Basic Concepts in Oracle GL - Part1

1. Accounting Concepts Overview

To Understanding any accounting System which is an art of recording the transactions in a significant manner one should be cleared with the following terminologies –

1.1. Double Entry System: Principal – “Every debit entry should have a credit entry and vice versa”

E.g. Consider the Following Journal Entry

1.2 Account Classification: Broadly Accounts are classified as

• Personal - Related with the Persons E.g. Mr. Paul’s A/C account at ABC Org

• Nominal - Pertaining to Income and Expenses E.g. Interest, Wages etc.

• Real - Pertaining to things / Properties E.g. Cash , building, Machinery etc .

1.3 General Accounting Rules for Every Account

• For Real A/C – Debit that whatever Comes in , Credit whatever goes out.

• For Nominal A/C– Debit expenses, losses and credit incomes and profits.

• For Personal A/C- Debit the Receiver, Credit the Giver.

1.4 Other Terminologies:

Journal , Ledger, Debtor , Creditor , Invoice , Debit Memo , Credit Memo , Asset , Liability .

• Journal – A book in which all the Daily Transactions are recorded E.g. – A simple Journal Entry - Showing the Transfer of 1000 Rs from Cash A/C to Bank A/C

Sr No.	Date	Particulars	Db	Cr
1.	7-7-2004	Cash A/C To Bank A/C	1000	1000

• Ledger – A book in which all the transactions ( Journal Entries) are posted under respective account heads .

After posting the above entry into Ledger the Accounts will show

• Debtor – A person who owes money to other business becomes a a debtor of the business.

• Creditor – A person to whom business owes money becomes a creditor.

• Voucher – Any document i.e. written evidence in support of a business transaction is called a voucher.

2. Oracle Financial Functional Setups

2.1 Administrative Setups in brief

1. Create a Responsibility For GL
Major Fields – Application, Menu.

2. Define a User For the Responsibility

II .Functional Setups - Create the Set of Books

Setting up the Set of Books – Set of Books consist of 3 C’s

I. Calendar

II.Currency

III.Chart of Accounts (Key Flex Field Setup)

3. Now attach the Set of Books with the Profile.

2.2 More about the Functional set up:

Other Important Functional Set ups –

1. Journal Sources

2. Journal Categories

3. Primary Set Of Book

4. Reporting Set of Books

Note: One can set up the reporting set of books as well to generate the reports in MRC environment. The Max Limit on the no. of set of Books is 9.

1. Setting up the Journal Sources: - The organization must set the various Journal Sources from where General Ledger can receive the journal entries.

E.g., Accounts Payables, Accounts Receivables, Inventory, Fix Assets etc.

Navigation: Setup -> Journal -> Journal Sources

2. Setting up the Journal Categories: The organization can have sub categories of the main journal sources from where General Ledger can receive the journal entries.

E.g. Inventory is the main source and the sub category can be WIP, MST

3. Setting up Primary Set of Books –

Navigation: Setup -> Financial -> Flex field

(Here you will define the KFF for AFF)

Set of Books consist of 3C’s i.e. Chart of Accounts , Currency , Calendar .After the Functional Currency and the Calendar (Fiscal / calendar year ) is set the Functional Analyst sets up the chart of Accounts which depicts the Accounting Flexfileld Structure within the Organization

E.g. – of AFF

Company – Brach – Department – Account – Sub Account – Product – No Product

Navigation: Setup -> Financial -> Books

(Here you will define set of Books)

2.3 Multicurrency Reporting

In case of Secondary Set of Books kept for reporting purpose go to Multicurrency And select Reporting Set of Book. Note that Budgetary Control can not be used for reporting set of Books as these set of Books are created just for multiple reporting currency purpose and are mutually exclusive.

Significance Of Reporting Set of Books

To set up multi-currency accounting

1. Define the conversion rate types you want to use to maintain daily exchange rates and to enter foreign currency journals. General Ledger comes with four predefined conversion rate types: Spot, Corporate, User, and EMU Fixed

2. Define and enable the currencies you want to use. General Ledger predefines all ISO currencies, but you can define as many additional currencies as you need.

3. Assign a functional currency to your set of books. General Ledger records all transactions and maintains all of your account balances in the functional currency

4. If you use Multiple Reporting Currencies, assign reporting currencies to your reporting sets of books.

Define a Cumulative Translation Adjustment account for your set of books. Set the account type of your Cumulative Translation Adjustment account.

After the conversion rate and the currency is specified attach the Reporting set of Books has been set up attach the set of book with profile to view the transactions u will find the addition of converted columns to view the MRC transactions.

2.4 Journal Entries

Journal Entries can be classified as depending upon the type of

Journal Entries can be classified as Recurring Journal Entries , Non - Recurring Journal Entries .

Recurring Journals can be again classified as Standard, Skeleton, and Formula Journals.

Standard – When the expense is fixed this type of Journal entry can be used.

E.g. One can enter a standard recurring journal entry for the Building Rent. As the rent is fixed the amount can be entered and u will find that the journal entry gets created automatically at the end of month.

Skeleton – Here u want an entry at the end of the month for an recurring expense but don’t know the amount in advance as it is variable. E.g. Electricity Bill – A variable expense at every month. One can define a skeleton journal for the same. At the end of period the Journal entry gets created automatically go to review journal and then enter the amount manually.

Formulae Journal – This can be used for a recurring journal entry based on some formulae. E.g. Journal entry for Commission which is 10% of whatever total sale that has been made at the end of the period. So Formulae can be entered to calculate the commission. Whenever the sales occur an entry for commission will be generated automatically.

2.5 Mass Allocation

Mass Allocation can be used to distribute the amount between various cost centers.

E.g. Take any common expense that is common for all the departments let us say stationary which is required by every department.

We can define the distributions for that expense e.g. 50 % for HR dept, 50 % for Finance dept etc, make sure that the total is 100 % . So when a journal entry for that expense is made the respective department’s expense account gets debited as per the distribution. It control goes in a loop and performs the calculations as per the distributions defined.

2.6 Intercompany Journal Transactions

Make sure that in SOB, Journaling Panel you check the balance Interfold Journals. Make sure that your Intercompany Receivables and Intercompany Payables In A/C segment.

Define the Interfold A/c’s in Interfold A/C form.

Source – Other, Category – Other Balance By – Summary A/C

In Current Assets: “Intercompany Receivables”

Current Liability “Intercompany Payables”

Check out the fields Due from A/c and Due to A/C.

E.g. Intercompany Transaction:

IBM Pune is purchasing some Services from IBM Banglore.

In absence of Intercompany:

In Books of Pune –

Purchase A/C Dr 19,000

To Sales 19,000

But In case of Intercompany transaction

Journal -> New Journal

Banglore Purchase 19,000

To Pune Sales 19,000

This is an Intercom any Purchase. In Intercom any transaction Cash A/C Bank won’t be considered as in Intercom any there won’t be any flow of cash. After posting the above entry check the journal entries, and notice that two lines has got added.

A/c

Purchase 19,000

Sales 19,000

Intercom any Receivables 19,000

Intercom any Payables 19,000

One can define various Intercompany transactions and can enable the Accrual, Invoicing and Tax Features. As well one can set up a global Inter the Global Interfund System manages interfund transactions between multiple subsidiaries within a global organization. For that u can create the GIS responsibility, Define the necessary sets of books for GIS interfund transactions.

2.7 Budgets:

In Setup -> Financials -> Books -> Set Of Books -> Enable the Budgetary Controls.

There are two types of Budgets–

1. Advisory - It will allow you to go beyond Budget)

2. Absolute – (It won’t allow you to go beyond Budget)

Budgetary - Budgetary Panel

Enable Budgetary Control

Require Budgets Journal

Reserve for Encumbrance - Can Enter the Encumbrance A/C in this screen.

Budgets -> Define

Make Sure about the Budget status and the periods. One can use ranges to assign the budget to the range accounts specified or Can use range assignments to enable the individual a/c options and to change the funds check levels.

Once the Budgets are defined then enter the Budgets Journal Select the Predefined Budget Organization and one can assign different amounts for each accounting period.

Enter A/C periods from – To go to worksheet mode –

Create Journals – Enter the Journal Batch and the Category as Budget. Mark Check Funds – ok, Reverse Funds – ok. View the result (will show that a Budget Entry has been created).

In the Journal you will find only one line i.e. the Dr entry. The 2^nd entry i.e. the credit entry Cr is the Budget defined.

Now check if Budget Works or Not , Just try posting an entry with less amount and with excess amount .

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