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)  

Process

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

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 / 345.123.124.1.1223.145.1 – 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 Groups – These 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.

Now that we have understood the Accounting flexfield components lets continue with creating Chart of Accounts which consists of:

1) Creating segments

2) Creating Values

Creating Segment Values 

We have defined 4 segments in this case. We shall now define Value sets i.e. the characteristics of these segments.

  

Value sets Explained

List Type –  

• Use list of values in case values lie between 10 and 200
• Use Long list of values in case values may go above 200
• Use Pop list in case values are fewer than 10 

Security Type –

• No Security - All security is disabled for this value set
• Hierarchical Security - Any security rule that applies to the parent level also applies at child values.
• Non Hierarchical Security  - Any security rule that applies to the parent level does not apply at child values.

Validation Type –  

• Independent- This type of value set does not depend on any other value e.g. In the business of manufacturing Machinery , my machinery account will not be dependent on anything.
• Dependent - Values in this account will depend on values of some other account e.g. Nut & Bolt required for making machinery (Sub product) account will be dependent account.
• Table - These are made with the help of technical consultants wherein they mention the tables from which data can be extracted. You cannot enter any new values. In Mercedes Benz showroom the accountant in Sales office can only select from predefined models in the table. Ex. he may not be able to enter 'A' class which does not exists in the showroom.

Flexfield Qualifiers

Balancing Segment – Level for balancing the accounting entries. A BS is the one for which you create B/S. Both debits and credits must match before posting to General ledger.

Natural Account Segment – Identifies what the financial activity is in pure financial terms. Measures the account type

• Asset
• Liability
• Expense
• Owners Equity
• Revenue

Secondary Tracking – used for revaluation, translation, and fiscal year end close processes.

Management Segment – To restrict access by segment values. E.g. One department can restrict other department from viewing their information.


CREATING VALUES 

Once we have defined the segments we enter values in it. We can see that Values (Total assets , Cash) etc. have been put in the account segment. 


Once these values are defined, we need to define the Segment Qualifiers for these.

 In this we define whether Posting is allowed or no, budgeting is allowed or no, What is the asset type whether reconciliation is allowed or no and for third party control account. We shall discuss Third party control account now;


THIRD PARTY CONTROL ACCOUNT
 
We know that some of the entries in General Ledger are manually entered and some are imported from Sub ledgers, i.e. Accounts payable etc. In case it comes from Sub ledgers the person creating entries in General ledger must not tamper values here. Thus the account for which third party has been enabled can only enter and post the journal from that sub ledger only.


E.g. if a company purchased machinery for its factory, it must enter the entire information from Accounts payable sub ledger. The clerk preparing entries in GL must not be allowed to make any changes for that entry. 




SUB LEDGER ACCOUNTING


In 11i the subledgers interacted with the General ledger directly. Thus accounts had be defined in :

• accounting method in Payables Options in AP
• System Options in AR 

Thus it was more of a Garbage in and garbage out. 

Now, in R12, 

SLA sits between sub ledger products and Oracle GL. It should be understood that SLA is neither an application, nor a responsibility. It’s a service provided in R12.

It is a rule based accounting engine enabling multiple accounting requirements concurrently in a single instance.

It helps in defining how the accounting code combination should be generated and therefore can be used to override default account code combinations setup at various levels.

Ex: Imagine there is a company providing IT Consulting. Both of them require computers and laptops. The company operates through 2 operating units. One OU considers Laptops and Computers as as as asset and the other one treats the other one as expense. In SLA we can define rules whereby which a single entry is passed from subledger to SLA. However SLA massages the data and fullfills both the operating unit's requirements.