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Subledger Accounting

White Paper on Multi Period Accounting (MPA) in R12


Author: Sanjay Prasad and Sriram Ramanujam Creation Date: February 2, 2011 Last Updated: March 16, 2011 Version: 1.1 Status: FINAL

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Table of Contents
1. OBJECTIVE .......................................................................................................................................................... 3 2. SCOPE/OUT OF SCOPE ....................................................................................................................................... 3 3. OVERVIEW OF THE MULTI PERIOD ACCOUNTING FEATURE ............................................................................... 3 3.1 AN EXAMPLE OF A BUSINESS CYCLE WHERE MULTI PERIOD ACCOUNTING FEATURE CAN BE USED...........................................4 3.2 MAPPING OF THE BUSINESS SCENARIO IN ORACLE APPLICATIONS ......................................................................................5 3.3 OVERVIEW OF EXAMPLE FOR MPA CONFIGURATION .......................................................................................................6 3.4 STEPS TO BE PERFORMED TO MAP THE BUSINESS SCENARIO .............................................................................................7 4. STEP BY STEP GUIDE TO MAP BUSINESS SCENARIO EXAMPLE ............................................................................ 8 4.1 INVOICE LINE FLEX FIELD (DFF) CONFIGURATION............................................................................................................8 4.1.1 Define Invoice Line DFF ................................................................................................................................8 4.1.2 Define Values for Value Set ..........................................................................................................................9 4.2 SUBLEDGER ACCOUNTING METHOD (SLAM) CONFIGURATION .......................................................................................10 4.2.1 Define Accounting Derivation Rule (ADR) ..................................................................................................10 4.2.2 Define Journal Line Type (JLT) .................................................................................................................... 11 4.2.3 Define Journal Line Definition (JLD) ............................................................................................................17 4.2.4 Define Application Accounting Definition (AAD) ........................................................................................25 4.2.5 Define Sub Ledger Accounting Method (SLAM) .........................................................................................28 4.2.6 Attach SLAM to Ledger definition ..............................................................................................................30 5. SAMPLE TRANSACTION TO TEST MPA CONFIGURATION .................................................................................. 32 5.1 AP INVOICE CREATION ............................................................................................................................................32 5.2 INVOICE ACCOUNTING .............................................................................................................................................35 6. REFERENCES ..................................................................................................................................................... 37

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1. Objective To provide: a) An overview of the Multi Period Accounting (MPA) feature in R12 b) A Step by step guide to configure the Multi Period Accounting Feature c) An explanation of MPA configuration for a business transaction 2. Scope/Out of Scope This paper will cover a) The need to have a Multi Period Accounting Feature b) A Step by step guide to setup Multi Period Accounting c) Explaining creation of an invoice that uses Multi Period Accounting d) Accountings of Transaction showing accrual and recognition accounting over multiple periods Note: Oracle does not seed any Subledger Accounting Method (SLAM) with Multi Period Accounting. This feature is available and customer / consultant can use this feature and setup the system accordingly. 3. Overview of the Multi Period Accounting Feature Multi Period Accounting enables users to create accounting for a single accounting event for more than one GL period. The functionality is primarily used to recognize revenue or a prepaid expense or revenue across multiple GL periods.

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Multi Period Accounting Process Flow

3.1 An Example of a Business Cycle Where Multi Period Accounting Feature Can Be Used There can be multiple business scenarios where MPA can be used; one of them is a business cycle of an Insurance premium payment. Normally an insurance premium is paid Quarterly, Half Yearly, Annually and so on. A premium paid annually is an advance payment of insurance for 12 months. When we pay the premium, at that time actual expense does not occur, rather it occurs as and when the month for which insurance is paid completes. This can be explained with the following example:

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Lets say every year on 20-Dec, the Insurance premium (amount USD 1200) for next year (Jan-Dec) becomes due. 1) On 20-Dec an Invoice is created. Accounting of this invoice should not hit the actual expense account due to the following reasons: a. The Invoice is created for an advance payment b. Insurance service is yet to be availed. It will be availed during Jan Dec of next year 2) On 31-Jan of next year, insurance service for one month is availed. So expense should be booked with respective amount (prorated insurance premium) to the actual expense account. 3) At the end of the next month (28/29-Feb) again insurance service for one month is availed. So expense should be booked with respective amount (prorated insurance premium) to the actual expense account. This kind of actual expense recognition will keep on happening until 31-Dec. Accounting entry in Books for event (1), Accounting date 20-Dec Prepaid expense Dr USD 1200 Liability Cr USD 1200 Accounting entry in Books for event (2), Accounting date 31-Jan Insurance expense Dr USD 100 Prepaid expense Cr USD 100 => There can be different methods to calculate the accounted amount (here we are assuming the basis of Calculation is monthly. We will be discussing different options for calculations in the coming section. Accounting entry in Books for event (3), Accounting date 28/29-Feb Insurance expense Dr USD 100 Prepaid expense Cr USD 100 and so on until 31-Dec. A point to note here, this complete set of accounting is a result of ONE transaction only.

3.2 Mapping of the Business Scenario in Oracle Applications The above mentioned scenario is mapped in Oracle Applications by configuring the Multi Period Accounting feature. Referring to the example mentioned in section 3.1, after configuring MPA a single standard AP invoice (valid for MPA) will have the following accounting entries: Accounting entry in Books for event (1), Accounting date 20-Dec Accrual Dr USD 1200 Liability Cr USD 1200

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=> Here Accrual means a Journal Line Type enabled for MPA and having Accrual enabled as Multi Period Accounting attribute in the Journal Line Type definition. Accounting entry in Books for event (2), Accounting date 31-Jan Recognition Dr USD 100 Accrual Cr USD 100 => Here Recognition means a Journal Line Type enabled for MPA and having Recognition enabled as Multi Period Accounting attribute in the Journal Line Type definition.

3.3 Overview of Example for MPA Configuration Organization creates an AP Invoice of USD 36000 for the following insurance: 1) Insurance for Building (USD 12000) 2) Insurance for Vehicle (USD 24000) Organization wants to account the above transactions as follows: a) Accounting Date: 25-Dec-2010 Accrual Dr Liability Cr

USD 36000 USD 36000

b) Accounting Date: 31-Jan-2011 Recognition (Insurance for Building) Accrual Recognition (Insurance for Vehicle) Accrual c) Accounting Date: 28-Feb-2011 Recognition (Insurance for Building) Accrual Recognition (Insurance for Vehicle) Accrual And so on for every month until Dec-2011 d) Accounting Date: 31-Dec-2011 Recognition (Insurance for Building) Accrual Recognition (Insurance for Vehicle) Accrual

Dr Cr Dr Cr

USD 1000 USD 1000 USD 2000 USD 2000

Dr Cr Dr Cr

USD 1000 USD 1000 USD 2000 USD 2000

Dr Cr Dr Cr

USD 1000 USD 1000 USD 2000 USD 2000

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Account codes: Accrual: 01-000-1340-0000-000 (01 is Company, 1340 is Natural Account) Liability: 01-000-2210-0000-000 Recognition (Insurance for Building): Natural Account: 6501 and all other segments from Accrual account. 01-000-6501-0000-000 Recognition (Insurance for Vehicle): Natural Account: 7420 and all other segments from Accrual account. 01-000-7420-0000-000 3.4 Steps to Be Performed to Map the Business Scenario

The following needs to be done to map the business scenario discussed above: a) In the example discussed above, the requirement is to generate different Natural accounts for Recognition line for Insurance for Building and Insurance for Vehicle. We must have an identifier in the transaction to identify respective invoice lines. There can be different ways of achieving this; we will be using Invoice line flex fields to capture identifiers for different kinds of Insurance. b) Sub Ledger Accounting Method (SLAM) configuration: Seeded SLAM does not come with an MPA enabled Journal line type. So we need to copy seeded SLAM and do changes as per requirement. c) Invoice transaction and its accounting

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4. Step by Step Guide to Map Business Scenario Example 4.1 Invoice Line Flex field (DFF) Configuration We will be defining an Invoice line flex field to capture to what kind of Insurance Payment the invoice line belongs. Applicable values for the DFF will be configured to be picked from a value set. 4.1.1 Define Invoice Line DFF Navigation: Payables Responsibility->Setup->Flexfields->Descriptive->Segments Query for: Application: Payables Title: Invoice Lines

Select the Global Data Elements code and click on the Segments Button

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Select the Actual_Expense Segment Name and Click on Value Set 4.1.2 Define Values for Value Set

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4.2 Subledger Accounting Method (SLAM) Configuration To map the business scenario we need to have SLAM which has Journal Line Type (JLT) enabled for MPA. Remember seeded SLAM does not come with MPA enabled JLT. To achieve this we will be defining the following in Sequence: 1) Accounting Derivation Rule (ADR) 2) MPA enabled Journal Line Types (JLT) 3) Journal line definitions (JLD) containing MPA enabled JLT 4) Application Accounting Definition (AAD) 5) Sub Ledger Accounting Method (SLAM) 6) Attach SLAM to Ledger definition 4.2.1 Define Accounting Derivation Rule (ADR) To meet the requirement of generating account codes (for Recognition line type) based on the kind of insurance line, we need to define a rule to derive the Account. Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder->Journal Entry Setup->Account Derivation Rule Define ADR AP_MPA_RECOG_ADR

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Click on Mapping Set button to define the Mapping Set AP_MPA_RECOG_ADR_MAP. Once the mapping set is defined attach the same to the ADR. Input source: Invoice Line Flexfield Segment. This means based on the value for Invoice line flexfield in the transaction, the mapping set will derive the value for the Account segment.

4.2.2 Define Journal Line Type (JLT) As discussed earlier there are 2 types of Journal Line Types which are required in case of MPA: 1) Accrual Journal Line Type: This is the journal line type which is debited at first and then gets credited in each subsequent period. In other words this is the JLT to store Prepaid expenses. 2) Recognition Journal Line Type: This is the actual expense account which gets debited in each period of recognition. 4.2.2.1 Define MPA Enabled Accrual Journal Line Type Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder-> Journal Entry Setup->Journal Line Types Query for Seeded JLT Application: Payables Event Class: Invoices Line Type Code: AP_ITEM_EXPENSE_INV

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Click on Copy button

Click on Done button

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Select Accrual in Multiperiod region and save the JLT definition.

4.2.2.2 Define MPA Enabled Recognition Journal Line Type Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder->Journal Entry Setup->Journal Line Types Query for Seeded JLT Application: Payables Event Class: Invoices Line Type Code: AP_ITEM_EXPENSE_INV

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Click on Copy button

Click on Done button

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Remove all the conditions of Journal Line Type:

Click on Conditions button

Select first condition and Navigate Edit->Delete

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Repeat same above steps for each condition one by one to delete all the conditions. Save the work, close the form.

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Select Recognition in Multiperiod region. Note: A Recognition type of JLT does not have any conditions as this JLT is linked (will be discussed in later sections) with an Accrual type of JLT, so in fact no condition is needed for this type of JLT to be selected for accounting. 4.2.3 Define Journal Line Definition (JLD) Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder->Methods and Definitions->Journal Line Definition Query for Seeded Journal Line Definition Applications: Payables Event Class: Invoices Owner: Oracle Definition Code: ACCRUAL_INVOICES_ALL

Click on Copy Definition button

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Click on Done button

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User defined ACCRUAL_INVOICES_ALL_1 JLD is defined.

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Now add Accrual enabled MPA JLT defined earlier and add ADR for the user defined JLT AP_ITEM_EXP_INV_MPA_ACC.

As per definition above, for AP_ITEM_EXP_INV_MPA_ACC JLT, the distribution account of the transaction will be taken as per Seeded Account Derivation Rule Invoice Distribution Account. This rule enables to copy all account segments from Invoice distribution, as shown in below screen shot.

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Disable the Seeded Item Expenses JLT so that on the same condition the system should not derive 2 JLTs for accounting. Remember AP_ITEM_EXP_INV_MPA_ACC has been created by copying seeded Item Expenses JLT. If we do not deactivate the seeded JLT then the system will create 2 item expense lines while performing accounting of an invoice.

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4.2.3.1 Add Multi Period Accounting Elements Select the Accrual JLT in JLD definition and click on Multiperiod Accounting button.

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Click on the Line Assignments button.

By default AP_ITEM_EXP_INV_MPA_ACC gets attached in line assignments.


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Add Recognition type of JLT in Line Assignments region. This is how the Recognition line type is linked to the Accrual JLT, that is why a condition is not needed for the Recognition JLT (refer to the section on Define MPA Enabled Recognition Journal Line Type). Add ADR for Recognition Journal Line type.

Based on ADR attached above, for AP_ITEM_EXP_INV_MPA_RECOG JLT, the system will overlay the Natural account (based on AP_MPA_RECOG_ADR) on the Invoice distribution account. This means for Recognition JLT the system will derive the Natural account from AP_MPA_RECOG_ADR and all other segments from Invoice distribution account. This completes the Definition of JLD.

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4.2.4 Define Application Accounting Definition (AAD) Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder->Methods and Definitions->Application Accounting Definition Query for a seeded AAD Application: Payables Owner: Oracle Definition Code: ACCRUAL

Click on the Copy button to create User defined AAD for Payables by copying seeded AAD. The idea is to copy the complete AAD and modify AAD suitable for MPA.

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AAD Definition code: ACCRUAL_1

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As of now, in ACCRUAL_1 AAD, event class has seeded all JLDs attached with it. Attach user defined JLD (defined in step 4.2.3) in ACCRUAL_1 AAD for Invoices event class.

Now we have user defined AAD (ACCRUAL_1) which has a JLD ACCRUAL_INVOICES_ALL_1. JLD ACCRUAL_INVOICES_ALL_1 has JLTs enabled for MPA. Validate the AAD by clicking on Validate button.

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4.2.5 Define Sub Ledger Accounting Method (SLAM) Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup->Methods and Definitions-> Sub Ledger Accounting Method Query for a seeded SLAM Query for: Method Name: Standard Accrual Owner: Oracle

Click on Copy button

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Click on Done button

For application Payables attach the AAD ACCRUAL_1 (defined in step 4.2.4)

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4.2.6 Attach SLAM to Ledger definition Payables Responsibility->Setup->Accounting Setup->Ledger Setup->Define->Accounting Setups Query for Respective Ledger.

Click on Update Accounting Options.

Scroll down to Primary Ledger region and Click on Update link.

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Attach the User defined SLAM STANDARD_ACCRUAL_1 to Subledger Accounting Method option.

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5. Sample Transaction to Test MPA configuration

To test the MPA configuration lets create an invoice as follows: a. Invoice amount of USD 36000 b. 2 lines: i. First line for Insurance for Building of amount USD 12000 ii. Second line for Insurance for Vehicle of amount USD 24000 c. Invoice date: 27-Dec-2010 d. Invoice is for Insurance premium for year 2011 (Jan-Dec). So respective expense needs to be recognized every month from Jan-11 to Dec-11 on a prorated basis. 5.1 AP Invoice Creation

Invoice Number: TR200111-01

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GL Date: 27-Dec-2010 Distribution account for both Lines: 01-000-1340-0000-000 (This is prepaid account)

Deferred Option: Yes, this means that respective invoice line is eligible for MPA.

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Deferred Start Date: 01-Jan-2011 Number of Periods: 12

First line is for Insurance for Building, based on this DFF information ADR will derive respective expense account for each period.

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Second line is for Insurance for Vehicle, based on this DFF information ADR will derive respective expense account for each period. 5.2 Invoice Accounting System generates the following accounting entries: Accounting Date: 27-Dec-2010 01-000-1340-0000-000 01-000-2210-0000-000 Dr Cr USD 36000 (Prepaid) USD 36000 (Liability)

Following are accounting entries for recognizing the expenses on a prorated basis in respective periods Accounting Date: 01-Jan-2011 1) 01-000-7420-0000-000 01-000-1340-0000-000 2) 01-000-6501-0000-000 01-000-1340-0000-000 Dr Cr USD 1000 (Actual expense for Insurance for Building) USD 1000 (Reversal of Prepaid) Dr Cr USD 2000 (Actual expense for Insurance for Vehicle) USD 2000 (Reversal of Prepaid)

Accounting date: 01-Feb-2011 1) 01-000-7420-0000-000 01-000-1340-0000-000 2) 01-000-6501-0000-000 01-000-1340-0000-000 Dr Cr USD 1000 (Actual expense for Insurance for Building) USD 1000 (Reversal of Prepaid) Dr Cr USD 2000 (Actual expense for Insurance for Vehicle) USD 2000 (Reversal of Prepaid)

and so on until last accounting date 01-Dec-2011. For further details please refer to the accounting entries in the Create Accounting Output file below.

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Subledger Journal Entries Event Class Event Number Party Name Invoice Number Invoice Currency Invoice Type Cancelled Date Ledger Vision Operations (USA) Invoices 1 GE Plastics TR200111-01 USD STANDARD Event Type Event Date Party Site Name Invoice Amount Invoice Ledger Amount Invoice Date Invoice Description Ledger USD Currency Version Balance Actual Type GL Date Dec 27, 2010 2011-01-20T12:00:00 Invoice Validated Dec 27, 2010 DANBURY 36000

Application ACCRUAL_1 Accounting Definition Journal Entry Invoice Validated , Invoice Number: TR200111-01 , Date: 20-JAN-11 , Document Description Sequence Category: STD INV , Document Sequence Name: US_STD_INV , Invoice Voucher Number: 1520 , Invoice Description: Entered Accounted Account ing Curren Line Class Account cy Debit Credit Debit Credit 1 Item 01-000-1340-0000-000 USD 36,000.00 36,000.00 Expense 2 Liability 01-000-2210-0000-000 USD 36,000.00 36,000.00 Journal Entry Total 36,000.00 36,000.00 Ledger Vision Operations (USA) Application ACCRUAL_1 Accounting Definition Journal Entry Description Account ing Line Class Account 1 Item 01-000-1340-0000-000 Expense 2 Item 01-000-6501-0000-000 Expense Curren cy USD USD Ledger USD Currency Version Balance Actual Type GL Date Jan 1, 2011

Entered Debit Credit 1,000.00

Accounted Debit Credit 1,000.00

1,000.00 Journal Entry Total

1,000.00 1,000.00 1,000.00

Ledger Vision Operations (USA) Application ACCRUAL_1 Accounting Definition Journal Entry Description Account ing Line Class Account 1 Item 01-000-1340-0000-000 Expense 2 Item 01-000-7420-0000-000 Expense Curren cy USD USD

Ledger USD Currency Version

Balance Actual Type GL Date Jan 1, 2011

Entered Debit Credit 2,000.00

Accounted Debit Credit 2,000.00

2,000.00 Journal Entry Total

2,000.00 2,000.00 2,000.00

Similar Recognition accounting entries would be created for each month until Dec 2011.
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Ledger Vision Operations (USA) Application ACCRUAL_1 Accounting Definition Journal Entry Description Account ing Line Class Account 1 Item 01-000-1340-0000-000 Expense 2 Item 01-000-6501-0000-000 Expense Curren cy USD USD

Ledger USD Currency Version

Balance Actual Type GL Date Dec 1, 2011

Entered Debit Credit 1,000.00

Accounted Debit Credit 1,000.00

1,000.00 Journal Entry Total

1,000.00 1,000.00 1,000.00

Ledger Vision Operations (USA) Application ACCRUAL_1 Accounting Definition Journal Entry Description Accounti Line ng Class Account 1 Item 01-000-1340-0000-000 Expense 2 Item 01-000-7420-0000-000 Expense Curren cy USD USD

Ledger USD Currency Version

Balance Actual Type GL Date Dec 1, 2011

Entered Debit Credit 2,000.00

Accounted Debit Credit 2,000.00

2,000.00 Journal Entry Total

2,000.00 2,000.00 2,000.00

6. References Refer to the following documentation for more information on the Multi Period Accounting feature: Oracle Subledger Accounting Implementation Guide Oracle documentation can be found at: http://www.oracle.com/technetwork/documentation/applications-167706.html

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