Cross-Charge: Borrowed & Lent and Inter-Company Processing in Oracle Projects

An Oracle White Paper

August, 2011

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Table of Contents
Cross Charge Overview ................................................................................................................................. 3
Cross Charge Terminology ............................................................................................................................ 3
Cross Charge Processing Methods ................................................................................................................ 3
Borrowed and Lent Accounting Processing .................................................................................................. 4
Intra-Operating Unit ..................................................................................................................................... 4
Required Setup ......................................................................................................................................... 4
Example ..................................................................................................................................................... 5
Screen Shots .......................................................................................................................................... 6
Inter-Operating Unit ..................................................................................................................................... 8
Required Setup ......................................................................................................................................... 8
Example ..................................................................................................................................................... 9
Inter Company Billing .................................................................................................................................. 10
Setup & Example ..................................................................................................................................... 10
Transfer Price Rules .................................................................................................................................... 13
Transfer Price Schedules ............................................................................................................................. 14
Transfer Price Amount Calculation ............................................................................................................. 15
References .................................................................................................................................................. 18

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Cross Charge Overview
The act of charging costs directly to a project outside your own organization, operating unit, ledger, legal entity or
business group. Cross charge is the act of entering a transaction where the expenditure organization and project/task
owning organization are different.

For Example -
Employee - ABC belongs to Organization "Org1"
He is working for a Project - "Project1" which belongs to a different organization "Org2"
If he enters a Time card against "Project1", this is a cross charge transaction.

Cross Charge Terminology

1. Borrowed and Lent - A method of processing cross charge transactions that generates accounting entries to pass
cost or share revenue between the provider and receiver organizations within a legal entity.

2. Cross charge transaction - An expenditure item whose provider operating unit is different from the receiver
operating unit, the provider organization is different from the receiver organization or both.

3. Cross charge type - There are three types of cross charge transactions

 Intercompany (across legal entities)

 Inter–operating unit(across operating units)
 Intra–operating unit (within a single operating unit).

4. Intercompany billing - A method of internally billing work performed by a provider operating unit and charged
to a project owned by a receiver operating unit. The provider operating unit creates a Receivables invoice, which is
interfaced as a Payables invoice to the receiver operating unit.

5. Provider operating unit - The operating unit whose resources provide services to another project or
organization. (Expenditure operating unit)

6. Provider organization - For cross charge transactions, the organization that provides resources to another
organization. The default is the expenditure organization or the non–labor resource organization, which can be
overridden using the Provider and Receiver Organization Override client extension.

7. Receiver operating unit - An operating unit whose projects receive services from another project or
organization. (Project operating unit)

8. Receiver organization - The organization whose project (task) receives services from another project or
organization. (Task owing organization)

9. Transfer price - The price agreed upon by the provider and receiver organizations in a cross charged transaction.

Cross Charge Processing Methods

Borrowed and Lent Accounting - This processing method can be used for cross charge transactions between
different Operating units within same legal entity (Inter-operating Unit) or between organizations within same
Operating unit (Intra-Operating Unit).

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Project just creates accounting entries to pass costs and revenue across organizations without generating internal
invoices.

Intercompany Billing Accounting - Using this method, Projects generates physical invoices and corresponding
accounting entries at agreed upon transfer prices between internal seller (provider) and buyer (receiver)
organizations when they belong to different legal entities or operating units.

No Cross Charge Process - This method will not result in any cross charge processing for transactions that cross
organizations

Borrowed and Lent Accounting Processing

As stated above borrowed and lent processing method creates accounting entries ONLY to pass costs or share
revenue (the transfer price amount determines the cost or revenue amounts) between the provider and receiver
organizations within a legal entity.

Note: - This method cannot be used for intercompany (cross legal entities) cross charges.

If we choose to pass costs from the Provider to the Receiver then this processing method will

a. Debit the cost from the Receiver (or Lent) organization.

b. Credit the cost account to the Provider (or Borrowed) organization.

Similarly, if we choose to share Revenue then this processing method will

a. Debit the Revenue from the Receiver (or Lent) organization.

b. Credit the Revenue to the Provider (or Borrowed) organization.

Intra-Operating Unit
Intra-Operating Unit is a scenario where both the Provider and Receiver organization are within the same Operating
Unit.

Required Setup
1. Cross Charge should be enabled both at Project and Task Level. Along with the transfer price Rules Set.

2. In the Implementation Options Screen, under the Cross Charge tab (Cross Charges within an Operating Unit), the
Processing Method selected should be "Borrowed and Lent".
3. The following Auto Accounting Functions should be setup.
 Borrowed and Lent Credit Account
 Borrowed and Lent Debt Account
 Labor Revenue Borrowed Account
 Usage Revenue Borrowed Account

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Example
Let us consider the scenario below:

Provider Organization - Services-East

Receiver Organization - Services-West
Operating Unit - Vision Services
Legal Entity - Vision Services

1. Create a Project - "AA-Borrowed-Lent Project"

Organization - Services-West
2. Enable Cross Charge at the Project Level.
Enable Cross Charge at the Task Level for Task 4.0

3. Enter a Pre-Approved Expenditure Against the above project.

Employee: - Marlin, Ms Amy (who belongs to "Services-East" organization, which is different
from the Project Organization)

4. Distribute the costs by running PRC: Distribute Labor Costs

5. Run PRC: Distribute Borrowed and Lent Amounts
Once the above processes are completed, in the Expenditure Inquiry screen we can verify the following:

 Cross Charge Proc Method is populated as - Borrowed and Lent

 Cross Charge Type - Intra Operating Unit (as both Provider and Receiver belongs to same
OU)
 Transfer Price Amount.

6. Run PRC: Generate Cost Accounting Events.

7. Run PRC: Generate Cross Charge Accounting Events.
8. Run PRC: Create Accounting.

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Screen Shots

Figure 1 Project Screen

Figure 2 Project Level Setup

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Figure 3 Task Level Cross Charge Setup

Figure 4 Pre-Approved Batch

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Figure 5 Expenditure Enquiry

Inter-Operating Unit
Inter-Operating Unit is a scenario where both the both Provider and Organizations are from different Operating
Units.

Required Setup

1. Cross Charge should be enabled both at Project and Task Level. The transfer price Rules should be set at Project
and Task level.

2. In the Implementation Options Screen, under the Cross Charge tab (Allow Cross Charges to all Operating Units
within Legal Entity), the Processing Method selected should be "Borrowed and Lent". This has to be set in the
Receiver Operating Unit

Figure 6 Implementation Options

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3. In the Provider Operating Unit:
 Go to Setup  Costing  Provider and Receiver Controls
 Search for the Operating Unit - Vision Services (Provider OU)
 Under provider controls Receiver section, add the Receiver Operating Unit
 Enable Allow Cross Charge
 Select Borrowed & Lent for the Processing Method

Figure 7 Provider/Receiver Controls

4. The following Auto Accounting Functions should be setup.

 Borrowed and Lent Credit Account
 Borrowed and Lent Debt Account
 Labor Revenue Borrowed Account
 Usage Revenue Borrowed Account

Example
Let us consider the scenario below:

Vision Services R+D  Receiver OU

Vision Services  Provider OU.

Legal Entity - Vision Services

1. Go to the Receiver Responsibility

Create Project - "AA-Borrowed Lent 3"
Organization - Vision Services R+D

2. Enable Cross Charge at the Project Level.

Enable Cross Charge at the Task Level for Task 3.0

3. Go to the Provider Responsibility

Enter a Pre-Approved Expenditure Against the above project.

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 Employee - Marlin, Ms Amy (who belongs to "Services-East" organization, which is different from
Project OU)
4. Distribute the cost (Run PRC: Distribute Labor Costs).
5. Run PRC: Distribute Borrowed and Lent Amounts

Once the above processes are completed, in the Expenditure Inquiry screen we can verify the
following details:

 Cross Charge Proc Method is populated as - Borrowed and Lent

 Cross Charge Type – Inter-Operating Unit (as Provider and Receiver belongs to different
operating units)
 Transfer Price Amount.

6. PRC: Generate Cost Accounting Events.

7. PRC: Generate Cross Charge Accounting Events.
8. PRC: Create Accounting.

Figure 8 Expenditure Inquiry screen

Inter Company Billing

Inter Company Billing is a method of billing work performed by a provider operating unit and charged to a project
owned by a receiver operating unit. The provider operating unit creates a Receivables invoice, which is interfaced as
a Payables invoice to the receiver operating unit.

Using this method, Projects generates physical invoices and corresponding accounting entries at agreed upon
transfer prices between internal seller (provider) and buyer (receiver) organizations when they belong to different
legal entities or operating units.

For Inter Company Billing the Provider and Receiver must be in different legal entities.

Setup & Example

Consider the following Operating units which belong to two different legal entities.

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Legal Entity 1 - Projects Vision Communications  Receiver Operating Unit

Legal Entity 2 - Projects Vision Services  Provider Operating Unit

Projects Vision Services provides resources to work on a project related to Project Vision
Communications.

1. Go to Setup Costing Provider and Receiver Controls.

Query up the Provider Operating Unit (Vision Services in our example)
Under the Provider Controls Tab.
Setup the Receiver details as follows:
 Receiver Operating unit = Vision Communications
 Enable Allow Cross Charge
 Processing Method = Inter Company Billing
 Inter Company Billing Project = (Inter Company Project created in Provider OU)
 Enter an Invoice Grouping Method.

2. Go to Setup Costing Provider and Receiver Controls.

Query for the Receiver OU (Vision Communications in our example)
Under the Receiver controls Tab, setup the Provider details as follows:

 Operating Unit = Vision Services

 The supplier will be defaulted based on the setup done in the Implementation Options screen
in Vision Services (Provider OU) under the Internal Billing Tab.
 Enter a Supplier Site (mandatory). If not done the Receiver project will not be available in the
Pre-Approved batches screen to enter Expenditure Items.

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3. A Transfer Price Schedule should exist for the corresponding Provider and Receiver combination

4. Auto accounting Setup – The function “Intercompany Invoice Accounts” should be configured
5. In Projects Vision Communications OU (Receiver Operating Unit)
 Create a project "Contract New Project"
 Enable Cross charge at both Project and Task Levels.
 Under the Cross Charge Section, assign an Intercompany Tax Receiving Task at the
project level
6. In Projects Vision Services OU (Provider Operating Unit)
 Create an Intercompany project type (Intercompany Billing should be enabled)
 The project type should be a Contract project type
 Create a template and project based on the above project type.

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  In the project, under Customers and Contacts, ensure that the customer contact is be the
one defined, in the Vision Communications (i.e. Receiver OU) in the Implementation
Options screen Internal Billing Receiver Options (Customer name)
 The project should have baselined funding.

7. Enter a pre-approved Expenditure Item against project "Contract New Project"

8. Distribute the cost. Note: The expenditure item should be entered and distributed from the
Provider Responsibility

9. From The Provider Responsibility Run PRC: Generate Intercompany Invoices for a Single Project.
10. Approve and Release the Invoice.
11. Run PRC: Interface Intercompany Invoices to Receivables
12. Go to a Receivables Responsibility for the operating unit and run the Auto invoice Import
Program.
13. Run PRC: Tieback Invoices from Receivables

Once the processes are successfully completed, data will be inserted into the following AP tables:
AP_INVOICE_LINES_INTERFACE
AP_INVOICES_INTERFACE

14. Run the Payables Open Interface Import from a Payables responsibility (In the Receiver OU i.e.
Vision Communications Responsibility)
15. Run PRC: Interface Supplier Costs (In the Receiver OU i.e. Vision Communications Responsibility)

Transfer Price Rules

Transfer price refers to the price that two organizations agree upon for cross charge purposes. Transfer price rules
allow you to indicate how the transfer price is calculated. The calculations are based on

Transfer Price Basis – Base the transfer price on the raw cost, burdened cost, or revenue amount of the
transaction

Cross-charge calculation method – you can optionally burden, use bill rate schedules or a percentage markup to
calculate the transfer price from the basis

To define a Transfer Price Rule -

Navigate to Setup  Costing  Cross Charge  Transfer Price Rules

1. Enter a unique Rule Name.

2. Select type Labor or Non-Labor
3. Specify the description and effective dates.
4. For Basis select Raw Cost, Burden Cost or Revenue
5. Select one of the following Calculation Methods to determine the transfer price.

 Basis - Use the transfer price with no further adjustments.

 Burden Schedule - Specify name of the burden schedule to apply to the basis.

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  Bill Rate Schedule - For Operating Unit, specify the name of the operating unit that owns the bill rate
schedule that you want to use. For Schedule Specify the schedule bill rate schedule name to apply to the
basis.

6. In the Apply field, enter a percentage (zero or any positive number)

The % is the amount of markup or discount to the transfer price amount calculated by the rule. A number less
than 100 indicates a discount, greater than 100 indicates a markup.

Transfer Price Schedules

A transfer price schedule is a list of transfer price rules. In the simplest transfer price schedule there would be one
transfer price rule which all provider and receiver pairs would use.

Oracle Projects supports more complex schedules so your organizations can negotiate their own transfer price rules.
You can define one transfer price schedule consisting of different rules for different organization pairs or multiple
schedules consisting of different rules for the same pair of organizations.

You can assign different transfer price schedules at the project and task levels.

To define a Transfer Price Schedule, navigate to Setup  Costing  Cross Charge  Transfer Price Schedule

1. Enter a unique schedule name.

2. Select type (Labor or Non-Labor)
3. Specify the description and effective dates.
4. Enter the lines.

Line num - Enter a line num greater than zero.

Provider - Enter the provider operating unit, organization name

Receiver (optional)- Enter Receiver Operating unit, organization name.

If we leave Receiver blank then this transfer price schedule applies to any receiver organization receiving
transactions from the specified Provider organization.

Labor and Non-Labor Rules - select the corresponding Labor or Non-Labor Rules as defined above.

Apply % - The % is the amount of markup or discount to the transfer price amount calculated by the rule. A
number less than 100 indicates a discount, greater than 100 indicates a markup.
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 Transfer Price Amount Type -
 Cost and Revenue - Applies to all the Cross Charge Transactions
 Cost - Applies to transactions when the assigned work type has an amount type to Cost
 Revenue – Applies to transactions when the assigned work type has an amount type to Revenue

Effective Dates - Effective dates for the line.

Default - Choose one schedule line to be default to this schedule. Project uses this line to derive the transfer
price if none of the lines match your transaction. It is not mandatory to define one line as default; however,
if it cannot determine a rule to apply to a transaction then an error message is raised.

Transfer Price Amount Calculation

Case 1 -
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Define a Rule as follows:

Type = Labor
Basis = Raw Cost
Use = Basis
Apply = 100 %

Attach the above rule to a Schedule. In the Schedule

Apply % = 100 %
Transfer amount type = Cost

Attach the schedule at the task level.

Based on the above setup, this rule is used only for Labor Transactions.

Assume we have entered a Pre-Approved Time Card and distributed the cost, and let us assume that Raw Cost is
Calculated as - 2000 once the cost is distributed.

Now when we run the Distribute Borrowed and Lent Process, Transfer Price is calculated as follows:

Since the rule is based on Raw Cost, Raw cost of the transaction is considered.

Initial Transfer Price = (Raw Cost * Apply % in the Rule)

= (20000 * 100/100) = 2000.

Since the Schedule also has the Apply % as 100.

Final Transfer price amount = (Initial Transfer Price * Apply % in the Schedule Line) =
(2000 * 100/100) = 2000.

In this case Transfer Price Amount will be - 2000.

In the same example let’s assume that at both rule and schedule we have defined Apply % = 50.

Initial Transfer price = (Raw Cost * Apply % in the Rule)

= (2000 * 50/100) = 1000.

Once the rule % is applied, the schedule % is applied on the calculated Amount

Final Transfer Price Amount (Initial Transfer Price * Apply % in the Schedule Line) = (1000 * 50/100) = 500.

Since the Schedule also has the Apply % as 50. In this case Transfer Price Amount will be - 500

Case 2 – Rule Using Bill Rate Schedule

With the same above example, let’s say, instead of using Basis, we have selected "Bill Rate Schedule"

The rule is defined as follows

Type = Labor
Basis = Raw Cost
Use = Bill Rate Schedule and a Rate schedule is attached.
Apply = 50 %

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Attach the above rule to a Schedule. In the Schedule:

Apply % = 50 %
Transfer amount type = Cost

Attach the schedule at the task level.

Enter a Pre-Approved time card with quantity 50 and distribute the cost.

If the rate defined in the rate schedule attached above is 200 then the transfer price is calculated as follows:

In this case since a rate schedule is attached, raw cost will not be taken into consideration.

Initial Transfer Price = (Quantity * Rate * Apply %) = (50 * 200 * 50/100) = 5000

Final Transfer Price = (Initial Transfer Price * Apply % defined at the Transfer Schedule Line level) =
(5000 * 50/100) = 2500

The Transfer Price will be 2500.

Case 3 – Using a Burden Schedule

The rule is defined as follows:

Type = Labor
Basis = Raw Cost
Use = Burden Schedule
Apply = 50 %

Attach the above rule to a schedule, and in the schedule:

Apply % = 50 %
Transfer amount type = Cost

Entered a Pre-Approved time card, and distribute the cost. Assume the cost calculated is 3000.

The Transfer Price is calculated as follows:

In this case since a Burden Schedule is attached, based on the Raw Cost, the burden cost will be calculated
considering the burden schedule attached to the rule. Let us assume burden cost calculated is 1500

Initial Transfer Price = (Burden Cost * Apply %) = (1500 * 50/100) = 750

Final Transfer Price = (Initial Transfer Price * Apply % defined at the Transfer Schedule Line level) =
(750 * 50/100) = 375

The Transfer Price will be 375.

Note - Similar Logic applies if we use Basis as Burden Cost or Revenue.

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References
Oracle Project Costing User Guide
Oracle Project Costing Student Guide

Cross-Charge/Borrowed-Lent/Inter-Company Processing in Oracle Projects

Aug-11
Authors: Patlola Venkat Ram Reddy & Sateesha Honnegowda

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