Accruals

An Accounting Perspective

Swapnil Desarda
sdesarda@scoular.com
 Agenda
1. Scoular Overview 6. Functional Challenges
2. Accrual / Actuals / Clearing 7. Technical Challenges
3. Accruals vs. Actuals Accounting 8. Non Conventional Solutions
4. Business Requirements 9. Potential Product Improvements
5. OTM Capabilities 10.Questions?

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 Scoular Overview
• Scoular is a privately owned organization involved in
Commodities Trading and Transportation Services.
• 100+ products/ 28 offices/ 93 storage facilities/ 26th largest
container exporter of 2015
• Businesses mainly dealing with commodity trading, container
export/ import, domestic transportation.
• Freight is an important part of our revenue and expense,
therefore accurate freight accounting is a key to accurate
financial reporting

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 Accrual / Actuals / Clearing
• What is Accrual?
• Accrual is a method of accounting unpaid but incurred expenses and incomes.
• Expense Accruals = Buy shipment cost incurred but not paid = Liability
• Income Accruals = Sell shipment cost (revenue) due but not collected = Asset

• What is Actual?
• Actual in conventional terms is the voucher/ bill costs which reverses the accrual
• Payments = Voucher actual cost paid = Expense
• Receipts = Bill actual cost (revenue) collected = Income

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 Accrual / Actuals / Clearing
• Both accrual and actuals are allocated to order releases/lines to spread the
cost onto orders/ items.
• What is Clearing?
• Difference between Accrual amount and Actual expense/ income at the end of lifecycle of a
transaction may leave a balance in accrual account (called as open accrual) which is
removed selectively using clearing entries in ERP/ Accounting system.

• Why are these needed?

• Accurate financial reporting – Assets, Liability, Expense, Income.

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 Accruals vs Actuals Accounting
Example transaction showing how accrual account balance gets built
Dr. = Debit, Cr. = Credit
• Dr. Freight Expense $1000 • Cr. Freight Income $1200
Buy Shipment
Accrual
• Cr. Expense Accrual $1000 Sell Shipment
Accrual
• Dr. Income Accrual $1200

• Dr. Expense Accrual $800 • Cr. Income Accrual $1100

Invoice
Approval
• Cr. A/P $800 Bill Approval • Dr. A/R $1100

• Dr. A/P $800 • Cr. A/R $1100

Actual
Payment
• Cr. Cash $800 Payment
Receipt
• Dr. Cash $1100

Expense Accrual Cr. Balance • $200 + .. + .. Income Accrual Dr. Balance • $100 + .. + ..

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 Business Requirements
• The business required time limit to complete billing/ invoicing after which clearing can
be posted.
• Motor Carrier / Ocean Liner – 180 Days from issue date of first invoice
• Railroad– 3 years from issue date of first invoice
• Simple and up to date snapshot of outstanding Liability (expense accrual) and Assets
(income accrual) for fiscal period closing.
• Ability to trigger auto closing of open accruals from OTM which are outside the time
limits (clearing).
• Ability to send clearing on a transaction from OTM anytime when no more invoices/
bills are expected.

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 Business Requirements
• Month end report showing accruals vs. actuals by transaction presentable in a fiscal
period.
• Transaction Presentation Requirements for fiscal period in our business:
• Actual sail date in export
• Actual arrival date in import
• Shipment execution start date in domestic

• Easy reconciliation between OTM transactions and accounting system transactions

by fiscal period.
• Keeping track of accrual changes over fiscal periods, specifically ocean shipments.

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 OTM Capabilities
Accruals/ Allocations functionality:
• Allocating shipment planned costs (accruals) and Voucher/Bill costs (actuals) to order release level or
order release line level with variety of allocation metrics (weight, volume, distance, etc.).
• Defining Allocation Rules by domain/ carrier/ transport mode/ location profiles, etc.
Methods of integrating accruals to accounting system/ ERP:
• Planned Shipment/ Job integration – Where cost allocation to orders/ lines is not required, e.g. NVOCC
where one job is one transaction.
• Shipment Accrual (AllocationBase XML) – Where cost allocation to order lines is required and costs are
tracked by accessorials/ payment method codes in accounting system, e.g. Shipper loading multiple
orders, each order with multiple lines in one truck having mix of prepaid/ collect costs.
• Order Accrual (Accrual XML) – Where cost allocation to only order level is required, all costs are of same
payment method code and re-accrual delta needs to be tracked. e.g. 3PL loading multiple orders in one
truck with all prepaid costs.

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 Functional Challenges
• Frequent changes in planned shipment costs leads to number of accrual GL entries over time
making it difficult to reconcile and audit for period end closing – Better accrue just in time and re-
accrue thereafter.
• No information of clearings done by accounting system to OTM reflecting open accruals in OTM
which are not open in ERP/ Accounting system.
• As OTM does not retain the history of accruals sent out, it is impossible to reconcile systematically
between OTM and ERP/ Accounting System without using custom tables or other similar
mechanisms.
• Rolling over the accruals from one fiscal period to other, mainly in case of ocean shipments
because sailing date is not certain.

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 Technical Challenges
• OTM deletes the previous accrual records and creates new records when re-accruing after cost
changes; making it impossible to know what and when was sent to accounting system. Other
supplementary methods like informational costs/ custom tables need to be used to maintain the
history as OTM is source system.
• Informational costs have their own limitations of
• Not being well controlled through manager layouts. Users can accidently delete the informational costs.

• Cost total of informational costs does not auto update with informational cost lines being added/ deleted/ updated.

• Differential accrual (Delta) method can be used only with Order Accrual integration (Accrual XML),
not with Shipment Accrual (AllocationBase XML) integration and cannot be used if accruing by
order line (works only when accruing by Order in Allocation Rule).

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 Technical Challenges
• The accrual transmissions (both Accrual and AllocationBase XML) get a DB sequence as object
ID, which are lost after re-accrual/ reversal making it is impossible to trace the integrations in
support.
• Accruals lost from OTM for shipments deleted – Need action checks configured
• User data errors/ interface technical issues become uncontrollable in number, causing missing
accruals/ wrong accruals/ failing actuals for lack of accruals

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 Non Conventional Solutions
• Backing up accruals to informational cost and then running a BI Publisher report from OTM
displaying (no integration)
 Open accrual of shipments with accrual date in fiscal period being closed

 Allocations (invoices and bills) posted against previous period/s accruals (based on informational costs)

 Additional accruals of shipments accrued in previous period/s (based on informational costs)

• Backing up accrual tables into custom table every time an accrual is sent to accounting system
and then building a tool to compare it against current accruals (standard tables) to know the
difference at period end and post the differences as additional accruals.
• There can be more ingenious ways…….

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 Potential Product Improvements
• Show actuals against accruals by line on Shipment View like shown in Order View. Qualify
accruals and actuals clearly instead of Voucher/ Bill ID as indirect differentiator. Also show
reversal accruals created during Close Accruals workflow on both.

ORDER_RELEASE_ACCRUAL

ORDER_RELEASE_AC SENT_DAT ACCRUED_ FREIGHT_C FREIGHT_COST_CURRE FREIGHT_COST FREIGHT_SENT FREIGHT_SENT_COST_C FREIGHT_SENT_ DELTA_CURRE COST_TYPE_ ACCESSORIAL
CRUAL_GID ORDER_RELEASE_GID E SHIPMENT_GID DATE OST NCY_GID _BASE _COST URRENCY_GID COST_BASE IS_REVERSAL DELTA NCY_GID DELTA_BASE GID _CODE_GID
SCOULAR/FOOD.SEW011 SCOULAR/FOOD
SCOULAR/FOOD.31 615-060 23-MAY-16 .000017009 23-MAY-16 2511 USD 2511 0 USD 0N 2511 USD 2511 B
SCOULAR/FOOD.SEW011 SCOULAR/FOOD
SCOULAR/FOOD.32 615-060 23-MAY-16 .000017009 23-MAY-16 11 USD 11 2511 USD 2511 Y 2500 USD 2500 B
SCOULAR/FOOD.SEW011 SCOULAR/FOOD
SCOULAR/FOOD.33 615-060 23-MAY-16 .000017009 23-MAY-16 0 USD 0 11 USD 11 Y 11 USD 11 B

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 Potential Product Improvements
• Way to keep accrual history and show it in UI to be able to reconcile with accounting
system at fiscal period end.
• Statuses on shipment to track accruals issued and reversed on top of existing allowed,
accrued and closed statuses.
• Parameter to not allow deleting shipments through order un-assignment/ delete button if
shipment is accrual issued, just like voucher issued is treated.
• Enhance Close Accruals action to work in shipment accrual (AllocationBase XML)
scenario, not just Order Accrual (Accrual XML) scenario thus allowing clearings to be
posted from OTM.
• Resolve technical issues with informational cost like cost total update on
adding/updating/deleting lines manually, more control over ML edit/delete buttons.

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 Questions? Discussions?
• How other OTM customers deal with accruals?
• Summary pointers:
• Difference between Accrual, Actual, Clearing

• Business requirements

• OTM conventional accrual methods

• Functional / technical challenges

• Non conventional accrual solutions

• Potential product improvements

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 Thank You

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