How to Setup, Use and Balance Your A/P Accrual Accounts

1
How to Setup, Use and Balance Your A/P Accrual
Accounts

• Douglas A. Volz

KPMG June 1998
2
Update for May 2007

• In Release 12 there are significant enhancements
• you finally have the ability to do mass A/P
  accrual write-offs
• the standard Accrual Reconciliation Report will
  handle blanket purchase orders
• Prior to Release 12 the A/P accruals design and
  features is essentially unchanged since 1990,
  when first designed by Doug Volz for Release 9
  and subsequently upgraded for Release 10.
• Doug Volz wrote this presentation while at Price
  Waterhouse, in 1996.
• Doug has helped clients with A/P Accruals since
  1996, starting with Cisco Systems, and even in
  Release 11i, continues to assist clients with
  similar issues.

3
Introduction

• Learn about the Oracle Release 10 accrual
  processes
• Find out why these accrual processes are so
  important
• How many of you have difficulties with your
  accrual processes?
• Solve current problems you may have

4
Agenda

• Why are these accrual processes so important?
• What are these accrual accounts?
• Periodic vs perpetual accruals
• Basic accounting entries for the A/P accruals
• Setup steps for the accrual processes
• Using the Accrual Reconciliation Report

5
Agenda

• Using the expense accrual processes
• Typical problems and issues with accruals
• Implementation and conversion issues
• Current bug fixes
• Enhancements to consider
• Conclusions

6
Why Are These Accrual Processes so Important?

• Valuable integration control
• Monitors accuracy of receiving and payables
  processes
• Provides a vital barometer over these activities
• Helps to ensure accurate inventory counts

7
What Are These Accrual Accounts?

• Principle of accrual accounting
• Timing difference between receiving and invoicing
• Represents the accrued liability from your vendors

8
Periodic Versus Perpetual Accruals

• Periodic accruals occurs at month-end
• With computers came perpetual accruals
• Perpetual accruals ensure that valued quantities
  equals accounting entries
• Dont accrue expenses upon receipt

9
Why Not Use Perpetual Accruals for Expenses?

• Receiving inspection then includes both assets
  and expenses
• Have to reclass balances
• Double the accrual entries that you need to
  reconcile
• Significantly more entries to review, research,
  and correct
• Increased runtime for the Accrual Reconciliation
  Report

10
Background Information for A/P Accruals

• May have multiple lines per PO
• May have multiple PO distributions per line
• Four stored accounts per PO distribution

11
More Background Information

• Charge Account
• Accrual Account
• Variance (IPV) Account
• Budget Account

12
Accrual Accounting Entries

• Purchase order receipt
• Invoice match
• Return to vendor
• Invoice correction
• Receipt delivery
• Expense accrual

13
Accounting Entries for a PO Receipt

• Receive one item _at_ 100 PO unit price
• Account Debit Credit
• Receiving Account 100
• A/P Accrual Account 100

14
Accounting Entries for an Invoice Match

• Same item, 80 invoice unit price, 100 PO unit
  price
• Account Debit Credit
• A/P Accrual Account 100
• A/P Trade Payables 80
• Invoice Price Variance 20

15
Accounting Entries for a PO Return to Vendor

• Same item, 100 PO unit price
• Account Debit Credit
• A/P Accrual Account 100
• Receiving Account 100

16
Accounting Entries for an Invoice Correction

• Same item, 80 invoice unit price
• Account Debit Credit
• New Charge Account 80
• Old Charge Account 80

17
Caution

• You cannot change an invoice distribution from
  the A/P Accrual Account to another account
• However, your A/P staff can code the invoice to
  the A/P Accrual Account by mistake

18
Accounting Entries for Receipt Deliveries

• Account Debit Credit
• Delivery to stock inventory
• Subinventory Account XXX
• Receiving Account XXX
• Delivery to WIP inventory
• Job OSP Account XXX
• Receiving Account XXX

19
Month-End Period Accruals

• For expenses only
• Account Debit Credit
• Charge Account XXX
• Expense A/P Accrual Account XXX
• In Oracle General Ledger, reverse the accrual
  entry in the following month

20
Where You Setup the Accrual Processes

• Setup in Oracle Purchasing
• Setup in Oracle Inventory

21
Setup in Oracle Purchasing

• Use the Define Purchasing Options Form
• Set Accrue Expense Items to Period End
• Set the Expense A/P Accrual Account
• Use the Define Receiving Options form
• Set the Receiving Account for each inventory
  organization

22
When Defining Purchase Orders

• Never manually set the Accrue on Receipt Flag
• For expense destinations, the flag should be No
• For inventory and shop floor (OSP) destinations,
  the field should be Yes

23
Setup in Oracle Inventory

• Use the Define Organization Parameters Form
• Set the Inventory A/P Accrual Account
• Use the same Inventory A/P Accrual Account for
  all organizations

24
Caution

• Use separate accounts for each type of system
  account
• Expense A/P Accrual Account
• Inventory A/P Accrual Account
• Receiving Account(s)
• Expense Purchase Order Charge Accounts
• Other inventory, WIP and price variance accounts

25
Caution

• Release 10.7 SmartClient/NCA has a incorrect
  field name for the receiving options
• In character it is the Receiving Account, but the
  GUI screens incorrectly used Receiving Accrual
  Account
• Enter your receiving valuation account, an asset
  account!

26
Caution

• Release 10.7 SmartClient/NCA has a incorrect
  field name for the receiving options, continued
• Using the Inventory A/P Accrual Account for the
  Receiving Accrual Account will completely
  invalidate your receiving accounting results, and
  make the Accrual Reconciliation Report completely
  unusable!!

27
Purpose for the Accrual Reconciliation Report

• Report all perpetual accrual account transactions
• Provide a subsidiary ledger for the general
  ledger balances
• Provide a tool to manage the perpetual accrual
  account

28
Background Information

• Two ways to run it
• With rebuilding the temporary table
• Reporting existing information in the temporary
  table
• Need perpetual accruals to run it
• All amounts reported in base currency
• Multiple organizations reported
• Note this report uses 180 columns

29
How the Accrual Rebuild Works

• Determines the install status
• Select valid accrual accounts
• Finds all accrual entries and inserts into a
  temporary table
• Matches invoices to receipts
• Determines the write-off condition
• Calculates PO line control totals
• Calculates IPV for Release 9 entries
• Prints the report

30
Major Accrual Reconciliation Report Columns

• Accrual Transaction Column
• Transaction Amount Column
• Invoice Price Variance
• Net Accrual Balance

31
Payables Accrual Transactions

• A/P Line Match
• A/P PO Match
• A/P Item Match
• A/P No Match
• A/P No Item
• A/P No PO
• Invoice Price Variance
• Exchange Rate Variance

32
Purchasing Accrual Transactions

• Oracle Purchasing transactions
• Receive
• Deliver
• Match
• Return to Vendor

33
Other Accrual Transactions

• Oracle Inventory transactions
• Release 9 PO receipts or returns
• Any other accrual account transaction
• Oracle Work in Process transactions
• Release 9 outside processing receipts or returns
• Any other accrual account transaction

34
Transaction Amount Column

• The debit or credit from the subledger
• If no entries are screened out, the report total
  equals your subledgers
• However, you usually use the Report Summary by
  Source and Accrual Transaction to tie back to
  your subledgers

35
Invoice Price Variance Column

• Primarily for reporting Release 9 IPV
• Also reports incorrect transactions, such as
• A/P No PO
• A/P No Item
• R10 Invoice Price Variance
• R10 Exchange Rate Variance

36
Net Accrual Balance Column

• Equals the Transaction Amount less the Invoice
  Price Variance column
• This column is a carryover from Release 9
• If Release 9 was not used, ignore this column

37
Accrual Reconciliation Report Screening Parameters

• New R10.6.1 screening parameters
• Include All Transactions
• Transaction Amount Tolerance
• Transaction Quantity Tolerance
• Other screening parameters
• Include Written Off Transactions, Aging Number of
  Days
• Item, Vendor and G/L Date ranges

38
Include All Transactions

• Yes disables the Transaction Amount and
  Transaction Quantity parameters
• No enables the Transaction Amount and Transaction
  Quantity parameters
• Replaces the Include Zero Balance Subtotals
  parameter

39
Transaction Amount and Quantity Tolerance
Parameters

• Used to limit reported information
• You can now screen out small PO line differences
• Both parameters have to be met
• Specify absolute amount and quantity tolerances

40
Parameter Example

• Report parameters set to
• Include all transactions set to No
• Transaction Amount parameter 25
• Transaction Quantity parameter 3
• For a given PO line on the report
• PO line net amount 25
• PO line net quantity 5
• This purchase order line would still appear on
  the Report

41
Process Problems for Receiving

• Why receipts do not equal invoices
• Wrong receipt quantities
• Receiving goods to the wrong PO line or PO
• Trying to receive or return goods using
  miscellaneous inventory transactions
• Routine over receipts with correct invoice
  quantities

42
Process Problems for Payables

• Why invoices do not equal receipts
• Incorrect invoice quantities
• Payables not processing debit memos correctly
• Expenses, invoice price or exchange rate
  variances miscoded
• Payables matching the invoice to the wrong PO
  line or PO
• Not matching invoices to POs

43
Process Problems for Purchasing

• Why invoices may not be processed correctly
• Purchase orders prematurely closed or final
  closed
• Purged purchase orders
• Incorrect purchase order unit prices
• Late or no purchase orders created for the receipt

44
How to Balance the Accrual Reconciliation Report

• Only picks up transactions available to the
  general ledger
• Use the Report Summary by Source and Accrual
  Transaction to balance to the general ledger
• The Report Summary Total column must agree to
  your subledgers

45
Subledger Reports for Balancing

• Receiving Account Distribution Report
• Payables Expense Detail Report
• Material Distribution Summary Report
• WIP Account Summary Report

46
What to Check If the Perpetual Accruals do Not
Balance

• Latest version for the A/P and PO subledger
  reports
• Latest version for the Accrual Reconciliation
  Report
• If you have applied the cumulative accrual patch
  bug 337257 (pre 10.7)
• May be missing two PO lookup codes
• Check for any conversion issues
• Check for manual G/L journal entries

47
How to Balance the Receipt Accrual - Period End
Process

• Run the Uninvoiced Receipts Report by specifying
  Accrued Receipts No (before running the
  month-end process), Yes (after running the
  month-end process), Include On-line accruals no,
  the desired Period Name, and the desired sort
  selection (purchasing Category or Vendor)

48
How to Balance the Receipt Accrual - Period End
Process

• Use careful cut-off controls for receipt and
  invoice transactions
• Close purchase orders and lines after you have
  reconciled the Expense A/P Accrual Account
• Get bug patch 489880 (or later) for the Receipt
  Accrual - Period End process

49
If the Accrual Reconciliation Report Does Not
Complete

• Check for identical system accounts
• Ask your database administrator if there is
  enough shared memory (or SGA)
• Make sure you have the latest version for the
  Accrual Reconciliation Report
• Major process problems with Receiving and Payables

50
If the Accrual Reconcilation Report Is Too Large

• Check for identical system accounts
• You may have too many cumulative accrual
  transactions
• Use the amount and quantity parameters
• Use the G/L Date From and To parameters to reduce
  the report
• Caution non-cumulative G/L Dates ranges may
  omit needed transactions

51
Implementation Issues (Mistakes You Dont Want to
Make)

• Sharing system accounts
• Badly defined receiving and payables processes
• Little or no system testing for your accrual
  processes
• After go live, late review for the first
  Accrual Reconciliation Report

52
Conversion Issues (More Mistakes You Dont Want)

• Not correctly matching invoices to receipts
• Need a valid PO_DISTRIBUTION_ID in
  AP_INVOICE_DISTRIBUTIONS_ALL
• Incorrect cumulative values for PO line quantity
  received, returned, inspected, and billed
• Not setting the receipt on accrual flag correctly
  in PO_DISTRIBUTIONS_ALL

53
Conversion Issues (Continued)

• Incorrect foreign key relationships between
  PO_HEADERS, PO_LINES, PO_LINE_LOCATIONS, and
  PO_DISTRIBUTIONS_ALL
• Also note that REFERENCE3 in RCV_RECEIVING_SUB_LED
  GER must join to PO_DISTRIBUTION_ID column in
  PO_DISTRIBUTIONS_ALL

54
Current Bug Fixes for Accrual and Related
Processes

• Release 10.7 or earlier
• Bug 489880 or later, fixes the Receipt Accrual
  - Period End process to use the
  PO_LINE_LOCATIONS_ALL CLOSE_DATE, instead of the
  PO_LINES_ALL CLOSE_DATE, thereby causing the
  Receipt Accrual - Period End process to agree
  with the Uninvoiced Receipts Report

55
Current Bug Fixes for Accrual and Related
Processes

• Release 10.7 or earlier
• Current bug patch for the Accrual Reconciliation
  Report, contact Oracle WorldWide Support
  (caution bug patch 483453 breaks the
  PO.PO_VIEW, the ODF files are invalid)

56
Current Bug Fixes for Accrual and Related
Processes

• Release 10.6.1 or earlier
• Re-register the Receipt Accrual - Period End
  process for no printing - gives an erroneous
  warning message
• Release 10.5 or earlier
• Apply the most current cumulative accrual patch
  to get the latest accounting and accruals code
  for both PO and A/P

57
Current Bug Fixes for Release 10.4.2 or Earlier

• For outside processing, the import requisition
  process assigned the receiving account to the PO
  distribution A/P Accrual Account.
• Repair historical accounting entries with bug No.
  235288
• Get the most current patch for the Import
  Requisition process

58
Current Bug Fixes for Release 10.4.2 or Earlier
(Continued)

• Incorrect IPV stored in the AP_INVOICE_DISTRIBUTIO
  NS table
• Causes the latest Accrual Reconcilation Report to
  not balance to older versions of the Payables
  Expense Detail Report
• Request bug No. 319258 to obtain a select only
  SQLPLUS script
• However, the IPV in the G/L is correct

59
Current Bug Fixes for Release 10.4.2 or Earlier
(Continued)

• Incorrectly set Receipt on Accrual Flag
• Request the latest Enter Purchase Orders Form
• Incorrect encumbrance flag set in
  AP_INVOICE_DISTRIBUTIONS
• Request a bug fix for PO Releases
• Causes the latest Accrual Reconcilation Report to
  miss A/P entries

60
Desired Enhancements

• Have the ability to either exclude closed
  purchase orders and PO lines or only report
  closed POs and lines on the Accrual
  Reconciliation Report
• Sort by distribution account on the Uninvoiced
  Receipts Report

61
Desired Enhancements (Continued)

• Write off accrual transactions directly to the
  general ledger, and store these write-offs in the
  AP_INVOICE_DISTRIBUTIONS_ALL table
• Create the ability to do mass accrual write-offs

62
Desired Enhancements (Continued)

• Write off accrual discrepancies on a net basis
• Store net PO line amounts in the
  PO_LINE_LOCATIONS_ALL table
• Write off net PO line amounts when the PO line or
  purchase order is closed
• Actually match invoices to specific receipts

63
Conclusions

• These accrual processes are very important to
  control your business activity
• Proper implementation and data conversion is
  essential
• Major code bugs are resolved
• Please vote wisely on enhancement requests

64
Where to get more information

• The OAUG paper that this presentation is based
  upon
• Oracle Purchasing Reference Manual
• Accrual Reconciliation Report
• Accrual Write-Off Form
• Accrual Write-Off Report
• Receipt Accruals Topical Essay

65
Thank You for Your Attendance and Participation

• Douglas A. Volz