How to Setup, Use and Balance

Your A/P Accrual Accounts

Douglas A. Volz
KPMG
June 1998

Update for May 2007

In Release 12 there are significant enhancements:

you finally have the ability to do mass A/P accrual write-offs

the standard Accrual Reconciliation Report will handle blanket
purchase orders

Prior to Release 12 the A/P accruals design and features is

essentially unchanged since 1990, when first designed by Doug
Volz for Release 9 and subsequently upgraded for Release 10.

Doug Volz wrote this presentation while at Price Waterhouse, in

1996.

Doug has helped clients with A/P Accruals since 1996, starting
with Cisco Systems, and even in Release 11i, continues to
assist clients with similar issues.

Introduction
Learn about the Oracle Release 10
accrual processes
Find out why these accrual processes
are so important
How many of you have difficulties with
your accrual processes?
Solve current problems you may have

Agenda
Why are these accrual processes so
important?
What are these accrual accounts?
Periodic vs perpetual accruals
Basic accounting entries for the A/P accruals
Setup steps for the accrual processes
Using the Accrual Reconciliation Report

Agenda
Using the expense accrual processes
Typical problems and issues with
accruals
Implementation and conversion issues
Current bug fixes
Enhancements to consider
Conclusions

Why Are These Accrual

Processes so Important?
Valuable integration control
Monitors accuracy of receiving and
payables processes
Provides a vital barometer over these
activities
Helps to ensure accurate inventory
counts

What Are These

Accrual Accounts?

Principle of accrual accounting

Timing difference between receiving

and invoicing

Represents the accrued liability from

your vendors
7

Periodic Versus
Perpetual Accruals

Periodic accruals occurs at month-end

With computers came perpetual accruals

Perpetual accruals ensure that valued

quantities equals accounting entries

Dont accrue expenses upon receipt

8

Why Not Use Perpetual

Accruals for Expenses?
Receiving inspection then includes both assets
and expenses
Have to reclass balances
Double the accrual entries that you need to
reconcile
Significantly more entries to review, research,
and correct
Increased runtime for the Accrual
Reconciliation Report

Background Information
for A/P Accruals

May have multiple lines per PO

May have multiple PO distributions per

line

Four stored accounts per PO

distribution
10

More Background Information

Charge Account

Accrual Account

Variance (IPV) Account

Budget Account
11

Accrual Accounting Entries

Purchase order receipt
Invoice match
Return to vendor
Invoice correction
Receipt delivery
Expense accrual

12

Accounting Entries
for a PO Receipt

Receive one item @ $100 PO unit price

Account
Receiving Account
A/P Accrual Account

Debit
100

Credit
100

13

Accounting Entries
for an Invoice Match

Same item, $80 invoice unit price, $100

PO unit price

Account
Debit
A/P Accrual Account
100
A/P Trade Payables
Invoice Price Variance

Credit
80
20
14

Accounting Entries
for a PO Return to Vendor

Same item, $100 PO unit price

Account
A/P Accrual Account
Receiving Account

Debit
100

Credit
100

15

Accounting Entries
for an Invoice Correction

Same item, $80 invoice unit price

Account
New Charge Account
Old Charge Account

Debit
80

Credit
80

16

Caution

You cannot change an invoice

distribution from the A/P Accrual
Account to another account

However, your A/P staff can code the

invoice to the A/P Accrual Account by
mistake

17

Accounting Entries
for Receipt Deliveries
Account Debit
Credit
Delivery to stock inventory
Subinventory Account
XXX
Receiving Account
XXX
Delivery to WIP inventory
Job OSP Account XXX
Receiving Account
XXX
18

Month-End Period Accruals

For expenses only

Account Debit
Credit
Charge Account
XXX
Expense A/P Accrual Account

XXX

In Oracle General Ledger, reverse the

accrual entry in the following month
19

Where You Setup

the Accrual Processes

Setup in Oracle Purchasing

Setup in Oracle Inventory

20

Setup in Oracle Purchasing

Use the Define Purchasing Options Form

Set Accrue Expense Items to Period
End
Set the Expense A/P Accrual Account

Use the Define Receiving Options form

Set the Receiving Account for each
inventory organization
21

When Defining Purchase Orders

Never manually set the Accrue on

Receipt Flag
For expense destinations, the flag
should be No
For inventory and shop floor (OSP)
destinations, the field should be Yes
22

Setup in Oracle Inventory

Use the Define Organization

Parameters Form
Set the Inventory A/P Accrual
Account
Use the same Inventory A/P Accrual
Account for all organizations
23

Caution

Use separate accounts for each type of

system account:
Expense A/P Accrual Account
Inventory A/P Accrual Account
Receiving Account(s)
Expense Purchase Order Charge Accounts
Other inventory, WIP and price variance
accounts
24

Caution

Release 10.7 SmartClient/NCA has a

incorrect field name for the receiving
options:
In character it is the Receiving Account,
but the GUI screens incorrectly used
Receiving Accrual Account
Enter your receiving valuation account,
an asset account!
25

Caution

Release 10.7 SmartClient/NCA has a

incorrect field name for the receiving options,
continued:
Using the Inventory A/P Accrual Account
for the Receiving Accrual Account will
completely invalidate your receiving
accounting results, and make the Accrual
Reconciliation Report completely
unusable!!
26

Purpose for the Accrual

Reconciliation Report

Report all perpetual accrual account

transactions

Provide a subsidiary ledger for the

general ledger balances

Provide a tool to manage the perpetual

accrual account
27

Background Information
Two ways to run it
With rebuilding the temporary table
Reporting existing information in the
temporary table
Need perpetual accruals to run it
All amounts reported in base currency
Multiple organizations reported
Note: this report uses 180 columns

28

How the Accrual Rebuild Works

Determines the install status
Select valid accrual accounts
Finds all accrual entries and inserts into a
temporary table
Matches invoices to receipts
Determines the write-off condition
Calculates PO line control totals
Calculates IPV for Release 9 entries
Prints the report
29

Major Accrual Reconciliation

Report Columns

Accrual Transaction Column

Transaction Amount Column

Invoice Price Variance

Net Accrual Balance

30

Payables Accrual Transactions

A/P Line Match
A/P PO Match
A/P Item Match
A/P No Match
A/P No Item
A/P No PO
Invoice Price Variance
Exchange Rate Variance

31

Purchasing
Accrual Transactions

Oracle Purchasing transactions

Receive
Deliver
Match
Return to Vendor

32

Other Accrual Transactions

Oracle Inventory transactions

Release 9 PO receipts or returns
Any other accrual account transaction

Oracle Work in Process transactions

Release 9 outside processing receipts or
returns
Any other accrual account transaction
33

Transaction Amount Column

The debit or credit from the subledger

If no entries are screened out, the report

total equals your subledgers

However, you usually use the Report

Summary by Source and Accrual
Transaction to tie back to your subledgers
34

Invoice Price Variance Column

Primarily for reporting Release 9 IPV

Also reports incorrect transactions, such as:

A/P No PO
A/P No Item
R10 Invoice Price Variance
R10 Exchange Rate Variance

35

Net Accrual Balance Column

Equals the Transaction Amount less the

Invoice Price Variance column

This column is a carryover from Release

9

If Release 9 was not used, ignore this

column
36

Accrual Reconciliation Report

Screening Parameters

New R10.6.1 screening parameters

Include All Transactions
Transaction Amount Tolerance
Transaction Quantity Tolerance

Other screening parameters

Include Written Off Transactions, Aging Number
of Days
Item, Vendor and G/L Date ranges
37

Include All Transactions

Yes disables the Transaction Amount and

Transaction Quantity parameters

No enables the Transaction Amount and

Transaction Quantity parameters

Replaces the Include Zero Balance

Subtotals parameter
38

Transaction Amount and

Quantity Tolerance Parameters

Used to limit reported information

You can now screen out small PO line

differences

Both parameters have to be met

Specify absolute amount and quantity

tolerances
39

Parameter Example
Report parameters set to:
Include all transactions set to No
Transaction Amount parameter = 25
Transaction Quantity parameter = 3
For a given PO line on the report:
PO line net amount = 25
PO line net quantity = 5
This purchase order line would still appear on the
Report

40

Process Problems for Receiving

Why receipts do not equal invoices

Wrong receipt quantities
Receiving goods to the wrong PO line or
PO
Trying to receive or return goods using
miscellaneous inventory transactions
Routine over receipts with correct invoice
quantities
41

Process Problems for Payables

Why invoices do not equal receipts

Incorrect invoice quantities
Payables not processing debit memos correctly
Expenses, invoice price or exchange rate
variances miscoded
Payables matching the invoice to the wrong PO
line or PO
Not matching invoices to POs

42

Process Problems
for Purchasing
Why invoices may not be processed
correctly
Purchase orders prematurely closed or
final closed
Purged purchase orders
Incorrect purchase order unit prices
Late or no purchase orders created for the
receipt

43

How to Balance the

Accrual Reconciliation Report

Only picks up transactions available to the

general ledger

Use the Report Summary by Source and

Accrual Transaction to balance to the general
ledger

The Report Summary Total column must

agree to your subledgers
44

Subledger Reports for Balancing

Receiving Account Distribution Report

Payables Expense Detail Report

Material Distribution Summary Report

WIP Account Summary Report

45

What to Check If the Perpetual

Accruals do Not Balance
Latest version for the A/P and PO subledger
reports
Latest version for the Accrual Reconciliation
Report
If you have applied the cumulative accrual patch
bug #337257 (pre 10.7)
May be missing two PO lookup codes
Check for any conversion issues
Check for manual G/L journal entries

46

How to Balance the Receipt

Accrual - Period End Process

Run the Uninvoiced Receipts Report by

specifying Accrued Receipts: No
(before running the month-end
process), Yes (after running the monthend process), Include On-line accruals:
no, the desired Period Name, and the
desired sort selection (purchasing
Category or Vendor)
47

How to Balance the Receipt

Accrual - Period End Process
Use careful cut-off controls for receipt
and invoice transactions
Close purchase orders and lines after
you have reconciled the Expense A/P
Accrual Account
Get bug patch #489880 (or later) for the
Receipt Accrual - Period End process

48

If the Accrual Reconciliation

Report Does Not Complete
Check for identical system accounts
Ask your database administrator if there
is enough shared memory (or SGA)
Make sure you have the latest version
for the Accrual Reconciliation Report
Major process problems with Receiving
and Payables

49

If the Accrual Reconcilation

Report Is Too Large
Check for identical system accounts
You may have too many cumulative accrual
transactions
Use the amount and quantity parameters
Use the G/L Date From and To
parameters to reduce the report
Caution: non-cumulative G/L Dates ranges
may omit needed transactions

50

Implementation Issues (Mistakes

You Dont Want to Make)
Sharing system accounts
Badly defined receiving and payables
processes
Little or no system testing for your
accrual processes
After go live, late review for the first
Accrual Reconciliation Report

51

Conversion Issues (More

Mistakes You Dont Want)

Not correctly matching invoices to receipts

Need a valid PO_DISTRIBUTION_ID in
AP_INVOICE_DISTRIBUTIONS_ALL

Incorrect cumulative values for PO line

quantity received, returned, inspected, and
billed
Not setting the receipt on accrual flag
correctly in PO_DISTRIBUTIONS_ALL

52

Conversion Issues (Continued)

Incorrect foreign key relationships between

PO_HEADERS, PO_LINES,
PO_LINE_LOCATIONS, and
PO_DISTRIBUTIONS_ALL

Also note that REFERENCE3 in

RCV_RECEIVING_SUB_LEDGER must join
to PO_DISTRIBUTION_ID column in
PO_DISTRIBUTIONS_ALL
53

Current Bug Fixes for

Accrual and Related Processes

Release 10.7 or earlier

Bug # 489880 or later, fixes the Receipt
Accrual - Period End process to use the
PO_LINE_LOCATIONS_ALL
CLOSE_DATE, instead of the
PO_LINES_ALL CLOSE_DATE, thereby
causing the Receipt Accrual - Period End
process to agree with the Uninvoiced
Receipts Report
54

Current Bug Fixes for

Accrual and Related Processes

Release 10.7 or earlier

Current bug patch for the Accrual
Reconciliation Report, contact Oracle
WorldWide Support
(caution: bug patch 483453 breaks the
PO.PO_VIEW, the ODF files are invalid)

55

Current Bug Fixes for

Accrual and Related Processes
Release 10.6.1 or earlier
Re-register the Receipt Accrual - Period
End process for no printing - gives an
erroneous warning message
Release 10.5 or earlier
Apply the most current cumulative
accrual patch to get the latest accounting
and accruals code for both PO and A/P

56

Current Bug Fixes for Release

10.4.2 or Earlier

For outside processing, the import

requisition process assigned the
receiving account to the PO distribution
A/P Accrual Account.
Repair historical accounting entries
with bug No. 235288
Get the most current patch for the
Import Requisition process
57

Current Bug Fixes for Release

10.4.2 or Earlier (Continued)

Incorrect IPV stored in the

AP_INVOICE_DISTRIBUTIONS table
Causes the latest Accrual Reconcilation
Report to not balance to older versions
of the Payables Expense Detail Report
Request bug No. 319258 to obtain a
select only SQL*PLUS script
However, the IPV in the G/L is correct
58

Current Bug Fixes for Release

10.4.2 or Earlier (Continued)
Incorrectly set Receipt on Accrual Flag
Request the latest Enter Purchase
Orders Form
Incorrect encumbrance flag set in
AP_INVOICE_DISTRIBUTIONS
Request a bug fix for PO Releases
Causes the latest Accrual Reconcilation
Report to miss A/P entries

59

Desired Enhancements

Have the ability to either exclude closed

purchase orders and PO lines or only
report closed POs and lines on the
Accrual Reconciliation Report

Sort by distribution account on the

Uninvoiced Receipts Report

60

Desired Enhancements
(Continued)

Write off accrual transactions directly to

the general ledger, and store these
write-offs in the AP_INVOICE_
DISTRIBUTIONS_ALL table

Create the ability to do mass accrual

write-offs

61

Desired Enhancements
(Continued)
Write off accrual discrepancies on a net
basis
Store net PO line amounts in the
PO_LINE_LOCATIONS_ALL table
Write off net PO line amounts when the
PO line or purchase order is closed
Actually match invoices to specific receipts

62

Conclusions
These accrual processes are very
important to control your business activity
Proper implementation and data
conversion is essential
Major code bugs are resolved
Please vote wisely on enhancement
requests

63

Where to get more information

The OAUG paper that this presentation is

based upon

Oracle Purchasing Reference Manual

Accrual Reconciliation Report
Accrual Write-Off Form
Accrual Write-Off Report
Receipt Accruals Topical Essay
64

Thank You for Your Attendance

and Participation
Douglas A. Volz

65