R12 Encumbrance Accrual Accounting for PO and Invoice

What is Budgetary Control?

A method of systematically enforcing spending limits by ensuring availability of budgeted funds
before approval of transactions, including pre-expenditures.

What is Encumbrance?
A method of tracking and controlling an organizations spending from the very early stage of
initial documented evidence showing intention to buy to the final stage of actual expenditure. It
is a management tool used to reflect commitments in the accounting system and attempt to
prevent overspending. Mostly Used by Government and Non-Profit Firms

How it works?
Once an encumbrance document(PO, Invoice..etc) is created, funds are set aside for the sole
purpose of enabling the organization to pay for it. If funds are insufficient due to budget or
previous commitments and expenditures, no new encumbrances can be entered, ensuring that
budget will not be exceeded.

Calculation of fund available

F.A. = Budget (Encumbrance + Actual)

F.A. - Amount of money left in the account to spend

Budget Maximum amount that can be spend for the account
Encumbrance Reserved amount (Requisition, PO, invoice, and others)
Actual Amount liable to another party

Encumbrance Accounting for documents PO and Invoice When accounting method

Encumbrance Accrual is set
Example:
Budget is $1000
Purchasing an item which costs $200
Assume encumbrance is enabled for Purchase Orders and Invoices

Fund available before transaction

F.A. = Budget (Encumbrance + Actual)
F.A. = 1000 (0+0) = 1000

Create a PO for $200.

Application RESERVES the fund of $200 for PO
PO A/C------------------------200-----Dr
RFE A/C------------------------200-----Cr

F.A. = Budget (Encumbrance + Actual)

F.A. = 1000 - (200+0) = 800
 Created an Invoice for $200 and matched it to the above said PO and validate
Invoice(bc_event and validation event get created).
Step 1: Application REVERSES PO encumbrance accounting.
PO A/C------------------------200-----Cr
RFE A/C------------------------200-----Dr

Step 2: Application RESERVES the fund of $200 for Invoice(bc_event)

Inv A/C------------------------200-----Dr
RFE A/C------------------------200-----Cr

F.A. = Budget (Encumbrance + Actual)

F.A. = 1000 - (200+0) = 800

Run accounting for invoice actuals(Invoice Validation event).

Step 1: Application REVERSES above Invoice encumbrances accounting(bc_event).
Inv A/C------------------------200-----Cr
RFE A/C-----------------------200-----Dr

Step 2: Application creates original entries for invoice(Invoice Validation event).

ItemExpenseA/C----------------200-----Dr
LiabilityA/C---------------------200-----Cr

F.A. = Budget (Encumbrance + Actual)

F.A. = 1000 - (0+200) = 800

Note: Payment accounting may happen in two stages based on option selected in Payables-
>Setup->Options->PayablesOptions->AccountingOption tab->PaymentAccounting.
Payment Accounting:
Direct Pay-No Clearance
Payment Time
LiabilityA/C-------------------200----Dr
CashA/C----------------------200----Cr

Or

Pay and Clear

Payment Time
LiabilityA/C-------------------200----Dr
CashClearingA/C--------------200----Cr

Clearing Time
CashClearingA/C--------------200----Dr
CashA/C----------------------200----Cr
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Posted by Contact: highbrow.admin@gmail.com at 2:59 PM 7 comments

Labels: General, Payables, PSA, SLA

R12 Standard Accrual and Cash Accounting in Payables

Standard Accrual
In case of Standard Accrual, Invoice and Payment Accounting will be there.
Reason: Transaction happens in two phases.
1)Order goods and receive goods(Create PO, Create Receipt, Create Invoice and account it)
2)Pay the amount for received goods within due time set by the supplier( Pay the invoice and
account it)
Since you are not paying the amount immediately, you need to keep track of the amount needs to
pay to the supplier after phase one. You maintain this amount in LiabilityA/C(Cr). After second
phase, you debit your LiabilityA/C and credit your CachA/C which shows your cash flow from
your organization to the supplier.

Here are the details of accounting for an item purchase of cost 100 dollars.

Note: Payment accounting may happen in two stages based on option selected in Payables-
>Setup->Options->PayablesOptions->AccountingOption tab->PaymentAccounting.

Accounting Method: Standard Accrual

Invoice Accounting:
ItemExpenseA/C----------------------100----Dr
LiabilityA/C---------------------------100----Cr

Payment Accounting:
Direct Pay-No Clearance
Payment Time
LiabilityA/C------------------------100----Dr
CashA/C--------------------------100----Cr

Or

Pay and Clear

Payment Time
LiabilityA/C------------------------100----Dr
CashClearingA/C-------------------100----Cr

Clearing Time
CashClearingA/C------------------100----Dr
CashA/C--------------------------100----Cr
 Standard Cash
In case of Standard Cash, only payment accounting will be there.
Reason: While purchasing an item you pay amount immediately to the supplier. So you don't
have any debt to the supplier to record. so there is nothing to record in LiabiltyA/C.

Here are the details of accounting for an item purchase of cost 100 dollars.

Note: Payment accounting may happen in two stages based on option selected in Payables-
>Setup->Options->PayablesOptions->AccountingOption tab->PaymentAccounting.

Accounting Method: Standard Cash

No Invoice Accounting..
No LiabiltiyA/C

Payment Accounting:
Direct Pay - No Clearance
Payment Time
ItemExpneseA/C------------------100----Dr
CashA/C-------------------------100----Cr

Or

Pay and Clear

Payment Time
ItemExpneseA/C------------------100----Dr
CashClearingA/C-----------------100----Cr

Clearing Time
CashClearingA/C-----------------100----Dr
CashA/C-------------------------100----Cr
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Posted by Contact: highbrow.admin@gmail.com at 11:58 AM 0 comments

Labels: General, Payables, SLA

Saturday, November 21, 2009

R12 Subledger Accounting (SLA)
What is Subledger Accounting?
#Subledger Accounting is a Service, not an Application.
#There are no SLA responsibilities and there is no direct login to SLA.
#SLA forms and programs are embedded within standard Oracle Application responsibilities(e.g.
Payables Manager).

o Simply, It is a rule-based accounting engine, toolset & repository supporting Oracle E-

Business Suite modules.
o Allows multiple accounting representations for a single business event, resolving conflicts
between corporate and local fiscal accounting requirements.
o Retains the most granular level of detail in the subledger accounting model, with different
summarization options in the General Ledger, allowing full auditability and reconciliation.
o Introduces a common data model and UI across subledgers, replaces various disparate 11i
setups, providing single source of truth for financial and management analysis.

Screen shots of sample Invoice Distribution and It's Accounting Journal Entries
Simple Illustration on Journal Line Creation in SLA
Please go thorough the AMB components explained below to understand more about this picture.
What is Accounting Methods Builder(AMB) in SLA?
A set of screens which provides flexibility to create your own subledger accounting set up or use
seeded subledger accounting setup.

You can use the AMB to define the way in which subledger transactions are accounted. This
enables you to create and modify subledger journal line setups and application accounting
definitions. These definitions define the journal entries that enable an organization to meet
specific fiscal, regulatory, and analytical requirements. These definitions are grouped into
subledger accounting methods and assigned collectively to the ledger.

Following picture shows hierarchy of the components in the AMB.

o Each ledger is assigned with SLAM.

o Subledger accounting method(SLAM) which tells what type of accounting method you are
using(Ex: Cash or Accrual) in your ledger.
o Under SLAM, you will find set of Application Accounting Definitions(AAD) for different
subledgers(Ex: Payables, Receivables)
o Under AAD, you will find set of journal line definitions(JLD) for each Event Class(Ex:
Invoices, Prepayments, Payments) and Event Type(Ex: Invoice Validated, Prepay Application,
Payment Created) combination.
o Each journal line definitions(JLD) holds group of JLT's(Ex: Name it Liability, Item Expense,
Gain, Loss, etc), ADR(rules), JED(description) for each Event Class and Event Type
combination.
o Journal Line Types(JLT) contains..

1. Accounting Attributes(Ex: Accounting Date, Entered Amount, Accounted Amount, Party

Id, etc )
2. Basic Info which determines journal line properties( Ex: Side(Cr or Dr), Balance
Type(Actual or Encum), TransferToGL(Summary or Detail), etc)
 3. Conditions(This condition need to be satisfied to use this JLT)

o Account Derivation Rules(ADR) (Ex: Accounting segment values. It is nothing but GL

account)
o Journal Entry Descriptions(JED): Which give more information about transaction (Ex:
Invoice/Check details)

Navigation Paths to SLA Forms

Explain AMB Components?
Event Model(Definition of the subledger transaction types and lifecycle)

Event Entities
Group event classes into technical transaction models called event entities. For example, group
the event classes Invoices and Prepayments into the event entity Invoices because both classes of
transaction are stored in the Payables invoice transaction table (AP_INVOICES_ALL). Event
entities enable you to treat events for a single transaction model in the same way. The event
entity often logically corresponds to a single document used as a basis for several related
transactions.

Event Class
Group accounting event types into user-orientated transaction categories called event classes. For
example, group the event types Invoice Approved, Invoice Adjusted, and Invoice Canceled into
the event class Invoices. Then assign AMB components, such as journal line types, by event
class within the application accounting definition. This assignment simplifies setup when the
accounting requirements for all event types in a class are the same. Also, sources assigned to an
event class are available for the accounting of all event types in that event class.

Example
Payables: Invoice, Debit Memo, Prepayment, Payments, Refunds
Receivables: Invoice, Deposit, Receipt, Bill Receivable
Event Type
Each accounting event should be represented by an accounting event type. These types are
registered in the AMB. When subledger journal entries need to be created, the event type
determines which application accounting definitions should be used to process the accounting
event. Application accounting definitions created in the AMB determine the lines, descriptions,
accounts, and other elements of subledger journal entries.

Example
AP Invoice Events: Validated, Adjusted, Cancelled
AR Receipt Events: Created, Applied, Unapplied, Updated, Reversed

Subledger Accounting Method(SLAM)

The subledger accounting method(SLAM) is a collection of accounting definitions for all the
applications that you will be generating accounting for. Each primary and subledger level or
adjustment secondary ledger is associated with a SLAM, which determines the accounting rules
and standards that will be applied when generating entries for that ledger.

Example:
Standard Accrual, Standard Cash, etc
Application Accounting Definition(AAD)
Use Application Accounting Definitions(AADs) to assign journal line definitions and header
descriptions to event classes and event types. AADs must be included in a subledger accounting
method and assigned to a ledger. You can group accounting definitions from multiple products,
such as Oracle Payables, receivables Assets into a single accounting method.
Journal Line Definition(JLD)
Journal line type, description, account derivations rules grouped together as a journal line
definition to create the rule for particular event type.
Journal Line Type(JLT)
-Identify the natural side: Debit, Credit, Gain/Loss
-Determine the accounting class
-Set under which conditions the rule will create a line
-Define the values needed for entry line generation, such as amount, currency, conversion rate
information
-Control behavior for certain features i.e. multi period accounting, business flows, line merging
and summarization
Account Derivation Rules(ADR)
Account derivation rules are used to determine the account combinations for subledger journal
entries. You can define various rules in te AMB to determine how a journal entry account is
derived. You can derive accounts segment by segment or as a complete account combination.
This picture shows an Account Derivation Rule with conditional logic. If the condition holds for
priority 1, then this source (Invoice Liability Account) is used. If not, SLA uses the source for
priority 2(If it is available).
Journal Entry Description
This is useful in finding the actual transaction object details(Ex: Invoice/Payment details from
journal line)

Transaction Object
Example for transaction objects:
ap_invoice_extract_details_v.xdf
ap_invoice_extract_header_v.xdf
ap_payment_extract_details_v.xdf
ap_payment_extract_header_v.xdf
ap_prepayapp_extract_details_v.xdf
ap_system_parameters_extract_v.xdf

Transaction Object is nothing but a view which fetches all transaction information required to
create journal line for particular event class. AP_INVOICE_EXTRACT_HEADER_V,
AP_INVOICE_EXTRACT_DETAILS_V are transaction objects for event class Invoices. So,
accounting for all invoice type events get transaction information from these transaction objects.
Sources
Each column in the transaction object is defined as Source in the AMB. AMB uses these sources
to get transaction information from Transaction Objects.
Accounting Attributes
Sources are mapped with Accounting Attributes. Accounting Attributes are bridge between JLT
and Sources.

Example
GL Date, Entered Currency Code, Entered Amount, Accounted Amount, Conversion Rate Date,
Conversion Rate Type, Conversion Rate, Distribution Type, Party Type, Party Identifier, Party
Site Identifier

What are the important tables in SLA Accounting?

The XLA_EVENTS table stores records for accounting events generated by subledger
applications. Each product team populates this table by calling Subledger Accounting API and
the respective product team will decide when this table is to be populated during the transaction
life cycle.

The XLA_AE_HEADERS table stores subledger journal entries. There is a one-to-many

relationship between accounting events and journal entry headers.

The XLA_DISTRIBUTION_LINKS table stores detailed distributions for journal entries. This
table stores the data at most granular level and represents data contained in respective subledger
products distribution tables. The detailed distributions stored in this table are merged into
accounting lines and stored in XLA_AE_LINES table. Subledger Accounting uses this table for
processing reversals and business flows.

The XLA_AE_LINES table stores the subledger journal entry lines. There is a one-to-many
relationship between subledger journal entry headers and subledger journal entry lines. This table
will store at least one row for debit and one row for credit for each accounting entry created. If
multiple debit or credit journal entry lines exists for any specific event type and if the journal line
type allows merge matching lines then these lines will be merged into single line. The unmerged
granular level of detail for each accounting line will be available in
XLA_DISTRIBUTION_LINKS table.

What are the Accounting Methods seeded in SLA?

Standard Accrual
Standard Cash
Encumbrance Accrual and Encumbrance Cash
United States Federal
China Standard Accrual

What are the reports available in SLA?

Journal Entries Report
Account Analysis Report
Third Party Balances Report
Period Close Exceptions Report
Open Account Balances Listing