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

How to Setup, Use and Balance
Your A/P Accrual Accounts
Douglas A. Volz
KPMG
June 1998
1
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.
2
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

3
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

4
Agenda
Using the expense accrual processes
 Typical problems and issues with
accruals
 Implementation and conversion issues
 Current bug fixes
 Enhancements to consider
 Conclusions

5
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

6
What Are These
Accrual Accounts?

Principle of accrual accounting

Timing difference between receiving
and invoicing

Represents the accrued liability from
your vendors
7
Periodic Versus
Perpetual Accruals

Periodic accruals occurs at month-end

With computers came perpetual
accruals

Perpetual accruals ensure that valued
quantities equals accounting entries

Don’t accrue expenses upon receipt
8
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

9
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
10
More Background Information

Charge Account

Accrual Account

Variance (IPV) Account

Budget Account
11
Accrual Accounting Entries
Purchase order receipt
 Invoice match
 Return to vendor
 Invoice correction
 Receipt delivery
 Expense accrual

12
Accounting Entries
for a PO Receipt

Receive one item @ $100 PO unit price
Account
Receiving Account
A/P Accrual Account
Debit
100
Credit
100
13
Accounting Entries
for an Invoice Match

Same item, $80 invoice unit price, $100
PO unit price
Account
Debit
A/P Accrual Account100
A/P Trade Payables
Invoice Price Variance
Credit
80
20
14
Accounting Entries
for a PO Return to Vendor

Same item, $100 PO unit price
Account
Debit
A/P Accrual Account100
Receiving Account
Credit
100
15
Accounting Entries
for an Invoice Correction

Same item, $80 invoice unit price
Account
New Charge Account
Old Charge Account
Debit
80
Credit
80
16
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
17
Accounting Entries
for Receipt Deliveries
Account
Debit
Delivery to stock inventory
Subinventory Account
XXX
Receiving Account
Delivery to WIP inventory
Job OSP Account
XXX
Receiving Account
Credit
XXX
XXX
18
Month-End Period Accruals

For expenses only
Account
Debit
Charge Account
XXX
Expense A/P Accrual Account

Credit
XXX
In Oracle General Ledger, reverse the
accrual entry in the following month
19
Where You Setup
the Accrual Processes

Setup in Oracle Purchasing

Setup in Oracle Inventory
20
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
21
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
22
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
23
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
24
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!
25
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!!
26
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
27
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

28
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
29
Major Accrual Reconciliation
Report Columns

Accrual Transaction Column

Transaction Amount Column

Invoice Price Variance

Net Accrual Balance
30
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

31
Purchasing
Accrual Transactions

Oracle Purchasing transactions
• Receive
• Deliver
• Match
• Return to Vendor
32
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
33
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
34
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
35
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
36
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
37
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
38
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
39
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

40
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
41
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
42
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

43
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
44
Subledger Reports for Balancing

Receiving Account Distribution Report

Payables Expense Detail Report

Material Distribution Summary Report

WIP Account Summary Report
45
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
46

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 monthend process), Include On-line accruals:
no, the desired Period Name, and the
desired sort selection (purchasing
Category or Vendor)
47
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

48
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

49
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

50
Implementation Issues (Mistakes
You Don’t 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

51
Conversion Issues (More
Mistakes You Don’t 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

52
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_LEDGER
must join to PO_DISTRIBUTION_ID
column in PO_DISTRIBUTIONS_ALL
53
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
54
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)
55
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

56
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
57
Current Bug Fixes for Release
10.4.2 or Earlier (Continued)

Incorrect IPV stored in the
AP_INVOICE_DISTRIBUTIONS 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 SQL*PLUS script
• However, the IPV in the G/L is correct
58
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

59
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
60
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
61
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

62
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

63
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
64
Thank You for Your Attendance
and Participation
Douglas A. Volz
65