What is auto accounting rule in oracle receivables

 

In this blog we will discuss what is auto accounting rule in oracle cloud receivables

Let's se what is Auto accounting rules in oracle cloud receivables

Auto accounting rules in oracle receivables determines how your GL accounts will be derived on the invoices which you enter manually or import using Auto-invoice.

Let us understand auto accounting with a simple example

When you create invoice in oracle receivables the basic accounting entries which are generated will be

Receivable – DR

Revenue – CR

Tax – CR

Now, in the above example we must define the auto-accounting rules in oracle receivables to tell the system from where to derive these account combinations. (These can be defined at customer level, transaction type or can be set as constant values).

Based on our auto accounting rules definition these account combinations will be derived.

We can define Auto Accounting rules in oracle receivables for these below types

Freight: determines the freight account for the transaction.

Receivable: determines the receivable account for the transaction.

Revenue: determines the revenue and finance charges account for the transaction.

AutoInvoice Clearing: determines the clearing account for the imported transactions. This account will will be used in oracle receivables if you have enabled this feature( auto invoice clearing )for the invoice batch source of the imported transactions.

Tax: determines the tax account for the transaction.

Unbilled Receivable: determines the unbilled receivable account for your transaction. This account will be used when you are using Invoicing rule in Arrears on the transaction

Unearned Revenue: determines unearned revenue account for your transaction. This account will be used when you are using Invoicing rule in advance on the transaction

In our next post we will see how to define or setup the auto accounting rules in oracle receivables in detail.

Auto accounting in oracle || Auto accounting rules in oracle receivables || what is Auto accounting rule

 Difference between Accrue on receipt and Accrue at period end

In the complex world of Oracle Financials and Supply Chain Management, managing the timing of expense recognition is paramount for accurate financial reporting. Two critical methods within Oracle Purchasing dictate this timing for procured goods and services: Accrue on Receipt and Accrue at Period End.

Understanding the nuances between these two accrual methods is essential for finance professionals, procurement specialists, and auditors working with Oracle E-Business Suite (EBS) or Oracle Fusion Cloud Applications (Cloud ERP). This comprehensive guide will demystify both approaches, detailing their setup, accounting impact, and helping you choose the right strategy for your business.

Difference between accrue on receipt and accrue at period end in oracle

Understanding Oracle Accrual Methods: Receipt vs. Period End

The accrual method chosen for your purchase orders in Oracle Purchasing determines precisely when a liability is recognized for goods or services received but not yet invoiced. This choice directly impacts your General Ledger (GL), Accounts Payable (AP), and Inventory valuation.

Accrue on receipt

When the option Accrue on receipt is selected, the accounting entries are immediately generated and sent to general ledger whenever a receipt is created and saved. This is also called as “online accrual”

Accrue on receipt is a feature in Oracle Purchasing that allows you to automatically accrue accounting entries for goods or services received, even if you have not yet received the invoice for those goods or services.

When accrue on receipt is enabled for a purchase order, the system creates a liability account entry for the amount of the goods or services received as soon as the receipt is entered in the system. This means that the accounting entry is made when the goods are received, rather than when the invoice is received and processed.

The accrue on receipt feature can be useful for businesses that want to track their liabilities for goods and services received, even if they haven't yet received the invoice. It can also help to reduce the time and effort required to process invoices and ensure that accounting records are up-to-date and accurate.

In Oracle Purchasing, you can enable accrue on receipt for a purchase order by selecting the "Accrue on Receipt" option on the "Terms" tab of the purchase order. You can also set up accrual rules and thresholds to control how and when the accrual entries are created.

It's important to note that while accrue on receipt can help to streamline accounting processes and provide more accurate financial reporting, it does not eliminate the need for processing invoices and making payments on time. Accruals should still be reconciled with vendor invoices and payments should be made according to the agreed upon terms.

Accrue at period end

On the other end when the option Accrue at period end is selected , the accounting entries are not generated when the receipt is created or saved , instead the accounting entries are generated at the period end and that time sent to GL. For this run Receipt accrual period end process. 

Accrue at period end is a feature in accounting that allows businesses to recognize expenses or revenues at the end of an accounting period, even if they have not yet received or paid for goods or services.

When accrue at period end is enabled, a business can estimate the amount of an expense or revenue that will be incurred or earned during a particular accounting period, and create an accounting entry for that amount at the end of the period. This allows the business to match expenses with the revenue they generate, and provides a more accurate representation of the business's financial performance during the period.

For example, a business might accrue expenses for salaries, rent, or utilities at the end of a period based on estimated amounts, even if the actual bills for those expenses haven't been received yet. Similarly, a business might accrue revenue for services provided during the period, even if the customer hasn't yet been invoiced.

The accrue at period end feature can be useful for businesses that have significant timing differences between when expenses or revenues are incurred or earned, and when they are actually paid or received. It can also help to ensure that financial statements accurately reflect the business's financial position and performance during the period.

Typically, expense items are accrued at period end and inventory items are accrued at receipt.

Configuring Accrual Options in Oracle Purchasing (EBS & Fusion)

The choice of accrual method in Oracle Purchasing is highly configurable and can be set at various levels, impacting how the system defaults this option. This flexibility allows businesses to tailor their accrual accounting based on item type and business process.

Where to Set Accrual Options:

The accrue on receipt or accrue at period end option can be defaulted from several places, with a hierarchy determining the final value on a Purchase Order (PO) distribution line:

1. Item Master Level:
• In Oracle EBS: Navigate to Inventory > Items > Master Items (or Organization Items). On the "Purchasing" tab, you'll find the "Accrue at Receipt" checkbox (or similar setting).
• In Oracle Fusion Cloud: Go to Product Management > Product Information Management > Manage Items. On the "Purchasing" tab, locate the accrual options.
• Note: This is a common default for inventory items.
2. Supplier Site Level:
   • In Oracle EBS: Go to Payables > Suppliers > Supplier Sites. On the "Purchasing" tab, you can set an accrual default for all purchases from this site.
   • In Oracle Fusion Cloud: Navigate to Procurement > Suppliers > Manage Suppliers. Within the supplier site details, look for purchasing defaults.
3. Purchase Order (PO) Line/Distribution Level:
• The accrual option can be manually overridden or defaulted onto each PO line's distribution. This provides the most granular control.
• In Oracle EBS: On the PO line details, under "Distributions."
• In Oracle Fusion Cloud: On the PO line, then navigate to "Distributions."
• Note: The option here takes precedence over Item Master or Supplier Site defaults.

Accrue on Receipt vs. Accrue at Period End: A Comparative Analysis

Choosing between these methods impacts your financial statements, operational efficiency, and reporting.

Feature / Consideration	Accrue on Receipt	Accrue at Period End
Timing of Accrual Entry	Immediately upon receipt	At the end of the accounting period (batch process)
GL Transaction Volume	Higher (each receipt generates an accrual entry)	Lower (aggregated into single or few entries at month-end)
Liability Recognition	Real-time, more accurate	Deferred, requires period-end adjustment
Inventory Valuation Impact	Immediate update to inventory asset value	May require separate reconciliation if inventory item
Typical Use Cases	Inventory items, capital assets, services with immediate recognition needs	Expense items, high-volume non-inventory purchases
Period-End Close Impact	Less manual work for accruals, focus on RNI reconciliation	Requires running the "Uninvoiced Receipts Accrual" process
Audit Trail	Very detailed, line-item specific accruals	Less granular, consolidated accruals
System Performance	Potential for more real-time GL impact	Centralized processing, potentially impacting month-end close window

what is difference between Accrue on receipt and Accrue at period end