Overview of Accounting Setups

This chapter covers the following topics:

• Introduction
• Accounting Setups
• Accounting Setup Considerations

Introduction

This chapter explains how multiple legal entities and companies can be configured within one or more accounting setups using Accounting Setup Manager.

Accounting Setups

An accounting setup defines the accounting context for one or more legal entities or a business need if legal entities are not involved.

Note: Accounting Setup

Defining an accounting setup is based on several factors, such as the following:

• legal environment

• number of legal entities maintained in the same primary ledger

• business needs

• transaction processing needs

Legal entities should be assigned to accounting setups to maintain a legal entity context for transactions and use Oracle financial subledgers that require a legal entity context. No legal entities should be assigned to accounting setups if there are business needs that do no require a legal entity context.

If legal entities are involved, the general rule is to define a separate accounting setup for each legal entity or group of legal entities that require their own primary ledger. In other words, if legal entities require any one of the following attributes to be different from other legal entities, a different primary ledger is required, and therefore a different accounting setup is required:

• chart of accounts: One legal entity requires a six-segment chart of accounts and another requires only a four-segment chart of accounts.

• accounting calendar: One legal entity uses a 4-4-5 calendar and another uses a monthly calendar; or one legal entity has a different fiscal year end than another.

• primary currency: Legal entities operate in different countries requiring them to use their own local currencies.

• subledger accounting method: Legal entities operate in different countries or industries that have different accounting standards.

• ledger processing options: Legal entities operate in different industries, such as retail and financial services, and require different ledger processing options, such as maintaining average daily balances for legal entities in the financial services industry.

Ledger Processing Options

Ledger Processing Options are defined at the ledger level and refer to the following options that control how journals and transactions are processed for that ledger:

• First Ever Opened Period

• Number of Future Enterable Periods

• Retained Earnings Account

• Subledger Accounting Options, such as the subledger accounting method, journal description language, entered currency balancing account, cash basis accounting, and the ledger currency balancing account

• Option to track balances using a secondary segment

• Suspense Account

• Rounding Differences Tracking Account

• Intracompany Balancing option

• Journal Approval

• Journal Entry Tax

• Journal Reversal Criteria Set

• Default Period End Rate Type

• Default Period Average Rate Type

• Cumulative Translation Adjustment Account

• Journal Reconciliation

• Budgetary Control

• Reserve for Encumbrance Account

• Average Balance Processing

• Average Balance Consolidation

• Net Income Account

• Transaction Calendar

If there are legal entities that require any one of the above ledger processing options to be different, then define a separate primary ledger for each legal entity and therefore, a new accounting setup.

Note: Ledger Options

Example

Assume that a U.S.-based global company called Global Operations has four legal entities: two in the U.S., one in the U.K. and one in France. The following table describes the ledger attributes required for each legal entity.

Ledger Attributes Required for Global Operations Legal Entities

Ledger Attributes	U.S. East Operations	U.S. West Operations	U.K. Operations	France Operations
Chart of Accounts	Corporate	Corporate	Corporate	French Statutory
Accounting Calendar/Period Type	Monthly/Month	Monthly/Month	Monthly/Month	Fiscal/Fiscal
Currency	USD	USD	GBP	EUR
Subledger Accounting Method	Standard Accrual	Standard Accrual	Standard Accrual	French GAAP
Ledger Options	Enable Average Balances Enable Journal Approval	No Average Balances or Journal Approval enabled	No Average Balances or Journal Approval enabled	No Average Balances or Journal Approval enabled

Based on the above information, create four different accounting setups because each legal entity requires its own primary ledger.

Note: If the two U.S. legal entities, U.S. East and U.S. West, shared the same ledger processing options, they could share the same primary ledger and be included in the same accounting setup.

Secondary Ledgers

Additional ledgers called secondary ledgers can optionally be assigned to an accounting setup to maintain multiple accounting representations for the same legal entity.

Note: Secondary Ledgers

Assign an unlimited number of secondary ledgers to each primary ledger of an accounting setup. Each secondary ledger can be maintained at one of the following data conversion levels:

• The subledger level secondary ledger maintains subledger journals, general ledger journal entries, and balances in the additional accounting representation.

  This data conversion level uses both Subledger Accounting and the General Ledger Posting program to create the necessary journals in both the primary and secondary ledgers simultaneously. Subledger Accounting creates the journal entries from subledger transactions if the subledger integrates with Subledger Accounting. General Ledger Posting creates the journal entries for all other transactions that do no integrate with Subledger Accounting, including manual journal entries.

• The journal level secondary ledger maintains primary ledger journal entries and balances in an additional accounting representation.

  This type of secondary ledger is maintained using the General Ledger Posting program. Every time a journal is posted in the primary ledger, the same journal can be automatically replicated and maintained in the secondary ledger for those journal sources and categories that are set up for this behavior.

• The balance level secondary ledger maintains primary ledger account balances in another accounting representation.

  This type of secondary ledger requires Oracle General Ledger Consolidation to transfer primary ledger balances to this secondary ledger.

• The adjustments only secondary ledger level is an incomplete accounting representation that holds only adjustments.

  The adjustments can be manual adjustments or automated adjustments from Subledger Accounting. This type of ledger must share the same chart of accounts, accounting calendar/period type combination, and currency as the associated primary ledger. To obtain a complete secondary accounting representation that includes both the transactional data and the adjustments, use ledger sets to combine the adjustments-only secondary ledger with the primary ledger when running reports.

  Note: Journals can entered directly into any type of secondary ledger.

Note: Data Conversion Levels

Using Secondary Ledgers

Secondary ledgers are used for multiple purposes, such as statutory reporting, adjustments, or consolidation.

For example, if both a statutory and corporate accounting representation is required for a legal entity's transactions, two ledgers for the same legal entity can be used: a primary ledger for the corporate representation and a secondary ledger for the statutory representation.

Note: Secondary Ledger

Reporting Currencies

If you only need a different currency representation of the primary or secondary ledgers, assign reporting currencies to them. Unlike secondary ledgers, reporting currencies must share the same chart of accounts, accounting calendar/period type combination, subledger accounting method, and ledger processing options as their source ledger.

As a general rule, always use reporting currencies instead of secondary ledgers if you only need to maintain an accounting representation that differs in currency alone.

You can assign reporting currencies to both primary and secondary ledgers. Reporting currencies are maintained at one of the following currency conversion levels:

• The subledger level reporting currency maintains a complete currency representation of your subledger journals, General Ledger journals entries, and balances.

  When using the subledger level reporting currency, define currency conversion rules. These rules provide instructions on how to convert subledger and general ledger data to one or more subledger level reporting currencies.

  Subledger level reporting currencies are maintained using both Subledger Accounting and the General Ledger Posting program to create the necessary subledger journals and General Ledger journals in both the primary and secondary ledgers simultaneously. Subledger Accounting creates the journal entries from subledger transactions if the subledger integrates with Subledger Accounting. General Ledger Posting creates the journal entries for all other transactions that do not integrate with Subledger Accounting, including manual journal entries.

  Note: Subledger level reporting currencies can only be assigned to primary ledgers.

• The journal level reporting currency maintains General Ledger journal entries and balances in another currency representation.

  Journal level reporting currencies are maintained using the General Ledger Posting program. Every time a journal is posted in the source ledger, such as the primary or secondary ledger, the journal is automatically converted to the respective currency of the journal level reporting currency.

• The balance level reporting currency only maintains balances in another currency.

  It maintains the translated balances of the source ledger. Every time general ledger translation is run in the source ledger, such as the primary or secondary ledger, the translated balances are reflected in the balance level reporting currency.

  Note: Journals can be entered directly into the subledger and journal level reporting currencies.

Accounting Setup Considerations

Before creating accounting setups, carefully consider the number of legal entities that you want to assign to each accounting setup.

Associate each accounting setup with one of the following accounting environment types:

Note: For detailed examples of using the different accounting environment types, see Introduction, Accounting Setup Examples.

Related Topics

Designing the Chart of Accounts

Accounting Setups with One Legal Entity

You should only assign one legal entity to an accounting setup type if your legal entities meet any one of the following criteria:

• operate in a country with strict legislative requirements that require the legal entity to maintain its accounting data separate from other legal entities

• have specific legal or statutory rules that require a separate ledger for the legal entity

• require different primary ledger attributes from other legal entities

  For example, the legal entity requires any one of the following ledger attributes to be different from other legal entities:

  • chart of accounts: One legal entity requires a 10-segment chart of accounts and another requires a 6-segment chart of accounts.

  • accounting calendar: One legal entity requires a weekly calendar and another requires a monthly calendar.

  • primary currency: There are legal entities and companies that require different primary currencies to act as their main record-keeping currency.

    Note: Consider the business activities and reporting requirements of each legal entity. If you must present financial statements in another country and currency, consider the accounting principles to which you must adhere. Based on such considerations, choose the appropriate primary currency for each legal entity.

  • subledger accounting method: One legal entity uses the accrual method of accounting and another uses the cash basis of accounting.

  • ledger processing options: One legal entity wants to translate revenue and expense accounts using period-end balances while another legal entity wants to use year-to-date balances.

    Note: Ledger Processing Options

• need autonomous document sequencing of transactions and journals for each legal entity

• need to open and close periods autonomously for each legal entity

• have tax requirements that are specific for a legal entity

Accounting Setups with Multiple Legal Entities

If an accounting setup has more than one legal entity it means that multiple legal entities can share the same primary ledger attributes, such as the same chart of accounts, accounting calendar/period type combination, currency, subledger accounting method, and ledger processing options.

Assign multiple legal entities to the same accounting setup if all of the legal entities assigned to the accounting setup meet all of the following criteria:

• operate in a country that allows multiple legal entities to share the same primary ledger and ledger attributes, such as the same chart of accounts, calendar, primary currency, subledger accounting method, document sequence, and accounting options

• do not need to have different ledger processing options for each legal entity

  For example, legal entities can use the same general ledger translation rule and cumulative translation adjustment account to translate balances.

  Note: Ledger Processing Options

• do not need to open and close periods independently by legal entity

• do not require autonomous document sequencing for a legal entity

• do not have tax requirements that are specific for a legal entity

Accounting Setups with No Legal Entities

Accounting setups that do not have legal entities assigned can be used for multiple purposes based on business needs. For example, define an accounting setup with no legal entity assigned if a legal entity context is not required for transaction processing, or use it to supplement the accounting contained in other accounting setups that have legal entities assigned.

You can use accounting setups with no legal entities for the following business needs:

• You do not need to maintain transactions using a legal entity context.

• You are using a separate instance of General Ledger as a standalone application and do not plan to integrate with Oracle financial subledgers that require a legal entity context.

• You are not integrating with Oracle financial subledgers but are using Subledger Accounting to integrate Oracle General Ledger with non-Oracle systems.

• You want to maintain an additional accounting setup for management reporting purposes or consolidation purposes.

Using Accounting Setups with No Legal Entities for Management Purposes

If your organization uses legal entities and you have accounting setups that have legal entities assigned, you can use another accounting setup with no legal entity for management purposes. For example, you can use its primary ledger to book internal management adjustments across ledgers in different accounting setups. The management adjustments can be for any management entity, such as line of business, cost center, department, or other segment that has management responsibility.

For example, assume the department segment of the chart of accounts represents the management entity and you have three departments: Finance, Sales, and HR. The figure below represents the management hierarchy for the department segment with the three departments reporting to the CEO.

Use the accounting setups described in the following table to perform the day-to-day accounting.

Accounting Setups

Legal Entity	Vision Credit Group Legal Entity	Vision Services and Vision Consulting Legal Entities	Vision Operations Legal Entity
Number of Legal Entities	One	Multiple	One
Primary Ledger	Vision Credit Group	Vision Services	Vision Operations
Chart of Accounts:	Corporate	Corporate	Corporate
Calendar:	Monthly	Monthly	Monthly
Currency:	USD	USD	USD

Transactions are entered for all three departments in all three ledgers during the normal course of business. For example, enter expenses for each department.

To enter management adjustments that cross the management entity for all three ledgers, define another accounting setup that has no legal entities assigned as described in the following graphic and table.

Accounting Setup for Vision Management

Setup	Description
Primary Ledger	Vision Management
Chart of Accounts:	Corporate
Calendar	Monthly
Currency	USD

By itself, this management ledger may not represent the complete accounting picture; it may hold only the management adjustments. You can keep the management adjustments completely separate from day-to-day transactions. In order to obtain a complete management picture to use for management reporting and analysis, use a ledger set to combine the results of the management ledger with the other ledgers that hold the day-to-day transactions. You can obtain a complete management view of the company when reporting on the ledger set.

Note: Ledger Sets group multiple ledgers together (that share the same chart of accounts and accounting calendar/period type combination) to obtain processing efficiencies, such as opening and closing periods and reporting across multiple ledgers simultaneously.

Note: Ledger Sets

Note: Make sure the ledger that is used for management reporting purposes shares the same chart of accounts, accounting calendar/period type combination, and currency as its associated ledger contained in another accounting setup to obtain meaningful results when combining the ledgers in a ledger set.

Note: Data access sets is a security feature in General Ledger that controls read only and read and write access to data in ledgers and ledger sets. It also limits access to specific balancing segment values or management segment values assigned to a ledger or ledger set.

Note: Oracle General Ledger Security

Using Accounting Setups with No Legal Entities for Consolidation Purposes

If you have different ledger attributes across accounting setups that are not standardized by chart of accounts, calendar, and currency, you can use the primary ledger of another accounting setup that has no legal entities assigned to act as the complete consolidation ledger. Perform balance transfer consolidations from the respective ledgers in the different accounting setups to this consolidation ledger and then enter consolidation adjustments directly in this ledger.

• Using Ledgers in Other Accounting Setups for Consolidation

• Introduction, Accounting Setup Example.

Designing the Chart of Accounts

If your company uses legal entities and wants the ability to identify legal entities during transaction processing, designate the balancing segment of the chart of accounts as the legal entity or company segment. This allows you to identify transactions per legal entity and take full advantage of the legal entity accounting features available, such as intercompany accounting.

If you have multiple legal entities that use different charts of accounts, it is recommended that you limit the number of value sets that you define for the balancing segment. This allows you to share the same value set across multiple charts of accounts and assign unique balancing segment values for each legal entity that is consistent across charts of accounts.

Feature Comparison by Accounting Setup

The number of legal entities assigned to an accounting setup affects different key features available in the E-Business Suite. Review the features in the following table to understand how different features are affected.

Accounting Setups

Feature	One Legal Entity Assigned	Multiple Legal Entities Assigned	No Legal Entities Assigned
Open/Close GL Accounting Periods	Legal entities can open/close periods at different times.	All legal entities in a ledger must open/close periods at the same time.	The standalone ledger can open/close periods independently.
Document Sequencing	Legal entities can have autonomous document sequencing rules.	All legal entities in a ledger must share the same document sequencing rules.	The ledger can have autonomous document sequencing rules.
Multiple Legal Entity Journals	No	Journal entries can cross multiple legal entities.	N/A No legal entities exist.