Accounting in R12 Oracle Payables

ORACLE APPLICATIONS WHITE PAPER
ACCOUNTING IN R12 ORACLE PAYABLES

SEP 2011
Author:
Mohamed Nazih
CPA, PMP, Oracle Financials Consultant
m.nazih@gmail.com
Version
1.0
Accounting in Oracle EBS Payables 2011
Contents
About the Author ................................................................................................... 3
Introduction ........................................................................................................... 3
Purpose.................................................................................................................. 3
Scope ..................................................................................................................... 3
Audience ................................................................................................................ 4
Accounting in R12 Oracle Payables ........................................................................ 5
Determinants - Accounts ................................................................................................................... 5
Financial Options Accounts....................................................................................................................................... 6
Payables Options - Currency ..................................................................................................................................... 7
Payables Options - Invoice ........................................................................................................................................ 8
Payables Options - Interest....................................................................................................................................... 9
Supplier Site Accounting ........................................................................................................................................... 9
Bank Account Control ............................................................................................................................................. 10
Withholding Tax ...................................................................................................................................................... 10
Determinants - Options ................................................................................................................... 11

Payables Hierarchy ................................................................................................................................................. 11
Payables Options .................................................................................................................................................... 12
Payables Journal Entries .................................................................................................................. 14

AP-1 Invoice ............................................................................................................................................................ 14
AP-2 Prepayment .................................................................................................................................................... 16
AP-3 Prepayment Application ................................................................................................................................. 16
AP-4 Payment ......................................................................................................................................................... 16
AP-5 Payment maturity ........................................................................................................................................... 17
AP-6 Clearing........................................................................................................................................................... 17
Out of Scope Accounts ..................................................................................................................... 18

Information Sources ......................................................................................................................... 18
Page 2 of 18
Accounting in R12 Oracle Payables
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 customers 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.
Such an overview may help:
Customers representatives design a better chart of accounts
Consultants justify decisions taken to setup system parameters and options
Scope
This whitepaper will cover Oracle R12 Payables except for transactions related to:
Encumbrances
Oracle Internet Expenses
XML Gateways and iSuppliers
Automatic Offsetting
Page 3 of 18
Cash Pooling
Audience
This whitepaper is aimed to super users and functional consultants and implementers as well
as applications auditors.
Page 4 of 18

Determinants - Accounts
Payables Journal Entries are controlled by the definition of:
1. Financials options
2. Payable options
3. Supplier Site
4. Bank Account
5. Withholding Tax
6. Invoice
7. EB-Tax
Account
Qualifier
Financials
Options
Liability
Prepayment
Asset
Bills Payable
Liability
Discount Taken
Expense
PO Rate Variance Gain
Revenue
PO Rate Variance Loss
Expense
Expenses Clearing
Expense
Miscellaneous
Expense
Retainage
Liability
Realized Gain
Revenue
Realized Loss
Expense
Rounding
Expense
Freight
Expense
Tax Difference Account
Liability
Interest Expense
Expense
Interest Liability
Liability
Liability
Payable
Options
Supplier
Site
Bank
Account
Cash
Asset
Cash Clearing
Asset
Bank Charges
Expense
Bank Errors
Expense
Page 5 of 18
Invoice
Financial Options Accounts
Figure 1
Page 6 of 18
Payables Options - Currency
Figure 2
Page 7 of 18
Payables Options - Invoice
Figure 3
Page 8 of 18
Payables Options - Interest
Figure 4
Supplier Site Accounting
Figure 5
Page 9 of 18
Bank Account Control
Figure 6
Withholding Tax
Figure 7
Page 10 of 18
Determinants - Options
Payables Hierarchy
If an account can be defined in more than one place, Oracle Payables applies the following
hierarchy, where lower level can override higher level(s):
Figure 8
Page 11 of 18
Payables Options
Have a role in determining accounts to be defaulted for:
Prepayment
Bills Payable
Discount
Interest
Payables Options Accounting Options
Figure 9
Page 12 of 18
Payables Options Withholding Tax
Figure 10
Page 13 of 18
Payables Journal Entries

Oracle Payables has the following accounting events:
1. Invoice
2. Prepayment
3. Prepayment application
4. Payment
5. Payment maturity
6. Reconciliation
AP-1 Invoice
20B
Accounts
Debit
Expense (or AP Accrual) (1)
Tax (2)
Freight (3)
Credit
Retainage (4)
Liability (5)
Invoice Price Variance (IPV) (6)

P
Quantity Variance (7)

P
PO Exchange Rate Variance (ERV) (8)

P
Tax Variance (9)

P
Accounts
Debit
Retainage (10)
Tax
Liability
Accounts
Interest Expense (11)
P
Interest Liability
Page 14 of 18
Credit
Debit
Credit
X
X
(1)
Expense account is usually used if invoice is entered manually. AP Accrual account is

defaulted by system if invoice matched against Receipt/PO for goods items
(2)
Tax (e.g., Sales Tax or VAT) is defined in Oracle EB-Tax and inserted upon invoice validation
(3)
Freight account is defaulted if a line of type Freight is used and allocated to line(s) of
type Item
(4)
Retainage account is defaulted if invoice is matched to a service procurement PO/Receipt
(5)
Liability account is sourced from Suppliers Site
(6)
Quantity Variance results if, upon matching invoice to PO/Receipt, quantity entered for
invoice is different from this specified in PO. For inventory items, variance booked to
Inventory AP Accrual Account defined in Organization Parameters window in Inventory.
For expense items, it booked to Expense AP Accrual Account
(7)
Invoice Price Variance results if, upon matching invoice to PO/Receipt, price entered for
invoice is different from this specified in PO. For inventory items, variance booked to
Invoice Price Variance Account defined in Organization Parameters window in Inventory.
For expense items, it booked to Charge Account
(8)
PO Exchange Rate Variance results if, upon matching invoice to PO/Receipt, Foreign
Currency Exchange Rate entered for invoice is different from this specified in PO. For
inventory items, variance booked to Exchange PO Rate Variance Gain or Loss Account. For
expense items, it booked to Charge Account
(9)
Tax variance results if, upon matching invoice to PO/Receipt, tax on invoice is different
from tax on PO. Three tax-related variances can occur:
Tax Rate Variance (TRV) when there is a difference between invoice and PO
distributions due to difference in tax rate. For inventory items, variance booked to
Invoice Price Variance Account defined in Organization Parameters window in
Inventory. For expense items, it booked to Charge Account
Tax Invoice Price Variance (TIPV) when there is a difference between invoice and PO
distributions due to price variance. For inventory items, variance booked to Invoice
Price Variance Account defined in Organization Parameters window in Inventory. For
expense items, it booked to Charge Account
Tax Exchange Rate Variance (TERV) when there is a difference between the invoice
and PO distributions due to exchange rate variance. For inventory items, variance
booked to Exchange PO Rate Variance Gain or Loss Account. For expense items, it
booked to Charge Account
Tax Quantity Variance (TQV) is calculated, but is shown as a non-variance distribution
(10) Retainage account is debited upon creating an invoice of type Retainage Release
(11) Interest Expense account is debited for system created invoice of type Interest on
condition that Payables Option for interest = System Account. If Prorate Across Invoice
selected, original invoice distribution(s) will be debited
Page 15 of 18
AP-2 Prepayment
Accounts
Prepayment (12)
Debit
Credit
Liability
(12) Prepayment account is sourced from Suppliers Site
AP-3 Prepayment Application

Accounts
Liability
Debit
Credit
Prepayment
Tax Difference (13)
(13) Tax Difference account is defaulted if tax applied for invoice is greater than this applied for
prepayment. If it is lesser, workaround is needed to prohibit crediting Tax difference
account (review 3-198 of Oracle Payables User's Guide)
AP-4 Payment
(Maturity date = Current date)
Accounts
Liability
Debit
Credit
Cash Clearing (14)
Discount Taken (15)
Withholding Tax (16)
Realized Gain/ Loss (17)
(14) Cash Clearing account is sourced from Bank Account

(15)
Discount Taken account is defaulted if an accelerated cash payment term (e.g., 2/10,
net/30) is used and payment is made during the discount period
(16) Withholding Tax account is credited upon payment on condition that Apply Withholding
Tax = At Payment Time
Page 16 of 18
(17) Realized Gain or Loss results if Foreign Currency Exchange Rate upon payment is different
from this used upon accrual (in invoice)
(Maturity date = Future date)

Accounts
Liability
Debit
Credit
Withholding Tax
Bills Payables (18)
(18) Bills Payables account is default from either Bank Account (Organization Access> Payables
Options) or Suppliers Site according to option specified in Payables Options (Note: instead
of Bank Account, the form erroneously used Payment Document which is no longer
available in R12)
AP-5 Payment maturity

Accounts
Bills Payables
Debit
Credit
Cash Clearing
Discount Taken
(19) Realized Gain or Loss results if Foreign Currency Exchange Rate upon maturity is different
from this used upon payment
AP-6 Clearing
Accounts
Debit
Cash Clearing
Bank Charges / Errors (20)
Cash
Rounding (22)
Page 17 of 18
Credit
(20) Bank Charges or Error account is used for difference between cleared amount and
transaction amount. Cash Management checks the Tolerance Differences parameter (in
Bank Account Controls region of Bank Account) to determine whether the difference is
due to charges or errors.
(21) Realized Gain or Loss results if Foreign Currency Exchange Rate upon clearing is different
from this used upon maturity
(22) Rounding account may be used upon payment, maturity, or clearing if:
Multiple currencies are used with bank account and payment currency does not round
within payment currency precision.
Functional currency amount of payments do not equal amount of liability.
Out of Scope Accounts
Expenses Clearing: is used as a temporary account to record credit card transaction

activity related to Oracle Internet Expenses.
Miscellaneous: Used only when importing invoices submitted in XML Gateway.
Foreign Exchange Charges: used with Cash Management Cashflow as on option to

account for differences between cleared amount and transactions amount
Information Sources
o Oracle Payables User's Guide Release 12.1 Part No. E12797-04
o Oracle Payables Implementation Guide Release 12.1 Part No. E12795-04
Page 18 of 18

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