Archive for category Basic Accounting
An Overview of R12 Ledgers
Posted by Helene Abrams in Basic Accounting, TECHANGES, Upgrade vs. Reimplementation on January 20th, 2009
R12’s accommodation of multiple ledgers enables smart decision-making by continuously and quickly providing key financial information crucial to important business decisions. The structure of accounting using multiple ledgers also allows for more consistent processing and GL management as well as secure but widely accessible data. For example, a single transaction in a primary ledger can create multiple accounting representations in multiple currencies in the same ledger set (a ledger set is analogous to a set of books in R11). For a slightly technical look at subledger accounting, see this article.
R12 provides the ability to define accounting rules that derive other transactions. The user enters a transaction one time, then uses the Create Accounting function to populate other ledgers in a ledger set. A ledger may have a different currency, calendar, chart of accounts, or accounting method (i.e. US GAAP, IAS ). The ability to automatically create a new transaction in a different ledger that is linked to an original transaction reduces data entry time and errors, and avoids reconciliation issues because the subsidiary ledger transactions are always in sync with the primary transaction. Straight-through processing allows real-time, single-step posting to all relevant ledgers with a clean audit trail delineating the derivation of primary, secondary, and reporting ledgers. The transactions are transparent with full drill-down. A draft-mode accounting feature allows review and modification of the generated transactions before posting.
The following functions can be performed across ledgers:
- Open and close periods
- Create journals
- Translate and revalue balances
- View information
- Submit standard reports
- Submit financial statements
- Perform allocations
Ledgers allow a consistent approach, standard policies, rules, and processes for global accounting. The common functions across ledgers reduce the workload and produce processing efficiencies.
Putting Numbers In Boxes – Part I
Posted by Helene Abrams in Basic Accounting, Chart of Accounts Structure, Designing a Chart of Accounts, TECHANGES, Upgrade vs. Reimplementation on January 17th, 2009
Once on a consulting engagement, an accountant told me that he described his job to his five year old daughter as, “I put numbers in boxes.” That was a great explanation, and it helped define a pretty abstract concept. There are two basic premises to putting numbers in boxes. The first is that when you put a number in a box, there is some logic behind what box that number goes into, and second, that someone else can find the numbers in the boxes. The following actual case study provides insight into designing an accounting flexfield so that the “boxes” can help organize the important segments of the business. >>MORE
Under the Covers with Subledger Accounting
Posted by Chris Busbee in Basic Accounting, TECHANGES, Upgrade vs. Reimplementation on August 17th, 2008
The major change in R12 is that there are no Sets of Books. Instead, there are subledgers that handle the transaction processing from other modules (AP, AR, FA, etc.). The Set of Books is replaced by the term Ledger. For a slightly technical look at R12’s subledger accounts, read on.
A Grand SLAM in R12
Posted by Chris Busbee in Basic Accounting, TECHANGES, Upgrade vs. Reimplementation on June 19th, 2008
This article highlights some of the features of accounting in Release 12, including the introduction of the new Subledger Accounting Method (SLAM). What used to be referred to as a Set of Books is now called a Ledger, and Ledgers and Ledger Sets bring along with them a completely different way of performing accounting in the E-Business Suite. From a single transaction ledger where the transaction is entered one time, you use accounting rules to populate other subledgers. Additionally, the introduction of the Secondary Ledger impacts drill down capabilities and the functionality of reporting currencies, simplifying the financial consolidation process in many cases. This article will focus on (1) the general flow of actions that occurs between the initial subledger transactions and the general ledger balances as well as (2) the impact secondary ledgers have on the flexibility of global operations and financial consolidation. >>MORE
R12 Financials Overview
Posted by Helene Abrams in Basic Accounting, Chart of Accounts Structure, Designing a Chart of Accounts, TECHANGES on April 20th, 2008
There are many differences not only in the way that R12 handles your business, but also in the underlying structures of the Financials. Essentially, R12 was designed to accommodate global companies with different accounting requirements who need to allow their data to be shared among different entities.
The most significant of these changes is that in R12, there is no concept of Sets of Books. Ledger and Ledger Sets together replace Sets of Books. The data of a Set of Books is contained in a ledger. The management of the set of books (open and closing, reporting, allocating, etc.) is now at the Ledger Set level A ledger and is defined by the 4 Cs: Calendar, Currency, Chart of Accounts, (these should be familiar as the definition of a set of books), and Convention. Convention refers to the Accounting Method (e.g. GAAP, IAS) used.
From a single transaction ledger, you can generate rules that will populate different subledgers. For example, if you have different tax jurisdictions, you would have a ledger that would track the accounting and reporting necessary for each of the jurisdictions. You would only enter the transaction one time, and then populate that transaction to different ledgers depending on the rules that you create. Detailed transaction information is captured in the subledgers and periodically posted (in summary or detail form) to the ledger. Within the ledgers, you define accounting rules to comply with Sarbanes Oxley, providing an audit trail and easier reconciliation. You can balance at the subledger level. Subledger Accounting allows you to define centralized rules and provides multiple accounting representations of a single transaction in multiple currencies. One of the main advantages is to be able to create a single payment transaction for different legal entities or different operating units and create a rule that allows that transaction to be credited and debited correctly without creating overrides and adjusting entries. A ledger owner might be a legal entity or a group of companies in a common legal environment, or a foreign branch. Ledgers are also used to consolidate financial transactions. Accounting entries can account for themselves in ledgers that are prepared under different conventions with different charts of accounts, and value transactions in different currencies. One of the ledgers is the ‘primary’ ledger. A ledger set is a collection of ledgers that you wish to manage as though they were one ledger. Many functions are available across ledgers:
- Open/Close Periods
- Create Journals
- Translate and Revalue Balances
- View Information
- Submit Standard Reports
- Submit Financial Statements
Another major change is the Multi-Org Access Control (MOAC). MOAC allows you to perform functions across operating units without changing responsibilities. A responsibility is no-longer tied to a single operating unit. Instead, from within HR, you can assign a list of operating units to a responsibility and assign security to that operating unit through a security profile. By setting the operating unit to null, you can import all transactions for all operating units through the open interface programs at the same time. You can also create and report on transactions that cross operating units or operate a shared services center with centralized processing.
In R12, the concept of legal entity has been enhanced. A legal entity exists in the outside world and may be regulated by different governing bodies (i.e. country, state, tax authority). A legal entity pays taxes, has bank accounts, and complies with different regulatory agencies. Transactions that occur between and across legal entities are intercompany transactions. Bank accounts are now associated with legal entities rather than with operating units, allowing for a single bank account to serve multiple operating units. Income statements and balance sheets are generated along with tax forms for every legal entity. In HR, there is the Government Reporting Legal Entity (GRLE) which represents the registered legal entity who is the employer in HR.
Subledger Accounting in R12
Posted by Helene Abrams in Basic Accounting, TECHANGES on October 20th, 2007
Oracle Applications Release 12 and Advantages of Subledger Accounting
In R12, each subledger can have its own calendar, chart of accounts, and currency. There are accounting functions and reports across subledgers that are much easier to deal with than what was available with sets of books. R12 has centralized accounting rules and bidirectional drill down to and from GL from the different modules. The whole structure has changed – you now can define event types, event classes, and account derivation rules that will create the transaction lines.
R12’s subledger accounting gives you:
- The flexibility to utilize user-defined accounting rules to administer multiple accounting policies for internal control and compliance.
- A common data model and repository that allows for a single source of truth for subsystem accounting.
- A centralized data model for accurate and streamlined accounting, reconciliation, and reporting.
- A common posting engine for a simpler closing process.
- Full-drilldown to clear, auditable entries.
R12’s accommodation of multiple ledgers in a single set of books enables smart decision-making by continuously and quickly providing key financial information crucial to important business decisions. The structure of the new sub-ledger accounting also allows for smoother processing and GL management as well as secure but widely accessible data. For example, a single subledger transaction can create multiple accounting representations in multiple currencies in the same set of books.
For a full list of documentation resources for Oracle Applications Release 12, see Oracle Applications Documentation Resources, Release 12, OracleMetaLink Document 394692.1.
Basic Accounting for IT – Part II
Posted by Chris Busbee in Basic Accounting, TECHANGES on October 20th, 2007
Basics of Accounting: Closing the Books
This is the second in a series of articles designed to help the more technical people understand the business. They are intended as general reference material. A copy of the first article, Basics of Accounting: General Ledger and Account Types, can be found here.
Closing the books is the process that a corporation uses to reconcile, consolidate, and report financial information on a periodic basis. The process usually involves the transfer of account balances from nominal (or temporary) accounts to real (or permanent) accounts and generally involves five steps:
- Closing each of the subledger modules (such as accounts payable or accounts receivable) and posting the detailed transaction information from each module to the general ledger (for more information on the general ledger, please see Basics of Accounting: General Ledger and Account Types).
- Running trial balance reports to confirm that transactions from all modules have been posted correctly.
- Reconciling to the general ledger and making adjusting entries.
- Posting all adjusting entries to the general ledger.
- Running standard financial reports.
As we noted in Basics of Accounting: General Ledger and Account Types, transactions create either a debit or a credit entry to an account depending on the type of transaction made. Furthermore, debits and credits are treated differently depending on the type of account the transaction is posted to. The following table outlines some common accounts found on financial statements and how they are treated.
Basic Accounting for IT – Part I
Posted by Chris Busbee in Basic Accounting, TECHANGES on September 20th, 2007
Basics of Accounting: General Ledger and Account Types
This is the first in a series of articles designed to help the more technical people understand the business. They are intended as general reference material.
The general ledger (GL) is the repository and reporting vehicle for all financial subledger transactions. Subledgers include the Oracle Applications modules such as: Accounts Payable (AP), Accounts Receivable (AR), Order Management (OE), Human Resources (HR), Inventory (INV), etc.
A general ledger stores a transaction as either a debit or a credit. Debits and credits perform different functions depending on the account types of the different transactions. There are five account types that are set up in Oracle Applications for the natural account segment of the accounting flexfield:
Asset: Assets are things of value used by a business and its operations and are usually classified as either tangible (cash, receivables, land, etc.) or intangible (patents, copyrights, and other nonphysical rights). A debit increases assets, while a credit decreases assets.
Liability: Liabilities are existing debts and obligations such a wages payable, mortgage taxes payable, and real estate taxes payable. Such obligations are generally termed accounts payable. A debit decreases liabilities, while a credit increases liabilities.
Revenue: Revenues are cash or other asset inflows to the business. However, revenues may take the form of a decrease in a liability as well as the increase in an asset. Sales, services, and royalties are examples of common forms of revenue. A debit decreases revenue, while a credit increases revenue.
Expense: Expense is the cost of assets consumed or services used in the process of earning revenue, and they can represent actual or expected outflows. Common expense accounts include wages, rent, and interest expense. A debit increase expenses, while a credit increases expenses.
Owner’s Equity: Owner’s equity is equal to total assets minus total liabilities. When an investment is made in a business, capital and owner’s equity are increased. If an owner withdraws money from a business, total owner’s equity is decreased. A debit decreases owner’s equity, while a credit increases owner’s equity.
Basic Accounting Terms