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    ORACLE APPLICATIONS WHITE PAPER

    ACCOUNTING IN R12ORACLE PAYABLES

    SEP 2011

    Author: Mohamed Nazih

    CPA, PMP, Oracle Financials Consultant

    [email protected]

    Version 1.0

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    Accounting in Oracle EBS Payables 2011

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    Contents

    About the Author ................................................................................................... 3

    Introduction ........................................................................................................... 3

    Purpose .................................................................................................................. 3

    Scope ..................................................................................................................... 3

    Audience ................................................................................................................ 4

    Accounting in R12 Oracle Payables ........................................................................ 5

    Determinants - Accounts ................................................................................................................... 5

    Financial Options Accounts ....................................................................................................................................... 6

    Payables Options - Currency ..................................................................................................................................... 7

    Payables Options - Invoice ........................................................................................................................................ 8

    Payables Options - Interest ....................................................................................................................................... 9

    Supplier Site Accounting ........................................................................................................................................... 9

    Bank Account Control ............................................................................................................................................. 10

    Withholding Tax ...................................................................................................................................................... 10

    Determinants - Options ................................................................................................................... 11

    Payables Hierarchy ................................................................................................................................................. 11

    Payables Options .................................................................................................................................................... 12

    Payables Journal Entries .................................................................................................................. 14

    AP-1 Invoice ............................................................................................................................................................ 14

    AP-2 Prepayment .................................................................................................................................................... 16

    AP-3 Prepayment Application ................................................................................................................................. 16

    AP-4 Payment ......................................................................................................................................................... 16

    AP-5 Payment maturity ........................................................................................................................................... 17

    AP-6 Clearing ........................................................................................................................................................... 17

    Out of Scope Accounts ..................................................................................................................... 18

    Information Sources ......................................................................................................................... 18

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    About the Author

    Mohamed Nazih is a proficient functional consultant in Oracle e-Business Suite with more

    than seven years of experience of solutions design, configuration, testing and documentation

    and three full life cycle implementations.

    Prior to Oracle, he worked as a certified accountant and auditor for six years. This experience

    gave him an advantage to team up with financial staff in many companies in delivering high

    quality professional services, such as consulting, support, and training.

    While not working, Mohamed Nazih takes care of his family. Furthermore, he is a self-learner

    and avid reader in project management, change management, business intelligence, science,

    and environment issues.

    Mohamed Nazih values an atmosphere of ethics, punctuality, and team-working.

    Introduction

    Accounting Journal Entries are embedded in every aspect of Oracle Financials Applications.

    Since they are Financials, you must have a good understanding of how these journals are

    generated and integrated. This understanding affects how you design and implement solution

    and it is the ground of discussion with customers representatives in this sector. They may

    have little knowledge of Oracle but, mostly, are good accountants.

    Purpose

    This whitepaper will provide a detailed overview of accounting events, entries, and source.

    Such an overview may help:

    Customers representatives design a better chart of accounts

    Consultants justify decisions taken to setup system parameters and options

    Scope

    This whitepaper will cover Oracle R12 Payables except for transactions related to:

    Encumbrances

    Oracle Internet Expenses

    XML Gateways and iSuppliers

    Automatic Offsetting

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    Cash Pooling

    Audience

    This whitepaper is aimed to super users and functional consultants and implementers as well

    as applications auditors.

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    Accounting in R12 Oracle Payables

    Determinants - Accounts

    Payables Journal Entries are controlled by the definition of:

    1. Financials options

    2. Payable options

    3. Supplier Site

    4. Bank Account

    5. Withholding Tax

    6. Invoice

    7. EB-Tax

    Account Qualifier Financials

    Options

    Payable

    Options

    Supplier

    Site

    Bank

    AccountInvoice

    Liability Liability

    Prepayment Asset

    Bills Payable Liability

    Discount Taken Expense

    PO Rate Variance Gain Revenue

    PO Rate Variance Loss Expense

    Expenses Clearing Expense

    Miscellaneous Expense

    Retainage Liability

    Realized Gain Revenue

    Realized Loss Expense

    Rounding Expense

    Freight Expense

    Tax Difference Account Liability

    Interest Expense Expense

    Interest Liability Liability

    Cash Asset

    Cash Clearing Asset

    Bank Charges Expense

    Bank Errors Expense

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    Financial Options Accounts

    Figure 1

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    Payables Options - Currency

    Figure 2

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    Payables Options - Invoice

    Figure 3

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    Payables Options - Interest

    Figure 4

    Supplier Site Accounting

    Figure 5

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    Bank Account Control

    Figure 6

    Withholding Tax

    Figure 7

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    Determinants - Options

    Payables Hierarchy

    If an account can be defined in more than one place, Oracle Payables applies the following

    hierarchy, where lower level can override higher level(s):

    Figure 8

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    Payables Options

    Have a role in determining accounts to be defaulted for:

    Prepayment

    Bills Payable Discount

    Interest

    Payables Options Accounting Options

    Figure 9

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    Payables Options Withholding Tax

    Figure 10

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    Payables Journal Entries

    Oracle Payables has the following accounting events:

    1. Invoice

    2. Prepayment

    3. Prepayment application

    4. Payment

    5. Payment maturity

    6. Reconciliation

    20BAP-1 Invoice

    Accounts Debit Credit

    Expense (or AP Accrual) P(1) X

    Tax P(2) X

    Freight P(3) X

    Retainage P(4) X

    Liability P(5) X

    Invoice Price Variance (IPV)P(6)

    Quantity Variance P(7)

    PO Exchange Rate Variance (ERV) P(8)

    Tax Variance P(9)

    Accounts Debit Credit

    Retainage P(10) X

    Tax X

    Liability X

    Accounts Debit Credit

    Interest Expense P(11) X

    Interest Liability X

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    (1) Expense account is usually used if invoice is entered manually. AP Accrual account is

    defaulted by system if invoice matched against Receipt/PO for goods items

    (2) Tax (e.g., Sales Tax or VAT) is defined in Oracle EB-Tax and inserted upon invoice validation

    (3)

    Freight account is defaulted if a line of type Freight is used and allocated to line(s) of

    type Item

    (4) Retainage account is defaulted if invoice is matched to a service procurement PO/Receipt

    (5) Liability account is sourced from Suppliers Site

    (6) Quantity Variance results if, upon matching invoice to PO/Receipt, quantity entered for

    invoice is different from this specified in PO. For inventory items, variance booked to

    Inventory AP Accrual Account defined in Organization Parameters window in Inventory.

    For expense items, it booked to Expense AP Accrual Account

    (7) Invoice Price Variance results if, upon matching invoice to PO/Receipt, price entered for

    invoice is different from this specified in PO. For inventory items, variance booked to

    Invoice Price Variance Account defined in Organization Parameters window in Inventory.For expense items, it booked to Charge Account

    (8) PO Exchange Rate Variance results if, upon matching invoice to PO/Receipt, Foreign

    Currency Exchange Rate entered for invoice is different from this specified in PO. For

    inventory items, variance booked to Exchange PO Rate Variance Gain or Loss Account. For

    expense items, it booked to Charge Account

    (9) Tax variance results if, upon matching invoice to PO/Receipt, tax on invoice is different

    from tax on PO. Three tax-related variances can occur:

    Tax Rate Variance (TRV) when there is a difference between invoice and PO

    distributions due to difference in tax rate. For inventory items, variance booked to

    Invoice Price Variance Account defined in Organization Parameters window inInventory. For expense items, it booked to Charge Account

    Tax Invoice Price Variance (TIPV) when there is a difference between invoice and PO

    distributions due to price variance. For inventory items, variance booked to Invoice

    Price Variance Account defined in Organization Parameters window in Inventory. For

    expense items, it booked to Charge Account

    Tax Exchange Rate Variance (TERV) when there is a difference between the invoice

    and PO distributions due to exchange rate variance. For inventory items, variance

    booked to Exchange PO Rate Variance Gain or Loss Account. For expense items, it

    booked to Charge Account

    Tax Quantity Variance (TQV) is calculated, but is shown as a non-variance distribution

    (10) Retainage account is debited upon creating an invoice of type Retainage Release

    (11) Interest Expense account is debited for system created invoice of type Interest on

    condition that Payables Option for interest = System Account. If Prorate Across Invoice

    selected, original invoice distribution(s) will be debited

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    AP-2 Prepayment

    Accounts Debit Credit

    Prepayment X(12)

    Liability X

    (12) Prepayment account is sourced from Suppliers Site

    AP-3 Prepayment Application

    Accounts Debit Credit

    Liability X

    Prepayment X

    Tax Difference (13) X

    (13) Tax Difference account is defaulted if tax applied for invoice is greater than this applied for

    prepayment. If it is lesser, workaround is needed to prohibit crediting Tax difference

    account (review 3-198 of Oracle Payables User's Guide)

    AP-4 Payment

    (Maturity date = Current date)

    Accounts Debit Credit

    Liability X

    Cash Clearing (14) X

    Discount Taken (15) X

    Withholding Tax (16) X

    Realized Gain/ Loss (17)

    (14) Cash Clearing account is sourced from Bank Account

    (15) Discount Taken account is defaulted if an accelerated cash payment term (e.g., 2/10,net/30) is used and payment is made during the discount period

    (16) Withholding Tax account is credited upon payment on condition that Apply WithholdingTax = At Payment Time

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    (17) Realized Gain or Loss results if Foreign Currency Exchange Rate upon payment is different

    from this used upon accrual (in invoice)

    (Maturity date = Future date)

    Accounts Debit Credit

    Liability X

    Withholding Tax X

    Bills Payables (18) X

    (18) Bills Payables account is default from either Bank Account (Organization Access> Payables

    Options) or Suppliers Site according to option specified in Payables Options (Note: instead

    of Bank Account, the form erroneously used Payment Document which is no longer

    available in R12)

    AP-5 Payment maturity

    Accounts Debit Credit

    Bills Payables X

    Cash Clearing X

    Discount Taken X

    Realized Gain/ Loss (19)

    (19) Realized Gain or Loss results if Foreign Currency Exchange Rate upon maturity is different

    from this used upon payment

    AP-6 Clearing

    Accounts Debit Credit

    Cash Clearing X

    Bank Charges / Errors X(20)

    Cash X

    Realized Gain/ Loss (21)

    Rounding (22)

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    (20) Bank Charges or Error account is used for difference between cleared amount and

    transaction amount. Cash Management checks the Tolerance Differences parameter (in

    Bank Account Controls region of Bank Account) to determine whether the difference is

    due to charges or errors.

    (21) Realized Gain or Loss results if Foreign Currency Exchange Rate upon clearing is differentfrom this used upon maturity

    (22) Rounding account may be used upon payment, maturity, or clearing if:

    Multiple currencies are used with bank account and payment currency does not roundwithin payment currency precision.

    Functional currency amount of payments do not equal amount of liability.

    Out of Scope Accounts

    Expenses Clearing: is used as a temporary account to record credit card transaction

    activity related to Oracle Internet Expenses.

    Miscellaneous: Used only when importing invoices submitted in XML Gateway.

    Foreign Exchange Charges: used with Cash Management Cashflow as on option to

    account for differences between cleared amount and transactions amount

    Information Sources

    o Oracle Payables User's Guide Release 12.1 Part No. E12797-04

    o Oracle Payables Implementation Guide Release 12.1 Part No. E12795-04