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Implementing Oracle General Ledger

Designing A Chart of Accounts


Chapter 3: Implementing Oracle General Ledger Designing a Chart of Accounts
The first step in setting up a financial reporting system is to design a chart of accounts.
Designing a chart of accounts is the first step in implementing an Oracle General Ledger
using Oracle financial application. This chapter describes the design of a chart of
accounts for Oracle General Ledger.
Chart of Accounts
A business records transactions using accounts and posts transactions to the T accounts.
At the end of a reporting period, the business summarizes the balance of each account in
a trial balance and balances the total debit and credit amounts of all the accounts. It then
makes the adjusting entries and obtains the adjusted trial balance to use for preparing
financial statements. The accounts are crucial in financial accounting process.
The business accounts are grouped under these headings:
1. Balance sheet accounts: Assets, Liabilities, and Stockholders Equity
2. Income statement accounts: Revenues and Expenses
To keep track, organizations have a chart of accounts, which lists all accounts and
account numbers. Account numbers usually have two or more digits. Assets are often
numbered beginning with 1, liabilities with 2, stockholders; equity with 3, revenues with
4, and expenses with 5. The second, third, and higher digits in an account number
indicate the position of the individual account within the category. For example, Cash
may be account number 101, which is the first asset account. Accounts Payable may be
number 201, the first liability account. All accounts are numbered by this system.
Organizations with many accounts use lengthy account numbers. For example, a large
corporation may use five-digit account numbers, 10010, 20010, 30010, 40010, 50010.
The chart of accounts for Smith Electronic Inc. appears in Exhibit 3-1.
Balance Sheet Accounts
Assets
101 Cash
111 Accounts Receivable
141 Office Supplies
151 Office Furniture
191 Land

Dr. Mangold

Exhibit 3-1
Liabilities
201 Accounts Payable
231 Notes Payable

Stockholders Equity
301 Common Stock
311 Dividends
312 Retained Earnings

Implementing Oracle General Ledger


Designing A Chart of Accounts
Income Statement Accounts
Revenues
401 Sales Revenue

Expenses
501 Rent Expense
502 Salary Expense
503 Utility Expense

A typical Chart of Accounts for a Service Corporation is presented in Exhibit 3-2.


Exhibit 3-2
A Typical Chart of Accounts for a Service Corporation
Assets
Cash
Accounts Receivable
Allowance for Bad Debts
Notes Receivable, Short
Term
Interest Receivable
Supplies
Prepaid Rent
Prepaid Insurance
Notes Receivable, LongTerm
Land
Building
Accumulated Depreciation Building
Equipment
Accumulated Depreciation Equipment
Furniture
Accumulated Depreciation Furniture

Dr. Mangold

Liabilities
Accounts Payable
Notes Payable, Short-Term
Salary Payable
Wages Payable
Payroll Taxes Payable
Employee Benefits Payable
Interest Payable
Unearned Service Revenue
Notes Payable, Long Term

Stockholders Equity
Common Stock
Retained Earnings
Dividends
Revenues and Gains
Service Revenue
Interest Revenue
Gain on Sale of Land
(Building, Equipment or
Furniture)
Expenses and Losses
Salary Expense
Payroll Tax Expense
Employee Benefits Expense
Rent Expense
Insurance Expense
Supplies Expense
Bad Debt Expense
Depreciation Expense Building
Depreciation Expense Equipment
Depreciation Expense Furniture
Property Tax Expense
Interest Expense
Miscellaneous Expense
Loss on Sale of Land,
(Building, Equipment or
Furniture)

Implementing Oracle General Ledger


Designing A Chart of Accounts
A typical Chart of Accounts for a complex merchandising corporation is presented in
Exhibit 3-3.
Exhibit 3-3
A Typical Chart of Accounts for a Complex Merchandising Corporation
Assets
Cash
Short-Term Investments
Accounts Receivable
Allowance for Bad Debts
Notes Receivable, Short
Term
Interest Receivable
Inventory
Supplies
Prepaid Rent
Prepaid Insurance
Notes Receivable, LongTerm
Investments in Subsidiaries
Investment in Stock
(Available for Sale
Securities)
Investments in Bonds
(Held-to-Maturity
Securities)
Other Receivables, Long
Term
Land
Land Improvements
Building
Accumulated Depreciation Building
Equipment
Accumulated Depreciation
Equipment
Furniture and Fixtures
Accumulated Depreciation
Furniture and Fixtures
Organization Cost
Franchises
Patents
Leaseholds
Goodwill

Dr. Mangold

Liabilities
Accounts Payable
Notes Payable, Short-Term
Current Portion of Bonds
Payable
Salary Payable
Wages Payable
Payroll Taxes Payable
Employee Benefits Payable
Interest Payable
Income Tax Payable
Unearned Sales Revenue
Notes Payable, Long Term
Bonds Payable
Lease Liability
Minority Interest

Stockholders Equity
Preferred Stock
Paid-in Capital in Excess of
Par Preferred
Common Stock
Paid-in Capital in Excess of
Par Common
Paid-in Capital from
Treasury Stock
Transactions
Paid-in Capital from
Retirement of Stock
Retained Earnings
Foreign Currency
Translation Adjustment
Treasury Stock
Dividends

Implementing Oracle General Ledger


Designing A Chart of Accounts
Exhibit 3-3 (Continued)
Stockholders Equity
Revenues and Gains
Expenses and Losses
Service Revenue
Cost of Goods Sold
Interest Revenue
Salary Expense
Dividend Revenue
Wage Expense
Equity Method Investment Revenue Commission Expense
Unrealized Holding Gain on Trading
Payroll Tax Expense
Investments
Employee Benefits Expense
Gain on Sale of Investments
Rent Expense
Gain on Sale of Land (Building,
Supplies Expense
Equipment or Furniture)
Bad Debt Expense
Gain from Discontinued Operations
Depreciation Expense - Building
Extraordinary Gains
Depreciation Expense - Equipment
Depreciation Expense Furniture
Organization Expense
Amortization Expense-Franchises
Amortization Expense Leaseholds
Income Tax Expense
Unrealized Holding Loss on Trading
Investments
Loss on Sale of Investments
Loss on Sale of Land (Building,
Equipment or Furniture and Fixtures)
Loss on Discontinued Operations
Extraordinary Losses
Property Tax Expense
Interest Expense
Miscellaneous Expense
Additional accounts for a more complex organization is highlighted in blue in Exhibit 33.

Dr. Mangold

Implementing Oracle General Ledger


Designing A Chart of Accounts
A typical Chart of Accounts for a manufacturing corporation is presented in Exhibit 3-4.
Exhibit 3-4
A Typical Chart of Accounts for a Manufacturing Corporation
Same as merchandising corporation, except for Assets and Expenses
Assets
Inventories:
Materials Inventory
Work in Process Inventory
Finished Goods Inventory
Expenses
Factory Wages
Factory Overhead
Flexfields
Oracle Financials can be configured to a remarkable extent without custom programming.
All the forms and reports are designed to be flexible and accommodate many kinds of
business rules for a wide variety of situations. In addition to many predetermined fields
that appear on each screen, most screens accommodate the entry of additional
information through the use of flexfields. Flexfields are important building blocks in the
Oracle E-Business Suite. They allow screens and reports to contain data that is uniquely
relevant to an organization. Each flexfield can be configured to capture and display the
specific information you want.
There are two types of flexfields: key and descriptive. Key Flexfields are used
throughout the Oracle Applications to uniquely identify information such as General
Ledger accounts, inventory items, and other entities that every business needs to keep
track of. Descriptive Flexfields enable one to capture additional pieces of information
from transactions entered into the Oracle E-Business Suite.
Accounting Flexfield
The Accounting Flexfield is the Oracle name for the account key used to record and
report accounting information. The Accounting Flexfield is a key Flexfield. It uniquely
identifies General Ledger accounts and provides a flexible structure for any chart of
accounts. The accounting Flexfield is stored in the GL-CODE-COMBINATION table.
Segments
The structure of Accounting Flexfield is a series of codes separated by period and each
code (xxx) represents a segment.

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Designing A Chart of Accounts
XX.XXX.XXXXXX.XXXX.XXXXX. ..
Segment1. Segment2.Segment3.Segment4.Segment5.Segment6..
The Accounting Flexfield can contain as many as 30 segments. Each segment can have
up to 25 characters, but the total number of characters for all segments is limited to 240.
A designer should define the segment name, the maximum number of characters for each
segment, the list of valid values allowed for each segment and the order in which
segments appear. Each organization is required to define a minimum of 2 segments.
Typically one organization will need between 5 and 10 segments. One should design the
chart of accounts to have as few segments as possible for ease of use. The more segment
you have, the greater the range of segment reporting available to you. However, more
segments can mean extra effort to code and categorize financial transactions. There is a
trade-off between capturing and validating data on each and every transaction and the
potential insight the extra data will give into your business.
A combination of segment values, known as an account code combination, uniquely
identifies the Oracle General Ledger account.
For example:
01.1001.1000.2010.3010.0001
In Oracle Financials, monetary amounts are posted as debits and credits to account code
combinations. Each account code combination has a balance at the end of each period.
These balances form the basis of the balance sheet, income statement and all other
reporting in the Oracle General Ledger. These balances are readily available either from
online inquiries or on printed reports. The management reports Oracle Financial
produces present totals by code combination and accounting period. Transaction-level
reports showing what went into a GL account balance comes from the systems that feed
the General Ledger.
Balancing Segment and Natural Account Segment
A company is required to define a minimum of 2 segments. One segment qualifies as the
balancing segment and the other segment qualifies as the natural account segment. The
balancing segment usually is the legal entity or company that Oracle E-Business Suite
uses to balance journals for each value of the segment. The natural account segment is
classified with an account type of asset, liability, owners equity, revenue, or expense.
Cost Center Segment
If Oracle Assets or Oracle Projects are going to be used, an additional cost center
segment must be assigned. Cost centers indicate functional areas of your organization,
such as accounting facilities, shipping, and so on.

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Implementing Oracle General Ledger


Designing A Chart of Accounts
You also should consider creating additional segments to anticipate future reporting
requirements or organizational changes. The Accounting Flexfield is flexible enough to
accommodate the needs of an organization by allowing a company to specify the number
of segments you want, the length of each segment, and the name and order of the account
code structure.
Examples of the Design of Accounting Flexfield
Most companies will use at least three segments: Company, Department, and Account.
Example 1:
If a company has
4 Sales Regions East, West, South, North
5 Products A, B, C, D, E
8 Departments R&D, Engineering, Manufacturing, Marketing, Accounting,
IT, Receiving and Shipping
General Ledger Accounts
This company wishes to have the following reports:
Reports of the sales and expenses in the four sales regions and in all regions
Reports of the sales and expenses of the 5 Products and all products combined
Reports of the specific product sales in each sales region
Reports of the departmental expenses
Financial reports for the organization
The company might set up the accounting flexfield to have 5 segments called Company,
Region, Cost Center, Account, and Product as in the following table
Accounting
Flexfield
Segment
Name
Number of
Characters
Valid
numbers

XX

XXX

XXXX

XXXX

XX

Company

Cost
Center
4

Account

Product

Sales
Region
3

01

01-999

01-9999

01-9999

01-99

A. Sales an Expense Reports in Sales Regions


A company with several regions would like to know the sales revenue from different
sales regions. The company can design the accounting flexfield to include the sales
region as a segment and the account segment. The accounting flexfield
XX.XXX.XXXX.XXXX.XX will include the sales region and account segments. A
company can produce sales and expense reports by retrieving all the transactions
containing a particular sales region segment and the revenues and expenses account code
combinations. A company can obtain the detail transaction reports and summary balance
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Designing A Chart of Accounts
reports for revenues and expense of each sales region and all sales regions as shown
below:
East Region Revenues
East Region Expenses

01.100.xxxx.4000.xx
01.100.xxxx.5000.xx to 01.100.xxxx.9999.xx

West Region Revenues


West Region Expenses

01.200.xxxx.4000.xx
01.200.xxxx.5000.xx to 01.200.xxxx.9999.xx

North Region Revenues 01.300.xxxx.4000.xx


North Region Expenses 01.300.xxxx.5000.xx to 01.300.xxxx.9999.xx
South Region Revenues 01.400.xxxx.4000.xx
South Region Expenses 01.400.xxxx.5000.xx to 01.400.xxxx.9999.xx
B. Product Sales and Expense Reports
A company with several products would like to know the sales revenue from different
products. The company can design the accounting flexfield to include the product
segment and the account segment which includes the revenues. The accounting flexfield
XX.XXX.XXXX.XXXX.XX will include the product and account segments. A company
can produce product sales reports by retrieving all transactions containing the product
segment and the revenues account segment code combinations. A company can obtain
the detail transaction reports and summary balance reports for the revenues and expense
of each product as shown below.
Product A Sales Revenues
Product A Expenses

01.xxx.xxxx.4000.01
01.xxx.xxxx.5000.01 to 01.xxx.xxxx.9999.01

Product B Sales Revenues


Product B Expenses

01.xxx.xxxx.4000.02
01.xxx.xxxx.5000.02 to 01.xxx.xxxx.9999.02

Product C Sales Revenues


Product C Expenses

01.xxx.xxxx.4000.03
01.xxx.xxxx.5000.03 to 01.xxx.xxxx.9999.03

Product D Sales Revenues


Product D Expenses

01.xxx.xxxx.4000.04
01.xxx.xxxx.5000.04 to 01.xxx.xxxx.9999.04

Product E Sales Revenues


Product E Expenses

01.xxx.xxxx.4000.05
01.xxx.xxxx.5000.05 to 01.xxx.xxxx.9999.05

C. Reports of Product Sales in Different Sales Regions


A company with several regions and several products would like to know the specific
product sales from different sales regions. A car company would like to know which
type of car (small, medium, luxury cars, SUVs, light or heavy trucks) are selling well in

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Implementing Oracle General Ledger


Designing A Chart of Accounts
which region. The company can design the accounting flexfield to include the sales
region segment, product segment and the account segment. The accounting flexfield
XX.XXX.XXXX.XXXX.XX will include the product, sales region, and account
segments. A company can produce reports of product sales in different regions by
retrieving all transactions containing the product, sales region, and the revenues account
combinations. A company can obtain the detail transaction reports and summary balance
reports for the product sales in different regions as shown below for Product A and B.
Product A sales revenues in East Region
Product A sales revenues in West Region
Product A sales revenues in North Region
Product A sales revenues in South Region

01.100.xxxx.4000.01
01.200.xxxx.4000.01
01.300.xxxx.4000.01
01.400.xxxx.4000.01

Product B sales revenues in East Region


Product B sales revenues in West Region
Product B sales revenues in North Region
Product B sales revenues in South Region

01.100.xxxx.4000.02
01.200.xxxx.4000.02
01.300.xxxx.4000.02
01.400.xxxx.4000.02

D. Departmental Reports
A company with several departments would like to know the specific expenses in each
department and the compare their actual expenses with their budgeted expenses. The
company can design the accounting flexfield to include the department segment (cost
centers) and the account segment. The accounting flexfield XX.XXX.XXXX.XXXX.XX
will include the department (cost centers) and account segments. A company can
produce departmental expense reports by retrieving all transactions containing the
department segment and their expense account code combination. A company can obtain
the detail transaction reports and summary balance reports for each department as shown
below:
R&D Department Expenses
01.xxx.1010.5000.xx
Engineering Department Expenses 01.xxx.1020.5000.xx
Manufacturing Department Expenses 01.xxx.1030.5000.xx
Marketing Department Expenses
01.xxx.1040.5000.xx
Accounting Department Expenses 01.xxx.1050.5000.xx
IT Department Expenses
01.xxx.1060.5000.xx
Receiving Department Expenses
01.xxx.1070.5000.xx
Shipping Department Expenses
01.xxx.1080.5000.xx

to 01.xxx.1010.9999.xx
to 01.xxx.1020.9999.xx
to 01.xxx.1030.9999.xx
to 01.xxx.1040.9999.xx
to 01.xxx.1050.9999.xx
to 01.xxx.1060.9999.xx
to 01.xxx.1070.9999.xx
to 01.xxx.1080.9999.xx

E. Financial Reports
The account segment contains account codes for assets, liabilities, equity, revenues and
expenses. A company can use the balances in each account to put together various
financial reports such as balance sheet, income statement and other financial reports.
Balance Sheet

Dr. Mangold

01.xxx.xxxx.0001.xx to 01.xxx.xxxx.3999.xx

Implementing Oracle General Ledger


Designing A Chart of Accounts
Income Statement

01.xxx.xxxx.4000.xx to 01.xxx.xxxx.9999.xx

Example 2: A Manufacturing Company


A manufacturing firm might set up the flexfield to have six segments including
Company, Cost Center, Account, Product, Product Line and Subaccount as in the
following table.
Accounting
Flexfield
Segment
Name
Number of
Characters
Valid
numbers

XX

XXX

XXXX

XXX

XXX

XXX

Company

Account

Product

Product
Line
3

Subaccount

Cost
Center
3

01

01-999

01-9999

01-999

01-999

01-999

Example 3:
A Project Oriented Division might set up the flexfield to have five segments including
Company, Account, Department, Project, Project Type as in the following table.
Accounting
Flexfield
Segment
Name
Number of
Characters
Valid
numbers

XX

XXX

XXXX

XXX

XXX

Company

Department

Account

Project

Project
Type
2

01

01-999

01-9999

01-999

01-99

Key Flexfield Features


The combinations of a Key Flexfield, such as the Accounting Flexfield, uniquely identify
a record in a database table. The philosophy of a relational database is that every table
contains a group of columns known as the primary key columns that uniquely identify
records in that table. Other examples of Key Flexfields are the Asset Key Flexfield, used
for identifying fixed assets, and the Items Flexfield, used tfor identifying inventory item
numbers. There are 22 Key Flexfields in Oracle E-Business Suite as shown in Table 3-5.
Table 3-1
The Key Flexfields in the E-Business Suite
Flexfield
Account Aliases Flexfield
Accounting Flexfield
Dr. Mangold

Code
MDSP
GL#

Owning Application
Oracle Inventory
Oracle General Ledger
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Designing A Chart of Accounts
Asset Key Flexfield
Bank Details KeyFlexfield
Category Flexfield
Cost Allocation Flexfield
Grade Flexfield
Item Catalogs Flexfield
Item Categories Flexfield
Job Flexfield
Location Flexfield
Oracle Service Item Flexfield
People Group Flexfield
Personal Analysis Flexfield
Position Flexfield
Sales Tax Location Flexfield
Sales Order Flexfield
Soft Coded KeyFlexfield
Stock Locators
System Items Flexfield
Territory Flexfield
Training Resources Flexfield

Key#
BANK
CAT#
COST
GRD
MICG
MCAT
JOB
LOC#
SERV
GRP
PEA
POS
MKTS
RLOC
SCL
MTLL
MSTK
CT#
RES

Oracle Assets
Oracle Payroll
Oracle Assets
Oracle Payroll
Oracle Human Resources
Oracle Inventory
Oracle Inventory
Oracle Human Resources
Oracle Assets
Oracle Service
Oracle Payroll
Oracle Human Resources
Oracle Human Resources
Oracle Receivables
Oracle Inventory
Oracle Human Resources
Oracle Inventory
Oracle Inventory
Oracle Receivables
Oracle Training Administration

All key flexfield share the same features. One can define the shorthand aliases to speed
up data entry tasks. You can define flexfield value security to ensure that particular users
can enter only particular segment values and cross-validation rules to prevent users from
creating new flexfield combinations that contain values that should not coexist in the
same combination. You can allow or prevent dynamic insertion for any specific Key
Flexfield. Dynamic insertion is the creation of a new valid combination from a form
other than the Combinations Form.
Accounting Flexfield Features
The Accounting Flexfield incorporates all the generic features of key flexfields and some
features that are not found in other flexfields:
1. Multiple Rollup Groups
Multiple roll up groups are used to produce management summaries. You can define
a hierarchy of parent and child values with each segment. When you report on a
parent value, Oracle General Ledger automatically displays the total of the balances
on all the children for that parent.
2. Summary Accounts
Summary accounts provide online summary balances. Usually summary accounts are
set up so that a total for each financial account is available irrespective of region, cost
center, product, and so on. Summary accounts are useful for responding to questions
like what was our total revenue in the last period?

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Designing A Chart of Accounts
3. The Financial Statement Generator (FSG)
The Financial Statement Generator allows you to easily build custom reports without
programming. You can define reports online with complete control over the rows,
columns, and contents of your report.
You can readily consolidate balances up through the account hierarchy using tools such
as summary accounts, parent accounts, and rollup groups.
Parents, Rollup Groups and Summary Accounts
Management reporting is the ultimate objective of General Ledger. It must be succinct.
Top management needs only the aggregate numbers. Oracle General Ledger uses several
different devices to adopt its relational database essentially flat in structure to
companies hierarchical reporting needs. The user can define hierarchies of values
through parent-child relationships. The Financial Statement Generator (FSG) uses the
concept of rollup groups to simplify reporting. Unlike parent-child relationships, rollups
go across all segments of the Accounting Flexfield.
Parent Child Rollup Groups
Exhibit 3-5 illustrates the parent-child roll up for regions.
Exhibit 3-5
Parent-Child Rollup Relationships
Regions
Western
Region

California

Northern
California

Southern
California

Top-level Parent

Washington

Eastern
Washington

Westesn
Washington

Oregon

Eastern
Oregon

2nd-level Parents

Western
Oregon

Children

Exhibit 3-5 shows that western region is the parent of California, Washington and
Oregon. California is the second level parent to two children, Northern California and
Southern California. Washington is parent to Eastern Washington and Western
Washington Oregon is the parent for Eastern Oregon and Western Oregon. Three
segments are usually required to represent the region, the states and the parts of states.

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Designing A Chart of Accounts
But using a parent-child roll up relationship, only one segment is required to represent the
hierarchical relationship here.
Table 3-2 is an example of a parent child rollup design for a location.

Parent-Child
Parent
Child
Child
Child
Child
Child
Child
Child
Parent
Child
Child
Child
Child
Child
Child
Child
Child
Child

Table 3-2
Parent-Child Rollup Relationship for
Region and States
Region
State
Segment
Western
1100
Washington
Montana
Oregon
Idaho
Wyoming
Utah
California
North East
1200
Pennsylvania
New York
New Jersey
Connecticut
Rhode Island
Massachusetts
Vermont
New Hamphire
Maine

Segment
1105
1110
1115
1120
1125
1130
1135
1205
1210
1215
1220
1225
1230
1235
1240
1245

In this parent-child rollup design, only one segment is needed. The character codes
distinguish the region (parent) and states. Oracle General Ledger will provide the revenue
balance for each state at any time. Oracle General Ledger also provides the revenue
balance for an entire region by rollup the balance in each state to the region parent.

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Exhibit 3-6 shows another example of a parent-child rollup relationship.
Exhibit 3-6
Parent-Child Rollup Relationships
Cash and Cash Equivalents
Cash and
Cash
Equivalents

Checking
Accounts

Checking
Account in
Bank 1

Checking
Account in
Bank 2

Savings
Account

Checkingt
Account in
Bank 3

Savings
Account in
Bank 1

Top-level Parent

Money
Market
Accounts

Money
Market
Account in
Bank 4

2nd level
Parent

Money
Market
Account in
Bank 5

Exhibit 3-6 shows that the Cash and Cash Equivalents account is the top level parent for
three children - Checking accounts, Savings account and Money Market accounts. These
three accounts are children of the Cash and Cash Equivalents account and they are also
the second level parent accounts. Checking Accounts have three children - Checking
Account in bank 1, 2 and 3. Savings account has one child Savings Account in Bank 1.
Money Market Accounts has two children - Money Market Account in Bank 4 and
Money Market Account in Bank 5.

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Designing A Chart of Accounts
Table 3-3
Parent-Child Rollup Relationship for
Cash and Cash Equivalents
ParentChild
Parent
Child &
Parent
Child

Account
Cash &
Cash Eq.

Account

Checking
Accounts

Child
Child
Child
Parent
Child

Savings
Accounts

ChildParent

Money
Market
Accounts

Child

Child

Account

Account
Code
10000

Account
Code

Account
Code

10100
Checking
Account
in Bank 1
Checking
Account
in Bank 2
Checking
Account
in Bank 3
Savings
Account
in Bank 1

Money
Market
Account
in Bank 4
Money
Market
Account
in Bank 4

10110
10115
10120
10400
10410
10500
10510

10515

The first digit 1 corresponds to parent account Cash and Cash Equivalents. The second
and third digits refer to the second level parent Checking Accounts (01), Saving Accounts
(04), Money Market Accounts (05). The fourth and fifth digits refer to the child
accounts, Checking Account in Bank 1 (10), Checking Account in Bank 2 (15), and
Checking Account in Bank 3 (20). This accounting flexfield code combination
incorporates the logical parent-child relationships. Oracle General Ledger will provide
the balance in each child account. Oracle General Ledger will also provide balance for
any parent level accounts.

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Summary Accounts
Summary accounts are also accounts that roll up to a summary account similar to the
parent-child rollup relationship. Parent-child accounts require a logical relationship
defined in accounting accounts or regional-state relationships as in the previous
examples. Users specify the summary accounts and the accounts that roll up to summary
accounts. Summary accounts are broader and can include any accounts.
Financial Statement Generator Reports
Financial Statement Generator reports are defined using Accounting Flexfields, not rollup
groups. The Accounting Flexfield may include parent segments, which fit the
Accounting Flexfield structure. They can also take advantage of the summary accounts
that have been defined through rollup groups.
Management Reports Using Accounting Flexfield
The purpose of the financial reporting is to provide useful reports to management for
decision making. The design of Accounting Flexfield is crucial to management reports.
Accounting Flexfield designed for large financial reporting system provide each company
with great flexibility in producing management reports. This is a significant advantage
using large financial reporting systems compared to only certain prepared reports can be
produced in an accounting software for small companies.
With the design of Accounting Flexfield for regions-states in Table 3.2, Oracle General
Ledger can provide revenues and expense reports for the manager of each state, each
region, director of several sales regions and the head of all sales regions.

California
Sales Report

Dr. Mangold

Western
Sales
Region
Report

Company
Sales
Reports for
All Regions

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If a company uses Company-Department-Account Accounting Flexfield design, the
company will be able to generate budget and expense report for each department and for
the entire company.

Engineering
Department
Budget and
Expense
Report

Research &
Development
Department
Budget and
Expense
Report

Production
Department
Budget and
Expense
Report

Each country and countries in a particular region can produce their own financial reports
and local tax reports. Parent company can produce consolidated financial statements.
The sales offices in each country or region can produce their sales reports or expense
reports. A company can produce project based financial reports. Reports of
manufacturing costs can be produced for factories over the world. Using different
combinations of Accounting Flexfields, a company can design and generate an unlimited
number of customized reports a company needs. This is a significant advantage of large
financial reporting system such Oracle Financial Applications.
Accounting Flexfield Design
Before an organization sets up its Accounting Flexfield, it should carefully plan its
organizational needs. It is easier to build flexibility into the account structure during
setup than to try to change the account structure later. Consider future expansion, and
possible change in the organization and reporting needs. Also consider the other
applications you will be using now and in the future, because an incorrectly defined
Accounting Flexfield can adversely affect its accounting data, chart of accounts structure,
and other features. It also is difficult to change the Accounting Flexfield after it has been
frozen and has been used to capture data through transaction processing. Changing the
account structures after the fact may create data inconsistencies that could impact the
behavior of the application or require a complex conversion program.
A company should put considerable thought into the design and structure of its
Accounting Flexfield before beginning the setup of Oracle General Ledger. Many
companies put together a special project team to come up with a new chart of accounts
structure before the implementation project. Companies use the implementation of the
Oracle E-Business Suite as a catalyst for introducing a new chart of accounts or a
common chart of accounts across their entire organization.

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Designing A Chart of Accounts
The project team assigned the task of designing a new chart of accounts needs to consult
extensively within the organization to understand the reporting needs of all business
areas. The team must be aware of the statutory accounting requirements and should be
familiar with the mechanics of Accounting Flexfields within Oracle Financials. It is a
mistake to think that the chart of accounts design is independent of the features of the
Oracle E-Business Suite. The design of the Accounting Flexfield should make full use of
standard application features. Oracle E-Business Suite features such as journal
allocations, account generator, cross-validation rules, summary accounts and rollup
groups critically depend on the structure of the Accounting Flexfield. With a wellplanned account structure, you will be better positioned to take full advantage of these
built-in features.
For example, by grouping all current liabilities in an account range from, say account
2000 to 2999, a report could easily be run on current liabilities. If there were no logic
built in to the account codes and ranges, it would take considerably longer to obtain a list
of all current liability accounts and would likely require custom report development at a
later stage. The logical grouping of values in ranges, as described above, is one example
of good Accounting Flexfield design. A well-designed Accounting Flexfield is vital.
The finished design of the Accounting Flexfield is a milestone in the implementation of
Oracle E-Business Suite. Before proceeding with subsequent phases of the
implementation, ensure that the chosen design has the acceptance of people who will be
working with it: the finance department, operational departments, and auditors. It is a
good idea to ask Oracle Consulting Services or an experienced Oracle Financials
consultant to validate the chosen design.
Considerations in Designing the Chart of Accounts
When defining the chart of accounts, consider the following suggestions:

Define a flexible account structure that accommodates current organization needs


and anticipates the organizations needs in the future.

Define an account structure large enough to reflect the important aspects o the
organization, but small enough to be manageable and meaningful.

Define an account structure that accommodates and properly classifies


information from your other financial information sources.

Create an account structure that provides a logical ordering of values by grouping


related accounts in the same range of values. Additionally, create an account
structure that allows for expansion and development of new categories.

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Designing A Chart of Accounts
Identify Business Requirements
The designer first needs to identify the aspects of the business that needs to be tracked
and analyzed. You need to pay specific attention to aspects that span several
applications. Examples include:

Company, legal entity, fund


Division, region, territory, state, country
Location, plant, office, store
Cost center, department, function
Natural account categories under asset, liability, owners equity, revenue
and expense types
Product, product line, line of business, channel
Project, phase, task, job, work order

The designer should assign each item type as a separate segment and avoid having more
than one meaning for each segment.

Company
xxx

Region
xx

Products &
Project
xxxx

Analyzing Reporting Requirements


The setup of Accountign Flexfield segments should support an organizations reporting
requirements and be part of a corporate-wide plan for financial reporting. You need to
make sure that you can generate the required reports based on the segments in your
Accounting Flexfield. Consider company consolidated report, regional reports, cost
center reports and project reports.
Creating a Worldwide Chart of Accounts
Many companies need to use a unified chart of accounts, but also need to capture
different information in different sites and countries based on business needs and
statutory requirements.
HQ

Consolidating
Segments
(HQ Control)

Dr. Mangold

Nonconsolidating
Segments
(Local Control

Conslidating
Segments
(HQ Control)

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Implementing Oracle General Ledger


Designing A Chart of Accounts
A company can maintain a common list of account combinations, with site-specific or
country-specific detail in a segment that is controlled in each location and not
consolidated to corporate headquarters.
Examples:
For Consolidated Financials:
The chart of accounts will have the following segments:
Company-Division-Cost Center-Account
For Canada:
The chart of accounts will include an additional product segment to keep track of
products in Canada, but not in the headquarter.
Company-Division-Cost Center-Account-Product
For United Kingdom:
The chart of account will include an additional subaccount segment for UK accounts just
for UKs reporting needs.
Company-Division-Cost Center-Account-Subaccount
Creating Vertical Structures
A designer should avoid creating unneeded segments. One can use parent-child rollup
groups and summary accounts to create vertical structures. One can track structures such
as division-region-office in a single segment by using a vertical accounting flexfield.
Example: Use Company-Office-Account instead of Company-Division-Region-OfficeAccount. Using Parent-Children structure for Division-Region-Office so all office will
roll up to region parent and regions will roll up to division parent. So there is one
segment needed in account structure design.
Division parent

Region parent

Posting level

Company

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Division

Region

Office

Account

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Designing A Chart of Accounts
Using Independent and Dependent Segments
An independent segment is a segment that has meaning on its own without depending on
other segment values. An example is Company (01). A dependent segment is a segment
that is linked to an independent segment. The dependent segment does not have any
meaning on its own without linking to the independent segment.
Examples:
Account: 1100 (Cash Account) Independent segment
Subaccount: 001 (Cash-Citibank) Dependent segment
Account: 2200 (Debt)
Subaccount 001 (Debt-B of A)
Independent Segment
A segment that has meaning on its own
without depending on other segment values
Example:
Company: 01
Cash:
1100

Dependent Segment
A segment that is linked to an independent
segment
Example:
Account: 1100 Subaccount: 001
Account: 2200 Subaccount: 001

The account codes with a dependent subaccount segments are as follows:


Subaccount Description
Account
1100
001
Cash in Bank 1
1100
002
Cash in Bank 2
1100
003
Cash in Bank 3
The account codes with an independent subaccount segments are as follows:
Account
Description
1100001
Cash in Bank 1
1100002
Cash in Bank 2
1100003
Cash in Bank 3
The problem with dependent segments is their all-or-nothing hierarchy. One can not
switch it on for some values and switch it off for others. Parent segment and their
children are better for the hierarchical relationships.
Designing Segment Numbering Schemes
A designer needs to decide whether to allow alphabetical characters in Accounting
Flexfield value sets. Numerics are preferable from a data entry perspective because users
can use the numeric keypad. Sort order is clear and ranges are easy to use.
Alphanumerics may have some logic and meaning to users. If you do use alphanumeric
codes, set up the codes in all uppercase to enable consistency and ease of sorting and
quering.

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Designing A Chart of Accounts
With an alphanumeric coding schema, you can have character codes for parent values and
numeric codes for child values, this allows for visually distinguishing levels of your
hierarchy. Regardless of whether you use a numeric or alphanumeric, coding schema,
you must use the Char format type.
Sequencing the Segments
A designer should consider the efficiency of data entry and a logical order for users when
deciding how to order your Accounting Flexfield segments. You should try to place
segments with defaults at the beginning or end of your Accounting Flexfield. Several
reports in Oracle General Ledger sort in the order of Balancing segment, accounting
segment and remaining segments from left to right. As a general rule, sequence any extra
segments that you have added for future growth at the end of your structure.
Using Dynamic Insertion and Cross-Validation Rules
A designer should enable dynamic insertion if you want users to create new combinations
from windows that do not use your combinations table. A designer should prevent
dynamic inserts if you want all new valid combinations entered only from the General
Ledger accounts window. If dynamic insertion is allowed, consider using cross
validation rules to prevent the creation of combinations that should never exist
(combinations with values that should not coexist).
Using Security Rules
Flexfiled Security rules restrict access to Accounting Flexfield segment values based on
responsibility. You can use the Define Flexfield Security Rules window to define security
rules at any time. Once you define a rule, you must assign the rule to a responsibility.
You may define rules for segment that does not have security enabled, but the rule has no
effect until you enable security for that segment and assign the rule to a responsibility.
Flexfield security rules for the Accounting Flexfield restrict all data entry, query access,
and Financial Statement Generator (FSG) reporting to certain segment values.
Cross Validation Rules ensure that account combinations always correspond to real
accounting distributions. Whether new Accounting Flexfield combinations are created
manually or by using Dynamic Insertion, Oracle Applications validates your accounting
Flexfield against your cross-validation rules.
Good Design Principles
It is easier to build flexibility into your account structure during setup than to try to
change your account structure in the future. After considering the preceding design
principles, you are in a good position to start designing your Accounting Flexfield. The
design will be complete when you have finalized the number of segments, their order and
length, the valid values for each one.

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Designing A Chart of Accounts
The Number of Segments
Commercial businesses all face similar accounting and management challenges, so it is
reasonable to expect that the same sort of business dimensions will apply to different
companies. You might find that the classifications are different from company to
company, but the underlying dimensions are the same. Table 3-4 lists common business
dimensions for both business and non-business organizations. Each of these dimensions
will become a separate segment in the Accounting Flexfield.
Dimension
Legal entity
Natural Account
Responsibility
Sales analysis
Geography
Intercompany
Project
Fiscal reporting

Table 3-4
Business
Company
Account
Cost Center or Department
Product Distribution
Channel
Region or district
Intercompany
Project
Tax code

Nonbusiness
Fund
Account
Program

Funding vehicle
Appropriate year

The Order of Segments


The order you assign the segments of the Accounting Flexfield will determine their order
of appearance on reports and screens. Segments that are frequently defaulted should
appear toward the end of the Flexfield. This will increase data entry speed.
Some claims have been made that the order of the segments has an effect on
performance. This might be true, but only in a badly tuned application database. In a
well-tuned application the order of the segments should make no difference to the
application performance.
Length of Each Segment
Consider the structure of values you plan to main within the segment. For example, you
might use a three-character segment to capture project information and classify your
project so that all administrative projects are in the 100-199 range, all facilities projects
are in the 200-299 range, and so on. If you develop more than ten classifications of
projects, you will run out of values within this segment. You might want to add an extra
character to the size of each segment to anticipate future needs.
If you anticipate future frequent restructurings, which require you to disable values and
enable new ones, you should allow for enough digits to avoid having to recycle values.
For example, you disable old cost centers and enable new ones frequently, you will use
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Designing A Chart of Accounts
up cost center values quickly; therefore you should use a larger maximum size for your
cost center value set, so that you can have more available values. For example, three
digits would allow you to create 1000 different cost centers (number 000-999).
Defining Valid Segment Values
For each segment you must define a value set, which restricts the valid values that can be
entered. The value set can be either numeric or alphanumeric. You should set up
alphanumeric value sets, because summary accounts use the value T to represent Total.
However, the segment values you actually use should be numeric, if at all possible, for
the detail accounts that are used day to day. Numeric segment values can be keyed far
faster than alphanumeric values. It is also much easier to specify ranges with numbers
than with letters, and ranges are extremely useful in rollup groups, parent-child
relationships, and FSG reports. Parent accounts, on the other hand can be set as alpha
characters. Indeed, setting details as numeric and parents as alpha is a handy way to
distinguish each type.
Cross Validation Rules
Not every Accounting Flexfield combination makes sense. For example, if your
organization manufactures both computer equipment and trucks, you might want to
prevent the creation of hybrid part numbers for objects such as truck keyboards, or CPU
headlights. To prevent users from entering invalid combinations of segments, Oracle
General Ledger allows you to set up cross validation rules. Cross validation rules define
whether a value of a particular segment can be combined with specific values of other
segments.
Maintenance
Your account structure and Accounting Flexfield must be maintained as your business
grows and changes. Oracle GL reduces the effort of maintenance through the Mass
maintenance workbench, which allows you to move balances from one account to
another or merge balances from multiple accounts into a single account. You can also
automatically create new account combinations based on existing combinations.
For Future Use Segment
Spare segments that might one day be activated are considered good design by some and
unnecessary by others. If you incorporate a spare segment for fear of having missed
something critical in your business analysis they are a bad idea. You need to complete the
analysis more thoroughly. You might expect a spare segment would become useful if the
company develops a new line of business or acquires a rival. Businesses do change, but
when change comes it is rapid and far reaching. Seldom would an extra segment be
sufficient to administer new with old. If you must create a spare segment, define it as
character and hide it from ordinary users.

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References
Implementing the Oracle Financial Applications: Financial Management Release 11:
Student Guide, by Oracle University, 1999.
Oracle E-Business Suite Financials Handbook: Implement Oracles Robust E-Business
Suite of Financial Applications, David James, Simon Russell, and Graham Seibert,
McGraw Hill, Osborne Press, 2002.
Oracle Tutor: General Ledger for Release 11.0 Training for Application Users Today
and Tomorrow CD, by Oracle Corporation, 1999.

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