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Management Accounting:
Genesis Cost Accounting
Oracle Projects module extension:
Cost accounting in Oracle ERP
Whitepaper – Informative Document, January 2013
Whitepaper – Informative Document, January 2013
2
Table of contents
SYSTEM ARCHITECTURE WITH ORACLE eBS.....................................................................3
EXECUTIVE SUMMARY ...................................................................................................... 4
NO CUSTOMIZATIONS ...................................................................................................... 4
FIRST INSIGHTS ................................................................................................................. 5
DESCRIPTION .................................................................................................................... 6
Why the need to develop Genesis Cost Accounting .....................................................7
SPECIAL FEATURES ........................................................................................................... 8
Management reporting............................................................................................... 8
Centralization of data ................................................................................................. 8
Correlation of standard dimensions – internal orders .................................................. 8
Allocating internal orders-based expenditures............................................................ 9
Allocation of expenditures based on hierarchy and allocation keys ............................. 9
Performing costs variances calculation ....................................................................... 9
Performing cost accounting for work in process.........................................................10
Transaction phases in management accounting ........................................................10
Performing transactions for management accounting with balanced journals ...........10
HOW THE PRODUCT WAS DEVELOPED...........................................................................12
Whitepaper – Informative Document, January 2013
3
SYSTEM ARCHITECTURE WITH ORACLE eBS
Whitepaper – Informative Document, January 2013
4
EXECUTIVE SUMMARY
The accounting specialists focus on the financial aspect of accounting,
oriented on reporting more to state institutions and less to managers.
Concurrently, the ERP applications suppliers answer to the main
requirements of accounting, regularly offering only purely financial
solutions. In this context, the managers receive information from
accounting, which can be used for decision making only after additional
processing.
Cost accounting, also called managerial accounting, represents an
accounting tool for processing financial data in order to obtain reports
necessary for management, in a format other than financial. In several
European countries, this type of accounting is also called “Class 9
accounting” because it uses accounts in class 9.
Genesis Software Consulting has
developed a Cost Accounting product,
called Genesis Cost Accounting, perfectly
integrated in Oracle Application E-
Business Suite, in order to meet the
specific requests from customers. After
financial accounting completion, Genesis
Cost Accounting automatically operates
new transactions, configured following
internal, managerial rules, so that
economic and financial results are relevant
to managers. For the execution of finished
goods, Genesis Cost Accounting
determines the full cost of the finished
good; for service execution, Genesis Cost Accounting helps the
construction of works estimate; to analyze the outcomes of execution
processes, Genesis Cost Accounting provides management accounting
reports.
Genesis Software Consulting recommends that Genesis Cost
Accounting product be implemented simultaneously with Oracle
Projects. Using the structures and transactions from Oracle Projects, the
processing of financial and accounting data in management format is
performed.
NO CUSTOMIZATIONS
We believe customizations, changes made in the standard Oracle
Applications ERP, that are not supported by the vendor are something
we do not recommend. Why customizations are not good? Regression –
one minor customization could dramatically affect a standard set of
functionalities; Standard support cannot be offered even for standard
functionalities if were affected by customizations; Upgrade – new
Whitepaper – Informative Document, January 2013
5
versions upgrade can become a more costly experience if
customizations are in place; Know how – for standard applications you
have vendor support and general documentation, while for
customizations the support depends on only a few developers. These
are just a few of many pitfalls of customizing the ERP software.
This is why we don’t recommend and don’t support customizations of
Oracle ERP. We developed our products as distinct tools over the
standard functionalities of Oracle without interfere with or change
these functionalities. They just channel the existing power of Oracle
ERP to more efficiently solve the business problems of your company.
The standard functionalities remain unaffected by our products and you
can still use them, if you choose, independently of our product.
FIRST INSIGHTS
A department manager wants to know the cost of the activity it
performs, divided by types of costs (direct costs, indirect costs, auxiliary
costs - servicing), detailed on cost elements (salaries, materials, energy,
services). Servicing activities (through which they provide internal
services) must collect orders costs, performed by persons or equipment,
which must be transferred to requesting cost centers. Providing services
to external customers requires costs elements necessary for building
works estimate. Execution of products with in-house or outsourced
products must allow full cost accounting of finished goods.
All these represent the problems an internal management accountant is
faced with to be able to offer the management a variety of reports,
which refer less to accounts and more to departments, equipment,
activities, orders, products, types of costs and cost elements.
Furthermore, the internal management accountant, faced with a large
volume of operations such as allocations, calculation of variances, needs
automatic mechanisms of transacting and accounting with balanced
journals, allowing the use of the trial balance sheet.
Genesis Cost Accounting is the solution to all these problems.
Whitepaper – Informative Document, January 2013
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Funky Business, Jonas Ridderstrale and Kjell Nordstrom
“Funky” business put the management and the leadership in center. “...This is the age of time and talent, where we are selling time and talent, exploiting time and talent, hiring time and talent,
packaging time and talent. The most critical resource wears shoes and walks out the door around five o’clock every day. As a result,
management and leadership are keys to competitive advantages. They differentiate you from the mass. How you attract, retain and
motivate your people is more important than technology … How a company is managed and how a company is led are vital
differentiators. They can create sustainable uniqueness...”
DESCRIPTION
Genesis Cost Accounting collects financial costs to determine the cost
of activities performed in the cost centers departments. If the
department provides internal services, Genesis Cost Accounting
transfers the servicing order costs to the requesting department. The
indirect costs of the unproductive activities are distributed on the
activities of the productive departments using an allocation hierarchy
and multiple allocation keys. For products and services, Genesis Cost
Accounting calculates the total cost.
Genesis Cost Accounting was designed and developed in close
connection with Oracle Projects module, including related modules
used for operating financial transactions. Genesis Cost Accounting
features do not invalidate in any way standard Oracle features and do
not affect Oracle support for standard modules. Genesis Cost
Accounting provides the reporting system with processed data in a
managerial format (departments, equipment, activities, orders,
products, types of costs and cost elements).
Fig.1. Genesis Cost Accounting – overview
Whitepaper – Informative Document, January 2013
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Why the need to develop Genesis Cost Accounting
Genesis Cost Accounting satisfies a requirement expressed by ERP
product customers, since 1998. It is the processing of financial data in a
specific format, before being presented to the management. The
processing does not affect the financial results and is auditable from
accounting point of view.
After years of Oracle Applications implementation, Genesis Software
Consulting was able to capitalize the experience gained into a product
suite, which also includes Cost Accounting module.
Successful use of Cost Accounting product enabled Genesis to extend
ERP implementation beyond financial transactions. Now, internal
management accountants benefit from automatic collection, allocation
and calculation mechanisms to transform financial results in a format
accessible and necessary to managers.
Whitepaper – Informative Document, January 2013
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SPECIAL FEATURES
Genesis Cost Accounting, used with Oracle Projects, brings a series of
features that the internal management accountant can use to transform
the financial results in a management accessible format. Genesis Cost
Accounting offers the management a set of analysis reports using the
processed data.
Management reporting
Management accounting transforms financial
information into information necessary to
management for decision-making.
Fig.2. Detailed report with cost variances
Genesis Cost Accounting allows centralized
analysis of management information in the
format of standard analysis dimensions:
departments, equipment, activities, products,
services, costs elements and types. Genesis
Cost Accounting provides a set of analysis
reports using standard analysis dimensions.
Concurrently, Genesis Cost Accounting offers
the data required for reporting to Business
Intelligence-type specialized analysis
modules.
Centralization of data
The data required by the management derive
from the financial activity. In order for this
data to be relevant, it is necessary that they
are associated with departments,
equipment, activities, orders, products,
costs types and elements – standard
dimension of management analysis. The
use of these standard dimensions enables the
centralization and correlation of some
financial information of different nature.
Genesis Cost Accounting adds to Oracle E-
Business Suite modules offering financial
information, these standard dimensions of
management analysis. Genesis Cost
Accounting adds to Oracle Projects
automatic processes for centralized
collection of financial information, relevant
and compliant to the standard analysis.
Fig.3. Revenue and expenditure collection report
Data centralized from Genesis Cost
Accounting enables the internal
management accountant to perform the
allocation and calculation operations,
necessary for management reporting.
Correlation of standard
dimensions – internal orders
Internal orders represent a way of correlating
standard dimensions following the rule:
internal services requester - executor.
Collection of costs on internal orders at an
executor enables their subsequent
allocation to requester.
Genesis Cost Accounting adds to Oracle
Order Management automatic generation
Whitepaper – Informative Document, January 2013
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features of “order” standard dimension when
an internal service order is registered. The
“order” standard dimension contains
information on requester and executor,
necessary for subsequent allocation.
Internal management accountant
automatically finds, for analysis in Genesis
Cost Accounting, all the internal orders
operated by the planners of internal service
activities.
Allocating internal orders-based
expenditures
The financial data related to internal orders
must be collected for centralized analysis of
internal service activities. These data have to
be transformed so that the service
beneficiary receives the total cost of activity.
Genesis Cost Accounting offer mechanisms
for service cost accounting on internal orders,
as well as automatic processes for their
transfer from executor to requester.
Internal management accountant has
available all the information necessary for
reporting the internal service activities. Using
Genesis Cost Accounting, challenging
activities in terms of cost analysis, as well as
internal repairs, internal transport, internal
training, is no longer a problem for the
internal management accountant.
Allocation of expenditures based
on hierarchy and allocation keys
Indirect costs collected in management
accounting should be allocated on direct
costs to calculate the total cost of products or
services provided. The allocation should be
made based on a hierarchy modeling the
dependence between the ones executing
direct activities and the ones executing
indirect activities. Internal management
accountants use allocation keys to distribute
indirect costs to direct costs.
Fig.4. Allocation of Expenditures
Genesis Cost Accounting provides definition
mechanisms of keys for allocating indirect
costs on direct costs. Genesis Cost
Accounting uses HR organizations
hierarchies for cost allocation.
Internal management accountant may
configure Genesis Cost Accounting so that
the hierarchical allocation mechanism of
indirect costs to direct costs reflects the
situation of organizational structure at a
given time.
Performing costs variances
calculation
In general, the execution of products or
services is performed at a standard cost,
according to a preconfigured works estimate.
This occurs because, at the time of work
completion, we do not know in detail all the
indirect costs that contribute to the
completion of the said product or service.
Management accountants must, after
allocation of indirect costs, calculate the real
cost of products or services provided and
emphasize the cost variances between the
real cost and the standard cost.
Genesis Cost Accounting, together with
Oracle Projects, provides real cost accounting
methods of products and services provided,
as well as emphasis of cost variances.
Whitepaper – Informative Document, January 2013
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Fig.5. Cost variances report
Internal management accountants use
Genesis Cost Accounting to perform the
post-calculus of products and services. They
provide the financial accountants with the
cost variances necessary for the accounting
corrections imposed by the use of standard
cost in evaluating the finished goods, stored
and unsold at the end of the month. For this
reason, management accounting is all the
more necessary for the companies providing
finished goods.
Performing cost accounting for
work in process
Companies perform products or services
upon internal or external customers’ request.
Internal orders, together with external ones,
represent calculation, analysis and reporting
dimensions in management accounting. Not
always work’s job associated to orders is
completed at the end of the month, the
moment for financial balance sheet and
revenue and expenditure closing balance.
With Genesis Cost Accounting, the costs of
work’s job become actual expenditures, used
in the financial accounting only in the month
when the work is completed.
Genesis Cost Accounting adds cost
accounting mechanisms for work in process
to Oracle Projects.
Internal management accountants use
Genesis Cost Accounting for cost accounting
of product and internal services work in
process incomplete at the end of the month.
They communicate these values to the
financial accountants performing financial
transactions for work in process.
Transaction phases in management
accounting
Management accounting must record the
operations in phases, in a specific sequence:
centralized collection of financial
information; hierarchical and order-based
allocation; cost accounting of work in process
incomplete at the end of the month; final
cost accounting of product and cost
variances; closing operations in management
accounting.
Genesis Cost Accounting offers the features
enabling the phases operating and
controlling of management accounting
processes.
Fig.6. Transaction phases
The internal management accountant uses
Genesis Cost Accounting to successively
launch collections, allocations, computing
and closing transactions needed for the
management accounting.
Performing transactions for
management accounting with
balanced journals
The management accounting is standardized
in many European countries as a special
accounting, different from the financial
accounting, with balanced journals using
class 9 accounts.
Genesis Cost Accounting uses Oracle Projects
to perform transactions with balanced
journals using class 9 accounts. Management
accounting transactions are: collecting
financial data for centralized analysis,
perform allocations based on internal orders
Whitepaper – Informative Document, January 2013
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or hierarchical allocation, cost variations
calculation and the cost of work in process
incomplete at the end of the month, as well
as management accounting closing
operations. Accounting transactions
generated by Genesis Cost Accounting from
Oracle Projects are transferred in Oracle
General Ledger module, in specific logs, in
order to run the Management Accounting
Balance Sheet report.
Fig.7. Class 9 trial balance
Internal management accountants use the
Management Accounting Balance Sheet
report to audit the operations performed and
extract necessary data for financial
corrections.
Whitepaper – Informative Document, January 2013
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HOW THE PRODUCT WAS DEVELOPED
Genesis Cost Accounting was developed progressively, covering the
business requirements raised by different customers in implementation
projects, since the early 2000’s. It is “encapsulated” in an easy to
customize and control product, containing all the developed objects,
being similar to any Oracle product.
Genesis Cost Accounting refers to all the technical elements
characterizing an Oracle product: it has its own schema of the database
objects, specific configuration elements and an operating form. The
operating form of management accounting transactions launch, in a
preconfigured succession, sets of processes populating the open
interface of Oracle Projects module with data, after which it imports
and accounting in special transactions. In Oracle Projects, transactions
operated from Genesis Cost Accounting are identical to the original
ones, without compromising Oracle support for standard modules.
Genesis Cost Accounting has its own set of reports in addition to those
existing in Oracle Projects and is available for R11.i and R12 versions.
White paper
(Informative document)
January 2013
Author: Dorian Balmuș
Genesis Software Consulting
Address: 65 Samuil Vulcan St., sector 5,
Bucharest, Romania
Contact person: George Faur
phone: +40 741-084-009
e-mail: george.faur@genesissoftware.ro
www.genesissoftware.eu
Software and consulting you need
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reserved. This document is provided for information purposes
only and the contents hereof are subject to change without
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