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Thursday, 24 May 2012

Oracle R12 General Ledger

As discussed in the previous Blog, Ledger consists of 4C's. Let us understand each 'C' in detail :

Currency  - A currency has to be defined for analysis and reporting of the transactions of the  company
In Oracle we have 196 countries with 250 currencies since some countries might have more than 1 currency. E.g. Afghanistan has 2 currencies.

You may also create a new currency if required. GL---Currencies---Define)

Precision – If the currency rate is 75.56743 and precision is 2 then the system will take it as 75.56

Calendar - Calender are used to identify the dates in the accounting transactions.
The calender are of two types:

1) Accounting Calendar - It is used to record to record the accounting information of the organization.
Accounting year are of two types:
  • Calender year (1st January -31st December)
  • Fiscal year (Depends on country e.g India follows 1st Apr-31st March)  

a) Create Period types

Periods have to be defined, periods can be defined as monthly, weekly, Quarterly, yearly etc. A calender may also have 365 periods(daily calendar)

Generally, we define 12+1 periods, 12 defining a monthly calendar and 1 representing adjustment period ,in which all the adjustments pertaining to previous periods will be done.

b) Define Accounting Calendar - We then define the calendar.

2) Transaction Calendar - It is prepared to ensure that journals created in Oracle  General Ledger and Oracle Sub ledger Accounting, if used, are only posted on valid business days.

Enable security feature- Its a delta feature in R12, whereby we can define if a user is allowed to Use, View or Update the various fields.  
Calendar Period Status


Chart of accounts define the accounting structure of the organization.  Let us understand this with the help of an illustration:

Lets consider that two friends start up an organization from their home, selling 2 products ( Chips and Soft Drinks). Since the firm has only one office they record their expense as :
1)Expense on Chips 

Therefore the firm has only 1segment in which it records its transactions i.e. Product. The accounting is only restricted to the product the sell. 

The organization expands and now they open two stores and have 3 departments as well i.e. Finance, HR and Operations.
The firm now records its expense as: 
 1) Shop 1 --- Expense done by finance department--- on Chips

So we see that the firm now has 3 segments in which it will record its transactions:
1) Company 
2) Department 
3) Product

The firm now becomes of Wall mart's size and if now the firm wants to track any expense it shall further drill down to identify the expense done by the organization.

The COA structure now may look like:
1) Company 
2) Location
3) Department
4) Product
5) Building
6) Salesperson and so on

In a nutshell, the segments in COA structure will increase as the firm expands thereby enabling the organization to get to the most granular level of accounting a transaction.

Before going ahead, we must understand the concepts of Flexfields, and its types:

Flexfield is nothing but a Flexible data
Oracle Application uses Flexfield to capture information about your organization.

Flexfields are of two types:
1)Key Flexfield – Key flexfield contains key information. Without completing key flexfield we cannot have a successful implementation of the module.

E.g. Accounting flexfield in General Ledger is a key flexfield.
102.12.23 / 345. – might represent expense account.Both represent same thing but in a different way (3 Vs. 7 Segment COA)
Oracle gives an option to customize but represents necessary information.

2)Descriptive Flexfield- 
  • Customizable ‘expansion space’ on your forms
  • To track additional information important and unique to your business, that would otherwise not be captured by the form.
  • E.g. while Adding assets in Asset Addition field ( Fixed Assets)

Example: While entering an asset in the asset addition window, oracle has provided some field like Asset cost, Asset category etc. However there will be certain information which we would like to capture, specific to our organization. 
Maruti suzuki driving school may include the Car color, year of make, Fuel variant, Model details etc. while adding assets in the Asset addition window.
Oracle has provided the flexibility to add extra fields to capture important business specific information.

Accounting Flexfield Explained

Freeze flexfield Definition - Once frozen, you can only make very limited changes to the flexfield structure definition. If you need to change the flexfield structure definition, first uncheck the Freeze flexfield check box and make the changes. Next, reactivate the Freeze flexfield check box.
Cross Validate Segments & Allow dynamic Inserts– Once you define the segments and their corresponding values, there might be some combinations which should not be allowed. e.g. HR Department should not have access to Sales commission account. In that case we can either define all the valid account code combinations or allow dynamic inserts and command for cross validation of segments. It means that we shall only mention the accounts which are not valid and allow the user to dynamically insert any account code combinations.  

Freeze Rollup GroupsThese are created for summary accounts. In this we define the parent values and their corresponding child values. Thus i can view the summary level information instead of having child values.

E.g. The higher level management will only be interested in knowing the Total Expenses rather than expenses on each and every item/transaction.


Business Group 

The largest  organization that you set up in Oracle HRMS to represent your organization as an employer. All the Human resource information i.e. employees information is stored at Business Group level.   

A business group may correspond to a company or corporation, or in large enterprises to a 'Holding' or a parent company.



The ledger contains the accounting representation of the company. Ledger balances assert that the balance:

a)has a specific value in a particular currency

b)on a given date 

c)on an account

d)is properly calculated

We all know that unlike 11i, in which we had the concept of Set of Books, a Ledger consists of 4C's. Points A, B, C and D correspond to Currency, Calendar, Chart of Accounts, and Convention. 

Convention refers to Sub ledger accounting which we will discuss later. 

Legal Entity

Legal entity" in the Oracle system corresponds closely to "legal entity" or "Company" in the real world. 

It is a juristic person which can:

a)enter into contracts

b)own assets

c)pay debts & file returns

It represents a legal company for which you prepare fiscal or tax reports

Accounts for themselves (balance sheet, income statement, specified reports)



An individual legal entity can have exposure to several tax authorities, and be registered with each.

For example, a California-registered company might have "establishments" in California and in several other states.
Each legal entity is made up of at least one establishment. 

Note: When you create a Legal entity in the 'Account setup manager' an establishment is created automatically created in the same name to fulfill registration requirements.  The main establishment is always located in the country of legal entity.

Operating Unit

An Organization that uses Oracle sub ledgers, such as Oracle Purchasing, Oracle Receivables, Order management.

It may be a : 

a) Sales Office
b) Department
c) Division

All the transactions happen via sub ledgers.Operating units are assigned to ledgers and default legal context. 

Unlike 11i, operating units are no more connected to Legal entities. However they derive their relationship by  'Operating unit' and 'Legal entity' both being attached to a Ledger.  


Inventory Organization

It represents an Organization for which you track Inventory transactions and Balances.

It only holds items with no transactions

These organizations may be manufacturing or distribution centers.

Inventory organizations are associated with Operating unit.

The Inventory Organization has a 'costing method', a 'workday calendar', and a 'list of items'.


Balancing Segment

Within a ledger, you can nominate a segment of your Chart of Accounts to be a balancing segment.

Balance segment are prepared for those for which you want to measure both Income and wealth.

  • To prepare both Income statements and Balance sheets
  • To measure ROI

E.g. Your divisions, plants for which you need to measure calculate balances, calculate ROI.


Connecting the .............



Maruti Suzuki India is the Business group which will have all the Human Resource (employee information) stored in it. It will be highest in the organization hierarchy. 

Maruti Suzuki India limited (Legal Entity) will be liable for filing tax, preparation of fiscal report and compliance with all tax related authorities. 

The showrooms of the company will be Operating units since they act as sales offices. Note that although legal entities are liable to tax, they do so with the help of operating units. 

The factories/manufacturing units of the company will serve as Inventory organizations of the company.  

Note:  Business Group, Legal entity, Operating unit and Inventory organizations need not be separate organizations. There might be a single organization which would serve as all of them.

The following clearly shows that :

1) All the legal compliance are handled through Legal entities and establishments. 

2) Transactions are recorded at Ledger level

3) Business (Transactions) happen at Operating unit level.