Content. Accounting Entries Encumbrance Accounting Accounting entries Open en closed Open Closed...

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1 Content Introduction... 4 Purpose... 4 Scope... 4 Structure... 5 Related documents... 5 Oracle Payables... 6 Assumptions... 6 Events... 6 Accounts... 7 Accounting entries... 8 Notes Oracle Receivables...11 Assumptions Events Accounts Accounting entries...14 Notes Oracle Purchasing and Inventory...20 Assumptions Events Accounts Accounting entries...20 Notes Oracle Fixed Assets...20 Assumptions Events Accounts Accounting Entries Notes Encumbrance Accounting...20 Assumptions Events Accounts Accounting entries...20 Notes Open en closed Open Closed...20

2 Introduction While implementing Oracle Applications there is often a need for an integrated functional overview on journal entries. This need is especially felt when setup discussions are on with the customer and decisions have to be made. The customer enters the discussions from a functional point of view. The available Oracle information and documentation is fragmented and detailed. For each module or application separate manuals exist. These manuals are focused on descriptions of windows and specific functions. As part of the Practice Development project of Oracle The Netherlands a document is created that covers the accounting issues in Oracle Applications in an integrated way. This is the result. Purpose The purpose of this document is to create an overview of the accounting entries in Oracle Applications in a such a way that: 1. the determination of the system accounts takes place in a structured way. In practice, as part of the implementation, the customer will determine the chart of accounts. Often system accounts are not taken into account. 2. the document can be used as project documentation and information to explain setup decisions. This is also the case for FastForward implementations for which all decsions already have been made. Scope This document covers the following applications: General Ledger, Receivables, Payables, Cash Management, Fixed Assets, Project Accounting, Purchasing, Order Entry en Inventory. Other E-Business applications are not in the scope of this document. Cash Management is covered as part of Payables and Receivables. Purchasing, Order Entry and Inventory are handled in one chapter. For each Application assumptions are made concerning the setup. These are made on base of best practices in The Netherlands. This document is focused on setup related options that affect the content and structure of journal entries. Other topics that are not in the scope of this document: 1. New developments in future releases are not taken into account. This document is solely based on Release 11.5/ 11i. 2. The setup of the accounting flexfield. 3. Reporting issues and tools like FSG and Oracle discoverer. ii

3 4. Specific intercompany and consolidation issues. 5. Technical specifications of tables and programs that support the accounting process in Oracle Applications. Structure For each application you will find a separate chapter. Each chapter has the following content: 1. Each chapter starts with assumptions that have been made. Most assumptions are made on base of best practice in The Netherlands. 2. In the second part the events of the application are described. An event is a trigger that causes a journal entry in General Ledger. The events will be used to categorize the accounts and journals that are described in the next parts. 3. The third part gives an overview of the accounts that are part of the setup of the application. For each account a relation is made to one or more events. A second table, with the same accounts, gives an overview in which forms the setup of that account has to take place. 4. The fourth part shows for each event the structure and content of the journal. This information is presented in a table. 5. Finally each chapter ends with notes. A separate chapter is introduced to cover encumbrance accounting. Encumbrance accounting is related to Purchasing, Oracle Payables and General Ledger. Related documents 1. Fast Forward documents 2. Accountingflow in Oracle R11I voor Canon Consumer Imaging Group by Luuk de Kok. Version 1, dated 21 augustus Oracle Payables User Guide, Release 11i, january Unlocking the Mystery of Encumbrance Accounting by Victoria Leavy. iii

4 Oracle Payables In this chapter accounting issues are described for the application Oracle Payables. This application covers the purchase invoice and payment processes. To be able to reconcile the payments it is best practice to implement Cash Management as well. The accounting entries that are a result of reconciliation are processed by Oracle Payables. For encumbrance related issues see chapter Encumbrance Accounting. Assumptions 1. The Account for Payment option is set to Both. This means accounting entries will be created at the time of payment (creation and at the time of payment reconciliation by using Cash Management. In previous releases of Oracle Applications this feature was handled by the Allow Reconciliation Accounting option. 2. The Account for Gain/Loss option is set to Both as well. This means that foreign currency losses and gains are recorded at the moment of the payment issue and at the moment of the payment clearing. 3. Automatic Withholding Tax Payables is not used. 4. The accounting method is set to Accrual Basis Accounting. This means you create accounting entries for invoices and payments by using the liability account. (Cash Basis Accounting only creates accounting entries for the payment 5. The Automatic Offset Method is set to Balancing. This means the liability accounts will have the same balancing segment value as the accounts that are entered in the invoice distributions. 6. The pooled bank account option is set on yes. This means the bank account is shared by multiple balancing segment values. 7. Interest Invoicing makes it possible to create an interest invoice for an overdue invoice at the time of payment. Separate accounts are used to record the accounting entries. This feature is not commonly used in the Netherlands and therefore not recorded as an event in this chapter. 8. Tax and freight are included. Events AP Even t nr. Event name GL Source GL Category Notes 1 Invoice Payables Purchase Invoice When adjusting or cancelling an invoice the same accounts are used. Only debit / credit will be reversed. iv

5 AP Even t nr. Event name GL Source GL Category Notes 2 Prepayment Payables Purchase Invoice When adjusting or cancelling a prepayment the same accounts are used. Only debit / credit will be reversed. 3 Prepayment application Payables Purchase Invoice When unapplying a prepayment the same accounts are used. Only debit/ credit will be reversed. 4 Payment Payables Payment When adjusting or voiding a payment the same accounts are used. Only debit/ credit will be reversed. 5 Payment maturity Payables Payment This event takes only place when the Account for Payment When Payment is Issued option is enabled. 6 Reconciliation Payables Reconciled Payment When unreconciling a payment the same accounts are used. Only debit/ credit will be reversed. Accounts Type Liability Liability Expense Expense Prepayment Asset Future dated payment Asset PO rate variance gain Revenue PO rate variance loss Expense Discount Expense Realized gain Revenue Realized loss Expense Rounding Expense Freight Expense Interest invoice Expense expense Interest invoice liability Liability Cash clearing Asset Cash Asset Bank charges Expense Bank errors Expense Tax Asset Financia ls options Payable options Supplie r /Site Bank accou nt Payables document s Tax Invoice Liability * Expense** Prepayment Future dated payment * PO Rate variance gain PO Rate variance loss Discount * Realized gain * Realized loss * v

6 Financia ls options Payable options Supplie r /Site Bank accou nt Payables document s Tax Invoice Rounding */*** Freight Interest invoice expense Interest invoice liability Cash clearing * Cash * Bank charges * Bank errors * Tax *These are the accounts for which automatic offsets are created. **This account is generated by Account Generator when the invoice is related to a project. ***The rounding account will be used when: 1. You use multiple currencies and the payment currency does not round within the payment currency precision. 2. The functional currency amounts of payments do not equal the amount recorded as the liability. 3. You have enabled automatic offsets and the cash account is pooled, and you have rounding errors. Whether the future dated payment account is used from the supplier site or the payables document is defined by the Payables Option Use Future Dated Payment. 17 Accounting entries AP-1 Invoice Expense (or AP Accrual* Tax Freight Liability PO rate variance gain/ loss** ( ( Invoice Price variance* ( ( * This will be the AP Accrual account in case the AP invoice is matched to a Purchase Order and the item used on the Purchase order is an inventory item. The AP Accrual account is an organization parameter and is can be found in the Oracle Purchasing and Inventory Chapter. ** These accounting entries can only be created when an invoice is matched to a purchase order. vi

7 AP-2 Prepayment Prepayment Liability AP-3 Prepayment Application Prepayment Liability When applying an invoice to a prepayment, the prepayment has to be paid. Only then the prepayment is available. AP-4 Payment Liability Cash clearing Discount Realized gain/ loss ( ( In case of a future dated payment the future dated payment account is used instaead of the cash clearing account. At time of maturity the future dated payment is credited. Discount and realized gain/ loss is recorded at the time of maturity. PA-5 Payment maturity Future dated Payment Cash clearing Discount Realized gain/ loss ( ( PA-6 Reconciliation Cash Cash clearing Realized gain/ loss ( ( Bank charges Bank errors vii

8 Notes 1. Automatic offset only efects the accounts that are marked with *. Other accounts can only be balanced by manual entries in Oracle General ledger. 2. Automatic offset is only relevant when more than one balancing segment value is used in an Operating Unit. 3. Automatic offset does not support Interest invoicing. However Interest invoicing is not common practice in The Netherlands. 4. The pooled bank account option is only relevant when more than one balancing segment value is used in an Operating Unit. 5. Future dated payments are not common practice in The Netherlands. This functionality makes a difference between issuing of a payment and the moment a payment is mature. Only when a payment is mature (status of the payment is Negotiable it is possible to clear the payment by using Cash Management. To use this feature the option Use Future Dated Payment Account has to be set to Payment Document or Supplier Site. 6. Never change accounting options in the payment Accouting Payables Options form. This could create inconsistent accounting entries in the system. 7. The PO Rate Variance Gain and Loss accounts are only used in case you match an invoice with a purchase order that involves inventory items. 8. The expense clearing account in previous releases of Oracle Applications does not exist anymore in Release 11i. viii

9 Oracle Receivables In this chapter accounting issues are described for the application Oracle Receivables. This application covers the sales invoice and collection processes. To be able to reconcile the receipts it is best practice to implement Cash Management as well. The accounting entries that are a result of reconciliation are processed by Oracle Receivables. Two main types of receipts can be distinguished: 1. Cash receipt. This is a receipt that potentially is linked to an outstanding item. When the outstanding item (and the related liability account can not be found a default liability account will be used. 2. Miscellaneous receipt. This is a receipt that is not related to an outstanding item. Instead of using a liablity account, any type of account can be used. These account are related to receivable activities. Assumptions 1. Clearance method = By Matching 2. The accounting method is set to Accrual Basis Accounting. This means you create accounting entries for transactions and receipts by using the liability account. (Cash Basis Accounting only creates accounting entries for the receipt 3. No unallocated receipts are recorded. 4. Receipt remittance by using the Factoring method is not in the scope. Events AR Even t nr. Event name GL Source GL Category Remarks 1 Invoice (regular Receivables Sales Invoices 2 Bill in arrears invoice Receivables Sales Invoices Determined by the invoicing rule that is used in the more tab of the transactions window. The revenue recognition program creates the accounting entries. 3 Bill in advance Invoice Receivables Sales Invoices Determined by the invoicing rule that is used in the more tab of the transactions window. The revenue recognition program creates the accounting entries. 4 Debit memo Receivables Debit Memos ix

10 AR Even t nr. Event name GL Source GL Category Remarks 5 Credit memo Receivables Credit Memos This event takes place by using the Credit transactions windows. 6 Apply credit memo to invoice Receivables Credit Memo Applications 7 On-account credit Receivables Credit Memos On account credits are credits that are not applied to a specific transaction. This event takes place by using the Credit transactions windows or by applying a receipt. 8 Adjustment Receivables This event takes place when using a separate window. It can be positive or a negative adjustment. 9 Deposit Receivables A deposit is being created by using the Transactions window. 10 Invoice applied to deposit Receivables Sales Invoices Application takes place by filling out the field Commitment in the Transactions window. 11 Guarantee Receivables A guarantee is being created by using the Transactions window. 12 Invoice applied to guarantee Receivables Sales Invoices Application takes place by filling out the field Commitment in the Transactions window. 13 Applied receipt Receivables Trade Receipts This is event includes a discount. Also valid for receipts on a deposit and guarantee. 14 Unapplied receipt Receivables Trade Receipts 15 Unidentified receipt Receivables Trade Receipts This is the case when a (cash receipt has no customer. These can not be applied. 16 Change from unidentified Receivables Trade Receipts to unapplied 17 Change from on account Receivables Trade Receipts to applied 18 On account receipt Receivables Trade Receipts This is the case when a (cash receipt has a customer but cannot be related to a specific transaction. 19 Miscellaneous receipt Receivables Misc Receipts This receipt is not matched to an invoice. The revenue account is derived from the receivable activity. 20 Receipt with discount Receivables Trade Receipts 21 Receipt (to be remitted Receivables Trade Receipts Create a receipt that needs to be remitted by the bank ( incasso tape 22 Remittance of the receipt Receivables Remittance 23 Reconciliation of the remitted receipts Receivables Using Cash Management Accounts Type Realized gain Revenue Realized loss Expense Unallocated Revenue Revenue Cross currency Expense rounding Header rounding Expense Cash Asset Bank charge Expense Receipt confirmation Asset Remitted receipt Asset x

11 Type Factored receipt Asset Short term debt Unapplied receipt Asset Unidentified receipt Asset On account receipt Asset Receivable Asset Revenue Revenue Clearing Asset Unbilled receivable Revenue Unearned revenue Revenue Tax Liability Freight Revenue Earned discount Revenue Unearned discount Revenue Adjustment (write-off Expense Bank Error Expense Finance Charge Revenue Misc. Cash Revenue Type Realized gain Revenue Realized loss Expense Unallocated Revenue Revenue Cross currency Expense rounding Header rounding Expense Cash Asset Bank charges Expense Receipt confirmation Asset Remitted receipt Asset Factored receipt Asset Short term debt Unapplied receipt Asset Unidentified receipt Asset On account receipt Asset Receivable Asset Revenue Revenue Clearing Asset Unbilled receivable Revenue Unearned revenue Revenue Tax Liability Freight Revenue Earned discount Revenue Unearned discount Revenue Adjustment (write-off Expense Bank error Expense Finance Charge Revenue Misc. cash Revenue System options Bank accounts Trans. Types Custo mer Site Sales Rep Tax Receivable activity Realized Gain Realized Losses Unallocated Revenue Cross currency rounding Header rounding Cash Bank charges xi

12 System options Bank accounts Trans. Types Custo mer Site Sales Rep Tax Receivable activity Confirmed receipts Remitted receipts Factored receipts Short term debt Unapplied receipts Unidentified receipts On account receipts Receivable * Revenue * Clearing * Unbilled receivable* Unearned revenue* Tax * Freight * Earned discount Unearned discount Adjustment (write-off Bank Error Finance Charge Misc. Cash * These are accounts that can be managed by Auto Accounting. 17 Accounting entries AR-1 Invoice regular Receivable Revenue Tax Freight AR-2 Bill in arrears invoice Unbilled Receivable Revenue Tax Freight Depending on the Bill in arrears rule the revenue will be taken in different periods and the journal entry above will be generated each time. Unbilled Receivable Revenue Tax Freight Unbilled Receivable xii

13 Receivable At the final period the unbilled Receivable is transferred to Receivable. At that time the sales invoice will be generated and send to the customer. The amount of the Receivable entry is the total of all the Unbilled receivable entries that have been recorded in the previous periods. AR-3 Bill in advance invoice Receivable Unearned revenue Tax Freight Unearned revenue Revenue At the first period the total receivable amount is recorded and an invoice is sent to the customer. The revenue will be recorded in the coming periods as it is defined in the Bill in advance invoicing rule. Unearned revenue Revenue AR-4 Debit memo Receivable Revenue Tax Freight Receivable Finance charge AR-5 Credit memo Receivable Revenue Tax Freight xiii

14 AR-6 Apply credit memo to invoice Receivable Receivable AR-7 On-account credit Receivable Revenue An on-account credit can be a credit on Revenue, Tax or Freight. The journal entry above is a credit on Revenue. AR-8 Adjustment Receivable Adjustment The entry above is a postive adjustment. Adjustment must be seen as a write-off. Adjustment entries can be made in combination with receipts. AR-9 Deposit Receivable Unearned revenue AR-10 Invoice applied to deposit Receivable Revenue Tax Freight Unearned revenue Receivable AR-11 Guarantee Unbilled receivable xiv

15 Unearned revenue AR-12 Invoice applied to guarantee Receivable Revenue Tax Freight Unearned revenue Unbilled receivable AR-13 Applied receipt Cash Bank charge Bank error Realized gain/ loss ( ( Receivable Unapplied receipt Unapplied receipt The moment of creating this journal entry is dependent on the setting Clearance Method in Receipt classes. When the method is set to Directly the entry is created at the time of processing the receipt. If the method is set to By Matching the entry is created at the time of clearing the receipt by Oracle Cash Management. AR-14 Unapplied receipt Cash Bank charge Bank error Unapplied receipt AR-15 Unidentified receipt Cash Bank charge Bank error Unidentified receipt AR-16 Change from unidentified to unapplied xv

16 Unidentified receipt Unapplied receipt AR-17 Change from unidentified to unapplied Receivable Unapplied receipt AR-18 On account receipt Cash Bank charge Bank error On account Unapplied receipt Unapplied receipt AR-19 Miscelleneous receipt Cash Misc. cash A miscelleneous receipt is a receipt that is not related to an outstanding item. AR-20 Receipt with discount Cash Receivable Receivable Revenue Receivable Discount (earned/ unearned AR-21 Receipt (to be remitted Receipt confirmation Unapplied receipt xvi

17 Unapplied receipt Receivable AR-22 Remittance of the receipt Remitted receipt Receipt confirmation AR-23 Reconciliation of the remitted receipts Cash Remitted receipt Notes 1. The profile option AR: Use Invoice Accounting for Credit Memos determines the way accounting entries for credit memos are generated. If this option is set to Yes then Receivables credits the original transaction. When the option is set to No, Receivables uses AutoAccounting to determine the accounts. 2. When entering a credit memo you have to choose a Ruling Method and a Split Term Method. The options for both are FIFO, LIFO and prorate. These rules do not effect the journal entries themselves. The methods determine what element of the invoice has to be credited. 3. The accounts Factored receipt and Short term debt are only used for remittances when using the factoring method. 4. The journals AR-20, AR-21 and AR-22 are related to the Incasso functionality. This is common practice in the Netherlands. xvii

18 Oracle Inventory, Purchasing and Order Entry In this chapter accounting issues are described for Oracle Purchasing and Inventory. Only actual journal entries are included in this chapter. Encumbrances are handled in a separate chapter. Assumptions 1. Inventory is not used in a manufacturing environment. Goods are received, moved between organizations and sold. 2. Receiving of goods is done in two steps. The first step is receiving the goods for inspection. The second step is to deliver the goods to the inventory or other department. Events INV Even t nr. Event name GL Source GL Category Remarks 1 Receipt of inventory item Purchasing Accrual/ Receiving The category depends on the way receipt accounting is handled. The category accrual is used when the method is period end. Receiving is used when the receipt journal is generated directly. Purchasing Accrual/ Receiving The same. 2 Receipt of expense item 3 Deliver Purchasing Accrual/ Receiving The same. 4 Return to vendor Purchasing Accrual/ Receiving The same. (goods not in stock 5 Return to vendor Purchasing Accrual/ Receiving The same. (goods in stock 6 Sales order Inventory Inventory shipment 7 Cycle count Inventory Inventory adjustment 8 Miscelleneous Inventory Inventory Transfer 9 Interorg. Transfer Inventory MTL 10 Subinventory Transfer Inventory MTL xviii

19 Accounts Type Receiving Inspection Asset Purchase Price Variance Expense Receivable Asset Payable Liability Intrasit Inventory Asset Material Asset Outside Processing Asset Material Overhead Asset Overhead Asset Resource Asset Expense Expense Invoice Price Variance Expense Inventory AP Accrual Liability Sales Revenue Cost of Goods Sold Expense (COGS Cost Variance Account Expense Cycle count adjustment Expense Scrap Expense Other Organizatio n Subinvento ry Receiving Inspection Purchase Price Variance Receivable Payable Intrasit Inventory Material Outside Processing Material Overhead Overhead Resource Expense Invoice Price Variance Inventory AP Accrual Sales Cost of Goods Sold Cost Variance Account Cycle count adjustment Scrap Accounting entries INV-1 Receive to Inspect Receiving inspection Inventory AP Accrual* xix

20 * This account will be posted Debit when matching an AP Invoice to the related Purchase order. INV-2 Deliver to Inventory Material* Receiving inspection Purchase Price Variance ( ( * In case of the use of an expense item on the related Purchase order, this account will be an expense item. INV-3 Return to Vendor (Goods not in stock Inventory AP Accrual Receiving inspection INV-4 Return to Vendor (Goods in stock Inventory AP Accrual Receiving inspection Receiving inspection Material Purchase Price Variance ( ( INV-5 Receive an Expense Item Expense account Inventory AP Accrual INV-6 Sales Order Shipment COGS Material xx

21 INV-7 Cycle count adjustments Cycle count adjustment ( ( Material ( ( INV-8 Misc. transfer Scrap Material INV-9 Interorg transfer Material (Organization A Material (Organization B Receivable (Organization B Transfer Cost Intrasit Payables (Organization A INV-10 Subinventory transfers Material (A Material(B Notes xxi

22 Oracle Fixed Assets Before we go into the details of Events, Assumptions, Accounts en Accounting Entries, this chapter gives a global introduction of the terminology used within assets concerning functionality that influences the construction of journal transactions. CIP versus Capitalized transactions. Assets supports three types of Assets, Capitalized, CIP and Expensed ; every Assets has a corresponding status. 1. Expensed has no Asset journals as a result; the cost of assets has been taken (as expenses in the P&L in the period the purchase invoice was distributed in general Ledger. 2. CIP Assets are not Yet depreciated; 3. And Capitalized Assets support the following Events: for, Capitalized and CIP transactions; Additions ; Depreciation ; Adjustments ; Transfers ; Reclassifications ; Revaluation s ; Retirements and ; Tax accounting. Depending on the type of an Asset, the transaction will be a CIP transaction or a Capitalized transaction. In the third part of this chapter where we will describe the journal transactions. For Additions the journals for CIP and Capitalized will be discussed separately, for all other events Capitalized type will be described. The big difference with CIP is that CIP assets will not depreciate, and has no accumulated deprecation to account for in all other events. Asset Corporate, Tax and Budget books types You cannot allow general ledger posting for your budget books. Asset books of the Type Tax and Corporate produce journal lines if you allow G/L Posting for this Asset Book. xxii

23 Expensed versus Amortized Adjustments; An adjustment might influence the historical depreciation calculation in retrospect. The correction can be taken (expensed in the current asset period, or can be spread over the remainder of an asset life (amortized. Both Adjustments types are part of the Dutch s best practice. The difference is not really the journal (witch accounts are hit, but the difference is the way the amounts are calculated. The only difference in the accounts that are hit is the depreciation journal. Depreciation journals for Expensed adjustments have one extra journal line; The depreciation expense (adjustment line which represents the part of the depreciation expense that is a result of the adjustment. It is the depreciation expense for the current period as a result of the adjustment on top of the normal periodic depreciation. Prior period transactions versus Current Period transactions; Any transaction can be relevant for depreciation as of the period the transaction was made in. But it can also influence the depreciation of any number of prior periods in the same fiscal year. If a transactions is subject to prior period effect. It does not influence the journal from the prior period addition, adjustment, transfer, reclassification or retirement itself, but the depreciation transaction as a result of a prior period transaction is different as a depreciation transaction as a result of current period transaction xxiii

24 Assumptions Not all functionality of Oracle Fixed Assets is will be discussed in the remainder of this chapter. For the Dutch best practice the following assumptions are made: Depreciation Method Set up: depreciate an asset in the year it is retired is set to Yes Depreciation Books > Calendar Set up: depreciate assets in their first year of life is set to No Depreciation Books > Accounting rules Set up: Allow Amortize changes is set to Yes Allow Revaluation is set to Yes Revalue accumulated Depreciation = Yes, because the No - option will transfer the accumulated depreciation to the revaluation reserve on every revaluation. Amortization of Revaluation Reserve or Retire Revaluation reserve = Yes, there are not both no. revaluation of fully reserved asset is not limited; (empty Depreciation Books > Natural Accounts Set up: Every account field, has a separate value; only exception is the gain and loss account for COR = (Cost of removal it can be 1 value. The same goes for POS (Profit of Sale and NBV (Net Book Value retired. Intercompany Receivables and Payables clearing account numbers are specific accounts for Assets, they can have the same value. The default Account generator Account is a balance sheet account with al other segment set to zero value (not applicable; Tax-book setup there are no Tax books defined; Investment Tax Credits are not used; life extension factor = (1,0 ; and no life extension ceiling ; No Asset cost, Depreciation, Revaluation and Expense Ceilings are used Deferred Income Tax Liability; is not used no Adjustment Current Earnings depreciation rules and Books are used. xxiv

25 Events The Asset accounts for General Ledger transactions are a result of the recognized Events, Assumptions made in previous paragraphs, and the Account generator set up. Per Event FA-1, FA-2 ext, the most common variations of the relevant accounting entries a mentioned in the Remark section of the table below. Event number Event name GL Category Remark Prefix=FA 1 Payables, Project and third party create Mass Additions. 2 Asset Mass Addition Line Deletions Purchase Different originate from Invoice Payables; Create Mass Additions Projects Projects; Create Mass Additions??? User defined SQL-loader N/a PS This event is mentioned because it specifically has no GL transaction as a result. The transaction should be made manually or be avoided by only deleting Mass addition lines if you also delete a corresponding Mass addition credit line. 3 Additions Addition CIP Addition 4 Capitalization of CIP Assets 5 Periodic Depreciation CIP Addition Depreciation 6 Adjustments Adjustments CIP Adjustment 7 Transfer As a assignment transfer Or as number of unit Transfer CIP transfer Different Journals for Additions because of: (3a Capitalized and (3b CIP Additions Current and Prior period additions; (3c Single and merged Additions (3d is the prior period effect of this transaction Different Journals for capitalization because of: Capitalization s (4a in the period and (4b After the period the asset was added. Change Asset type to CIP (4c Decapitalization; PS (It can only be don as a current period transaction Different Journals for Depreciation because of: (5a Depreciation for Assets without adjustments and amortized adjustments, or (5b with Expensed adjustments; (5c; Depreciations for Revaluated Assets and Parameter: Amortize Revaluation Reserve = Yes Different Journals for Additions because of: 6a Expensed adjustment of recoverable cost ; 6b Amortized adjustment of recoverable cost ; 6c Transfer of Source lines from assets added in a prior period witch result in transfer of cost, transfer of depreciation, and transfer of expense. (6d Transfer of Source lines from assets added in the current periods or (6e Adding mass addition lines to an existing Asset. Ps. Depreciation Method, Life Adjustments, Rate Adjustments and capacity Adjustments do not directly result in journal transactions. Depending on the effect they have on the depreciation the will influence the amounts of the depreciation transaction (amortized or Expensed Different Journals for Additions because of: (7a The transfer between cost centers results in transfer of cost and depreciation for current period transfers; (7b for the prior period expense part in a prior period transfer. xxv

26 Event number Event name GL Category Remark Prefix=FA adjustment (7cThe transfers between balancing segments 8 Reclassification Reclass & Different Journals for Reclassification because of: CIP Reclassification (8a Current Reclassification, and (8b Prior period Reclassification s; 09 A Retirement Retirement Different Journals for Retirement because of: CIP Retirement Whether Cost of removal and Proceeds of sale amount are entered on retirement: 9a for expensing the Net book value retired Gain (9b for clearing the COR clearing account, (9c for clearing the POS clearing account, (9d for retiring a revaluation reserve (9b entries for retirement gain an loss accounts on 1 P&L account; (9c Retire Revaluation Reserve = Yes/no 09 B Reinstatements Retirement Different Journals for Reinstatements because of: CIP Retirement (10a Number of periods since Retirement (10b entries for retirement gain an loss accounts on 1 P&L account; (10c Retire Revaluation Reserve = Yes/no 10 Revaluations Adjustments??? Different Journals for Depreciation because of: CIP Adjustments??? (11b Revalue Accumulated Depreciation = Yes (NO = move the accumulated Depreciation to the Revaluation reserve on revaluation s. (11c Retire Revaluation Reserve = Yes/no (look at the retirement transaction xxvi

27 Accounts Asset uses modifiable Account generator definitions to generate all the required account code combinations (CCID s. possible Asset Accounts Ass et Boo k Ass et Cate gory Ass et Mas s Addi tion Line Retrieved through Account Generator (*1 definitions Category Account Names Asset Cost Yes Asset Clearing No. At leased not always: For manual additions, Oracle Assets gets the clearing account from the category (Account Generator For mass additions, the clearing account comes from your source system. (for details exceptions on Account generator rules Asset Manual, chapter Accounting CIP Cost Yes CIP Clearing No. At leased not always ; ( Identical to the Asset clearing account. Depreciation Reserve Yes Revaluation Amortization Yes Revaluation Reserve Yes Asset Account Names Depreciation Expense Yes, but not on Reclassification (for details exceptions on Account generator rules Asset Manual, chapter Accounting Book Account Names Depreciation Adjustment Yes Net Book Value Retired Gain Yes Net Book Value Retired Loss Yes Proceeds of Sale Gain Yes Proceeds of Sale Loss Yes Proceeds of Sale Clearing Yes Cost of Removal clearing Yes Cost of Removal Gain Yes Cost of Removal Loss Yes Intercompany Accounts Payable Yes Intercompany Accounts Yes Receivable Revaluation Reserve Retired Yes Gain Revaluation Reserve Retired Yes Loss Deferred Depreciation Expense Yes Deferred Depreciation Reserve Yes (*1 Account generator Account generator uses a Two-step generation process to generate all the required segment values using 4 Sources, for the potent ional 23 different accounts per asset; The Account generator workflow process is divided into 3 parts using 3 different account name groups. xxvii

28 Account name groups Every one of the 23 account names belongs to only 1 Account name group this results in: The Category Accounts names. Asset Account Name, and Book Account names. Sources Seeded there are 3 specific rules that generate all the segments of the 23 account names. The sources used in these rules are: specific natural account values per account name located on the Asset book definition; specific account-code-combinations per account name located on the Asset category definition per account book; a specific account-code-combinations Located on the Asset assignment definition; and default Account generator values located on the Asset book definition. Generation of asset CCID segments in a nutshell Seeded the generation works as described below; the balancing segment (it is always retrieved from the Asset level the Natural Account uses a different source per account name (as described in the All other segments get their value sourced from the default Account generator values located on the Asset book definition. Account name - Depreciation Expense works different, all segments are retrieved from the Asset Assignment definition. Two-step procedure The derivation for asset Accounts is a two-step procedure. The fist time any account is needed for the accounting of a particular asset. account generator will generate the account and store these values per asset/per account name in an interim table for assets ; Every time accounting event for an asset after this first generation Asset will use the stored CCID values from the interim table. xxviii

29 Accounting Entries If an asset is depreciated, Depreciation expense is always a part of the accounting entry for a particular asset in a given asset period. To make the examples easier to understand the Depreciation expense line is excluded of the Accounting entries below. If you look into the examples in the Asset User guide, chapter accounting, the Depreciation expense lines are always there. For the ease of comprehension of the entries you will not miss the Depreciation expense line. It will only disturb the comprehension process. When you will check the accounting entry against the system or the manual you will notice the difference. Please note that the system and manual are correct, we took the liberty of skipping this line to simplify the examples. 1 Relevant non Asset transaction FA-1 Create Mass addition lines Asset Clearing Payables or CIP projects This transactions is a result of Payables or Project Create Mass Addition lines programs. If you are feeding the Mass addition lines through the Mass addition open interface from a third party system you will have to influence the credit account in this transaction to fit your needs in the flow of your financial transactions. 2 Delete Mass Additions transaction FA-2 Delete Mass addition lines N/a N/a This Asset transaction has no GL effect (no GL - transactions as a result. So if you do delete asset within the Mass Addition functionality, Make sure you delete a debit and credit line from mass additions for the same amount. So have Payables (AP or Project (PA reverse incorrect transactions so can delete both the debit and the credit line in Asset Mass Additions. If you delete mass addition lines in asset without the reversal in AP and PA your Asset Clearing account will not balance at period end. xxix

30 3 Additions FA-3a Capitalized Addition Asset Cost Asset Clearing This is the normal situation, an automated addition through Mass additions (from Payables, Projects or third party software or a manual additions (detailed or quick through the additions forms of the Asset Menu. FA-3b Construction in Progress Addition CIP Cost CIP Clearing Idem As for 3a, but now the asset has the status CIP. FA-3c Capitalized Addition (as a result of Merged Mass addition Lines Asset Cost Asset Clearing (mass addition line 1 Asset Clearing (mass addition line 2 Asset Clearing (mass addition line 3 *1 Idem As for 3a, but now the capitalized asset has been merged within Mass Additions. PS this can also be in the case for a CIP Asset. (1 For Addition journals from mass additions. the Accounting entry will always hit the clearing account as mentioned in the Mass addition Line, no matter what Account generator has defined. FA-3d Addition (prior period effects Depreciation Expense (Adjustment Depreciation Reserve This entry occurs when the date placed in service is in a period witch lies before the current Assed period. The missed depreciation is expensed in the financial that corresponds with the current asset period. xxx

31 4 Capitalization s (status Asset changes from CIP to Capitalized FA-4a Capitalization (in the same FA-period the CIP Asset was added as CIP Asset Cost CIP Clearing Financially, in GL It is as if the assed has never had the status CIP. The CIP Cost Account is not hit this event. CIP Clearing must be hit because payable has hit this account as well. FA-4b Capitalization (in a FA-period after the CIP Asset was added as CIP Asset Cost CIP Cost When you capitalize an asset in a period after the period you added it, Oracle Assets creates journal entries that transfer the cost from the CIP cost account to the asset cost account. The clearing account has already been cleared. No further corrections needed because Assets are not depreciated until there capitalized. FA-4c De-Capitalization (in the period the asset was entered CIP Cost Asset Clearing 5 Depreciations There are 4 different depreciation accounting entries: (FA-5a depreciation entries for assets without adjustments or for assets with amortized adjustments. (FA-5b, depreciation entries for assets with expensed adjustments. Both type s can be with or without (FA-5c for the amortization of a revaluation reserve. FA-5a Depreciation (for Asset without or Amortized adjustments Depreciation Expense Depreciation Reserve The amount of this journal is influenced by a large number of setting (Asset setup but the only setting that influence the journal structure is expense/or amortization of adjustments. If there are amortized adjustments the adjustment will be spread over the remainder of the asset live. xxxi

32 FA-5b Depreciation (for Asset with Expensed adjustments Depreciation Expense Depreciation Expense (adjustment Depreciation Reserve If adjustments are expensed the adjustment will influence the P&L in the period the adjustment was made, this on top of normal depreciation. FA-5c Amortizing revaluation reserve Revaluation Amortization Revaluation Reserve Is only possible if the asset is revaluated and the Asset depreciation book checkbox Amortize Revaluation Reserve is set to yes. 6 Adjustments There are 4 different accounting entries for the many different possible adjustments to an asset Cost, Method, Life rate an capacity Adjustments. They all result in the same accounting entries. A cost adjustment includes any adjustment that affects the recoverable cost, i.e., a change in cost, salvage value, depreciation, or depreciation expense,. The (4 are (FA-6a - manually performed cost adjustment in the Books window; (FA-6b - Transfer of Source Lines entered in prior periods; (FA-6c - Transfer of Source Lines entered in the current period. (FA-6d - cost adjustment by adding a mass addition to an existing asset using Mass Additions. Changes to assets that have not been depreciated and changes to CIP assets do not result in Adjustment entries since no depreciation has been taken. If you change financial information after you have run depreciation, you must choose whether to expense or amortize the adjustment. For both situations you could get the extra adjusting journal entry. Expensed Adjustment For expensed adjustments, Oracle Assets recalculates depreciation using the new information and expenses the entire adjustment amount in the current period. Expensing the adjustment results in a one time adjusting journal entry. Amortized Adjustment For amortized adjustments, Oracle Assets spreads the adjustment amount over the remaining life or remaining capacity of the asset. You can set up your amortized adjustments to have a retroactive start date by changing the default amortization start date(usually the system date to a date in a previous period. Any adjustment amount missed since the amortization start date is taken in the current period. xxxii

33 FA-6a Recoverable cost Adjustment Depreciation Expense Depreciation Expense (adjustment *1 Depreciation Reserve (1 This line is only there if the adjustment is expensed. Or Amortized with a retroactive date. FA-6b adding mass addition to an existing asset using Mass Additions Asset Cost Asset Clearing FA-6b Adjustment (transfer of source lines of assets added in prior period Accounting entry Asset Debit Credit Asset Cost New *1 Asset Cost Old Depreciation Expense New Depreciation Expense Old Depreciation Expense New (adjustment *2 Depreciation Reserve New Depreciation Reserve Old This could be the case if additions ended up with an incorrect asset. And these lines are transferred to the appropriate assets that have had depreciation in prior asset periods. (1 New and Old refer to the source and destination Asset, Asset generates accounting entries for both assets. (2 This line is only there if the adjustment is expensed. Or Amortized with a retroactive date. FA-6c Adjustment (transfer of source lines of assets added in the current period Asset Cost (destination Asset Asset Clearing ( source Asset This could be the case if additions ended up with an incorrect asset. And these lines are transferred to the appropriate asset that has no depreciation. xxxiii

34 7 Transfers FA-7a Transfer (between Cost Centers Accounting entry Cost center Debit Credit Asset Cost New Depreciation Expense (*1 New Depreciation Reserve New Asset Cost Old Depreciation Reserve Old Depreciation expense (*2 New Depreciation expense Old (1 Depreciation for the new cost center in the current period (2 The realized expenses in the past are optionally transferred to the new balancing segment (=prior period effect. The transfer has to be realized as a prior period transaction. FA-7b Transfer (between Balancing Segments Accounting entry Balancin g Segmen t Debit Credit Asset Cost New Depreciation Expense (*1 New Depreciation Reserve New Intercompany Accounts Payables ( *2 New Intercompany Accounts Receivable From Asset Cost From Depreciation Reserve From Depreciation expense ( *3 New Depreciation expense From (1 Depreciation for the new balancing segment in the current period (2 This journal hits the Asset Intercompany Account Payables and Asset Intercompany Account Receivables to create a journal transaction that is in balance per Balancing segment. (3 The realized expenses in the passed are optionally transferred to the new balancing segment (=prior period effect. The transfer has to be realized as a prior period transaction 8 Reclassifications FA-8 Reclassifications Accounting entry Categor y Debit Credit Asset Cost Old Depreciation Reserve Old Asset Cost New xxxiv

35 Accounting entry Categor y Debit Credit Depreciation Expense (this period Depreciation Reserve (-/- this period Old New Oracle Assets does not adjust for prior period expenses when you reclassify Assets 9 Retirements And Reinstatements FA-9A Retirements (*1 (1 *1 Asset Cost (1 Depreciation Reserve (1 Depreciation Expense *2 (1 Net Book Value Retirement (Gain *3 ( (1 Net Book Value Retirement (Loss *3 ( (2 Proceeds of Sale Clearing *4 ( ( (2 Proceeds of Sale (Gain *3 *4 ( (2 Proceeds of Sale (Loss *3 *4 ( (3 Cost of Removal (Gain *3 *4 ( (3 Cost of Removal (Loss *3 *4 ( (3 Cost of Removal Clearing *4 ( ( (4 Revaluation Reserve *5 (4 Revaluation Reserve Retired (Gain *3 *5 ( (4 Revaluation Reserve Retired (Loss *3 *5 ( (1 This accounting entry is build from four separate parts: Retirement of Asset Book Value, Expense the proceeds of sale, Expense the cost of removal, Retirement of the value of the Revaluation reserve (*2 The Depreciation expense will be reversed from retirement date up the current period if it is a prior period retirement. (*3 (part 1-4 The (Gain accounts will be hit, if the sum of the P&L elements is a positive revenue. The (Loss accounts are hit if the sum is a negative result; The P&L elements are ( NBV retired, Revaluation reserve retired, cost of removal and proceeds of sale. If all Gain and loss account have the same value (= the same account Assets will summarize retirement P&L accounts to one line. If not separate lines will be account for 4 different account names. xxxv

36 (*4 (Part 2-3 The accounting for proceed of sales (POS and Cost of removal (COR depend on the amount mentioned for POS and COR fields in the retirement FORM; => ( No amount = no transactions (*5 (Part 4This accounting entry is only possible if the asset is revaluated and the Asset depreciation book checkbox Retire Revaluation Reserve is set to yes. xxxvi

37 FA-9B Reinstatements ( reversal of retirement *1 (*1 (1 *1 Asset Cost (1 Depreciation Reserve (1 Depreciation Expense *2 (1 Net Book Value Retirement (Gain *3 ( (1 Net Book Value Retirement (Loss *3 ( (2 Proceeds of Sale Clearing *4 ( ( (2 Proceeds of Sale (Gain *3 *4 ( (2 Proceeds of Sale (Loss *3 *4 ( (3 Cost of Removal (Gain *3 *4 ( (3 Cost of Removal (Loss *3 *4 ( (3 Cost of Removal Clearing *4 ( ( (4 Revaluation Reserve *5 (4 Revaluation Reserve Retired (Gain *3 *5 ( (4 Revaluation Reserve Retired (Loss *3 *5 ( (1 All remarks on retirements are also relevant for Reinstatements (remarks FA-9A (1 trough 5. But the accounting entries have switched Debit and Credit with the transactions FA-9A for Retirements. (2 Depreciation Expense will also be hit if there are periods in between retiring and reinstating. (For the depreciation of missed periods 10 Revaluation FA-10 Revaluation Asset Cost Depreciation Reserve Revaluation Reserve (*1 (1 This journal is as presented her only when the Asset Book checkboxes Revaluation allowed, and revalue Depreciation Reserve are both set to yes. (2 For other variation of revaluation journals look at the examples made in Journal entries for revaluations in the chapter Accounting of the Asset user Guide. xxxvii

38 Notes FA-1 Setup requirements in Fixed Assets Relevant to Accounting entries from Assets FA-2 Common setup choices that influence FA Account generator ; FA-3 Common customizations on for FA Account generator ; FA-4 Customized Account generator definitions; FA-5 Asset Accounting Gotcha s FA-6 How do Asset journals, end up in General ledger; FA-7 Recoverable cost, versus other adjustments; FA-8 Tax accounting FA-1 Setup requirements in Fixed Assets Relevant to Accounting entries from Assets If you want to create journal entries from your tax book, your tax book must have the same account structure, general ledger calendar, and functional currency as the associated corporate book. And you must enter a different set of books for your tax book and the associated corporate book. You cannot create journal entries from your budget book. The create mass additions process only imports mass addition lines for Assets charged to accounts that are already set up in your asset categories. And are defined as an Asset account (Account type. So the clearing account you use in Payables must be used in the asset Setup as clearing account on one of the Asset categories. And asset-clearing accounts must be set op in GL as an Asset account-type. If You are working with more than 1 SOB an more than 1 Operating Unit Payables must be tied to the same general ledger set of books as the corporate Asset book for which you want to create mass additions in Oracle Assets, and You cannot create mass additions for tax books. FA-2 Common setup choices that influence FA Account generator ; The setup choices mentioned below are common in a Dutch implementation: All Potential Asset Accounts have their own value in the flex field segment natural Account. Default account combination has xxxxx on all segments except company and account. The natural account (xxxxx is a balance sheet account. Common Modifications are the adjustment to the Asset book account into two type (P&L and (Balance sheet, where the balance sheet accounts have no Cost center, and all the (P&L Accounts do have a cost enter, as for depreciation expense. xxxviii

39 FA-3 Common customizations on for FA Account generator ; The customizations mentioned below are common in a Dutch implementation: The Cost center is derived from the asset Expense Account The Balance sheet accounts are generated separately forms P&L Accounts in the Account generator process for book control accounts (because of the required value n/a on balance sheet accounts. And the Cost center value for all P&L accounts. Standard derivation from account generator o By default, Oracle Assets creates journal entries without cost center level detail, except for depreciation expense. o Using the default assignments, it creates journal entries using the balancing segment from the distribution line in the Assignments window and the account segment. o The Account Generator gets the other segments from the default segment values you entered for the book. o You can modify the default Account Generator process so that Oracle Assets creates journal entries to a different detail level. FA-5 Asset Accounting Gotcha s FA-5.1 Period names of Asset Calendar must map identically to the defined GL calendar names. So check the GL calendar definition before defining an Asset depreciation calander!!! FA-5.2 Customized Account generator definitions Patches can overwrite customized Account Generator definitions, If you do not notice this, you re Asset accounting is incorrect!!! Make sure you have tested and approved all transaction before you go in production. (See remark Account generator determines General ledger accounts only ones for every asset. Save a copy of the approved and accepted Workflow definitions: for FA Account generator on a local ore common disk, (not only in the database, before you go in production. Applying Patches can overwrite workflow definitions. Re-save the your customized Workflow definitions: for FA Account generator after every alteration FA-5.3 Account generator determines General ledger accounts only ones for every asset. The values are generated only ones; Account Generator is a two-step process. In the first step (the initial Generate accounts run, the accounts are generated for every new Asset. Account generator stores the result of the process in FA_DISTRIBUTION_ACCOUNTS; fixed assets will use these accounts. xxxix

40 So you must get the initial run correct. Correcting the Accounts generated in a production situation is not a simple task.!!! Changes to Account Generator have no effect on the existing Asset distributions, it does influence new asset (distributions. To change the GL accounting for assets you need to force re-generation of the asset Accounts: So Make sure you re customized Account generator process is saved in the production database before you run the Asset depreciation run or Generate Accounts for the first time.!!! Production environment (Database; o Force Oracle Assets to create new distribution lines (rows in; FA_DISTRIBUTION_ACCOUNTS by. Mass Transfers. Test and implementation environments (Database; o TRUNCATE FA_DISTRIBUTION_ACCOUNTS, and rerun Generate Accounts process. FA-6 How do Asset journals, end up in General ledger; The Generate Account, and "Create Journal" programe's that are a part of the Depreciation run, generate, create and transfer the Asset Journal transactions to GL. Up to Release 11i Asset was/is a little different from other modules. The journal does not have to be imported in General ledger. The accounting entries end up unposted General Ledger without having to Import any asset transactions in GL. FA-7 Recoverable cost, versus other adjustments (Life time-; Depreciation Method-, Rate- and Capacity Adjustments. Recoverable cost Adjustments Adjustments to the Asset recoverable cost ( 1 can be a result of an asset cost adjustment in an Asset form and the transfer of source lines ( 2 from one asset to the other. But it can also be a cost adjustment by adding a Mass addition line to an existing Asset. All these Recoverable Cost Adjustments result in a different Asset Cost and the resulting journal transactions all hit the Asset Cost Account of the relevant Asset Category. All other adjustments Other Adjustments (depreciation method, depreciation rate or capacity adjustments do not result in a different journal. But the adjustments influence the outcome of the depreciation calculation. FA-8 Tax accounting Tax Accounting is not an issue for the majority of Dutch companies because they will account the depreciation in their Company Asset 1 Recoverable cost Adjustments is the amount that needs to be recovered by depreciation (ea. The recoverable cost is the portion of the asset cost that can be depreciated. It is the current cost less the salvage value. 2 Transfer of source lines = is the transfer of lines that initiated the value (Asset Cost of the asset; (ore part of this value. Source line transfers change the asset cost, depreciation reserve and expense of old and the new asset. xl

41 Depreciation Books in a manner that will be accepted by the Dutch fiscal authorities. Therefore usually Tax-books will not be required. As a result we will not discuss the influence of tax related functionality for the asset journal transactions. There is no regulation for Asset cost-, Depreciation-, Revaluationand Expense Ceilings; Functionality as Investment Tax credits are not used since the WIR regulated is abandoned in Holland. Adjustment Current Earnings depreciation rules and Books are not used in Holland; There is no regulation that would introduce the use of life extension factor; or life extension ceilings; Revaluation of fully reserved asset is not common practice; Deferred Income Tax Liability; is sometime used because there are some regulations for accepted economic life, but these rules are also common practice for the commercial valuation of assets. xli

42 Encumbrance Accounting In this chapter encumbrance accounting issues are described. Encumbrance accounting is supported by Oracle Purchasing, Oracle Payables and Oracle General Ledger. Compared to actual accounting as described in the chapters before, almost no system accounts are involved. More complex is the encumbrance process itself. It is not just one journal at a certain point of time but a serie of moments at which encumbrance amounts are posted, liquidated and posted again. Assumptions 1. It is possible to enter Encumbrance journals in Oracle General Ledger directly. However this is not common practice and will not be covered in this chapter as an event. Usually encumbrances are created from events in Oracle Purchasing and Payables. 2. Encumbrance journals are categorized by a type. It is common to define the type of Commitment for Requisitions and the type of Obligation for Purchase Orders and Invoices. When the types for Invoice and Purchase Order are the same no additional encumbrance journal will be generated at the time of approving a matched invoice. 3. The charge account and the budget account have the same value. In the Accounts and Accounting entries chapters these accounts are identified together as the expense account. Events Eve nt nr. Event name GL Source GL Category Encumbranc e Type Remarks 1 Requisition Purchasin g Purchases Commitment When reserving or approving a Requisition. 2 Cancel Requisition Purchasin Purchases Commitment g 3 Purchase order Purchasin g Purchases Obligation/ Commitment When reserving or approving a Purchase Order. 4 Cancel Purchase order Purchasin Purchases Obligation g 5 Invoice (unmatched Payables Purchase Invoice When approving the invoice. Invoice 6 Invoice (matched Payables Purchase Invoice Invoice/ Obligation When posting the journals from AP to GL. 7 Receipt Purchasin g Receiving Obligation When posting the journals from Purchasing to GL. xlii

43 Accounts Type Reserve for Encumbrance Expense Asset Expens e Reserve for Encumbrance* Expense** Req/ PO/ Invoice Set of Books * This account is always generated in General Ledger when posting the journals. ** At a requisition and PO this account is generated by Account generator. When entering an invoice in AP this account is only generated by Account generator when a project is involved. Accounting entries ENC-1 Requisition Expense (Commitment Reserve for Encumbrance (Commitment ENC-2 Cancel requisition Expense (Commitment Reserve for Encumbrance (Commitment xliii

44 ENC-3 Purchase order Expense (Obligation Reserve for Encumbrance (Obligation Expense (Commitment Reserve for Encumbrance (Commitment ENC-4 Cancel Purchase order Expense (Obligation Reserve for Encumbrance (Obligation ENC-5 Invoice (unmatched Expense (Obligation Reserve for Encumbrance (Obligation Expense (Obligation Reserve for Encumbrance (Obligation The debit entry of the Expense account takes place after the invoice is approved and the concurrent program Program Create Journals is ran. The credit entry of the Expense account takes place when the program Transfer Journals to GL is ran. ENC-6 Invoice (matched Expense (Obligation Reserve for Encumbrance (Obligation The debit entry of the Expense account has already taken place in Oracle Purchasing. Because the encumbrance type for Purchase orders and Invoices is both Obligation (Assumptions no debit entry takes place when the matched invoice is approved. ENC-7 Receipt Expense (Obligation Reserve for Encumbrance (Obligation xliv

45 This journal entry only takes place when receipt accounting is implemented. Notes 1. To import encumbrance journals in Oracle General Ledger the program Create Journals has to be run. This is NOT the case for encumbrance journals that are triggered by the events Invoice (matched & unmatched and Receipt. These are imported by the program Import Journals. The reason is that the timing of these journals is related to the actual journals. 2. An encumbrance journal will be balanced by the Reserved for Encumbrance Account. This happens when the journals are posted in General Ledger. xlv

46 Modules interconnectivity & Period-end close dependencies Module Interaction Period Close Interdependencies xlvi