SCM- Period End Accruals in Receipt

Accounting
Best Practices to leverage and pitfalls to avoid

Presenter
Rajat Dhingra Krishna Ghantasala
Sr. Principal Product Manager Sr. Principal Product Manager
Fusion SCM Cloud Fusion SCM Cloud
 Agenda

Overview: Accrual Management in Receipt Accounting

Period End Accruals in Receipt Accounting : Functional Architecture

Period End Accruals in Receipt Accounting: Task Flow & Best Practices

Period End Accruals in Receipt Accounting–Criteria for Eligible POs

Period End Accruals in Receipt Accounting–Accrual Creation Examples

Running the Uninvoiced Receipts Accruals report

Running Uninvoiced Receipt Accruals Process – Key Parameters

Reasons for Mismatch between Report Amount and Distribution Amount

Create Accounting for Period End Accruals and Accrual Reversals

Leverage SLA & GL tools to avoid Issues in Period End Accruals

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 Supplier Accrual Management in Receipt Accounting: Overview
FSM Offering: Available with Procurement or Inventory management

Tip: For expense destination purchases, you can manage accrual and expense accounting using
receipt accounting discretionary job role and access to cost accounting is not required.

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Supplier Accrual Management in Receipt Accounting
Receipt accounting performs accrual processing & expense accounting for expense destination purchase orders which accrue at receipt or
period end. If you have inventory flows, receipt accounting does the accrual accounting but you will need to to use costing accounting to
book inventory value and COGS.

Record Accruals for Expense Purchase Orders Record Accruals for Inventory & Expense
(Accrue at Period End) Destination Purchase Orders (Accrue at Receipt)

Covers purchase orders for Inventory, Expense and Work order

Covers typically High Volume of Low Value PO’s for expenses
destination purchases

Expense is recorded after the invoice is processed Accrual is created at the time of receipt to recognize the liability

At Period End if invoice is not received, accrual and expense is recorded The deliver event in cost accounting records value in inventory, work
as an estimate by running the un-invoiced receipt accrual process order or expense for the receipt

To avoid surprises at period end, users may select to run this process
Final Accounted invoices offset accrual booked by receipt accounting
multiple times a month.

Users may also run this process after AP period is closed so that the
Run Accrual reconciliation for matching accrual amount recorded in
estimated amounts reflect the true and fair value of accrual and
receipt accounting with accrual offset done by AP
expense.

Un-invoiced receipt accruals are created as reversing accounting entries

Manual or automatic accrual clearing to clear excess accrual amounts
and auto reverse in the next period

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 Period End Un-invoiced Receipt Accruals

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 Period End Accruals in Receipt Accounting : Functional Architecture

SLA Setup

SSP/PO RECEIPT ACCOUNTING SLA

Accrual Journal Reversal Journal
Un-invoiced Receipt Entry Entry
Accruals Report
Receiving Receipt Accounting GL
Distributions
RFE* Reversal RFE Journal
Un-invoiced Receipt Journal Entry Entry
Accruals Process

AP

XCC Setup

*RFE: Reserve for encumbrance

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Period End Accruals in Receipt Accounting: Task Flow & Best Practices
Transfer transactions from receiving to
• Interface receipt & Best Practices
Invoice data
costing
• Data Preparation
• Create Job sets to ensure all transactions from source systems
(receiving, PO, invoices) are interfaced
Transfer invoices costs to cost
management
• Review the un-invoiced receipt accruals report on a frequent
basis during the period to identify discrepancies in estimates
and avoid any list minute surprises
Create Receipt Accounting Distributions
• Take follow up action based on report:
• Review aged receipts
Run Un-Invoiced Receipt Accrual Report Co-ordinate & Final
Close PO’s
Record Receipts • Co-ordinate PO close
• Ensure relevant invoices are processed
Process And Account Close AP Period
Review Accrual Amounts
Invoices • Close AP Period
• Review Subledger period end validation exceptions to ensure there
are no unposted or incomplete accrual or accrual reversal journals
Create Un-invoiced Receipt Accruals
• Use ledger options to restrict GL period close if there are any
unposted accrual or accrual reversal journals in the system
Create Accounting
• The period end accrual event created by receipt accounting is set to
Auto reverse journals. Do not use the GL reversal feature for reversing
Uninvoiced receipt accruals journals to avoid double accounting
Create Accrual Reversal accounting

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Period End Accruals in Receipt Accounting–Criteria for Eligible POs
Eligible PO’s for Accrual at Period End Do you know:
• You can control defaulting of accrue at receipt flag based
Expense Destination with Accrue at Receipt = Unchecked on setup at the BU level in Manage Common Options for
Payables and Procurement:
• If ”Expense Accruals” is set to “Period end”, All
expense PO schedules will have the accrue on receipt
Purchase Basis flag un-checked. This option cannot be overridden
Purchase Basis Quantity
Amount • If ”Expense Accruals” is set to “At Receipt”, All
expense PO schedules will have the accrue on receipt
flag checked by default. Buyers can override this flag
PO with Item PO without Item PO without Item at the PO schedule level.

• Only Encumbrance accounting is supported for Period End

Accrual POs
PO Status = Open, Closed for Receiving, Closed for Invoicing • Period End accrual is booked considering the estimated
taxes on PO

Change Management • Actual Tax calculation is done in AP when actual expense

• Updating the Accrue at receipt flag on the PO Schedule is not advisable after is booked via an invoice
receipt/ invoice is recorded as it can lead to data discrepancies
• Expense for project based period end POs is sent directly
from AP to PPM
• Post 21A, PO has added validations to allow/disallow changes based on the receipt
accounting status
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 Period End Accruals in Receipt Accounting: Examples
Example 1: PO Final Close Example 2: New invoice accounted after 1st run of the process

Receipt $10 Receipt $10 Pe

r io
d
1
Negative
Uninvoiced Un invoiced Receipt
Invoice $7 Invoice $0
Receipt Accrual Accrual $5
Distributions -$3

Run 1

Period 1

Period 1
PO final close
Multiple Runs
in a period
Un invoiced
PO final close Receipt Accrual
$3
Un invoiced Receipt
Un invoiced Receipt
Accrual Distribution
Accrual $10
Period Accrual Amount Uninvoiced Receipt
Reversed $10
for a PO Accrual Runs
d1
1
Period 1 $3 End of Run 1 Run 2 iod
i o
r
Pe
r
Pe
Period 1 -$3 End of Run 2 Invoice $5
Total Accrual $0

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Period End Accruals in Receipt Accounting: Examples
Example 3: Auto Accrual Reversal in next Period Example 4: Period End Accrual Accounting in Multiple Periods

Receipt $10 Pe
r io
Receipt $10 d
1

Pe
r io
d
Un invoiced

1
Receipt Accrual Invoice $0
$0
Period End
Accrual Reversal Invoice $7

Period 1
Invoice in

Period 2
in GL $3 Multi Periods

Pe
2

ri o
d
io

d
Un invoiced
r

1
Pe

Invoice $10 Receipt Accrual

Un invoiced $10
Receipt Accrual
d2
2
$3 iod Un invoiced i o
r
Pe
r
Pe
Receipt Accrual
Reversed $10
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Running Uninvoiced Receipt Accruals Report

• Run report to review details about the uninvoiced purchase order

receipts for which accruals will be created.
• Leverage ESS capability to deliver the report to your inbox or someone
nominated by you.
• Use the tolerance operator to retrieve records where receipt amount is >
invoice amount or vice versa
• Determine if the accrual estimate is as per expectations
• Perform additional actions in upstream as required:
• Exclude receipt accruals from the report by accounting the
corresponding invoices.
• Exclude receipt accruals from the report by setting purchase order
schedule status to Finally Closed.
• Re-run the report after changes in upstream

Note
This is a review only report and distributions for period end accrual are only
created when the create un-invoiced receipt accruals process is run

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 Running Uninvoiced Receipt Accruals Process – Key Parameters
Example 1: Leveraging Accrual Cut off Date

Transactions for a PO Distribution in the period.

Transaction Date Amount Without With Cut With Cut

Cut off off date off date
Soft date for all invoice date 27th 26th
related activity and a max
receipt date to accrue up to Receipt 1 Feb 10 $100.00 Y Y Y
Invoice 1 Feb 25 $80.00 Y Y Y
Receipt 2 Feb 27 $20.00 Y Y X
Invoice 2 Feb 28 $10.00 Y X X
Y: Event included in accrual working ; X: Event not included in accrual working

Process Accrual Date of Remarks

Parameter Amount Accrual
Do you know:
Without Cut off $30.00 28-Feb Accrual booked on last date of
• Commit Limit is used to define number the batch transaction volume for the run. Date (100-80+20-10) period selected
Default commit limit is 100K
• For Higher volume of PO distributions, users can define a higher commit limit to
With Cut off Date $40.00 27-Feb Accrual booked on 27th : invoice
improve process performance 27th Feb (100-80+20) events after 27th not considered
• Final Closing old PO’s on regular basis can improve process performance With Cut off Date $20.00 26-Feb Accrual booked on 26th : receipt,
• You can use Accrual cut off date to control the accounting date for the period end
26th Feb (100-80) invoice events after 26th not
accrual considered

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Running Uninvoiced Receipt Accruals: Key Parameters
Example 2: Leveraging Accrual Cut off Date in Multiple Ledger Scenario

Transaction Date Amount • Use Accrual cut off date to

Receipt 1 Jan 10 $100.00 avoid mismatch in the periods
Invoice 1 Jan 25 $80.00 in which accrual is booked
between the ledgers.

Mismatch of accounting • Use the last date of the period

Details Primary Ledger Secondary Ledger periods in primary and which is common between
secondary ledgers for
period end accrual
ledgers as cut off date.
Period Type Monthly 4 4 5 Ledger
Period 1 Jan to 31 Jan 1 Jan to 28 Jan • In this example this date is the
Cut off Date Blank 28th of the month for
January Period
Period End Accrual Date 31-Jan 31-Jan
Period End Accrual Period $20.00 in Jan Period $20.00 in Feb Period

Period end accruals

booked in same period
Cut of 28Jan 28-Jan in primary and
secondary ledgers
Period End Accrual Date 28-Jan 28-Jan
Period End Accrual Period $20.00 in Jan Period $20.00 in Jan Period

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Reasons for Mismatch between Report
Amount and Distribution Amount

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Mismatch between Report and Distributions- New Business Events

Change Orders New Receipt Events New Invoice Events Tax Setup

Recoverable vs. non recoverable

Updated PO Price New Receipt New Invoice
tax
Cancelled Purchase Order Returns Cancelled Invoice Difference in tax between
PO and Invoice
Correction to Receipts Credit/Debit Memo

Resolution

• Distribution process generates period ends accrual based on the latest information as of the run date
• Ensure the report is rerun after the process is complete before comparing amounts

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 Mismatch between Report and Distributions- Taxes

Mismatch due to taxes

• Tax rate on the PO and that used
Period End accrual Entry in Invoice is different
[100 – 80] x [$10+$5]
[Received Qty = • No Tax on the PO and Tax
[PO Price + PO NR PO Details
$300.00 assessed on the invoice
– Invoice Qty] Tax] Quantity : 100 EA,
Received 100 EA
Price: $10, NR Tax $5 • Tax marked as recoverable on
PO and as non recoverable on
Invoice Details Invoice
Qty: 80EA
Period End Report [$1000+$500] –
Price $10, NR Tax $7
Resolution
[$800+$560]
[Received Amount • Update the PO with the latest
[Invoiced Amount + = tax setup used on the invoice
+ PO NR Tax] Invoice NR Tax] $240.00
• Final Close the PO to stop any
period end accruals in Receipt
Accounting

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Create Accounting for Period End
Accruals and Accrual Reversals

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Period End Accruals: Accrual Journal Creation and Posting

Period End Accrual Journals

You can create accounting for period end accrual distributions by

running the create accounting process

The accounting date for the distribution is same as the accrual cut off
date entered while creating un-invoiced receipt accruals.

Where no accrual cut off date is entered, the accounting date is equal
to the last date of the period for which the process is run

Ensure that journals are transferred and posted before the GL period is
closed

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Period End Accruals: Reversal Journal Creation and Posting

Accrual Reversal Journals

The period end accrual accounting event created by receipt accounting is set to
Auto reverse and reversal journals are created automatically.

The End Date parameter on create accounting determines if the reversal

journals auto created are in incomplete status or posted status

Where the end date is entered as the last date of the period, the reversal journals
cannot be accounted and remain in incomplete status

Users must run the create accrual reversal accounting process to ensure that
journal reversals are properly accounted in the next period

Manual or auto reversals via GL reversal functionality will lead to double

accounting

The accounting date (first or last day of next period) on the reversal journal is
determined by the setup on the accrual reversal accounting date source on the
Period End Accrual JERS for Receipt Accounting

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Leverage SLA & GL tools to avoid Issues in Period End Accruals

Mismatch between Distribution Amount & GL Amount

• Accrual or reversal Journals are not posted

• Accrual Reversal journals are in incomplete status in next period
• GL reversal functionality is used leading to double accounting

Ledger Options: Restrict GL period close if there are incomplete/unposted journals

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Leverage SLA & GL tools to avoid Issues in Period End Accruals

Review exceptions report before closing period

GL period close is prevented if there are unposted journals
Task Flow & Best Practices: Reap
Transfer transactions from receiving to
• Interface receipt & Best Practices
Invoice data
costing
• Data Preparation
• Create Job sets to ensure all transactions from source systems
(receiving, PO, invoices) are interfaced
Transfer invoices costs to cost
management
• Review the un-invoiced receipt accruals report on a frequent
basis during the period to identify discrepancies in estimates
and avoid any list minute surprises
Create Receipt Accounting Distributions
• Take follow up action based on report:
• Review aged receipts
Run Un-Invoiced Receipt Accrual Report Co-ordinate & Final
Close PO’s
Record Receipts • Co-ordinate PO close
• Ensure relevant invoices are processed
Process And Account Close AP Period
Review Accrual Amounts
Invoices • Close AP Period
• Review Subledger period end validation exceptions to ensure there
are no unposted or incomplete accrual or accrual reversal journals
Create Un-invoiced Receipt Accruals
• Schedule Create accrual reversal accounting to run on a regular basis
to process any incomplete reversal journals
Create Accounting
• Use ledger options to restrict GL period close if there are any
unposted accrual or accrual reversal journals in the system
• The period end accrual event created by receipt accounting is set to
Create Accrual Reversal accounting Auto reverse journals. Do not use the GL reversal feature for reversing
Uninvoiced receipt accruals journals to avoid double accounting

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Q&A