SETUPS AND USE OF AP ACCRUAL ACCOUNTING IN ORACLE APPS

SETUPS AND USE OF AP ACCRUAL ACCOUNTING IN ORACLE APPS

In this article, we will learn about Accrual Accounting in Oracle Apps and also we will see Accrual Accounting Entries along with setups for the same.  

What Are these Accrual Accounts?

·         Principle of accrual accounting

·         Timing difference between receiving and invoicing

·         Represents the accrued liability from your vendors

·         Periodic accruals occurs at month-end

·         Perpetual accruals ensure that valued quantities equals accounting entries

·         Don’t accrue expenses upon receipt

AP Accrual Accounts-

·         May have multiple lines per PO

·         May have multiple PO distributions per line

·         Four stored accounts per PO distribution


Accrual Accounting Entries- 

PO Receipt   

      Receiving Account                        XXX

                A/P Accrual Account                                   XXX


PO Return to Vendor

      A/P Accrual Account         XXX

               Receiving Account                           XXX


Invoice Correction

     New Charge Account          XXX

               Old Charge Account                         XXX

 
Receipt Deliveries – 

Delivery to stock inventory

     Sub inventory Account         XXX

Receiving Account                              XXX

Delivery to WIP inventory

      Job OSP Account               XXX

            Receiving Account                              XXX

Month-End Period Accruals

Expense Item

       Charge Account                XXX

              Expense A/P Accrual Account                      XXX

In Oracle General Ledger, reverse the accrual entry in the following month.


Setup in Oracle Purchasing- Navigate to 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


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


Setup in Oracle Inventory

·         Use the Define Organization Parameters Form

Ø  Set the Inventory A/P Accrual Account

Ø  Use the same Inventory A/P Accrual Account for all organizations

·         Use separate accounts for each type of system account:

Ø  Expense A/P Accrual Account

Ø  Inventory A/P Accrual Account

Ø  Receiving Account(s)

Ø  Expense Purchase Order Charge Accounts

Ø  Other inventory, WIP and price variance accounts

 
How the Accrual Rebuild Works

·         Determines the install status

·         Select valid accrual accounts

·         Finds all accrual entries and inserts into a temporary table

·         Match invoices to receipts

·         Determines the “write-off” condition

·         Calculates PO line control totals

·         Prints the report

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

 
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

 
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

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 GL

·         The Report Summary Total column must agree to your subledgers

 
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 month-end process), Include On-line accruals: no, the desired Period Name, and the desired sort selection (purchasing Category or Vendor)

·         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

·         Write off accrual discrepancies on a net basis

Ø  Store net PO line amounts in the PO_LINE_LOCATIONS_ALL table

Ø  Write off net PO line amounts when the PO line or purchase order is closed

·         Actually match invoices to specific receipts

Conclusion- These accrual processes are very important to control your business activity