Accounting White Paper PDF

Accounting in a Manufacturing Company
by Melanie Bock and Margaret Coleman

Consultants
Introduction
This paper explains accounting entries for a typical manufacturing company. We list most Manufacturing and
Financials accounting entries that Oracle Applications can produce, then provide detailed examples of the most
common transactions. We show entries using both standard and average inventory costing.
We cover the following modules:
Core Financials: General Ledger (GL), Accounts Payable (AP), and Accounts Receivable (AR)
Core Manufacturing: Order Entry, Purchasing (PO), Inventory (INV), Cost, and Work in Process (WIP)
The following modules and features are out of scope for this paper:
Manufacturing and Distribution modules that do not create accounting entries:

Engineering, Bill of Materials, and all planning modules
Other modules and features:

Assets, Projects, Human Resources, Sales and Marketing, Sales Compensation, Service, Supplier
Scheduling, Outside Processing, Intercompany Invoicing, Cash Basis Accounting, Encumbrance, and Funds
Control
We do not discuss detailed setup steps but see Exhibit 1 for a list of accounts and navigation paths for setup.
Standard and Average Costing

In Oracle Applications, you can select by inventory organization the method for inventory valuation, either standard
or average costing. With standard inventory costing, inventory valuation is based on a frozen standard cost that you
update periodically. With average costing, inventory valuation is based on a weighted average cost that is
automatically recalculated for each transaction using the following formula:
current inventory value + new transaction value

divided by
current on-hand quantity + new transaction quantity
There are currently some limitations if you use average costing. You specify one inventory value account for the
entire inventory organization, rather than setting up multiple valuation accounts by subinventory with standard
costing. All transactions are charged to the material cost element account, whereas you can charge transactions to
separate accounts by cost element with standard costing. You cannot share costs across organizations with average
costing. The ability to use average costing for WIP is not available in a production release until Release 11.
Types of Transactions
This section explains terminology we use for transactions in the remainder of the paper. Oracle documentation
sometimes uses different terminology.
Inventory Item: An item for which you track on-hand inventory balances and which is accounted for as an
inventory asset on your balance sheet. To specify this, set the Inventory Asset item attribute to Yes and Stockable to
Yes.
Copyright © 1999 by Melanie J Bock and Margaret Coleman

Inventoried Expense: An item for which you track on-hand inventory balances but you expense the cost at receipt
(set the Inventory Asset item attribute to No) or you receive it into an expense subinventory.
Expense: Goods or services on a PO that are expense (typically overhead) or fixed assets and are not tracked in the
Inventory module. These may or may not be setup as items on the item master.
Receipt and Payables Transactions
Oracle Purchasing and Inventory generate accounting entries for the following receipt transactions:
⇒ Inventory standard receipt
⇒ Inventory delivery
• Direct delivery receiving
• Return to vendor and correction
⇒ Inventoried expense standard receipt
⇒ Inventoried expense delivery
⇒ Expense period end receipt accrual
• Accrue expense items on receipt
Oracle Payables generates accounting entries for the following transactions:

⇒ Matched invoice for inventory
⇒ Matched invoice for expense
• Matched for inventoried expense
• Unmatched invoice
• Credit/debit memo
• Invoice adjustment and cancellation
• Expense report
⇒ Payment
• Void
• Prepayment
• Cash reconciliation accounting
In the following sections we describe the most common of the transactions above and provide examples of journal
entries with calculations. These are designated with the ⇒ symbol above.
Inventory Receipt Journals

There are two steps to an inventory receipt transaction, the receipt into receiving and inspection and then the actual
delivery to a subinventory. Receipts are either standard or direct. Standard receipts record goods into receiving and
inspection only. The actual delivery is another transaction. Direct receipts accomplish receiving and delivery in one
transaction. The Purchasing module accounts for receipts. Inventory accounts for delivery transactions. When an
invoice is matched to a PO, the Payables module generates additional accounting entries.
Transactions from the Inventory, Purchasing, and Payables modules are linked together using clearing accounts. The
Receiving account is a clearing account between Inventory and Purchasing. The Inventory AP Accrual account is a
clearing account between Purchasing and Payables. The graphic below shows the transactions with clearing
accounts for the three modules.

Delivery Match
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Inventory Receipt - Standard Costing

For standard receipts into receiving for inventory PO distributions, the Purchasing accounting entry when using
standard costing is:
Account Calculation Dr Cr
Dr Receiving Value 1 part x $3 PO price 3
Cr Inventory AP Accrual 1 part x $3 PO price 3
The Inventory accounting entry for delivery to stock is:
Dr Material Inventory Value 1 part x $4 material standard 4
Dr Material Overhead Inventory Value 1 part x $4 material standard x 50% burden 2
Dr/Cr Purchase Price Variance (PPV) 1 part x ($3 PO price - $4 material standard) 1
Cr Receiving Value 1 part x $3 PO price 3
Cr Material Overhead Absorption 1 part x $4 material standard x 50% burden 2
Direct delivery receiving accomplishes the receipt and delivery at the same time. The accounting is the same as with
the separate receipt and delivery transactions described above. Returns to vendor are exactly the opposite of receipt
and delivery transactions. Receipt corrections increase or decrease receipt amounts and account for transactions in
the same manner as original transactions.

Matched Invoice for Inventory
The basic Payables accounting entry when AP matches an inventory invoice to a PO is:
Dr Inventory AP accrual 1 part x $3 PO price 3
Dr/Cr Invoice Price Variance (IPV) 1 part x ($5 invoice price - $3 PO price) 2
Cr AP Liability 1 part x $5 invoice price 5
Inventory Receipt - Average Costing

For standard receipts into receiving for inventory PO distributions, the Purchasing accounting entry when using
average costing is:
The Inventory accounting entry for delivery to stock is:
Dr Material Inventory Value 1 part x $3 PO price 3.00
Dr Material Overhead Inventory Value 1 part x $3 PO price x 50% burden 1.50
Cr Receiving Value 1 part x $3 PO price 3.00
Cr Material Overhead Absorption 1 part x $3 PO price x 50% burden 1.50
Inventory calculates no purchase price variance when using average costing. The Payables match transaction is the
same for standard and average costing so is not duplicated here.
Inventoried Expense Receipt

For standard receipts into receiving for inventoried expense, the Purchasing accounting entry is the same as for an
inventory item:
The Inventory delivery accounting entry is:
Dr PO Charge Account 1 part x $3 PO price 3
Cr Receiving Value 1 part x $3 PO price 3
Inventory charges the expense account on the PO rather than an inventory valuation account and calculates no
purchase price variance for inventoried expense items.
Accounting for matched invoices for inventoried expense is the same as for inventory invoices.

Period End Receipt Accrual
The Period End Receipt Accrual process generates an accrual journal entry for expense receipts that exceed invoice
amounts. The accrual is a reversing journal entry. When AP matches an invoice to the expense PO, Payables
generates a journal entry to expense. The exhibit below shows transactions for expense purchase orders assuming
using the period end accrual, which is optional.
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The Purchasing accounting entry for the accrual is:
Dr Distribution on PO 1 part x $100 PO price 100
Cr Expense AP Accrual 1 part x $100 PO price 100
The following month this is reversed in GL.
You can accrue expense items on receipt rather than period end, however this is less common and not recommended
so is not explained here.
Matched Invoice for Expense

The Payables accounting entry when AP matches an expense invoice with tax and freight to a PO is:
Dr Distribution on PO 1 part x $100 PO price 100
Dr/Cr Distribution on PO 1 part x ($105 invoice price - $100 PO price) * 5
Dr Tax $10 tax on invoice 10
Dr Freight $20 freight on invoice 20
Cr AP Liability 1 part x $105 invoice price + tax + freight 135
* invoice price variance amount

There various ways to account for tax, including prorating to expense lines (most common in the US) or charging to
an expense account.
Accounting for unmatched invoices and expense reports is the same as for matched expense invoices, except there
are no distributions for the invoice price variance amount. Accounting for credit and debit memos is the exact
opposite as for invoices, whether inventory or expense. Invoice adjustments change accounting on invoices but work
the same way as the original transactions. Invoice cancellations reverse all distributions and the liability account on
the invoice and change the invoice amount to zero.
Accounts Payable Payment

The Payables accounting entry for a payment, assuming taking an early payment discount, is:
Dr AP Liability $135 invoice 135
Cr Cash $135 invoice - $5 discount 130
Cr Discount $5 discount taken 5
The payment journal entry is the same for inventory and expense.
A void journal entry in AP is the exact opposite of a payment entry above and has no effect on invoice distributions
unless you also cancel the invoice at the same time. Prepayments are advances paid to suppliers or employees. They
are charged to a prepayment account when originally paid and the prepayment is reduced when it is applied to future
invoices or expense reports. The Cash Management module allows automatically generating accounting entries as
part of the AP close for bank reconciliation, such as a payment clearing for a different amount than the original
payment.
Inventory Transactions
Oracle Inventory generates accounting entries for the following transactions (besides receipts):
⇒ Account issue/receipt
⇒ Account alias issue/receipt
⇒ Miscellaneous issue/receipt
⇒ Subinventory transfer
• Inter-org transfer
− Direct transfer
− With/without intransit inventory
− With/without internal orders
⇒ Cost Update
Inventory Journals
You can perform various Inventory transactions within or across organizations. Each inventory transaction for an
inventory asset item creates costing entries in each inventory organization. You post to GL by inventory
organization.

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Miscellaneous Inventory Transactions

There are various types of miscellaneous issue and receipt transactions that differ primarily in the manner in which
the user enters them. These transactions are Account issue/receipt, Account Alias issue/receipt, and Miscellaneous
issue/receipt. They are used to increase or decrease inventory when required for an event other than a normal
receipt, issue, shipment, or transfer. Examples are inventory adjustments and unplanned usage. The accounting
treatment is equivalent for these transactions therefore only one, miscellaneous, is explained below.
Miscellaneous Transaction - Standard Costing

The Inventory accounting entry for a miscellaneous receipt transaction assuming standard costing is:
Dr Inventory Value by Cost Element 1 part x $4 standard 4
Cr Transaction Charge Account 1 part x $4 standard 4
Accounting for a miscellaneous issue is the exact opposite of the receipt entry above.
Miscellaneous Transaction - Average Costing

The Inventory accounting entry for a miscellaneous receipt transaction assuming average costing is:
Dr Material Inventory Value * 1 part x $3 PO price 3
Cr Transaction Charge Account 1 part x $3 PO price 3
* Dr/Cr Average cost variance if the quantity on hand is negative before the transaction or as a result of this
transaction
Accounting for a miscellaneous issue is the exact opposite of the receipt entry above.

Subinventory Transfer
The Inventory accounting entry for a transfer of material between subinventories is:
Dr To Subinventory Value 1 part x $5 current cost 5
Cr From Subinventory Value 1 part x $5 current cost 5
Accounting for subinventory transfers is the same for standard and average costing except you can track valuation
accounts by cost element when using standard costing.
Inter-org Transfer
Inter-org transfer functionality allows you to transfer inventory between any two inventory organizations. You can
transfer the inventory directly from one subinventory/organization to another subinventory/organization or utilize
intransit inventory instead. Accounting entries are generated in the affected organizations.
Cost Update Transactions

You can update your cost whether you use standard or average costing. In both cases, Inventory revalues inventory
on-hand balances and generates a journal entry to record the adjustment.
Cost Update - Standard Costing

The Inventory accounting entry for an increase in standard cost is:
Dr Inventory Value by Cost Element 1 part on-hand x $1 increase in standard 1
Cr Standard Cost Adjustment 1 part on-hand x $1 increase in standard 1
Cost Update - Average Costing

The Inventory accounting entry for an increase in cost assuming using average costing is:
Dr Material Inventory Value 1 part on-hand x $1 increase in cost 1
Cr Average Cost Adjustment 1 part on-hand x $1 increase in cost 1
The Inventory module also generates journal entries to adjust corresponding WIP valuation accounts.
Work In Process Transactions
Oracle Inventory generates accounting entries for the following WIP transactions:
⇒ Component issue/return
⇒ Charge resource/overhead
⇒ Assembly completion/return
⇒ Close discrete job
• Scrap assembly in WIP
• Non-standard job
• Repetitive manufacturing

WIP Journals
When you move material to or from the production floor, Oracle Inventory records the component issue or return
transaction. As you move assemblies through the shop floor routing, the WIP module accounts for earned resources
and overheads. As you close WIP jobs, any remaining WIP value is written off to variance accounts. All journal
entries are part of the Inventory to GL interface. The exhibit below shows which transactions are included in each
journal.
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WIP Transactions - Standard Costing

The example below assumes the following standard costs for the assembly:
Material 1 component* x $2 standard cost $ 2
Resource 1 hour x $10 per hour standard rate 10
Overhead 10% x $10 resource value 1
Total $ 13
* In this example, assume the BOM calls out 1 part per assembly but you over-issue 1.
Inventory records the following accounting entry for issuing material to a job:
Dr WIP Value by Cost Element 2 parts x $2 standard 4
Cr Inventory Value by Cost Element 2 parts x $2 standard 4
At this point the cumulative WIP value is $4. You can track valuation accounts by cost element for make items with
standard costing.

As you perform shop floor moves, WIP records the following accounting entry for earned resources, assuming using
the WIP move autocharge method:
Dr WIP Resource Value 1 unit x $10 standard 10
Cr Resource Absorption 1 unit x $10 standard 10
WIP records the following accounting entry for earned overhead:
Dr WIP Overhead Value 1 unit x $10 resource standard x 10% 1
Cr Overhead Absorption 1 unit x $10 resource standard x 10% 1
At this point the cumulative WIP value is $15.
When you complete jobs, Inventory records the following entry to add the total standard cost of completed
assemblies to inventory:
Dr Inventory Material Value $2 WIP Material Value 2
Dr Inventory Resource Value $10 WIP Resource Value 10
Dr Inventory Overhead Value $1 WIP Overhead Value 1
Cr WIP Material Value 1 part per BOM x $2 standard 2
Cr WIP Resource Value 1 unit x $10 standard 10
Cr WIP Overhead Value 1 unit x $10 resource standard x 10% 1
When you close discrete jobs, WIP records an accounting entry to write off any remaining value to variance. In our
example, we over-issued one unit, thus causing a material variance:
Dr/Cr WIP Material Variance 1 assembly x ($15 matl+earned -$13 assembly std) 2
Cr/Dr WIP Material Value 1 assembly x ($13 assembly std -$15 matl+earned) 2
The cumulative WIP value at completion is now zero.
WIP Transactions - Average Costing

The example below assumes the following costs for the assembly using average costing:
Material 1 component* x $2 current average cost $ 2
Resource 1 hour x $10 per hour actual rate 10
Overhead 10% x $10 resource value 1
Total $ 13
* In this example, assume the BOM calls out 1 part per assembly but you over-issue 1.
Assume the beginning on-hand quantity for this assembly is zero.

Inventory records the following accounting entry for issuing material to a job:
Dr WIP Material Value 2 parts x $2 standard 4
Cr Inventory Material Value 2 parts x $2 standard 4
As you manually charge resources to the job (such as labor), WIP records the following accounting entry:
Dr WIP Resource Value 1 unit x $20 actual rate 20
Cr Resource Absorption 1 unit x $20 actual rate 20
WIP records the following accounting entry for earned overhead:
Dr WIP Overhead Value 1 unit x $20 actual rate x 10% 2
Cr Overhead Absorption 1 unit x $20 actual rate x 10% 2
When you complete jobs, Inventory records the following accounting entry to add the total cost of completed
assemblies to inventory:
Dr Inventory Material Value $26 total WIP value for 1 completed assembly 26
Cr WIP Material Value 2 parts x $2 standard 4
Cr WIP Resource Value 1 unit x $20 actual rate 20
Cr WIP Overhead Value 1 unit x $20 actual rate x 10% 2
At this point the cumulative WIP value is zero.
When you close discrete jobs, WIP records any variances, such as from the issuing of material or charging of
resource after completion.
If an assembly is damaged beyond repair, you can scrap partially built assemblies at any operation on the shop floor
routing. The partial assembly value is calculated and charged to a user entered scrap account.
In addition to standard discrete jobs, you can use non-standard jobs for producing product that does not have a
predefined bill of material or routing. The accounting entries are the same as for standard jobs.
If a product is repetitively manufactured, you can use repetitive schedules to track production of the item.
Component issues/returns, resource/overhead charges, scrap, and assembly completion/returns accounting entries are
the same as discrete jobs. You can choose to write off WIP variances at the end of period instead at the close of the
schedule.
Order Entry/Shipping and Accounts Receivable Transactions
Oracle Inventory generates accounting entries for the following transactions related to Order Entry/Shipping:

⇒ Confirm shipment
− Inventory interface
− Receivables interface - invoice
• Returned Material Authorization (RMA) receipts
− RMA interface
− RMA inventory receipt
− Receivables interface - credit memo
Oracle Receivables generates accounting entries for the following transactions:

⇒ Invoice
• Debit/credit memo
• Adjustment
• Commitment
• Revenue recognition
⇒ Cash receipt
• Receipt reversal
• Chargeback
• Miscellaneous cash
Shipment Journals
A shipment transaction in Order Entry generates transactions that are transferred to two other modules through
interfaces. The shipment is interfaced to Inventory for recording the decrease in inventory and for the accounting of
cost of goods sold. It is also interfaced to Accounts Receivable for generating the invoice and recording the revenue.
The graphic below shows the transactions for each module.
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Inventory Shipment
When you ship confirm and run the interface to Inventory, Inventory generates the following accounting entry:
Dr Cost of Goods Sold 1 part x $26 current standard or average cost 26
Cr Inventory Value by Cost Element 1 part x $26 current standard or average cost 26
Running the Receivables Interface transfers the shipment to AR to allow importing the data with AutoInvoice and
generating the invoice.
Accounting for an RMA inventory receipt for returned goods is the opposite of the shipment above. Running the
RMA Interface provides RMA data to Inventory to allow a user to subsequently enter the RMA receipt transaction in
the Inventory module, which records the receipt of goods back into inventory. Running the Receivables Interface
transfers the RMA to AR to allow importing the data with AutoInvoice and generating the credit memo.
Accounts Receivable Invoice

Accounts Receivable generates the following accounting entry for the sales invoice:
Dr Receivables 1 part x $50 invoice price + tax + freight 65
Cr Revenue 1 part x $50 invoice price 50
Cr Tax $5 tax on invoice 5
Cr Freight $10 freight on invoice 10
Accounting for debit memos is equivalent to invoices. Accounting for credit memos is the opposite as for invoices.
Adjustments typically write off invoices, such as immaterial short payments or write offs to bad debt. They typically
reduce the Receivables account and charge the amount to the specific account on the adjustment transaction.
In some businesses customers make commitments, either a prepayment/deposit which generates unearned revenue or
an agreement/guarantee to purchase a certain amount of goods which generates unearned revenue and unbilled
receivables. Subsequent invoices then reduce such commitments and reverse unearned and unbilled amounts. You
may use accounting or invoicing rules, such as recognizing deferred revenue over a period of a service; if so, the
original accounting entry is to unearned revenue and the Revenue Recognition process generates subsequent revenue
accounting entries.
Accounts Receivable Cash Receipt

Applying receipts to invoices produces the following Accounts Receivable accounting entry, assuming taking an
early payment discount:
Dr Cash $65 invoice - $12 discount 53
Cr Unapplied Cash $65 invoice - $12 discount 53
Dr Unapplied Cash $65 invoice - $12 discount 53
Dr Discount $12 discount taken 12
Cr Receivables $65 invoice 65
A receipt reversal journal entry in AR is the exact opposite of the cash receipt entry above and has no effect on the
invoice or revenue. At cash application time, the user can generate a chargeback. Chargebacks reduce the
Receivables account on the original invoice and charge a chargeback receivables account, which could be different.
The AR module allows entry of miscellaneous non-customer cash receipts, which function like journal entries,
increasing cash and offsetting to the account(s) on the miscellaneous cash transaction.

Multi-Currency Accounting
If you use foreign currencies in Oracle Applications, you will have additional accounting entries from some modules.
Inventory, Cost, and WIP all convert foreign currency transactions to the functional currency based on the exchange
rate of the transaction and generate all transactions in the functional currency.
Purchasing, Accounts Payable, and Accounts Receivable generate journals in the currency of the original transaction,
whether that is foreign or functional. If the transaction is in a foreign currency, the foreign currency journal entry has
the functional equivalent amount, based on the exchange rate of the transaction, on each journal line.
Accounts Payable and Accounts Receivable account for any differences in exchange rates between major steps of a
transaction. If the exchange rate on the PO (and therefore the receipt) is different from the AP invoice, AP accounts
for the difference and charges it to the Exchange Rate Variance account. If the exchange rate on the AP or AR
invoice is different from the AP or AR payment, AP and AR account for the difference as Realized Gain/Loss.
Examples of these transactions are explained below.
Assume a PO has a price of 21 foreign currency units and an exchange rate of 5, which is converted to 105
functional currency units. Therefore the receipt was recorded in the Inventory AP Accrual account at receipt time as
21 foreign and 105 functional currency units using the PO exchange rate. The AP invoice has a price of 22 foreign
currency units and a rate of 6 for 132 in the functional currency. There are both Invoice Price Variance (IPV) and
Exchange Rate Variance (ERV) on this transaction.
Account Calculation Foreign Functional

Dr Inventory AP accrual 1 part x PO price 21 Dr 105 Dr
Dr/Cr Invoice Price Variance (IPV) 1 part x (invoice price - PO price) * 1 Dr 6 Dr
Dr/Cr Rate Variance Gain/Loss (ERV) ** 21 Dr
Cr AP Liability 1 part x invoice price 22 Cr 132 Cr
* 1 part x (22 invoice foreign currency price - 21 PO foreign currency price) x 6 invoice rate = 6 in functional currency
** 1 part x 21 PO foreign currency price x (6 invoice rate - 5 PO rate) = 21 in functional currency
Now assume the exchange rate at the time of AP payment is 7 and a discount of 1 foreign currency unit is taken
which is converted to 6 in the functional currency using the invoice rate. Actual cash received is 21 in the foreign
currency, which is 147 in the functional currency at the payment exchange rate. There is Realized Gain/Loss on this
transaction.
Account Calculation Foreign Functional

Dr AP Liability invoice amount 22 Dr 132 Dr
Dr/Cr Realized Gain/Loss * 21 Dr
Cr Discount Taken discount taken 1 Cr 6 Cr
Cr Cash invoice amount - discount taken 21 Cr 147 Cr
* 21 cash payment in foreign currency x (7 payment rate - 6 invoice rate) = 21 in functional currency
AR accounts for Realized Gain/Loss for differences in exchange rates between invoices and receipts in a similar
fashion.
Further multi-currency details are beyond the scope of this paper.

Period End Close
This section describes the overall typical close process for a manufacturing company. Your procedures may differ.
The AP, PO, Inventory, and AR modules generate accounting entries. Companies generally post from subledgers to
GL at least weekly. Users post to GL, post the journals in GL, run subledger reports, and reconcile to GL balances.
They close the period for their subledger and open the next period.
The order of the close is significant in some cases due to relationships between modules. For example, typically
users complete all PO receipts and deliveries and close the PO module before final posting from Inventory to GL.
The order of the typical basic close is shown and described below.
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AP users run the AP/GL transfer process by operating unit, which initiates Journal Import for purchase invoice and
payment journals. AP also typically runs the PO module Receipt Accrual Period End process to accrue uninvoiced
expense receipts and runs Journal Import to import journals into GL. Users then post all their journals in GL and
reverse the prior month accrual. AP users reconcile the AP module and balance to GL with reports including the AP
Trial Balance, Posted Invoice Register, Expense Distribution Detail, Posted Payment Register, Payment Register,
Void Register, and Uninvoiced Receipts Report.
Cost accountants are typically responsible for generating journals for both the Purchasing and Inventory modules.
They ensure no transactions remain in the interface tables before starting the period end process. In Purchasing,
recording an inventory receipt generates a journal entry line for GL. Users run Journal Import to import receipt
entries into GL and they then post journals in GL. Users transfer from Inventory to GL by inventory organization,
which generates both WIP and Inventory journals. They run Journal Import to import journals into GL and post
them in GL. Cost accountants reconcile the Purchasing and Inventory modules and balance to GL with reports
including the Accrual Reconciliation Report, Receiving Account Distribution Report, Receiving Valuation Reports,
Inventory Value Reports, Material Account Distribution Summary and Detail Reports, Period Close Summary,
Transaction Balance Historical Summary, WIP Value Reports, and WIP Account Distribution Summary Report.
AR users run the AR/GL transfer process by operating unit, which initiates Revenue Recognition and Journal Import
for sales invoice, credit memo, adjustment, receipt, and other journals. Users then post their journals in GL. AR

users reconcile the AR module and balance to GL with reports including the Aged Trial Balance, Transaction
Register, Sales Journal, Adjustment Register, Applied and Unapplied Receipts Registers, Deposited Cash, Receipt
Register, Reversed Receipts, and Journal Entries Report.
Order Entry has no period end close processes, however, users ensure that shipments for the period are complete and
interfaces run to Inventory and AR before closing those modules.
GL users complete the close with additional journals, allocations, reconciliations, and reports.
Overall Advice
There are many options you face when implementing Oracle Manufacturing and Financials and many ways to
operate the system from a procedural standpoint. This section explains some of the best practices related to
accounting and closing with Oracle Applications.
Determine your setup options, make initial setup decisions, then test all transactions and variations very carefully.
Verify all resulting journal entries, run balancing reports, and test your reconciliation procedures. You will likely
need to change some setup and procedures and re-test. Have your Accounting users signoff on the accounting
transactions; they will need to see and understand the journal entries to do so. Perform full integration and
conference room pilot tests to verify all accounting is working as planned.
Use separate natural account numbers for different types of accounts to facilitate reconciliation. For example, your
Inventory AP Accrual, Expense AP Accrual, and Receiving accounts need to be different accounts. You will likely
need to add new natural accounts to your chart of accounts when implementing Oracle Manufacturing.
Setup security rules on major accounts that you typically reconcile. For example, do not allow Manufacturing users
to enter transactions to AP and AR control accounts. Test rules carefully as some transactions will fail when trying
to generate accounts in the background if security rules disallow entry to those background accounts.
Design your close process early in the implementation. The project team can then test and enhance it throughout the
implementation. Include all close steps for each module in sequence, journal entries produced (note key account
numbers used), reports to run, and reconciliation steps.
Post to GL from subledgers and reconcile two to four times per month. This allows users to detect and resolve any
problems early in the month before monthend close. If you find errors with journal entries from Oracle subledgers,
enter separate correcting journals in GL to correct the entry for the month rather than changing the journal that the
subledger generated. This will provide an audit trail of the correction and not interfere with any current or future
drilldown features Oracle may offer. If your journals are incorrect, determine the source of the problem in the
subledger and resolve it for future transactions, which may involve a setup or procedural change. Do not delete any
subledger journals Oracle produces as you cannot re-generate them from the subledger. The one exception to this is
the Period End Receipt Accrual for expense uninvoiced receipts, which you can re-generate if you close and re-open
the PO period.
Allow subledger owners to complete the full accounting cycle for their transactions, including importing journals
into GL, posting their journals in GL, and reconciling appropriate accounts. This allows them to be responsible for
the process through to successful completion/posting and allows them to reconcile their own data as they are the
people who know their data and can resolve any problems.

About the Authors
Melanie Bock is a consultant exclusively for Oracle Financials implementations. She began working with the
Financials in 1987 while a Consulting Manager with Oracle Corporation. Since 1990 she has been an independent
consultant and has provided consulting assistance to over 120 Financials clients. Melanie specializes in GL, AP, PO,
FA, and AR, primarily from the user perspective. She is a Certified Public Accountant and has spent most of her
career in systems. Melanie has also been an auditor and consultant with Arthur Andersen & Co. and an MIS
Manager.
Margaret Coleman is the owner of Margaret Coleman Consulting, and has been an independent consultant since
1985. Maggie has specialized in implementing manufacturing and distribution systems for over 20 years. She
participated in the original design and testing of the Oracle Manufacturing modules, and has been consulting on the
Oracle Applications since 1988. Prior to consulting, Maggie worked in various information systems positions from a
programmer analyst to a supervisor of systems analysts. She has received her Certification in Production and
Inventory Management (CPIM) from the American Production and Inventory Control Society.

Exhibit 1
Major Account Setup
This chart shows major account setups mentioned in our paper, by the lowest organizational level in the Applications
architecture at which you set them up. It shows by 10SC/NCA navigation path the major accounts in Oracle AP, AR,
PO, Inventory, Cost Management, and WIP and the costing method(s) with which you use the account. The far right
column shows features that allow users to further customize the account generation and thereby override default
accounts. Release 10.7 FlexBuilder has been renamed Account Generator in Release 11.
* Organization Level: Op Unit = Operating Unit, Inv Org = Inventory Organization, Subinv = Subinventory
Org Costing Ability to

Level * 10SC/NCA Navigation Path Account Method Customize
Op Unit AP : Suppliers : Entry (Sites, Accounting) AP liability Both --
defaults from AP : Setup : Options : Financials
Op Unit AP : Setup : Tax : Names AP tax Both --
Op Unit AP : Setup : Payment : Banks AP cash Both --
(Bank Accounts, GL Accounts)
Op Unit AP : Setup : Options : Financials AP discount taken Both Prorate
Op Unit AR : Setup : Transactions : Transaction Types AR receivable Both AutoAcctg
or AR : Setup : Salespersons AR freight Both AutoAcctg
or INV : Items: Master Items AR revenue Both AutoAcctg
or AR : Setup : Tax : Codes AR tax Both AutoAcctg
(See AutoAccounting options for each account)
Op Unit AR : Setup : Receipts : Receipt Class AR cash Both --
(Remittance Banks, GL Accounts) AR unapplied receipts Both --
AR unearned discounts Both --
AR earned discounts Both --
Op Unit PO : Setup : Organizations : Purchasing Options Expense AP accrual Both FlexBuilder
(Accrual)
Inv Org PO : Setup : Organizations : Receiving Options Receiving Both --
Inv Org INV : Setup : Organizations : Parameters Material Both --
(Costing Information) Outside processing Standard --
Material overhead Standard --
Overhead Standard --
Resource Standard --
Expense Both FlexBuilder
Inv Org INV : Setup : Organizations : Parameters Purchase price variance Standard --
(Other Accounts) Invoice price variance Both FlexBuilder
Inventory AP accrual Both FlexBuilder
Sales (revenue) Both AutoAcctg
Cost of goods sold Both FlexBuilder
Average cost variance Average --
Inv Org INV: Items: Master Items default from Expense Both FlexBuilder
INV : Setup : Organizations : Parameters Sales (revenue) Both AutoAcctg
(Costing Information or Other Accounts) Cost of goods sold Both FlexBuilder
Inv Org INV : Setup : Organizations : Shipping Network Inter-Org accounts:
(Special menu, Primary Accounts, Secondary Transfer credit Both --
Accounts) default from Purchase price variance Both --
INV : Setup : Organizations : Parameters Receivable Both --
(Inter-Org Information) Payable Both --
Intransit inventory Both --
Inv Org CST : Setup : Sub-elements : Overheads Overhead absorption Both --

Org Costing Ability to
Level * 10SC/NCA Navigation Path Account Method Customize
Inv Org CST : Setup : Sub-elements : Resources Resource absorption Both --
Resource variance Both --
Inv Org WIP : Setup : WIP Accounting Classes WIP accounts:
Material Both --
Material variance Both --
Material overhead Both --
Resource Both --
Resource variance Both --
Outside processing (OSP) Both --
OSP variance Both --
Overhead Both --
Overhead variance Both --
Standard cost update Standard --
Subinv INV : Setup : Organizations : Subinventories Material Standard --
Outside processing Standard --
Material overhead Standard --
Overhead Standard --
Resource Standard --
Expense Both --

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Accounting in a Manufacturing Company

by Melanie Bock and Margaret Coleman

We cover the following modules:

Manufacturing and Distribution modules that do not create accounting entries:

Other modules and features:

Standard and Average Costing

current inventory value + new transaction value

Copyright © 1999 by Melanie J Bock and Margaret Coleman

Receipt and Payables Transactions

Oracle Payables generates accounting entries for the following transactions:

Inventory Receipt Journals

Copyright © 1999 by Melanie J Bock and Margaret Coleman

'U#,QY#9DOXH Receipt 'U#,QY#$FFUXDO

,19#-( 32#-( $3#-(

Inventory Receipt - Standard Costing

The Inventory accounting entry for delivery to stock is:

Copyright © 1999 by Melanie J Bock and Margaret Coleman

Inventory Receipt - Average Costing

The Inventory accounting entry for delivery to stock is:

Inventoried Expense Receipt

The Inventory delivery accounting entry is:

Copyright © 1999 by Melanie J Bock and Margaret Coleman

Period End Accrual 'U#'LVWULEXWLRQ

GL Reversal of Last Accrual

The Purchasing accounting entry for the accrual is:

The following month this is reversed in GL.

Matched Invoice for Expense

* invoice price variance amount

Copyright © 1999 by Melanie J Bock and Margaret Coleman

Accounts Payable Payment

Copyright © 1999 by Melanie J Bock and Margaret Coleman

2UJ#&#4 2UJ#&#5 2UJ#&#6

Miscellaneous Inventory Transactions

Miscellaneous Transaction - Standard Costing

Miscellaneous Transaction - Average Costing

Copyright © 1999 by Melanie J Bock and Margaret Coleman

Cost Update Transactions

Cost Update - Standard Costing

Cost Update - Average Costing

Work In Process Transactions

Copyright © 1999 by Melanie J Bock and Margaret Coleman

'U#:,3 'U#:,3 'U#,QY 'U2&U 9DU

,19#-( :,3#-( ,19#-( :,3#-(

WIP Transactions - Standard Costing

Copyright © 1999 by Melanie J Bock and Margaret Coleman

WIP records the following accounting entry for earned overhead:

At this point the cumulative WIP value is $15.

At this point the cumulative WIP value is $2.

The cumulative WIP value at completion is now zero.

WIP Transactions - Average Costing

Assume the beginning on-hand quantity for this assembly is zero.

Copyright © 1999 by Melanie J Bock and Margaret Coleman

At this point the cumulative WIP value is $4.

WIP records the following accounting entry for earned overhead:

At this point the cumulative WIP value is $26.

At this point the cumulative WIP value is zero.

Order Entry/Shipping and Accounts Receivable Transactions

Copyright © 1999 by Melanie J Bock and Margaret Coleman

Oracle Receivables generates accounting entries for the following transactions:

Ship 2UGHU# Ship $FFRXQWV

Copyright © 1999 by Melanie J Bock and Margaret Coleman

Accounts Receivable Invoice

Accounts Receivable Cash Receipt