Using Commitments (Oracle Receivables Help)


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Using Commitments

Deposit Accounting

Below is an example of the accounting transactions that Receivables creates when you record a deposit and an invoice against this deposit.

Enter a deposit for ABC Company of $10,000. When you record this deposit you can enter AR Trade as the debit account and Unearned Revenue as the credit account. Receivables automatically creates the following accounting entry:

DR AR Trade (Deposit) $10,000

CR Unearned Revenue $10,000

You can print the deposit invoice and mail it to your customer for payment. ABC Company receives the invoice and pays you the amount of the deposit.

ABC Company places an order for $500 and would like to draw against their commitment for this order. You enter an invoice for ABC Company for $500 and reference their $10,000 deposit. Receivables automatically creates the following accounting entry:

DR AR Trade (Invoice) $500

CR Revenue $500

Receivables then automatically creates a receivables adjustment for the invoiced amount against the invoice. The result is an amount due in Accounts Receivable of $0 (Note: In our example the $500 invoice does not include tax and freight.) You can print and send this invoice to your customer to provide them with a record of the activity against their commitment. Receivables creates the following accounting entry to reflect this adjustment:

DR Unearned Revenue $500

CR AR Trade (Invoice) $500

Therefore, ABC Company has no balance due for this $500 invoice, and an available commitment balance of $9,500.

Guarantee Accounting

Below is an example of the accounting transactions that Receivables creates when you record a guarantee and invoice against this guarantee.

Enter a guarantee for ABC Company. ABC Company agrees to purchase a specified amount of product from you, and you would like to track progress against this guarantee, and record it in your general ledger. The amount of this guarantee is $10,000. When you record this guarantee you can enter Unbilled Receivable as the debit account, and Unearned Revenue as the credit account. Receivables creates the following accounting entry:

DR Unbilled Receivable $10,000

CR Unearned Revenue $10,000

You can print this guarantee in the form of an invoice if you wish.

ABC Company places an order for $500 and would like to draw against their commitment for this order. You enter an invoice for ABC Company for $500 and reference their $10,000 guarantee. Receivables automatically creates the following accounting entry:

DR AR Trade $500

CR Revenue $500

Receivables then automatically creates a receivables adjustment for the invoiced amount against the guarantee. Therefore, ABC Company owes $500 for this invoice, and has an outstanding commitment balance of $9500. Receivables creates the following accounting entry to reflect this adjustment.

DR Unearned Revenue $500

CR Unbilled Receivable $500

Commitment Transaction Types

Receivables creates adjusting accounting entries to reflect invoicing activity against your customer commitments based on transaction type. Receivables provides the following commitment transaction types:

Deposits The accounting reversal is made by creating a receivables adjustment in Accounts Receivable to the invoice for the total of the invoice lines. This adjustment has the effect of reducing the invoice's payment schedule by the amount of the invoiced items (tax and freight amounts are not deducted from the deposit balance) and creating the reversing accounting entries. If however, the amount of the invoice exceeds the remaining commitment balance, Receivables only creates a receivables adjustment for the remaining commitment balance.

Guarantees The accounting reversal is made by creating a receivables adjustment in Accounts Receivable to the guarantee for the total of the invoice lines. This adjustment has the effect of reducing the guarantee's payment schedule by the amount of the invoiced items (tax and freight are not deducted from the commitment balance) and creating the reversing accounting entries. If however, the amount of the invoice exceeds the remaining commitment balance, Receivables only creates a receivables adjustment for the remaining commitment balance.

Define Your Commitment Transaction Types

You can define multiple transaction types with a class of either Deposit or Guarantee to classify or group your commitments for reporting purposes. Transaction types for commitments also provide additional control features, such as accounting controls, printing controls, and other defaults. You can define transaction types in the Transaction Types window. See: Transaction Types.

When you define transaction types for commitments, you can define them for both deposits and guarantees. The transaction type class determines whether it is of type deposit or guarantee.

Class The class is used to distinguish transaction types. When defining commitment types, use a class of either Deposit or Guarantee.

Open Receivable and Post to GL These fields control posting to your general ledger and the updating of customer balances. Receivables sets these fields to Yes when you define transaction types for commitments.

Allow Freight This field is used to control freight charges. Receivables sets this field to No when you define transaction types for commitments.

Tax Calculation This field controls tax charges. Receivables sets this field to No when you define transaction types for commitments.

Creation Sign This field is used to specify the creation sign of your transaction. This field is set to Positive Sign when you define transaction types for commitments.

Natural Application Only Use this field to determine whether you want to restrict the direction of your transaction balances when applying payments. For example, if you invoke Natural Application and have an invoice with an amount due remaining of $300, you can only make applications that will reduce this amount towards zero. This field is set to Yes when you define transaction types for commitments.

Allow Overapplication This field determines whether you want to allow over applications against items with this transaction type. This field is set to No when you define transaction types for commitments.

Receivable Account and Revenue Account These are default accounts used by the Transactions window. You can accept these defaults or enter other accounts when you enter your commitments.

Invoice Type This is the transaction type used for invoices that reference a commitment. If you create a deposit, then all invoices that reference this deposit would be assigned to this invoice type. You should choose an invoice type that has Post to GL and Open Receivable set to Yes. Receivables displays a warning message if the invoice type you choose has Post to GL or Open Receivable set to No.

Credit Memo Type This is the transaction type used for credit memos that reference a commitment. If you create a deposit, then all credit memos that reference this deposit must be assigned to this credit memo type. You should choose a credit memo type that has Post to GL and Open Receivable set to Yes. Receivables displays a warning message if the credit memo type you choose has Post to GL or Open Receivable set to No.

Invoice Against Your Commitments

You can enter invoices against your deposits and guarantees by using the Transaction window or by importing your invoices using AutoInvoice. You can enter an invoice against an existing or related customer deposit or guarantee by navigating to the Commitment field in the Transactions window. Enter the commitment number that you want to reference and Receivables automatically creates the adjusting accounting entries for you. You can review commitment activity for your customers using the Commitment Balance Report.

Overdraw Your Commitments

You can choose to enter orders or invoices for more than your customer's remaining commitment balance. For example, if your customer has a deposit with a remaining balance of $500 and has placed an order with you for $600, you can still reference that deposit. Receivables automatically creates a receivables adjustment in Receivables for $500, bringing the commitment balance to $0, leaving an amount due on the invoice of $100.

Calculate Your Commitment Balance

Your customer's commitment balance is available to you in several places within Receivables and is also available if you are using Oracle Order Entry. You can see the balance for a particular commitment when entering an order (if you are using Order Entry), a manual invoice, or a credit memo against a commitment, or by running the Commitment Balance Report. All transactions that reference a commitment or reference an invoice that references a commitment affect the balance of that commitment. The general formula for calculating the balance of a commitment at any given time is as follows:

Original Amount of Commitment: $10,000

less: Invoices against commitment $500

less: credit memos that reference invoices that reference commitments <$250>

plus: credit memos against the commitment itself <$100>

Resulting Commitment Balance: $9,650

Class	The class is used to distinguish transaction types. When defining commitment types, use a class of either Deposit or Guarantee.
Open Receivable and Post to GL	These fields control posting to your general ledger and the updating of customer balances. Receivables sets these fields to Yes when you define transaction types for commitments.
Allow Freight	This field is used to control freight charges. Receivables sets this field to No when you define transaction types for commitments.
Tax Calculation	This field controls tax charges. Receivables sets this field to No when you define transaction types for commitments.
Creation Sign	This field is used to specify the creation sign of your transaction. This field is set to Positive Sign when you define transaction types for commitments.
Natural Application Only	Use this field to determine whether you want to restrict the direction of your transaction balances when applying payments. For example, if you invoke Natural Application and have an invoice with an amount due remaining of $300, you can only make applications that will reduce this amount towards zero. This field is set to Yes when you define transaction types for commitments.
Allow Overapplication	This field determines whether you want to allow over applications against items with this transaction type. This field is set to No when you define transaction types for commitments.
Receivable Account and Revenue Account	These are default accounts used by the Transactions window. You can accept these defaults or enter other accounts when you enter your commitments.
Invoice Type	This is the transaction type used for invoices that reference a commitment. If you create a deposit, then all invoices that reference this deposit would be assigned to this invoice type. You should choose an invoice type that has Post to GL and Open Receivable set to Yes. Receivables displays a warning message if the invoice type you choose has Post to GL or Open Receivable set to No.
Credit Memo Type	This is the transaction type used for credit memos that reference a commitment. If you create a deposit, then all credit memos that reference this deposit must be assigned to this credit memo type. You should choose a credit memo type that has Post to GL and Open Receivable set to Yes. Receivables displays a warning message if the credit memo type you choose has Post to GL or Open Receivable set to No.

Original Amount of Commitment:	$10,000
less: Invoices against commitment	$500
less: credit memos that reference invoices that reference commitments	<$250>
plus: credit memos against the commitment itself	<$100>
Resulting Commitment Balance:	$9,650