ORACLE APPLICATIONS WHITE PAPER ACCOUNTING IN R12 ORACLE PAYABLES

SEP 2011

Author:

Mohamed Nazih CPA, PMP, Oracle Financials Consultant m.nazih@gmail.com

Version

1.0

Accounting in Oracle EBS Payables 2011

Contents
About the Author ................................................................................................... 3 Introduction ........................................................................................................... 3 Purpose.................................................................................................................. 3 Scope ..................................................................................................................... 3 Audience ................................................................................................................ 4 Accounting in R12 Oracle Payables ........................................................................ 5
Determinants - Accounts ................................................................................................................... 5
Financial Options Accounts....................................................................................................................................... 6 Payables Options - Currency ..................................................................................................................................... 7 Payables Options - Invoice ........................................................................................................................................ 8 Payables Options - Interest....................................................................................................................................... 9 Supplier Site Accounting ........................................................................................................................................... 9 Bank Account Control ............................................................................................................................................. 10 Withholding Tax ...................................................................................................................................................... 10

Determinants - Options ................................................................................................................... 11

Payables Hierarchy ................................................................................................................................................. 11 Payables Options .................................................................................................................................................... 12

Payables Journal Entries .................................................................................................................. 14

AP-1 Invoice ............................................................................................................................................................ 14 AP-2 Prepayment .................................................................................................................................................... 16 AP-3 Prepayment Application ................................................................................................................................. 16 AP-4 Payment ......................................................................................................................................................... 16 AP-5 Payment maturity ........................................................................................................................................... 17 AP-6 Clearing........................................................................................................................................................... 17

Out of Scope Accounts ..................................................................................................................... 18 Information Sources ......................................................................................................................... 18

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Accounting in R12 Oracle Payables

About the Author

Mohamed Nazih is a proficient functional consultant in Oracle e-Business Suite with more than seven years of experience of solutions design, configuration, testing and documentation and three full life cycle implementations. Prior to Oracle, he worked as a certified accountant and auditor for six years. This experience gave him an advantage to team up with financial staff in many companies in delivering high quality professional services, such as consulting, support, and training. While not working, Mohamed Nazih takes care of his family. Furthermore, he is a self-learner and avid reader in project management, change management, business intelligence, science, and environment issues. Mohamed Nazih values an atmosphere of ethics, punctuality, and team-working.

Introduction
Accounting Journal Entries are embedded in every aspect of Oracle Financials Applications. Since they are Financials, you must have a good understanding of how these journals are generated and integrated. This understanding affects how you design and implement solution and it is the ground of discussion with customers representatives in this sector. They may have little knowledge of Oracle but, mostly, are good accountants.

Purpose
This whitepaper will provide a detailed overview of accounting events, entries, and source. Such an overview may help: Customers representatives design a better chart of accounts Consultants justify decisions taken to setup system parameters and options

Scope
This whitepaper will cover Oracle R12 Payables except for transactions related to: Encumbrances Oracle Internet Expenses XML Gateways and iSuppliers Automatic Offsetting
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Accounting in R12 Oracle Payables

Cash Pooling

Audience
This whitepaper is aimed to super users and functional consultants and implementers as well as applications auditors.

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Accounting in R12 Oracle Payables

Accounting in R12 Oracle Payables

Determinants - Accounts
Payables Journal Entries are controlled by the definition of: 1. Financials options 2. Payable options 3. Supplier Site 4. Bank Account 5. Withholding Tax 6. Invoice 7. EB-Tax
Account Qualifier Financials Options Payable Options Supplier Site Bank Account

Invoice

Liability Prepayment Bills Payable Discount Taken PO Rate Variance Gain PO Rate Variance Loss Expenses Clearing Miscellaneous Retainage Realized Gain Realized Loss Rounding Freight Tax Difference Account Interest Expense Interest Liability Cash Cash Clearing Bank Charges Bank Errors
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Liability Asset Liability Expense Revenue Expense Expense Expense Liability Revenue Expense Expense Expense Liability Expense Liability Asset Asset Expense Expense

Accounting in R12 Oracle Payables

Financial Options Accounts

Figure 1

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Accounting in R12 Oracle Payables

Payables Options - Currency

Figure 2

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Accounting in R12 Oracle Payables

Payables Options - Invoice

Figure 3

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Accounting in R12 Oracle Payables

Payables Options - Interest

Figure 4

Supplier Site Accounting

Figure 5

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Accounting in R12 Oracle Payables

Bank Account Control

Figure 6

Withholding Tax

Figure 7
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Accounting in R12 Oracle Payables

Determinants - Options
Payables Hierarchy
If an account can be defined in more than one place, Oracle Payables applies the following hierarchy, where lower level can override higher level(s):

Figure 8

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Accounting in R12 Oracle Payables

Payables Options
Have a role in determining accounts to be defaulted for: Prepayment Bills Payable Discount Interest

Payables Options Accounting Options

Figure 9

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Accounting in R12 Oracle Payables

Payables Options Withholding Tax

Figure 10

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Accounting in R12 Oracle Payables

Payables Journal Entries

Oracle Payables has the following accounting events: 1. Invoice 2. Prepayment 3. Prepayment application 4. Payment 5. Payment maturity 6. Reconciliation

AP-1 Invoice
20B

Accounts Expense (or AP Accrual) (1)

P

Debit X X

Credit

Tax (2)
P

Freight (3)
P

X
P

Retainage (4) Liability (5)

P

X X
P

Invoice Price Variance (IPV) (6) Quantity Variance (7)

P

PO Exchange Rate Variance (ERV) (8)

P

Tax Variance (9)

P

Accounts Retainage (10)

P

Debit X X

Credit

Tax Liability

Accounts Interest Expense (11)

P

Debit X

Credit

Interest Liability

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Accounting in R12 Oracle Payables

(1) (2) (3) (4) (5) (6)

Expense account is usually used if invoice is entered manually. AP Accrual account is defaulted by system if invoice matched against Receipt/PO for goods items Tax (e.g., Sales Tax or VAT) is defined in Oracle EB-Tax and inserted upon invoice validation Freight account is defaulted if a line of type Freight is used and allocated to line(s) of type Item Retainage account is defaulted if invoice is matched to a service procurement PO/Receipt Liability account is sourced from Suppliers Site Quantity Variance results if, upon matching invoice to PO/Receipt, quantity entered for invoice is different from this specified in PO. For inventory items, variance booked to Inventory AP Accrual Account defined in Organization Parameters window in Inventory. For expense items, it booked to Expense AP Accrual Account Invoice Price Variance results if, upon matching invoice to PO/Receipt, price entered for invoice is different from this specified in PO. For inventory items, variance booked to Invoice Price Variance Account defined in Organization Parameters window in Inventory. For expense items, it booked to Charge Account PO Exchange Rate Variance results if, upon matching invoice to PO/Receipt, Foreign Currency Exchange Rate entered for invoice is different from this specified in PO. For inventory items, variance booked to Exchange PO Rate Variance Gain or Loss Account. For expense items, it booked to Charge Account Tax variance results if, upon matching invoice to PO/Receipt, tax on invoice is different from tax on PO. Three tax-related variances can occur: Tax Rate Variance (TRV) when there is a difference between invoice and PO distributions due to difference in tax rate. For inventory items, variance booked to Invoice Price Variance Account defined in Organization Parameters window in Inventory. For expense items, it booked to Charge Account Tax Invoice Price Variance (TIPV) when there is a difference between invoice and PO distributions due to price variance. For inventory items, variance booked to Invoice Price Variance Account defined in Organization Parameters window in Inventory. For expense items, it booked to Charge Account Tax Exchange Rate Variance (TERV) when there is a difference between the invoice and PO distributions due to exchange rate variance. For inventory items, variance booked to Exchange PO Rate Variance Gain or Loss Account. For expense items, it booked to Charge Account Tax Quantity Variance (TQV) is calculated, but is shown as a non-variance distribution

(7)

(8)

(9)

(10) Retainage account is debited upon creating an invoice of type Retainage Release (11) Interest Expense account is debited for system created invoice of type Interest on condition that Payables Option for interest = System Account. If Prorate Across Invoice selected, original invoice distribution(s) will be debited

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Accounting in R12 Oracle Payables

AP-2 Prepayment
Accounts Prepayment (12) Liability Debit X X Credit

(12) Prepayment account is sourced from Suppliers Site

AP-3 Prepayment Application

Accounts Liability Prepayment Tax Difference (13) Debit X X X Credit

(13) Tax Difference account is defaulted if tax applied for invoice is greater than this applied for prepayment. If it is lesser, workaround is needed to prohibit crediting Tax difference account (review 3-198 of Oracle Payables User's Guide)

AP-4 Payment
(Maturity date = Current date)
Accounts Liability Cash Clearing (14) Discount Taken (15) Withholding Tax (16) Realized Gain/ Loss (17) Debit X X X X Credit

(14) Cash Clearing account is sourced from Bank Account (15) Discount Taken account is defaulted if an accelerated cash payment term (e.g., 2/10, net/30) is used and payment is made during the discount period

(16) Withholding Tax account is credited upon payment on condition that Apply Withholding Tax = At Payment Time

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Accounting in R12 Oracle Payables

(17) Realized Gain or Loss results if Foreign Currency Exchange Rate upon payment is different from this used upon accrual (in invoice)

(Maturity date = Future date)

Accounts Liability Withholding Tax Bills Payables (18) Debit X X X Credit

(18) Bills Payables account is default from either Bank Account (Organization Access> Payables Options) or Suppliers Site according to option specified in Payables Options (Note: instead of Bank Account, the form erroneously used Payment Document which is no longer available in R12)

AP-5 Payment maturity

Accounts Bills Payables Cash Clearing Discount Taken Realized Gain/ Loss (19) Debit X X X Credit

(19) Realized Gain or Loss results if Foreign Currency Exchange Rate upon maturity is different from this used upon payment

AP-6 Clearing
Accounts Cash Clearing Bank Charges / Errors (20) Cash Realized Gain/ Loss (21) Rounding (22) Debit X X X Credit

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Accounting in R12 Oracle Payables

(20) Bank Charges or Error account is used for difference between cleared amount and transaction amount. Cash Management checks the Tolerance Differences parameter (in Bank Account Controls region of Bank Account) to determine whether the difference is due to charges or errors. (21) Realized Gain or Loss results if Foreign Currency Exchange Rate upon clearing is different from this used upon maturity (22) Rounding account may be used upon payment, maturity, or clearing if: Multiple currencies are used with bank account and payment currency does not round within payment currency precision. Functional currency amount of payments do not equal amount of liability.

Out of Scope Accounts

Expenses Clearing: is used as a temporary account to record credit card transaction activity related to Oracle Internet Expenses. Miscellaneous: Used only when importing invoices submitted in XML Gateway. Foreign Exchange Charges: used with Cash Management Cashflow as on option to account for differences between cleared amount and transactions amount

Information Sources
o Oracle Payables User's Guide Release 12.1 Part No. E12797-04 o Oracle Payables Implementation Guide Release 12.1 Part No. E12795-04

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