Proration in MPA Accounting

Amount Proration for
Recognition Journal in Multi

Period Accounting
Author: Sanjay Prasad
Reviewer: Sriram Ramanujam
Creation Date: 15-May-2014
Last Updated: 09-Aug-2014
Version: 1.1
Status: Final
Oracle/Client Confidential - For internal use only
Page 1
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Page 2
Table of Contents
Document Control................................................................................................... 4
1) Purpose...................................................................................................................... 5
2) Terms Used................................................................................................................. 5
3) Business Case.............................................................................................................. 6
4) Relevant MPA Setup..................................................................................................... 7
4.1) Define Accounts............................................................................................... 7
4.2) Define Invoice Line Flexfield............................................................................8
4.3) Define Accounting Derivation Rule (ADR).......................................................10
4.4) MPA Journal Line Types (JLT)...........................................................................12
4.5) Assign MPA Journal Line Types to Journal Line Definitions (JLD)......................13
4.6) Assign JLD to Application Accounting Definition (AAD)...................................15
4.7) Assign AAD to SLAM....................................................................................... 16
4.8) Assign SLAM to Ledger................................................................................... 16
5) Accounting of MPA Invoice.......................................................................................... 17
5.1) MPA Transaction............................................................................................. 17
5.2) Expected Accounting Entry............................................................................18
6) Different Proration Types.............................................................................................. 21
6.1) Proration Type-First Period..............................................................................21
6.1.1) Definition:................................................................................................ 21
6.1.2) Calculation:.............................................................................................. 21
6.1.3) Accounting In Application.........................................................................22
6.2) Proration Type-Days In Period.........................................................................23
6.2.1) Definition:................................................................................................ 23
6.2.2) Calculation:.............................................................................................. 23
Page 3

6.3) Proration Type-Total Days In Period.................................................................25
6.3.1) Definition:................................................................................................ 25
6.3.2) Calculation:.............................................................................................. 25
6.4) Proration Type-360 Days................................................................................27
6.4.1) Definition:................................................................................................ 27
6.4.2) Calculation............................................................................................... 27
6.5) Comparison of Prorated Amount....................................................................29
Document Control
Change Record
4
Date
Author
Versio
n
Change Reference
11-Aug1414
09-Aug14
Sanjay Prasad
Draft 1
No Previous Document
Sanjay Prasad
V1.1
Page 4
1) Purpose
To explain different options for proration types available in R12. Proration types are
used to recognize prorated amount in accounting of Multi period Accounting (MPA)
transactions
2) Terms Used
1. MPA: Multi Period Accounting, its a feature available in R12 to accrue an amount and then
prorate the same as expense across future periods. For more details on MPA, please refer White
paper on Multi Period Accounting (Note 1315106.1)
2. Deferred Start Date: Date from which Expense proration starts
3. Deferred End Date: Last date for expense proration
4. SLAM: Subledger Accounting Methid
5. ADR: Accounting Derivation Rule
6. JLD: Journal Line Definition
7. JLT: journal Line Type
8. AAD: Application Accounting Definition
9. Effective Days for Proration: Number of days in a month the amount to be prorated, for example
in the month of May-14 the proration need to start on 15-May then effective days for Proration
would be 31 (Number of days in Month)- 15 (Day when proration starts) = 17
Page 5
3) Business Case
Organization receives payable invoice for Insurance premium. The invoice is for insurance for next one
year. As per accounting principle Expense to be recognized as and when services are rendered,
following should happen as far as Accounting of the Insurance invoice is concerned:
a) Expense of Insurance Invoice should not be recognized the day invoice is recorded. This need to
be done as insurance service is yet NOT delivered the day respective invoice is recorded.
b) Insurance service is going to be rendered over a period of coming Year, hence the insurance
expense should be recorded in future accounting periods as and when it comes.
The Insurance invoice is as follows:
i.
ii.
iii.
iv.
v.
Invoice Amount: 12000 USD

Invoice Date: 11-May-2014
Invoice GL Date: 11-May-2014
Insurance Start Date: 15-May-2014
Insurance End Date: 15-May-2015
Insurance Start Date is mapped to Deferred Start Date in MPA

Insurance End Date is mapped to Deferred End Date in MPA
As per above transaction expected accounting entry is as follows:
Accounting Date: 11-May-2014
Insurance Prepayment Dr
12000 USD
Liability
Cr
12000 USD
Expense Recognition (For each accounting period defined between Deferred Start date and
Deferred end date)
Insurance Expense
Dr
Insurance Prepayment Cr
Prorated Amount
Prorated Amount
Prorated amount should be rounded as per Currency precision. Precision for USD is 2.
Page 6
4) Relevant MPA Setup

4.1) Define Accounts
In MPA there are 2 types of account:
Accrual Account: The account in which invoice amount is initially realized. In our example its the
Insurance Prepayment account.
Recognition Account: The expense account where actual expense need to be booked as and when service
gets rendered over a period of time.
Navigation: General Ledger Responsibility> Setup>Financials>Flexfields> Key>Value
Query for respective value set for Natural Account
Note: 1341 (Insurance Prepayment) is accrual Account. Account type is Asset
Page 7
Note: 6502 (Insurance Premium Expense) is recognition Account. Account type is Expense
4.2) Define Invoice Line Flexfield
Define Invoice line Flexfield to indicate type of MPA invoice. Its a business mapping, to know more on it
please refer White paper on Multi Period Accounting (Note 1315106.1).
Navigation: Payables Responsibility->Setup->Flexfields->Descriptive->Segments
Query for: Application: Payables
Title: Invoice Lines
Page 8
Define Context MPA
Click on Value Set
Page 9
Next Step: Define value for Value Set Type of Payment Attached with Invoice Line DFF
4.3) Define Accounting Derivation Rule (ADR)

To meet the requirement of generating account codes (for Recognition line type) based on the kind of
MPA Invoice line, we need to define a rule to derive the Account.
Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder->Journal Entry Setup->Account Derivation Rule
Define ADR XX_INV_MPA
Page 10
The Input source of ADR is Invoice Line Flexfield Segment 1 as it stores value for Type of MPA
invoice.
Click on Mapping Set button
Create mapping Set XX_INV_MPA_MAPPING, As per above setup, if input source (Invoice Line
Flexfield Segment 1) is INS then Output for natural account segment would be 6502, Please note 6502 is
the Expense account defined to recognize Insurance Expense.
Page 11
Attach the Mapping Set XX_INV_MPA_MAPPING to ADR XX_INV_MPA
4.4) MPA Journal Line Types (JLT)

Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder-> Journal Entry Setup->Journal Line Types
Accrual JLT for MPA
Page 12
Note:
Line Type Code: XX_AP_ITEM_EXP_INV
Accounting Class: Prepayment
Multiperiod: Accrual
Recognition JLT for MPA
Note:
Line Type Code: XX_AP_ITEM_EXP_INV_RECG
Accounting Class: Item Expense
Multiperiod: Recognition,
There is no condition for Recognition JLT.
4.5) Assign MPA Journal Line Types to Journal Line Definitions (JLD)
Page 13
Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder->Methods and Definitions->Journal Line Definition
Accrual JLT is assigned to respective JLD XX_ACCRUAL_INV_JLD

Note: Seeded ADR Invoice Distribution Account is assigned to Accrual MPA JLT.
Click on Multiperiod Accounting Button
Page 14
Note: There are 4 different options for Proration type. Prorated recognition amount is calculated based on
value, set for proration type in above definition.
Click on Line Assignments
Attach the Recognition MPA JLT XX_AP_ITEM_EXP_INV_RECG.

Page 15
Attach ADR as per the above definition system will first derive all segments based on seeded ADR
Invoice Distribution Account and then overlay the Natural account based on ADR XX_INV_MPA
defined earlier
4.6) Assign JLD to Application Accounting Definition (AAD)
Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Accounting Methods Builder->Methods and Definitions->Application Accounting Definition
Note: AAD definition code is XX_ACCRUAL_AAD
4.7) Assign AAD to SLAM
Page 16
Navigation: Payables Responsibility->Setup->Accounting Setup->Subledger Accounting Setup>Methods and Definitions-> Sub Ledger Accounting Method
4.8) Assign SLAM to Ledger
5) Accounting of MPA Invoice

The prorated amount to expense account depends on proration type used in MPA Setup. Different available proration
types are as below:
Page 17
a) 360 Days
b) Days in Period
c) Total Days in Period
d) First Period
We will review expense prorated amount of MPA invoice in each proration type one by one.
5.1) MPA Transaction

Create Invoice as discussed in Business Case section.
Navigation: Payable Responsibility>Invoices>Entry>Invoice
Note- Invoice Amount: 12000

Deferred Start Date: 15-May-2014, Deferred End Date: 15-May-2015
GL Date: 11-May-2014
Account: 01-000-1341-0000-000
Page 18
Note- Invoice Line DFF:INS

To calculate prorated recognition amount system refers below information:
a) Accounting periods between Deferred Start Date and Deferred End date
b) Days in each period
c) Effective Days for proration in each period (Except First Period, all other three proration types
refers this information)
5.2) Expected Accounting Entry
As per accounting period defined in system the accounting periods falling between the Deferred Start
Date (15-May-2014) and Deferred End Date (15-May-2015) are as follows:
Hence Expected Accounting Entry for the MPA Invoice is as follows
Perio Days In
Effective Days for
ds
Period
Proration
May14
31
17
Jun-14
30
30
Jul-14
31
31
Aug14
31
31
Sep14
30
30
Oct-14
31
31
Nov14
30
30
Dec14
31
31
Jan-15
31
31
Feb15
28
28
Page 19
Mar15
Apr-15
May15
31
30
31
30
31
15
Accruing Insurance Prepayment

01-000-1341-0000-000
Dr
01-000-2210-0000-000
Cr
Expense Recognition Accounting
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Jun-2014
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Jul-2014
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Aug-2014
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Sep-2014
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Oct-2014
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Nov-2014
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Dec-2014
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Jan-2015
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Feb-2015
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Accounting Date: 01-Mar-2015
01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
12000 USD
12000 USD (Liability account)
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Prorated Amount
Page 20
Accounting Date: 01-Apr-2015

01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Prorated Amount
Prorated Amount

01-000-6502-0000-000
Dr
01-000-1341-0000-000
Cr
Prorated Amount
Prorated Amount
As per need, Organization requires different methods for Calculation of expense recognition. This
flexibility of different methods for calculation of expense recognition can be achieved different proration
type provided in MPA feature in R12. The prorated amount mentioned in Expense Recognition
Accounting will depend on Proration Type selected in MPA Setup.
Page 21
6) Different Proration Types

As mentioned there are 4 proration types. We will check accounting of the MPA invoice in each proration
type. We will create accounting of the Invoice in Draft mode so that we can reuse same transaction to
account with next proration type.
6.1) Proration Type-First Period
6.1.1) Definition:
Accrual amount divided by the number of periods and recognized evenly starting with the first period
6.1.2) Calculation:
Deferred Start
Date
Deferred End
Date
Invoice Amount
(AMT)
15-May-14
15-May-15
12000
Days In
Period
(A)
Periods
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Total number of periods = 13
31
30
31
31
30
31
30
31
31
28
31
30
31
Prorated
Rounded/Adjusted
Amount
Amount
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.08
923.0769231
923.04
Prorated Amount = Invoice Amount / Number of Periods = 12000/13

For the last period amount = Invoice Amount Sum (Rounded Amount for all period
except last)
Account the Invoice to verify the calculated prorated Amount
Page 22
6.1.3) Accounting In Application

Ensure Proration Type set as First Period
Run Create Accounting (In draft mode so that we can reuse the same transaction for
Accounting with next changed Proration Type)
First_Period.docx
Output of Create Accounting Request:
FIRST_PERIOD.xlsx
Data from accounting table (XLA_AE_LINES):

6.2) Proration Type-Days In Period
Page 23
6.2.1) Definition:
Partial periods calculated by dividing the number of partial period days by the actual number of days in
the period
6.2.2) Calculation:
Deferred Start
Date
Deferred End
Date
Invoice Amount
(AMT)
Periods
15-May-14
15-May-15
12000
Effective
Days for
Days In
Proration
Period (A) (B)
May-14
31
Jun-14
30
Jul-14
31
Aug-14
31
Sep-14
30
Oct-14
31
Nov-14
30
Dec-14
31
Jan-15
31
Feb-15
28
Mar-15
31
Apr-15
30
May-15
31
Total
Prorat
Effective
ed
Month
Amou
Rounded/Adju
(C=B/A)
nt
sted Amount
0.5483870 546.91
17
97
69
546.92
997.31
30
1
9
997.32
997.31
31
1
9
997.32
997.31
31
1
9
997.32
997.31
30
1
9
997.32
997.31
31
1
9
997.32
997.31
30
1
9
997.32
997.31
31
1
9
997.32
997.31
31
1
9
997.32
997.31
28
1
9
997.32
997.31
31
1
9
997.32
997.31
30
1
9
997.32
0.4838709 482.57
15
68
37
482.56
12.03225
806
Prorated Amount in each period = (Invoice Amount/Sum of Effective

Month)*Respective Effective
Month
e.g. for Prorated Amount for May-14 = (12000/12.03225806)*0.548387097
Page 24
except last)

Change Proration type to Days In Period
Account (In Draft mode) the Invoice to verify the calculated prorated Amount
Page 25
Days_In_Periods.doc
x

6.3) Proration Type-Total Days In Period
DAYS_IN_PERIOD.xl
sx
6.3.1) Definition:
Both the partial periods and the whole periods are based on the actual number of
days in the period. The number of days within each period is then divided by the
total number of days in the whole multiaccounting period. The result is then
multiplied by the total amount due to arrive at an amount for each respective
period.
6.3.2) Calculation:
Deferred Start
Date
Deferred End
Date
Invoice Amount
(AMT)
Periods
May-14
15-May-14
15-May-15
12000
Effective
Days for
Days In
Proration
Period (A) (B)
31
Prorated
Amount
557.37704
17
92
Rounded/Adju
sted Amount
557.38
Page 26
Jun-14
30
30
Jul-14
31
31
Aug-14
31
31
Sep-14
30
30
Oct-14
31
31
Nov-14
30
30
Dec-14
31
31
Jan-15
31
31
Feb-15
28
28
Mar-15
31
31
Apr-15
30
30
May-15
Total
31
15
366
983.60655
74
1016.3934
43
1016.3934
43
983.60655
74
1016.3934
43
983.60655
74
1016.3934
43
1016.3934
43
918.03278
69
1016.3934
43
983.60655
74
491.80327
87
983.61
1016.39
1016.39
983.61
1016.39
983.61
1016.39
1016.39
918.03
1016.39
983.61
491.81
Prorated Amount in each period = (Invoice Amount/Sum of Effective Days for

Proration)*Respective Effective Days for
Proration
e.g. for Prorated Amount for May-14 = (12000/366)*17 = 557.3770492
except last)

Change Proration type to Total Days In Period
Page 27
Account (In draft mode) the Invoice to verify the calculated prorated Amount
Total_Days_In_Perio
d.docx
Total_Days_In_Perio
d.xlsx
6.4) Proration Type-360 Days

6.4.1) Definition:
Partial periods calculated by assuming 360 days in a year
Page 28
6.4.2) Calculation
Deferred Start
Date
Deferred End
Date
Invoice Amount
(AMT)
Periods
15-May-14
15-May-15
12000
Effective
Days for
Days In
Proration
Period (A) (B)
May-14
30
Jun-14
30
Jul-14
30
Aug-14
30
Sep-14
30
Oct-14
30
Nov-14
30
Dec-14
30
Jan-15
30
Feb-15
30
Mar-15
30
Apr-15
30
May-15
30
Total
Prorat
Effective
ed
Month
Amou
Rounded/Adju
(C=B/A)
nt
sted Amount
0.5666666 563.53
17
67
59
563.54
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
994.47
30
1
51
994.48
497.23
15
0.5
76
497.18
12.06666
667
As Year is considered of 360 days, hence there are 30 (360/12) days in each period.
Prorated Amount in each period = (Invoice Amount/Sum of Effective Month)
*Respective Effective
Month
e.g. for Prorated Amount for May-14 = (12000/12.06666667)* 0.566666667=
563.5359 and so on
Page 29
except last)

Change Proration type to 360 Days
Account the Invoice to verify the calculated prorated Amount
Page 30
360_Days.docx
360_Days.xlsx

6.5) Comparison of Prorated Amount
Comparison of prorated amount by different proration type
Compare.xlsx
Page 31

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Amount Proration for

Recognition Journal in Multi

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6.2.3) Accounting In Application.........................................................................24

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Oracle/Client Confidential - For internal use only

Invoice Amount: 12000 USD

Insurance Start Date is mapped to Deferred Start Date in MPA

Oracle/Client Confidential - For internal use only

4) Relevant MPA Setup

Note: 1341 (Insurance Prepayment) is accrual Account. Account type is Asset

Oracle/Client Confidential - For internal use only

Oracle/Client Confidential - For internal use only

Title: Invoice Lines

Define Context MPA

Click on Value Set

Oracle/Client Confidential - For internal use only

4.3) Define Accounting Derivation Rule (ADR)

Oracle/Client Confidential - For internal use only

Oracle/Client Confidential - For internal use only

Attach the Mapping Set XX_INV_MPA_MAPPING to ADR XX_INV_MPA

4.4) MPA Journal Line Types (JLT)

Oracle/Client Confidential - For internal use only

Oracle/Client Confidential - For internal use only

Accrual JLT is assigned to respective JLD XX_ACCRUAL_INV_JLD

Oracle/Client Confidential - For internal use only

Attach the Recognition MPA JLT XX_AP_ITEM_EXP_INV_RECG.

Note: AAD definition code is XX_ACCRUAL_AAD

4.7) Assign AAD to SLAM

Oracle/Client Confidential - For internal use only

4.8) Assign SLAM to Ledger

5) Accounting of MPA Invoice

5.1) MPA Transaction

Navigation: Payable Responsibility>Invoices>Entry>Invoice

Note- Invoice Amount: 12000

Oracle/Client Confidential - For internal use only

Note- Invoice Line DFF:INS

Accruing Insurance Prepayment

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Accounting Date: 01-Apr-2015

Accounting Date: 01-May-2015

Oracle/Client Confidential - For internal use only

6) Different Proration Types

Prorated Amount = Invoice Amount / Number of Periods = 12000/13

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6.1.3) Accounting In Application

Output of Create Accounting Request:

Data from accounting table (XLA_AE_LINES):

Prorated Amount in each period = (Invoice Amount/Sum of Effective

6.2.3) Accounting In Application

Oracle/Client Confidential - For internal use only

Output of Create Accounting Request:

Data from accounting table (XLA_AE_LINES):

Oracle/Client Confidential - For internal use only

Prorated Amount in each period = (Invoice Amount/Sum of Effective Days for

6.3.3) Accounting In Application

Oracle/Client Confidential - For internal use only

Output of Create Accounting Request:

Data from accounting table (XLA_AE_LINES):

6.4) Proration Type-360 Days

6.4.3) Accounting In Application

Account the Invoice to verify the calculated prorated Amount