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

Transcription

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

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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
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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
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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

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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
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More Background Information

Charge Account

Accrual Account

Variance (IPV) Account

Budget Account
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Accrual Accounting Entries
Purchase order receipt
 Invoice match
 Return to vendor
 Invoice correction
 Receipt delivery
 Expense accrual

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Accounting Entries
for a PO Receipt

Receive one item @ $100 PO unit price
Account
Receiving Account
A/P Accrual Account
Debit
100
Credit
100
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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
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Accounting Entries
for a PO Return to Vendor

Same item, $100 PO unit price
Account
Debit
A/P Accrual Account100
Receiving Account
Credit
100
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Accounting Entries
for an Invoice Correction

Same item, $80 invoice unit price
Account
New Charge Account
Old Charge Account
Debit
80
Credit
80
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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
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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
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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
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Where You Setup
the Accrual Processes

Setup in Oracle Purchasing

Setup in Oracle Inventory
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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
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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
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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
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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
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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!
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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!!
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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
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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

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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
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Major Accrual Reconciliation
Report Columns

Accrual Transaction Column

Transaction Amount Column

Invoice Price Variance

Net Accrual Balance
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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

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Purchasing
Accrual Transactions

Oracle Purchasing transactions
• Receive
• Deliver
• Match
• Return to Vendor
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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
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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
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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
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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
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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
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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
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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
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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

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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
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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
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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

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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
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Subledger Reports for Balancing

Receiving Account Distribution Report

Payables Expense Detail Report

Material Distribution Summary Report

WIP Account Summary Report
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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
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
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)
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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

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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

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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

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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

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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

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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
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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
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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)
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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

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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

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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