Oracle Accounting

Understanding Accounting from Techies Mind
Indeed, this is one of good area, where most of techies have lot of confusion and illusion about when accounting comes. Many of consultant came from Technical background and gradually moved into doing some techno -functional role or pure functional role, thus it is essestintial to understand the basic accounting and Guided principal . Normally, there are two basic accounting methods available in the business world:

y y

Cash Accrual

And most of the ERP accounting products weather its SUN system, Oracle financial or SAP have functionality to capture on the basis of set up. Then want is the difference:

Cash Basis Accounting This is what "Based on Realization" We Most of us use the cash method to keep track of our personal financial activities. The cash method recognizes revenue when payment is received, and recognizes expenses when cash is paid out. For example, our local grocery store's record is based on the cash method. Expenses are recorded when cash is paid out and revenue is recorded when cash or check deposits are received If we summarize, under the cash basis accounting, revenues and expenses are recognized as follows:

y y

Revenue recognition: Revenue is recognized when cash is received. Expense recognition: Expense is recognized when cash is paid.

Take a note the word "cash" is not meant literally - it also covers payments by check, credit card, barter, etc. Moreover it is not standard method in compliance with accountings matching principle.

Accrual Basis Accounting This is what "Based on Recognition" The accrual method of accounting requires that revenue be recognized and assigned to the accounting period in which it is earned. Similarly, expenses must be recognized and assigned to the accounting period in which they are incurred. Then the underline question is what is accounting Period, Let explain like this normally a company tracks the summary of the accounting activity in time intervals, which we normally called as Accounting periods. These periods are usually a month long. It is also common for a company to create an annual statement of records. This annual period is also called a Fiscal or an Accounting Year.

In the accrual method relies on the principle of matching revenues and expenses. This principle says that the expenses for a period, which are the costs of doing business to earn income, should be compared to the revenues for the period, which are the income earned as the result of those expenses. In other words, the expenses for the period should accurately match up with the costs of producing revenue for the period. Take a case: Company is doing a business and they have to pay sales commissions expense, so sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Similarly, Salary/Wage to employees are reported as an expense in the week/month when the employees worked and not in the week/month when the employees are paid. If a company agrees to give its employees 2-month equivalent salary of its 2006 revenues as a bonus on January 25, 2007, the company should report the bonus as an expense in 2006 and the amount unpaid at December 31, 2006 as a liability. This is most simple kind of matching principal normally has. In general, there are two types of adjustments that need to be made at the end of the accounting period. 1. The first type of adjustment arises when more expense has been recorded than was actually incurred or earned during the accounting period. 2. Similarly, there may be revenue that was received but not actually earned during the accounting period. Also known as Un-earned Revenue. The accrual method generates tax obligations before the cash has been collected (because revenue leads to tax and revenue is recognized against receivable and not against receipt of money). If we summarize, under the accrual basis accounting, revenues and expenses are recognized as follows:


Revenue recognition: Revenue is recognized when both of the following conditions are met: o Revenue is earned


i.e. when products are delivered or services are provided. Revenue is realized or realizable.  i.e. either cash is received or it is reasonable to expect that cash will be received in the future. 


Expense recognition: Expense is recognized in the period in which related revenue is recognized (Matching Principle).

Timing differences in recognizing revenues and expenses Various accounting books did mention four potential timing differences in recognizing revenues and expenses between these of two. Just to recap of those: a. Accrued Revenue: Revenue is recognized before cash is received. b. Accrued Expense: Expense is recognized before cash is paid. c. Deferred Revenue: Revenue is recognized after cash is received. d. Deferred Expense: Expense is recognized after cash is paid. Compare with a Case to explain these two methods Your company purchase a new Laptop on credit in May 2007 and pay $1,500 for it in July 2007, two months later.

etc. you would record the $1. It is more conservative for the seller in that it does not record revenue until cash receipt. weather US-GAAP. such as y y y y y Economic Entity Assumption Time Period Assumption Cost Principle Matching Principle Revenue Recognition Principle Will take a seprate case of some of them to understand in better way. the month when the money is actually paid. Normally Standard GAAP will have various guided Principal. which exhibits assets. this results in a lower income compared to accrual-basis accounting.500 payment for the month of July. (2) The detailed rules and standards issued by FASB(Financial Accounting Standards Board and its predecessor the Accounting Principles Board (APB) (3) The generally accepted industry practices. this can be best defined as "a statement of the financial position of an enterprise as at a given date. liabilities. you will typically record more transactions. Do you what is meant by GAAP? No. UK-GAAP . which describes the financial position of assets & liabilities of y y your company/firm as on a particular date If you take any accounting book. Cash-basis accounting defers all credit transactions to a later date. but knows most of ERP follows these. If you want to know more about GAAP. when you take the Laptop and become obligated to pay for it. you would record a $1. Lets explain this way: The word"generally accepted accounting principles" (or "GAAP") consists of three important sets of rules: (1) The basic accounting principles and guidelines. and you don't record an expense until the cash is paid. in Oracle Payables you can choose whether to record journal entries for invoices and payments on an accrual basis. capital. where as in the accrual method. refer wikipedia ERP/Oracle Financials Oracle Financials have been developed to meet GAAP requirements as well as the special needs of different countries.500 payment in May." . Understanding ³Balance Sheet´ from Techies Mind Do you know one of Key Financial Report aka Balance Sheet is a basically â¼×position⼌ statement.Under the both case see how this makes a difference: y y Using the cash method accounting. Under the accrual method. Pros and cons of these Two accounting method Maintence: The cash method is easier to maintain because you don't record income until you receive the cash. For example. a cash basis. or a combined basis where accrual journal entries are posted to one set of books and cash basis journal entries are sent to a second set of books. In a growing company. I don't know.

y y Horizontal Vertical . it is necessary to â¼×FREEZE⼌ the values of financial components at a certain point in time. Balance sheet . In accounting world . balance sheet should reflect â¼×true and fair view⼌ in term of shareholder equity . or Balances.Why Balance Sheet Required? Obvious question why this is required? the Only reason is because the the legal rules (Companies Act) enforce companies to publish such report. we will find two different form of Balance sheet. y y A Balance Sheet as on the last day of the financial year A Profit & Loss Account for the financial year.techies definition Assets and Liabilities are continuously changing with Business activity. Do this have any Structure? Yes. To understand the financial position of the Business. If you see different accounting book. These values. are used to construct a balance sheet which shows how the owner⼌s equity is represented by the various categories of assets and liabilities.

which I have discussed in one of old post : Assets = Owner⼌s Equity + Outside Liabilities A = OE + OL in the world of double entry system.The only difference between these two are required to give the corresponding amounts for the preceding financial year (â¼×Comparatives⼌) for all the items shown in the balance sheet. A typical Balance sheet can be best represented as: This is based out of accounting equation. this can be best understood as: . every transaction is recorded by equal amounts of debits and credits" A (DEBIT)= OE + OL(CREDIT) If you analyze the above sheet in term of accounting equation . the rule of thumb is "In the double-entry accounting system.

Is there any limitation for Balance sheet? Yes. Judgments and estimates are used in determining many of the items. The balance sheet does not report items that can not be objectively determined. In addition. and this can be executed from the report section within GL responsibility. there are (adopted from Jep Robertson Notes) y y y y As most most assets and liabilities are based out of historical cost. the word Revenue is often used in place of the word Income. It does not report information regarding off-balance sheet financing. Where is my Balance sheet report within Oracle Balance sheet reports in Oracle are one of the FSG report which need to fine tune base out of the customer requirement. Understanding ³Profit and Loss (P&L)´ from Techies Mind y In accounting world. An Income Statement is used to . an Income Statement is called as "Profit and Loss Report".

Income from Freight. Some of the common names for income accounts are: Income from Sales. The income of a business comes from sales to customers or fees for services or both. expenses incurred. shares. it . sources as property. Profit and Loss A/C What you suppose to remeber is : y y y y y y y y P&L A/c is also called â¼×Income Statement⼌. The need of P & L report is enforced because of companies Act. the amounts that have been or will be received from customers for goods delivered or services rendered to them. Income from misc. Two common periods for creating an income statement are monthly and annually. this can be described as: Revenue Account :This is the income account. which enforce to produce Balance sheet and P&L account. and the total profit or loss in a particular period. and all expenses. As discussed in last post Balance Sheet is a â¼×position⼌ statement whereas Profit & Loss Account is a â¼×flow⼌ statement. Normally Income Accounts accounts are used to track income earned during the process of operating your business. A Balance Sheet as on the last day of the financial year A Profit & Loss Account for the financial year.inform you about the income earned. o Revenues: from operations o Expenses: specific product/service/period Accountants have agreed to use the accrual basis of accounting rather than the cash basis y The term Revenue and expense y y Revenues . Income is calculated as the difference between revenues and expenses.gross increases in owners⼌ equity arising from business operations/delivery goods-services to customers Expenses .decreases in owners⼌ equity that arise because goods or services are delivered to customers In term of accounting. the costs that have arisen in generating revenues. This report summarizes all Income (or sales). Whenever a revenue account balance is changed.

it leads to a change in the Assets / Liabilities account. where as Profit and Loss report can be best build and understand as: Profit and Loss A/c Concept Profit and Loss can be based out of these basic concept as discussed in one of my post . At the beginning of a new accounting cycle. At the beginning of a new accounting cycle.leads to a change in the Assets / Liabilities account. Spliting the above . You can see the details in one of last post. Expense account is not a control account. This account behaves just like the Owner⼌s equity account as an increase in this account essentially means a decrease in owner⼌s equity. it⼌s treated as an operative account. Expense Account : This is the operations expenditure account. the balance sheet can be drived on the basis of these. ACCOUNTING PERIOD y y y y Expenditure during A/c period which are also expenses of that period. this account is turned to zero. Revenue account is not a control account. this account is turned to zero. Whenever an expenditure account balance is changed. Expenditure during the A/c period which will become expense only in future periods Expenditure during the previous A/c period which will become expenses during the current A/c period Expense of the current A/c period which have not yet been paid REALIZATION CONCEPT . Entire balance is transferred to the retained earnings account. it⼌s treated as an operative account. Entire balance is transferred to the retained earnings account.

expenses decreases OE MATCHING EXPENSES WITH REVENUE y y Income (profit) . o Balance sheet and P&L. revenues increases OE. o Expenses decrease owners⼌ equity. where as P&L A/c provides a moving picture of events over a span of time and explains the changes that have taken place between BS dates. Salaries. .additional owners⼌ equity generated by income or profits o Revenues increase owners⼌ equity. y y Most of bills.the excess of revenues over expenses Revenues . This can be best described as below figure.What is important here is y y â¼×point of time⼌ or revenues earned recognition of revenues ACCRUAL CONCEPT Normally companies measure there profits by change in Owners⼌ equity . etc are paid in cash Most vendors are paid in cash o Even on a â¼ good day. We need to know where the cash comes from (sources.. Why Is Cash So Important?" Cash is the necessary element which runs the business.Expenses = Profit Retained earnings .â¼ the small business will owe its debts in 30 days o Those purchasing products/services from the small business though will have 90 days to pay their debts. or inflows) and where it is spent (uses or outflows). Understanding ³Cash Flow Statement´ Lets start with the basic concept .Driven by Transaction In last post we have seen BS provides a snapshot of an entity⼌s financial position at an instant in time.

and investing activities. A budget will account for 12 equal installments of $250 2. although related to net income. Why do we need CFS as financial reporting? y y y Balance Sheet & P&L A/c is not sufficient in term of pure financial Reporting. The statement of cash flows reports cash receipts and payments of a company during a given period for operating.. The statement of cash flows.that mean .. y y y Do you know . CF Statement indicates changes that took place between tow successive Balance Sheets.. A cash flow statement will recognize a 1-time only outflow of $3. a transaction is recognized on the income statement when the earnings process is completed.What is Float? Float refers to the difference in time between when the check is deposited and cash is received. explains why balance sheet items have changed during the period. Cash includes cash and cash equivalents. You can also see more details inflows and Outflows attributes at the end.under accrual accounting. financing. that is . along with the income statement. are not same. The statement of cash flows provides a thorough explanation of the changes that occurred in a firm's cash balance during the entire accounting period. This makes a significant impact of your CFS.What is Cash Flow? y y y y y CF Statement is a 'flow' statement. It reports past cash flows as an aid to: o Predicting future cash flows o Evaluating the way management generates and uses cash o Determining a company's ability to pay interest and dividends and to pay debts when they are due It identifies changes in the mix of productive assets. when the goods and /or services have been delivered or performed or an expense has been incurred. As we know. This is because of the accrual method of accounting.000 or $250 a month 1. there is legal rules to provide the cash Flow statement. It shows the relationship of net income to changes in cash balances. Cash Flow & Accrual method of accounting Cash Flows. .Cash Flow Statement y y Cash flow statements ARE NOT budgets Cash flow statements are concerned only with ACTUAL cash inflows and outflows ..000. 3. Some time . An Example of the Difference Between Budgets and Cash Flows If you take a Prepaid insurance for a year costing $3. Statements of Cash Flow .

Activities Affecting Cash Cash Activities are divided into three main categories y Operating activities .miscellaneous income Cash payments for inventory. The relationship among the balance sheet. and other long-term productive assets .and these are basically changes in equity and non Operating Liabilities Operating Activities Cash Inflows are typically Understood as .. insurance.activities that involve (1) providing and collecting cash as a lender or as an owner of securities and (2) acquiring and disposing of plant.Cash Flows from Investing Activities + Cash Flows from Financing Activities = Cash and Cash Equivalents (Ending) Its all about Relation ship This is family pack of financial reporting.these are mostly used for Normal day-to-day activities o Cash effects of revenue and expense transactions  Deal with the income statement accounts  Included interest paid (on debt) and income taxes (to the government) which    y enters in the determination of net income Cash receipts from sales of good and services..activities that include obtaining resources as a borrower or issuer of securities and repaying creditors and owners. changes in long term assets and investment Financing activities .A statement of cash flow is one of several financial statements that public companies construct and share with their stake holders.. Changes in current asset and liability accounts from the prior year.transactions that affect the income statement . income statement. In general this statement will include a formula or calculation that considers: Cash and Cash Equivalents (Beginning) + Cash from Operations . utilities. property. y Investing activities . and statement of cash flows: CASH FLOW CLASSIFICATIONS.

investing. and equipment Sale of securities that are not cash equivalents Receipt of loan repayments where the cash outflow can be best understood as: y y y Purchase of property. etc. Other operating receipts where the cash outflow can be best understood as: y y y y Cash payments to suppliers for Goods/services Cash payments to employees Interest and taxes paid Other operating cash payments Investing Activities Cash Inflows are typically Understood as y y y Sale of property. and financing sections to their Statement of Cash Flows The small business is only interested in the cash flows resulting from operations o Operations signifies all the cash flows in/out of the business⼦ . plant.y y y Cash Receipts from sale of goods/rendering of services Cash Received from royalties. commission. fees. Developing a Cash Flow Statement y y y The cash flow statement of a small business is different than that of a corporation Corporation will have operating. equipment Purchase of securities that are not cash equivalents Making loans Financing Activities Cash Inflows are typically Understood as y y y Borrowing cash from creditors Issuing equity shares Issuing debt securities where the cash outflow can be best understood as: y y y Repayment of amounts borrowed Repurchase of equity shares Payment of dividends How To Develop an Accurate Initial Cash Flow Projection y y Contact vendors/suppliers and ask about payment terms Check with credit card companies and get information about when the accounts will be processed as well as what the percentages are. plant.

What Are Commitments? Commitments are obligations for future expenditures made . Begin accounting for revenues once done with all expenses If possible. there is no seeded report that cater the need for Cash Flow. the company should separate their revenues into separate categories It will help focus the business on which sectors of its revenues are important and will influence the operations of the business⼦ o o o o o y y Do you know Who can utilize information processed by the SCF? These is utilized by Management. We can achieve CFS by using OFA. unless until.. which will lead to a charge against an account. Accounting fundamentals for Techies : Encumbrance Before start of this topic you should be clear on these term.. . y Encumbrance This is your any pre-expenditure. y y How much do I have left to spend? Alert me if spending too much from allocated budget. such as a purchase order. and this should be for an employee or vendor PO's.y y A cash flow statement will maintain an accurate representation of the overall cash position if used effectively A cash flow statement begins with expenses Examples of possible expenses o Salaries Cost of Goods Sold Taxes Office Supplies (often underestimated) Rent Most important to account for EVERY expense⼦you have defined in system. We can also generate CFS by FSG.Investors Cash Flow Statement in Oracle Financials? y y y y y Important to know. you can pull the reports based out of data in the GL_BALANCES table. Commitments are tracked to help departments forecast their expenditures so that they do not exceed their budget available. Most of cash flow statement is prepared by account department. as indicated by approval of a requisition. but it is bit difficult. If you are using encumbrance you can get answer of these two question. Obligation An encumbrance you record when you turn a requisition into a purchase order. Commitment A journal entry you make to record an anticipated expenditure. y y So. the format is not very simple.

What is required if enabled Purchase Orders and Purchase Requisitions to first undergo a funds check when they are submitted. Budget is always unaltered. This is often a legislated requirement for public organizations. It is possible to control the type of encumbrance created by these modules via the set-up of the applications. will exceed the funds on the account. Standard Purchase Order. Requisition and Purchase Order Releases and the Accounts Payable module for the different invoices.Actual . reducing the risks of potential over expenditure. where they will sit temporarily before being converted by a concurrent process called ³Program ± Create journal´ into permanent encumbrance journals. Encumbrances is reversed when matching to AP invoice.Encumbrances. The benefit of the encumbrance accounting feature is the ability to have the system control the expenditure budget from the General Ledger.How much I left to spend . The modules capable of initiating such transactions are the purchasing module for the creation of three documents. Journals are then recorded in a special table called GL_BC_PACKETS. Oracle Vanilla encumbrance accounting -Briefing Oracle encumbrance accounting feature is supported by a process called funds reservation. . will be based out of these formula Funds Available = Budget . The system checks the line amount(s) of the requested purchase against the budget for the GL account(s) and alerts the user if that PO or Req. which is implemented in the General Ledger as a user-exit or spawned program.This process of verification of available funds based on pre-defined summary templates.

QTD (Quarter To Date). Which may includes labor. it will become necessary to run the Create Journals program in GL. y y Actual Transactions . Basic Oracle Process The basic process flow for encumbrance accounting activity related to Oracle Purchasing typically is as follows: 1.Commitment transactions are anticipated project costs. 4. burden. This program essentially sweeps through the GL_BC_PACKETS table and creates journals for the entries as entered. If you are coming from other Products like SAP or SUN . Essentially this process allows the different manager to understand their ³funds available´ based on the following formula. let clear these two terms in Oracle context in Project module specific. Commitment Transactions . Create a requisition. After transactions have taken place in Purchasing.PJTD (Project To Date). and miscellaneous costs. Receive against the purchase order (either period-end or online accruals) and the funds are reversed for the amount received and entered against the charge account. YTD (Year To Date). 2. and through the GL_INTERFACE table for receipt accruals which can be either On Receipt or at Period End. Approve and reserve funds for the requisition. . Such examples include purchase requisitions and purchase orders or contract commitments.Actual transactions are recorded project costs. expense report. Funds Available = Budget ± Actual ± Encumbrance The Oracle system has the ability to control this formula per fiscal period using the different balances tracked within GL_BALANCES (Essentially the General Ledger) by PTD (Period To Date).he transactional flow has funds reservation being performed through the GL_BC_PACKETS table when reserving funds for purchasing documents. 3. AutoCreate requisition onto a purchase order. usage. The funds checker process takes place whenever funds reservation and/or adjustment is made. Approve and reserve PO (which automatically reverses the requisition funds reservation) 5.

Take a note. when autocreated onto a purchase order. Requisitions. funds reversal also occur when documents are cancelled or finally closed. lets take sample case with two items. have their funds reversed either when the PO is approved and reserved or when the requisition line(s) are rejected or returned. To elaborate in details . Now lets take a quick look on accounting entry: Reserve Requisition . Oracle Product associated with encumbrance y y y y y General Ledger Purchasing Payables Projects Grants Next will see Accounting Treatment in encumbrance. Accounting fundamentals for Techies : Encumbrance ± Part II This post is answer of reader's query which was pending from long time.

Dr Commitments (Expense) 500 Cr Reserve for Encumbrance (Expense) 500 Dr Commitments (Inventory) 800 Cr Reserve for Encumbrance (Inventory) 800 Autocreate Purchase Order and Reserve Dr Obligations (Expense) 500 Cr Commitments (Expense) 500 Dr Obligations (Inventory) 800 Cr Commitments (Inventory) 800 Goods are Received Dr Receiving 800 Cr Accrual 800 Good are Delivered to the Final Destination Dr Expense Account 800 Cr Receiving 800 Dr Reserve for Encumbrance (Inventory) 800 Cr Obligation (Inventory) 800 Period End Accrual Program is executed Dr Expense Account 500 Cr Expense Accrual 500 Dr Reserve for Encumbrance (Expense) 500 Cr Obligation (Expense) 500 Next Period is Opened Dr Expense Accrual 500 Cr Expense Account 500 Dr Obligation (Expense) 500 Cr Reserve for Encumbrance (Expense) 500 Invoice Matched to PO and Reserved The ITEM Y was invoiced for 900. 100 more than the PO Dr Invoice Encumbrance (Expense) 500 Cr Obligation (Expense) 500 Dr Invoice Encumbrance (Inventory) 100 Cr Reserve for Encumbrance (Inventory) 100 Payables to GL Transfer program .

keep track amounts of and determine if there is available funds within a given budget with Funds Available = Budget .Dr Inventory Accrual 800 Dr Variance Account 100 Cr Liability 900 Dr Reserve for Encumbrance (Inventory) 100 Cr Invoice Encumbrance (Inventory) 100 Dr Expense Account 500 Cr Liability 500 Dr Reserve for Encumbrance (Expense) 500 Cr Invoice Encumbrance (Expense) 500 When Payment is made Dr Liability 1400 Cr Cash 1400 So therefore summrizing all transaction . here is how Encumbrance fit into P2P cycle. Quick Recap on some standard defination : Budgetary Control .Encumbrance .the creation of accounting journals earlier in the the document cycle than with standard accrual (ie during PO/Req time instead of Receipt/Invoice) Reference .Actual Encumbrance Accounting .

using the source Contra Use the standard functionality to post the imported credit memos to Oracle General Ledger Use the Contra Netting Report o to report on the netted contra charging transactions o to check that the contra charging has been carried out successfully in Oracle Receivables and Oracle Payables y y How to make Contra Charging Feature enabled Follow the below mentioned steps and you should be able to use the contra charging functionality. 2. configuring and identifying such need is foremost important step while implementing ERP. that you are expecting the money should be paid by customer. the same functionality have been standardize and incorporated in the product. using the source Contra o in AP with the Auto Invoice Import Program on the Run Auto Invoice window. assign the document sequence to Contra document category. .10.10 are: y y y Use the Contra Charging window to physically match the customer to the supplier and allocate an amount for contra charging Automatically populate the AR and AP Invoice Interface tables to create credit memos for the source Contra Import the invoices o in AR with the Submit Invoice Import window. Same time . you have some taken some services to the same customer which is a vendor in your Payable. you received against PO.5. specially if you are dealing with client whose line of business is either Airlines or Cargo or Healthcare domain. y You can assign a unique document sequence to each invoice and payment document in your Payables system so you have a unique identifier for each document. Such events are always there. This will submit two requests used to populate the Receivables and Payables Transaction Interface. What we seen after 11. Contra Charging Contra Charging allows you to select customer and suppliers through the screen and net their balances. 1.y Metalink Note 121858.5. where similar kind of functionality Oracle has offered in term of "Contra Charging" which initially limited in European Localization and on and after 11. This credit memos can then be imported through the standard invoice import in AR and AP. and now you have liability to pay the amount Y.1 Purchasing Encumbrance Accounting Concepts and Process Model ³Contra Charging´ to ³R12 AP/AR Netting´ 1.Define document sequences.5. therefore designing. Customer ABC raise an order to your company and your have made shipment of goods they have requested and you have raised an invoice of X amount.The base Functionality that currently exist in 11. What the business demand here is "Net off your supplier balance in AP (Payables) with customer balance in AR (Receivables)" These kinds of business scenario always exist.9 .

Define Document Category called 'Contra'. including the following: y y y y Tax: Allow Override of Tax Code (Yes) Tax: Allow Override of Customer Exemption (Yes) Sequential Numbering (Partially Used) JG: Contra . y 2. Setup Payables Contra Source. and withholding taxes prior to determining the final netting amount. 3. Assign a 'Contra Charging' Menu to 'AP_NAVIGATE_GUI12' main menu. This New Contra Lookup Code will be used as a source when the Contra Charging Credit memos are created. You are now able to determine whether you or your trading partner has a greater balance outstanding and update your books. A selection program automatically pulls information from Oracle Receivables and Oracle Payables taking into consideration discounts. Define Payables Lookup for 'Contra'. late fees. To attach the Contra Charging Form to the Existing Payables Responsibility. What's new in Release 12 When a trading partner is both a customer and a supplier. Navigation Path: System Administrator responsibility: Application: Menu Form 7. You can assign a single document sequence to one or more document categories.y A document category is a set of documents (invoices or payments) that share similar characteristics.which tied to AP Responsibility. then 'Submit Contra transaction. Use the Oracle Payables Lookups window to review and maintain sets of values. Use assignment window in System administrator responsibility to attach the document category with the document sequence created for contra charging invoices. A lookup is any predefined value that was not defined in a setup window. enter Contra Charging Transactions. . attach JG_CONTRA_CHARGE_GUI Sub Menu to AP_NAVIGATE_GUI12 Main Menu. A review process and trading partner approval afford further verification to support the netting event. or lookups. 5. collect payments or make payments accordingly. Setup user profile for AP Responsibility. Netting Agreements add trading partner terms as well as deploying company controls.Include Future Dated Payment in Supplier Balance (Yes) 4. that you use in Payables. Use the Oracle Payables Lookups window to create a new Payables lookup for contra charging. Having created the new form 'Contra Charging'. an agreement may be made to offset open receivables⼌ against open payables⼌ items. A lookup is any predefined value that was not defined in a setup window. 6. The matching of open receivables and open payables is automated.

so here to go. From 11i to R12 R12 Netting solution replaces 3 solutions(FV. By doing so. For a non accounting personal risk can be best understood as :the risk of a trading partner not fulfilling his obligations in full on due date or at any time thereafter is a risk that affects all aspects of business. Fewer Transactions to Process and thus significant Cash flow Improvement. they reduce a large number of individual positions or obligations to a smaller number of positions or obligations.the concept to someone not very familiar with accounting in real world. Definition of Netting In this method of reducing credit. there is a Netting submenu. y y Payables: Payments -> Entry -> Netting Receivables: Receipts -> Netting Suggested Reading y Oracle Financials Common Country Features user guide.IGI) in 11i.This will Reduce bank Charges . Besides reducing transaction costs and communication expenses. . Netting rules define precisely the netting of positions or claims between counter parties. Netting : An Overview This brief is meant to walk through .Benefits: AP/AR Netting provides for the ability to â¼ collectâ¼ on your receivables balances with the amount owed for your purchases by offsetting one against the other. In R12 the Contra Charge functionality has been optimized and therefore changed into the AP/AR Netting functionality. and it is on this netted position that the two trading partners settle their outstanding obligations.JE.. they are netting. In the Payables module as well as the Receivables module. and ultimately systemic risk.. settlement and other risks of financial contracts by aggregating (combining) two or more obligations to achieve a reduced net obligation. y y Netting rules a basic part of master agreements. netting is important because it reduces credit and liquidity risks..(adopted) When trading partners agree to offset their positions or obligations.

then the two obligations are cancelled and simultaneously replaced with a new obligation for the net amount. there are y y y y Reduction Reduction Reduction Reduction of of of of credit risk settlement risk liquidity risk systemic risk Types of Netting y y y y Payment Netting Novation Netting Close-Out Netting Multilateral Netting Payment Netting Also called â¼ Settlement Nettingâ¼ or Also called "Position or Accounting Netting". .Benefits of Netting Netting potentially address four major risk in financial area. settlement risk and liquidity risk. Types of Payment Netting Agreements y y y Master Agreement with a Payment Netting Clause Stand-Alone Payment Netting Agreement Informal. â¼ ad hocâ¼ agreement Novation Netting If the parties enter into a transaction which gives rise to an obligation for the same value date and in the same currency as an existing obligation. This can be best understood as: y y y Daily settlement or offsetting of several. On a payment date. each party will aggregate the amounts of a currency to be delivered by it. due claims in the same currency Reduction of transaction costs. y y Settlement of not yet due claims in the same currency and the same maturity. No impact on credit risk. and only the difference in the aggregate amounts will be delivered by the party with the larger aggregate obligation. Reduction of limit usage and credit risk.

Example1: Matched Pair Novation Netting Deal 1: Buy JPY / Sell USD Deal 2: Buy USD / Sell EUR Deal 3: Buy EUR / Sell JPY No two deals involve the same currency pair. net transaction. Contrast with Novation Netting. Close-Out Netting Effective upon a default: y y y y Existing transactions are terminated Termination values are calculated Termination values are netted to arrive at a single net amount Recourse to credit support. and therefore no netting under matched pair novation netting. if any . which achieves true netting through the cancellation of offsetting transactions and their replacement with a new. Example 2: Matched Pair Novation Netting Example 3: Comprehensive Novation Netting A Payment Netting vs Novation Netting y y Payment Netting reduces settlement risk. but does achieve netting for balance sheet or regulatory capital purposes because the transactions remain in gross.Two Types of Novation Netting: y y Matched Pair Novation Netting â¼ Comprehensiveâ¼ Novation Netting Matched Pair Novation Netting Netting only occurs if the two transactions involve the same pair of currencies.

By netting. Netting is typically used by companies with a number of affiliates in different countries. Multilateral netting is a settlement mechanism used by companies to pay for goods and services purchased from affiliated companies. a new feature of R12. what we called Intercompany. which do business internally. these companies reduce bank fees. Multilateral Netting involves netting among more than two parties. currency conversion costs. All outstanding gross obligations or payments are replaced by a single obligation or payment Multilateral Netting Bilateral Netting is between two parties. it may be two party interacting with third party. When it come to party . bank balances and improve operating efficiency. using a clearing-house or central exchange. . The netting process consolidates intercompany transactions and calculates settlement requirements internally instead of using external payment systems. Th two party may be your other entity in the same instance. Here is summarize list of the different types of netting and there corresponding netting. Though first type of netting somehow mapped as Contra Charging in post 11i10 releases where as in R12 this functionality can be mapped as part of AP/AR netting.That mean: y y Settlement/offsetting of not yet due claims in different currencies in case of a default event or an early termination event of the contractual relationship. Will take this in some more details in another post. Requirement Mapping with Existing Oracle EBS Product Still these two processes are not fully enabled in Oracle EBS suite.

IFRSs. Nearly 100 countries currently require or permit the use of. I am not going to put the details. I was talking to one of my accountant friend who pointed me some recent changes in IFRS . Australia. Here is list of countries which adopted IFRS. and . From 1973 to 2001. What is IFRS? IFRS. rather will walk through some information which is good to have with ERP consultant who is dealing with Financial term of Accounting Principles this can be best understood as: IFRS = Financial Reporting standards = Balance Definitions < /FONT > which internally means more in term of "disclosure Requirements" and "Balance Definitions " for finance controller. IFRS . measured only with IFRS o Segment Reporting disclosure y IFRS . or have a policy of convergence with. are a "principles-based " set of standards that establish broad rules rather than dictating specific accounting treatments.A bit on IFRS Sometime back. What is meant IFRS for Oracle eBusiness consultant/ERP Consultant? As we are quite aware GAAP which is so called Generally Accepted Accounting P rinciples for Shareholder Reporting.International Financial Reporting Standards (IFRS). IAS were issued by the International Accounting Standards Committee (IASC).What it is for? The Other things IFRS would do is: y y Providing a bookkeeping rules rather many of us have impression that they have some rule set for accounting It will do Shareholder Reporting .What it is not for? And more important it should be understand that IFRS is not meant for: . IFRS are used in many parts of the world. Hong Kong. and this is important when : o A group of companies owned by a Public company y o Not the individual companies It will also do external reporting o To your owners (investors. Russia.The term is not drafted by a legislature.and provided some link for the awareness and to understand the impact in EBS suite. Singapore and Pakistan. including the European Union. In April 2001 the International Accounting Standards Board (IASB) adopted all IAS and began developing new standards called IFRS. together with International Accounting Standards (IAS). shareholders) o Through their stock markets Management Reporting o Maximize investors returns. South Africa.

measurement): o Mark to Market when possible o Reality of the Balance Sheet ⼳ real assets. real liabilities o o Income Statement analyses the change in wealth Deep Disclosure: owners right to know US GAAP vs.I discovered a nice article from the site of Fulcrum Inquiry who pointed out the key differences(adopted) between the two standards in there one of the article . . it supports IAS/IFRS Key premises (recognition. IFRS .y y y y Statutory Reporting Tax Reporting Regulatory reporting Subsidiary reporting IFRS ⼳ How new is it? y y y y IASB has been around since 1980⼌s IAS/IFRS pretty much converged with the Americans If your ERP supports US GAAP.A difference While looking to some more information on internet .

maybe requires some data analysis We have notice there is some big change in R12 AR to meet revenue recognition. From the Currency area we have already noticed some big changes like: o Balance level Translation or Remeasurement in Ledgers ⼳ within Ledger sets. one ledger for example could conform to IFRS. run at one click y o Balance & Activity level Translation or Remeasurement in Financial Consolidation Hub . The new R12 Global Architecture introduced the concept of ledgers which has capability of providing differing accounting representations. another to local GAAP. R12 is partially on track for IFRS fitness in suite.Don⼌t worry about your ERP Side y y y Maybe requires some reconfiguration.

o Another is enhanced Revaluation [Functional Currency term dropped: conflicts with IAS 21 / FAS 52] Those who are looking for some more insight about the changes suggested to refer white paper mention in the last. Some more from Oracle blog y IFRS Bandwagon heading for US? Are you ready to board? Keep watching this space for having some more thoughts and insight for IFRS from Oracle . Further Reading y y y US GAAP v. IFRS: The Basics PWC Blog for IFRS White Paper "The Implications of the International Financial Reporting Standards (IFRS) on Finance Systems" .

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