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ORACLE APPLICATIONS WHITE PAPER
ACCOUNTING IN R12ORACLE PAYABLES
SEP 2011
Author: Mohamed Nazih
CPA, PMP, Oracle Financials Consultant
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