Accounting Flows in Oracle Applications

Given below are the accounting entries generated by ERP in case of Procure to Pay, Production and Order to Cash Cycles. This is given in the the context of OPM being used in the implementation. Cycle: Procure to Pay 1. Enter PO: Accounting Impact Nil 2. Enter a receipt: -------------Debit --------Inventory Receiving Account -------------Credit-------- AP Accrual Account 3. Inspect and Accept: Accounting Impact Nil 4. Delivery to stock: -------------Debit ---------Inventory Account -------------Credit --------Inventory receiving account (ISP) 5. Enter PO Matched Invoice -------------Debit ---------AP Accrual Account -------------Credit --------Supplier Liability Control Account 6. Enter payments against the invoice -------------Debit ---------Supplier Liability Account -------------Credit --------Cash / Bank Account As can be seen inventory receiving account which gets debited in step 2 above, gets reversed in step 4. This is an account required by the ERP and may not be found in the standard chart of accounts of the organization. Balance in this account implies that either the received items are yet to be delivered to the store (Quantity is not available in stores) or that the accounting entries in step 4 have not yet been posted to GL. In the OPM scenario, since the posting to GL takes place at month end, the second reason is most likely the cause of balances in this account. The finance user normally takes some time before he clearly understands the significance of this account. This is a contra to inventory account and hence is to be considered as a balance sheet account. The above two factors vis. the non familiarity of the user and this being a balance sheet account means that in a P&L focussed accounting environment, this account generally goes unobserved and sometime piles up huge balances which causes much heartburn at year end when the auditor asks some probing questions. This account is set up for each receiving organization and is set up in the purchasing module under receiving options. Another contra account is the AP Accrual Account. This is the contra to the liability and it recognizes an accrued liability where the incidence is not clear. In India sometimes this account is called 'Provision for purchases'. This account will get a credit entry in step 2 and will get reversed in step 5 when PO Matched invoice is entered in the system. As this implies, the balance in this account means that PO Matched invoices are not entered in the system or that the accounting entries for those invoices are not transferred to GL. In OPM scenario, this account gets picked form the account mapping in OPM Cost Management module under MAC (Manufacturing Accounting Controller) set up for account title 'AAP'. Supplier liability account is the Creditor Account, commonly called as 'Sundry Creditors' in India. In Oracle it is called the A P Liability account. This account is set up when you set up the supplier site information in Oracle Purchasing / AP. Bank / Cash account is linked to the bank that you set up in AP. In OPM Scenario, the Inventory Account is mapped in OPM Cost management module under MAC set up for account title 'INV' The accounting entries mentioned in step 2 above automatically move to GL interface table on creation. These will be available in the GL Interface table under the source 'Purchasing'. These entries move to GL Journal

tables when you run the import journals program in GL for that period and that source The accounting entries in step 4 will be generated in OPM MAC under Document type 'PORC' and will get generated when you run the 'Subledger Update' Process and will be moved to GL interface when you run the GL update process in OPM MAC. These will be available in the GL interface table under source 'Purchasing /OPM'. These entries move to GL Journal tables when you run the import journals program in GL for that period and that source The accounting entries generated in step 5 and 6 above will move to GL Interface when you run the 'Payables Transfer to GL' process in AP. While the entries in step 5 will lie under source 'AP Invoices' (this need to be validated), those in step 6 will lie under source 'AP Payments' (this need to be validated). The payables transfer to GL allows you to automatically move the entries to GL journal tables. Cycle: OPM Manufacturing 1. Batch Release ----------Debit --------WIP ----------Credit -------Inventory 2. Step certification ----------Debit --------WIP ----------Credit -------RCA 3. Batch Certification ----------Debit --------Inventory ----------Credit -------WIP 4. Batch Close ----------Debit / Credit ------WIP ----------Credit / Debit ------CLS All the above accounts WIP, RCA and CLS are set up in OPM Cost Management module under MAC set up. RCA is otherwise known as 'Overhead absorption control account'. This is normally a P&L Account and a credit to this account implies that the overheads used in production are absorbed by the finished product inventory and hence the finished product inventory value has gone up. This gets reversed when the actual overhead expenses (wages, power, water, rent etc) are expensed in the month end. Since RCA is a P&L account with a credit balance, this could temporarily inflate the profits of the organization. The consultant should clearly understand the significance of this account which is normally used by the cost accountants. CLS is the the 'WIP clearing account'. This normally gets a balance in the standard costing scenario if the sum of the costs of the raw materials and the resources is different from the standard cost of the finished product. This account can also get a balance in the OPM PMAC (Period Moving Average Costing) scenario when a batch is released in one costing period and completed / closed in the next account period. In such scenario, this account is to be clubbed with WIP. The accounting entries in the above 4 steps will be generated in OPM MAC under Document type 'PROD' and will get generated when you run the 'Subledger Update' Process and will be moved to GL interface when you run the GL update process in OPM MAC. These will be available in the GL interface table under source 'OPM Production Management'. These entries move to GL Journal tables when you run the import journals program in GL for that period and that source. Cycle: Order to Cash 1. Enter Sales Order: Accounting impact Nil 2. Ship items -----------Debit ---------PCO -----------Credit --------Inventory 3. Enter invoice

-----------Debit ---------Receivables -----------Credit --------Revenue 4. Enter receipts -----------Debit ---------Cash / Bank -----------Credit --------Accounts Receivables PCO is set up in OPM MAC. It is also called the COGS (Cost of Goods Sold) account. This consists of two parts: Cost of materials sold (normally known as material consumption) and cost of Overheads (Overheads consumption). Through the use of 'Selection Priority' MAC allows you to direct the accounting entries to different accounts thereby making the preparation of P&L reports much easier. Accounts receivables (also known as 'Sundry Debtors' in India) and Revenue Accounts are set up in the Accounts Receivables module. The autoaccounting set up feature in Oracle AR provides a lot of flexibility to consultant to account different transactions through different accounting rules if required. Note: Oracle Provides a lot of flexibility to the consultant in accounting the transactions. However it is better to stick to knittings and provide a simple and intuitive accounting solution rather than using a lot of accounting rules which could increase the intensity of training and knowledge transfer requirement in the organization. The accounting entries in step 2 above will be generated in OPM MAC under Document type 'OMSO' and will get generated when you run the 'Subledger Update' Process and will be moved to GL interface when you run the GL update process in OPM MAC. These will be available in the GL interface table under source 'OPM Order Management'. These entries move to GL Journal tables when you run the import journals program in GL for that period and that source. The accounting entries in step 3 and 4 above will be generated in Accounts receivables modules and will move to GL Interface table when you run the 'GL Transfer' Program in AR. While the entries in step 3 will lie under source 'Invoices' (Need to be validated), those under 4 will lie under source 'Receipts' (Need to be validated). These entries move to GL Journal tables when you run the import journals program in GL for that period and that source. And finally , the 'Posting' process in GL moves all the transactions from GL journal tables to the GL Balances Table from where you can print out all the required financial reports