Friday, 3 September 2021

What is Multi period accounting in oracle cloud

Multi Period Accounting in oracle cloud

What is Multi Period accounting in Oracle Cloud

In this post we will see in detail " What is Multi period accounting in Oracle cloud" with detailed example.

Multi period accounting concept was introduces in oracle during it's R12 release. Using Multi period accounting (MPA) we can create accounting for a single accounting event for more than one general ledger (main accounting) period. In other words multi period accounts allows users to create the accounting entries in more than one accounting period for the give single accounting event.

This functionality is leveraged to recognize revenue or prepaid expenses over multiple accounting periods.

Expenses incurred for a yearly subscription for a software license , rental lease paid in advance , Insurance premium paid in advance for whole year are some good examples of Multi period accounting in oracle.

Let us understand Multi period accounting in oracle cloud with a business case

Case

Let us assume there is an organization " HSR organization " which receives payable invoice for Insurance premium. The invoice received is for insurance for the whole next one year. As per the accounting principle “Expense to be recognized as and when services are provided”, following would happen as far as accounting of the Insurance invoice is concerned:

The expense of Insurance Invoice must not be recognized the day invoice is entered. This need to be done as insurance service is yet NOT delivered on the day respective invoice is recorded.

Insurance service is going to be expensed out over a period of coming Year, hence the insurance expense must be recorded in future accounting periods as and when it comes.

Accounting using Multi period accounting functionality in Oracle cloud

Let us assume the Insurance Invoice case as mentioned below:

Invoice Amount: 12000 (which is the premium for the whole next year over 12 months)

The Insurance premium is paid fully in one Installment

As per above transaction expected accounting entry of the invoice will be as follows:

Accounting entry:

Multi period accounting in oracle cloud

But as we know this premium is paid for 12 months hence expense must be distributed over 12 months ( assuming that the premium for every month is same )

Expense which will be recognized monthly

what is Multi period accounting in oracle cloud

In the above example the insurance amount expensed out monthly is same (equal =1000 each month ).

There could be case where we have to expense 10% amount each month , or some fixed amount in each month based on formula. All this can be achieved using multiperiod accounting in oracle fusion/cloud.