. discount taken. or because you need to produce a balance sheet that will balance at the segment level? 2) Are you aware of the restrictions that Automatic Offsets enforces? 3) Are you aware of the alternatives? You can set up Intercompany Accounting in Oracle General Ledger so that the General Ledger automatically creates the intercompany accounting entries necessary to balance a transaction at the balancing segment level. and gain and loss entries in the accounts you specify in the Payables Options and Banks windows. select the Bank Accounts button. Rather. To determine if automatic offsets is right for your company.your general ledger in order to keep the entries balanced at the balancing segment level. Payables will automatically create balancing entries for your invoice and payment transactions when you enable Automatic Offsets. cash. If you do not enable Automatic Offsets. Payables records the liability. you cannot adjust any accounting information on the invoice. post your invoices and payments in detail when you submit the Transfer to General Ledger program. These accounts have one balancing segment each.To create a pooled account. either because it is mandated by law. navigate to Setup=>Options=>Payables: Payment region and select System Account as your Discount Distribution Method. and Cash Clearing transactions default to “ Audit” . III. This will allow you to drill down from a general ledger account balance to specific transactions in Payables. Use this option if you want all of your accounts to preserve the same level of distribution detail. Detail Balancing Journal Entries – Payables will supply General Ledger with the information needed to create detail balancing journal entries when you run Journal Import. Discount Taken. The balancing segment of your system Discount Taken account is replaced by the balancing segment from the offsetting invoice distribution when Payables builds the accounts for these entries. navigate to Setup=>Options=>Payables: Accounting region and select either Account or Balancing as your Automatic Offset Method. Automatic offsets allows you to automatically balance invoice and payment distributions that cross balancing segments by creating offsetting entries for each balancing segment. Navigate to Setup=>Options=> Payables: Journal Entry Creation region and set the Liability. Gain or Loss. RESTRICTIONS OF AUTOMATIC OFFSETS If you enable Automatic Offsets. in the Payables Options region check the pooled account box. you should consider the following information: 1) Do you need the level of detail automatic offsets provides. Account – Payables retains all segments but the distribution’ s account segment when it builds an offsetting account. Payables will then create journal entries with your invoice and cash distributions in detail. navigate to Setup=>Payments=>Banks. Payables prevents you from updating or reversing any of the invoice distributions for paid or partially 2 . Automatic Offsets will not affect these accounts. II. so if you enter transactions that cross multiple balancing segments. Companies typically find this level of detail sufficient. you may want to consider using the Intercompany Accounting feature to balance these transactions during posting. If you have elected to use Automatic Offsets. you cannot use any of the following Payables options: Allow Adjustments to Paid Invoices . we recommend that you not enable Create Summarized Journal Entries located in the Journal Entry Creation Region of the Payables Options form.

If you don't use Automatic Offsets. Payables creates the liability distributions when you submit the invoice for Approval. and your Accounting Flexfield structure is Balancing Segment–Cost Center–Account. You can review the liability distributions on the Expense Distribution Detail Report. 3 . which defaults from the supplier site. You enter an invoice for this site and distribute it as follows: DR 100–100–4100 $60 DR 200–201–4200 $40 Payables automatically records the following liability account offsets when you approve the invoice: When Automatic Offsets is used.If you enable Automatic Offsets. Example: You enable Automatic Offsets using the Balancing method. Your default liability account for supplier site ABC is 100–000–2000. (Navigation: GL responsibility Setup=>Financial=>Books=>Define). This ensures that invoices always balance by balancing segment. AUTOMATIC OFFSETS AND INVOICE PROCESSING Payables automatically records the following liability account offsets when you approve the invoice: CR 100–000–2000 $60 CR 200–000–2000 $40 If you select Account as your Automatic Offset Method. Payables will not create reconciliation accounting entries. Payables automatically allocates an invoice’ s liability amount across multiple balancing segments according to the balancing segments on the invoice distributions. Navigation: Setup=>Options=>Payables: Accounting Region – “ Allow Reconciliation Accounting” Automatic Withholding Tax .You cannot use Automatic Withholding Tax if you have enabled Automatic Offsets in Payables. you can still clear payments using Oracle Cash Management. As previously mentioned. You enter an invoice for this site and distribute it as follows: DR 100–100–4100 $60 DR 200–201–4200 $40 IV.paid invoices because Payables has already created the payment distributions based on the current invoice accounting lines. preserving all other segment values. Payables takes the account used for the invoice distribution and substitutes the account segment from the default liability account for the invoice. Navigation: Setup=>Options=>Payables: Withholding Tax Region – “ Use Withholding Tax” When you use Automatic Offsets and submit Approval for an invoice. the invoice will not balance by balancing segment. Example: You enable Automatic Offsets using the Account method. if you select Balancing as your Automatic Offset Method. Payables gives you a choice of two different methods for building your offsetting accounts on the basis of this default: Account or Balancing. Payables takes the default liability account for the invoice. Payables automatically builds the offsetting liability account for each invoice distribution on the basis of the default liability account for the invoice. Your default liability account for supplier site ABC is 100–000–2000. however. Payables records the invoice liability using the liability account on the invoice. When you distribute invoice distributions across multiple balancing segments. and your Accounting Flexfield structure is Balancing Segment–Cost Center–Account. General Ledger can automatically create intercompany balancing entries when you post the invoice if you have enabled the Balance Intercompany Journals option for your set of books. However. which defaults from the supplier site. substitutes the balancing segment from the invoice distribution and uses that as the distribution’ s offsetting liability account. Navigation: Setup=>Options=>Payables: Invoice Region – “ Allow Adjustments to Paid Invoices” Allow Reconciliation Accounting . You can override this default during invoice entry.

The balancing segment from the offsetting invoice distribution replaces the balancing segment of your system Discount Taken account when Payables builds the accounts for these entries. At that point payables automatically adjusts the balancing liability distributions created by Automatic Offsets. AUTOMATIC OFFSETS AND PAYMENTS PROCESSING When you use Automatic Offsets. V. When Automatic Offsets is used.CR 100–100–2000 $60 CR 200–201–2000 $40 If you adjust the liability account or an invoice distribution account for an unpaid invoice. you must resubmit Approval to pay or post the invoice. If you have a prepayment that crosses multiple balancing segments. AUTOMATIC OFFSETS AND POOLED ACCOUNTS You can use Automatic Offsets in both cash and accrual basis accounting. However. and the Invalid GL Accounts window (Navigation: Payables responsibility Payments=>Invalid GL Accounts) to assign a correct account. If Payables builds an invalid account. You will be prevented from reversing or updating any of the invoice distributions for paid or partially paid invoices because Payables has already created the payment distributions based on the current invoice accounting lines. If you use Automatic Offsets and have chosen System Account as your Discount Distribution Method in the Payables Options window. you must split it up into the appropriate number of prepayments. in accrual basis books. you may want to prorate these expenses in the Distributions window of the Invoice Workbench to ensure that the expenses are distributed across the other invoice distributions. you can choose to pool any or all of your bank accounts. the cash in a non–pooled 4 . When you distribute an invoice across multiple balancing segments. If you don't use Automatic Offsets or create a payment using a non–pooled bank account. The cash in a pooled bank account is shared by multiple balancing segments. freight or miscellaneous charges. When you enter invoices with tax. they balance the offsetting liability entries created when you submit Approval for your invoices. Payables prorates the entire discount amount across your invoice distributions when you pay an invoice that crosses multiple balancing segments. If you use Automatic Offsets. you can't adjust any accounting information on the invoice. Payables creates a corresponding cash payment distribution for each liability distribution that you pay using a bank account with this option enabled. discount and gain/loss distributions for each balancing segment when you create a payment using a pooled bank account. Payables automatically creates cash. In cash basis books. Payables creates payment distributions using a single account of each type. This ensures that invoices always balance by balancing segment when paid from a pooled account. (Navigation: GL responsibility Setup=>Financial=>Books=>Define) VI. If you enable Automatic Offsets. Payables creates payment distributions for your cash and discount entries based on the Automatic Offset Method you choose in the Payables Options window. since Payables does not support multiple distributions for prepayments. If you enable the Automatic Offsets and Pooled Account option. You can use the Payment Distributions Report to identify invalid payment distributions. Payables automatically creates liability distributions based on your chosen Automatic Offset Method. You must correct the invalid payment distribution before you can post the payment. the offsetting journal entries created during payment processing balance invoice distributions directly. Note: When an invoice is paid or partially paid. it places the ” Liab Acct Invalid” hold on the invoice with the invalid payment distribution. the invoice will not balance by balancing segment. just as it does for any other invoice. Payables uses the cash account you define for the bank account with the Automatic Offset Method you choose in the Payables Options window to create the cash payment distributions. General Ledger can automatically create balancing intercompany receivable/payable entries for transactions that do not balance by balancing segment if you have enabled the Balance Intercompany Journals option for your set of books.

bank account is associated with a single balancing segment. Payables automatically creates the following entries: DR 101–100–2300 $60 DR 200–201–2300 $40 CR 101–100–1100 $60 CR 200–201–1100 $40 Attention: When you make a payment using a non–pooled bank account. And make sure you continue to use the features correctly after implementing. or set General Ledger up to create them automatically on posting. When you create a payment from a pooled bank account using Automatic Offsets. Payables uses the Automatic Offset Method you specified when you enabled this feature in building these cash accounts. enabling these option does restrict some functions in the system and there are alternatives. For payment distributions that cross balancing segments. You enter an invoice for supplier site ABC and distribute it as follows: DR 101–100–4500 $60 DR 200–201–4610 $40 Payables records the following liability account offsets automatically when you approve the invoice: CR 101–000–2300 $60 CR 200–000–2300 $40 You post the invoice and pay it out of your Division A bank account. Orlando. Fl 5 . and your Accounting Flexfield structure is Balancing Segment–Cost Center–Account. Your default liability account for supplier site ABC is 101–000–2300. If you do not enable Automatic Offsets. Payables takes the cash account associated with your pooled bank account. Review all of the costs and benefits of enabling these options before implementing. The default cash account for your Division A bank account. is 101–000–1100. you can only have non–pooled bank accounts. in which you have pooled funds for investment. Conclusions Automatic Offsets and Pooled Accounts are very useful options for keeping invoice and payment distributions that cross balancing segments in balance. in which you have pooled funds for investment. Your default liability account for supplier site ABC is 101–000–2300. Payables automatically builds the cash account for each payment distribution on the basis of the bank account’ s associated cash account. Payables takes the account used for the invoice distribution and substitutes the account segment from the cash account associated with your pooled bank account. preserving all other segment values. and your Accounting Flexfield structure is Balancing Segment–Cost Center–Account. When you create the payment. substitutes the balancing segment from the invoice distribution and uses that as the distribution’ s offsetting cash account. You enter an invoice for supplier site ABC and distribute it as follows: DR 101–100–4500 $60 DR 200–201–4610 $40 Payables records the following liability account offsets automatically when you approve the invoice: CR 101–100–2300 $60 CR 200–201–2300 $40 You post the invoice and pay it out of your Division A bank account. Payables automatically creates the following entries: DR 101–000–2300 $60 DR 200–000–2300 $40 CR 101–000–1100 $60 CR 200–000–1100 $40 Example: You enable Automatic Offsets using the Account method. When you create the payment.Technical Analyst. Example: You enable Automatic Offsets using the Balancing method. The default cash account for your Division A bank account. is 101–000–1100. you can either enter balancing entries manually. However. If you selected Account as your Automatic Offset Method. If you selected Balancing as your Automatic Offset Method. About the Authors Leigh Lindquist . Payables generates only a single cash offset even if Automatic Offsets is enabled.

Fl Tommy La . Orlando. Fl 6 . Fl.Technical Analyst. . Stephen Horgan .Madeline Jones. Orlando.Senior Technical Analyst. Orlando.Technical Analyst.