Oracle R12 A/P Accruals

OAUG Cost Mgmt SIG Meeting

March 15, 2011

Douglas Volz
Douglas Volz Consulting
doug@volzconsulting.com
Introduction

Learn about the Oracle inventory and expense accrual

processes for Release 12

Find out about the available improvements

Discuss the underlying business processes

Discuss current problems you may have

Slide 2
Agenda
Welcome to Our Session!

Cost Management SIG Business

Release 12 A/P Accruals

Why are these accrual processes so important?

Periodic vs. perpetual accruals
Basic accounting entries for the A/P accruals
Setup steps for the accrual processes
Using the Accrual Reconciliation Reports
Using the expense accrual processes
Summary of Release 12 Enhancements

Conclusions

Slide 3
OAUG Cost Management SIG Business
Collaborate11 April 10th to 14th
OAUG Cost Mgmt SIG Meeting
April 11, 2011, 9:15am to 10:15am Room W311H

Oracle OpenWorld Call for Papers March 9th to March 27th

OpenWorld 2011 October 2-6, 2011
Call for papers url:
https://oracleus.wingateweb.com/portal/cfp/cfpLogin.ww;jsessionid=abcKMIA3cEszN7U97gH6s

Open vacancy for OAUG Cost SIG Membership Chairperson

Questions, concerns, ideas for the OAUG Cost Mgmt SIG:

Doug Volz doug@volzconsulting.com
Jerry Devore jerry.devore@gmail.com
Sharon Widmer s_widmer@comcast.net

Slide 4
Release 12 A/P Accruals

Slide 5
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

Ultimately affects your profits

Slide 6
What Are These Accrual Accounts?

Principle of accrual accounting

Timing difference between receiving and invoicing

Represents the accrued liability from your vendors or

suppliers

Slide 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

(unless you are a governmental agency or heavily into Project Control)

Slide 8
Why Not Use Perpetual Accruals for Expenses?

Receiving inspection then includes both assets and expenses

Have to reclass balances

Doubles the accrual entries that you need to reconcile

Significantly more entries to review, research, and correct
Increased processing for the Accrual Reconciliation
programs

Slide 9
 Background Information for A/P Accruals

May have multiple lines per PO HEADERS

(PO_HEADERS_ALL)
PO

May have multiple scheduled

receipts and PO releases per PO LINES
(PO_LINES_ALL)
line

May have multiple PO

distributions per line or PO SHIPMENTS PO RELEASES
(PO_LINE_LOCATIONS_ALL) (PO_RELEASES_ALL)
scheduled receipt

Four stored accounts per PO

PO DISTRIBUTIONS
distribution (PO_DISTRIBUTIONS_ALL)

Slide 10
More Background Information
Expense Inventory / WIP
Type of Account Destination Destination

Cost Center or Default Subinv.

Charge Account Expense Account or Org Matl Acct
Expense A/P Inventory A/P
Accrual Account Accrual Account Accrual Account

Cost Center or Inventory IPV

Variance (IPV) Account Expense Account Account

Default
Budget Account Expense Budget Subinv/Org
Account Encumbrance
Account

Slide 11
Accrual Accounting Entries Perpetual Accruals
Releases 10 to 11.5.9
Purchase order receipt
A/P Invoice match
PO Return to vendor
A/P Invoice correction
PO Receipt delivery Release
12
Expense A/P accrual
Release 11.5.10
Transfer to Regular (consignment)
Internal Orders / Logical Transactions
Retroactive Price Adjustments

Slide 12
Accounting Entries for a PO Receipt
Receive one item @ $100 PO unit price

Account Debit Credit

Receiving Account 100
A/P Accrual Account 100

Receiving Value Account Inventory A/P Accrual Account

100 100

Slide 13
Accounting Entries for an A/P Invoice Match
Same item, $80 invoice unit price, $100 PO unit price

Account Debit Credit

A/P Accrual Account 100
A/P Trade Payables 80
Invoice Price Variance 20

A/P Accrual Account A/P Trade Payables

100 80

Invoice Price Variance

20

Slide 14
Accounting Entries for a PO Return to Vendor

Same item, $100 PO unit price

Account Debit Credit

A/P Accrual Account 100
Receiving Account 100

A/P Accrual Account Receiving Account

100 100

Slide 15
Accounting Entries for an A/P Invoice Correction

Same item, $80 invoice unit price

Account Debit Credit

New Charge Account 80
Old Charge Account 80

New Charge Account Old Charge Account

80 80

Slide 16
Accounting Entries for PO Receipt Deliveries

Account Debit Credit

Delivery to stock inventory (PO Receipt)
Material (Subinv/Org) Account XXX
Receiving Account XXX

Delivery to WIP inventory (Outside Processing Receipt)

Job OSP Account XXX
Receiving Account XXX

If using standard costing you may have PPV entries as well

Slide 17
 Purchase Order Accounting Accrual Summary by T Account

Transaction Receiving Value Inventory A/P Accrual

Receipt 100 100
Delivery to Stock 100
Invoice Match 100

Material Value Invoice Price Variance

Delivery to Stock 100
Invoice Match 20

Trade Payables
Invoice Match 80

Slide 18
Accounting Entries for Inventory Consignment
Account Debit Credit
Delivery to stock inventory (PO Receipt for Transfer to Regular)
Material (Subinv/Org) Account XXX
AP Accrual Account XXX

Transfer to WIP inventory (Backflush from Subinventory above)

Account Debit Credit
WIP Material Account XXX
Material (Subinv/Org) Account XXX

Available feature since Release 11.5.10

Slide 19
Accounting Entries for Internal Orders
Receipt into Inventory (Internal Order Intransit Ship)
Account Debit Credit
Subinv. or Org Accounts XXX
AP Accrual Account XXX

Intercompany Invoice Match (Payables)

Account Debit Credit
I/C A/P Accrual Account XXX
Trade Payables Account XXX

Reported on Miscellaneous Accrual Report

Slide 20
Month-End Period Accruals
For expenses only
Account Debit Credit
Charge Account XXX
Expense A/P Accrual Account XXX
Release 11i, run the Receipt Accruals Period End program
Creates entries directly into the G/L Interface lines
Then run Journal Import

Release 12, run the Receipt Accruals Period End program

Creates Receiving Accounting Distributions
Then run Create Accounting Program to create SLA entries and
Run Transfer Journal Entries to G/L program, or (optionally) transfer to G/L at
same time as Create Accounting is run

Next accounting Period, reverse the Accrual:

R11i: In the G/L find the G/L Batch Header and click on Reverse Batch
R12: The reversal entry is automatically done for you
Slide 21
Where You Setup the Accrual Processes

Setup in Oracle Purchasing

Setup in Oracle Inventory

Slide 22
Setup in Oracle Purchasing
Use the Define Purchasing Options Form

Set the Expense

Accrual Account
Set the Accrual
Options for
Expenses

Slide 23
Setup in Oracle Purchasing
Use the Define Receiving Options for each Org:

Receiving
Account
Retroactive Price
Adjustment

Slide 24
When Defining Purchase Orders
Much safer, harder to find the Accrue on Receipt Flag

You have to set up the

Accrue on Receipt field on
your folder form before you
can see the Accrue on
Receipt settings

Slide 25
 Setup in Oracle Inventory
Organization Parameters Inventory AP Accrual Account

Set your PPV and IPV

Accounts

Set your Inventory A/P

Accrual Account

Slide 26
Setup in Oracle Inventory (contd)

Intercompany
Accrual Accounts

Separate inventory and

expense accrual accounts for
intercompany A/P accruals

Slide 27
New R12 Setup For A/P Accruals
List of A/P Accrual Accounts to Reconcile

Slide 28
Caution

Use separate accounts for each type of system account:

Expense A/P Accrual Account
Inventory A/P Accrual Account
Receiving Account
Expense Purchase Order Charge Accounts
Other inventory, WIP and price variance accounts

Teach Payables staff to not use the A/P Accrual Account

This account should be always assigned automatically
Or set up G/L security rules to prevent use

Slide 29
R12 Accrual Reconciliation and Write-Off
Major Enhancement
11i issues
Poor Performance
Full data load causing years of
accrual distributions being loaded
and reloaded again
Inflexibility and Confusion
Forms and Reports are data
dumps. Difficult to identify the
transaction to write off
Data can not be exported in excel
format.
Possibility for Errors
Manual write-off to GL can lead to
errors and mistakes
No Summary Reporting
Slide 30
R12 Enhancements
Enhanced Performance
Incremental data load using from
and to date to load data with
outstanding accrual balances only
Support writing off balances
Increased Usability
Headers and lines separation
Summarization display
AP PO data only
Miscellaneous data only
Data exportable to excel
Will help user for investigation
Mass write-off
Automatic Accounting Creation
No more manual adjustment to GL
Write-off will post to SLA as any
other distributions
Slides courtesy of Oracle Cost
Development
R12 Accrual Reconciliation and Write-Off
Major Enhancement Recap

Performance enhancement:
Incremental load
Accrual data only with outstanding balance
Usability enhancement:
Information categorized using specific windows and reports
AP and PO Accrual data
Miscellaneous AP and Inventory
Writing off accrual balance at PO distribution
Ability to export Accrual data reported in excel format
Mass write-off
Remove possible financial mistakes:
Automatic accrual write-offs posting to the GL

Slide 31 Slides courtesy of Oracle Cost

Development
New R12 Table Structure
Permanent table structures

CST_ACCRUAL_ACCOUNTS (holds valid accrual accounts)

CST_AP_PO_RECONCILIATION
(matched AP/PO entries w/outstanding balances)

CST_MISC_RECONCILIATION (unmatched AP and INV entries)

CST_RECONCILIATION_BUILD (accrual load submissions)

CST_RECONCILIATION_SUMMARY
(summary of CST_AP_PO_RECONCILIATION)

CST_WRITE_OFFS (write-off transaction header table)

CST_WRITE_OFF_DETAILS (write-off transaction details table)

Slide 32
R12 Accrual Reconciliation and Write-Off
Functional Flow

Slide 33 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: Define your Accrual Account

Slide 34 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: Run Accrual Load Program

Slide 35 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: Accrual Load Program

Accrual data load run as a standalone concurrent program

Incremental load: Load is run for a specific date range.

Transactional data picked up only from the data range specified

Accrual data is summarized and accrual balances are calculated

at the PO distribution level
- PO, A/P and Write Off balances as well as last activity date
- Zero balance accrual data are deleted from the table, this
should eliminate 80%+ of the data

Slide 36 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: Run Summary Accrual Reconciliation Report

Slide 37 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: Summary Accrual Reconciliation

Step3 Report: Summary Accrual Reconciliation

Slide 38 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: Run AP and PO Accrual Reconciliation Report

Slide 39 Slides courtesy of Oracle Cost

Development
 R12 Accrual Reconciliation and Write-Off
Functional Flow: AP and PO Accrual Example - Reconciliation Report

We decide to write this

balance off for these
un-billed receipts

Slide 40 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: AP and PO Accrual Example - Write-Off Window
We begin by looking for the PO balance we want to write off

Submit the Write Off

and the balance
disappears online

Slide 41 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: AP and PO Accrual Example - AP PO Write Off
If you resubmit the AP PO Accrual Reconciliation report

.The PO#5418 disappeared

Slide 42 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: AP and PO Accrual Example - View Write Off for AP PO
If you query the write off View Window, you will find your write off transactions

All Write off transactions

for the PO Distribution
balance will be displayed

Slide 43 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: AP and PO Accrual Example - Write Off Reversal
You can reverse the write off transaction if you think error has been made

A write-off reversal transaction

has been created to offset the
previous write off

Slide 44 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: AP and PO Accrual Example - Write Off Reversal
From AP PO Write Off Window, the PO balance re-appears

The PO balance is
again available for write
off

Slide 45 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: AP and PO Accrual Example - Write Off Reversal
AP PO Accrual Reconciliation Report shows the PO balance again

The PO balance shows up

again

Slide 46 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Accrual Reconciliation Process: Accrual Data life Cycle

Accrual Reconciliation Data

Incremental Created Removed

Load User Write Off the balance
Inserted Deleted

Load of Accrual Data

With outstanding
balance
Trigger the creation of the Write
Off transaction to represent the
amount being written off

Written Off Transaction Data

Reversed
Created
User Reverse the Write
Inserted the
Off transaction
Inserted opposite
Write Off

Recreate the Accrual Reconciliation data being

previously written off

Slide 47 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Accrual Reconciliation: Major Benefits

Write Off Activity is tracked by a Write Off transaction

Enhance the control of the write off activity
Enhance audit ability

Only accrual data with outstanding balance will be kept in the

accrual reconciliation tables
Decrease the volume of data
Enhance the performance
Enhance the usability

Slide 48 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Functional Flow: Run Miscellaneous Accrual Reconciliation Report

Slide 49 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Miscellaneous Accrual Reconciliation Report

Slide 50 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Miscellaneous Accrual Reconciliation: Miscellaneous Write-Off Window

Slide 51 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Miscellaneous Accrual Reconciliation: Miscellaneous Write-Off Window

Slide 52 Slides courtesy of Oracle Cost

Development
 R12 Accrual Reconciliation and Write-Off
Write Off transaction Accounting: Leverage Sub Ledger Accounting
To post the accounting to the GL, we can execute the Create Accounting Cost Management process
with the process category Receiving

Upon completion of
the process the
accounting report
will show the status
of the accounting

Slide 53 Slides courtesy of Oracle Cost

Development
R12 Accrual Reconciliation and Write-Off
Write Off transaction Accounting: Leverage Sub Ledger Accounting Continue
Once posted the SLA accounting entries are viewable online in the view write off Window

Slide 54 Slides courtesy of Oracle Cost

Development
Summary Comparison for R11i and R12
R11i: Inventory A/P Accruals
Accrual Reconciliation Report detail report
Write-Off Accrual Screen/Form
Accrual Write-Off Reports

R12: Inventory A/P Accruals

Accrual Reconciliation Detail and Summary Reports
Write-Off Accrual Screen/Form
Separate write-off forms for AP/PO vs. Inventory transactions
When you write off entries you create Write-Off journal entries
Accrual Write-Off Reports
New Reports
AP and PO Accrual Reconciliation Report
Summary Accrual Reconciliation Report
Miscellaneous Accrual Reconciliation Report

Slide 55
How to Balance the Accrual Reconciliation Report

Only picks up transactions available to the general ledger

Create Accounting Final mode has been run

Use Subledger Accounting or G/L reports to reconcile

Subledger Accounting Journal Entries Report
Account Analysis Reports
General Ledger summary and journal line reports

Or use original accounting distribution reports

Receiving Account Distribution Report
Payables Account Analysis Report
Material Distribution Summary Report

Slide 56
What to Check If the Perpetual Accruals do Not Balance

Check for any conversion issues

Check for manual G/L journal entries

Make sure create accounting has been run

Slide 57
Process Problems for Receiving

Why receipts do not equal invoices

Wrong receipt quantities (quantity and/or UOM is incorrect)

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

Slide 58
Process Problems for Payables
Why invoices do not equal receipts

Incorrect invoice quantities (UOM is wrong, etc.)

Payables not processing debit memos correctly

Expenses, invoice price or exchange rate variances miscoded

Payables matching the invoice to the wrong PO, PO line or PO

Release

Not matching invoices to POs at all

Slide 59
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

Slide 60
Expense A/P Accruals

Expense A/P Accruals for both R11i and R12

Uninvoiced Receipts Report
Supporting backup for your month-end expense accruals
Run this report BEFORE running the Receipts Accrual
Period End program
Receipts Accrual Period End program
This program creates your month-end expense accruals
Payables has to be closed BEFORE you run this month-end
Purchasing program
R11i only creates entries into the G/L Interface
R12 creates Receiving accounting distributions

Slide 61
 How to Run the Expense Accrual Programs and Reports
Run the Uninvoiced Receipts Report by specifying
Accrued Receipts:
No (before running the month-end process),
Yes (after running the month-end process),
Include On-line accruals: No
The desired Period Name
And the desired sort selection
(purchasing Category or Vendor)

Slide 62
How to Run the Expense Accrual Programs and Reports
Run the Receipt Accruals Period-End program after A/P is closed
Enter the Minimum Accrual Amount
Leave Supplier and Item Category information blank
Select the accounting period
Purchasing Period must be OPEN, G/L Period must be OPEN and
A/P Period must be CLOSED.
When Purchasing is closed the expense receipts are un-marked

Slide 63
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
Uninvoiced Receipts Report should agree to your Receipt
Accruals - Period-End journals
R11i: Goes directly into your General Ledger Interface table
R12: Goes directly into your Receiving Accounting Distributions

Make sure you match your expense A/P invoices to your

expense PO receipts

Slide 64
How to Balance the Receipt Accrual - Period End Process

Caution, for earlier R12.0x and 12.1 Releases:

For both online and period-end accruals, both accounting entries use
the journal category of Receiving

See Metalink Note:

How To Change The Seeded Default Journal Category from "Receiving" to
Accrual"? [ID 555547.1]

Slide 65
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

If your company has badly defined and/or badly executed PO Receipt and
A/P Invoice Match processes you will have a mess!

Slide 66
Release 12 A/P Accrual Issues

XML or BI Publisher Reports can become quite huge

(especially if your Procurement and Payment processes are broken)

Inventory A/P accrual entries are reported on the

Miscellaneous Accrual Reconciliation Report, even for Inter-
Company Internal Orders or Logical Shipments/Logical
Receipts (depending on FOB)

Accrual Reconciliation Load Run will fail if run more than

one Accrual Reconciliation Load at a time

Slide 67
Release 12 Summary - Major Rewrite for A/P Accruals

Each months accrual entries are loaded incrementally

No more cumulative loading each month for the Accrual Temp
table (no longer temporary)
PO and A/P entries which balance to zero are matched and
removed
Much better performance and less tablespace too

Separately define what are valid A/P Accrual Accounts

Easier to exclude invalid PO and A/P entries

Matching is done at the PO distribution level (effectively at the PO

Release level when using PO Releases)

Slide 68
Release 12 Summary - Major Rewrite for A/P Accruals
Summary and Detail Accrual Reconciliation Reports
Summary reporting by account
Detail reporting with separate headings from report detail
Uses XML/BI Publisher download reports into Excel
Separate reports for matching vs. non-matching
miscellaneous entries (A/P, Inventory entries)

Ability to do mass A/P Accrual Write-Offs

Write-offs use SLA (sub-ledger architecture) and now create
journal entries
Can do write-offs at the PO distribution level
With better write-off reporting

Slide 69
Conclusions

These accrual processes are very important in ensuring your

margins are accurate

Proper implementation and data conversion is essential

Requires accurate receiving and A/P matching processes

Release 12 has major enhancements to consider

Slide 70
Where to get more information
Douglas Volz Consulting
Collaborate08: How to Setup and Use Your A/P Accruals (R11i)
http://www.volzconsulting.com/resources.html

Oracle Corporation
Metalink:
FAQ For On Line Accruals & Accrual Reconciliation Reports
[ID: 433683.1]
Impact of R12 Design in PO Accounting, [ID: 429105.1]
R12 How To Diagnose And Reconcile Inventory AP Accrual Transactions
Using Reconciliation Reports [ID 728871.1]
Master Note For Oracle EBS Procurement Suite - Encumbrance And
Accrual Accounting [ID 1138043.1]
Oracle Purchasing User Guide
Oracle Cost EBS Public Forum:
http://forums.oracle.com/forums/forum.jspa?forumID=414
Slide 71
Acknowledgements

You, the OAUG Cost Mgmt SIG, thanks for attending this session

Oracle Cost Development

Partners in crime at my clients over the years

Slide 72
Douglas Volz (doug@volzconsulting.com)
Professional Background
Doug Volz is a Senior Architect and Advisor for Oracle Application projects, with a particular interest in
Cost and Project Management. He has 30 years accumulated experience, including 5 years in Oracle
Development (co-designing Oracle Cost Management) and 12 years in industry in Cost and Accounting
Management positions. His Manufacturing and Cost systems experience covers project management,
software design/development, delivery and consulting services, for both Oracle Corporation, and
multiple international consulting firms. Prior to his systems career, Mr. Volz also held numerous
management accounting positions for telecommunications, defense, and electronics companies.

In his consulting roles Doug has served over 100 clients. Many of these were multi-org, multi-currency
with global footprints. Countries include US, Mexico, UK, Netherlands, Belgium, Taiwan, P.R.O.C.,
Norway, Japan, Italy, Switzerland and Germany.

Doug leads the OAUG Cost Management Special Interest Group. He also advises and participates on
the Oracle Customer Advisory Board for Fusion Costing.

Core Expertise Experience

Multi-organization, Multi-currency ERP Sample of clients served:
Implementations Beckman Coulter (US)
Project Management and Senior Project Advisor Matsushita (UK, Mexico)
Core manufacturing processes
Logitech (US, Taiwan, P.R.C.)
Cost Management
Inventory Celgene Corporation (US, Switzerland)
Bills of Material NTL (UK, now Virgin Media)
WIP TCI International (US)
Systems Integration and Data Conversions Onninen AS (Norway)

Slide 73
Thank You for Your Attendance and Participation

Slide 74