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Oracle Payables Reconciliation Examples

The following examples illustrate the accounting entries generated when you enter and pay an invoice in Payables, then reconcile it through Cash Management.

The first example represents a typical domestic situation where your functional currency, bank account currency, and payment currency are all the same. The second example represents typical foreign and international situations where your bank account currency may be different from your payment currency. In the foreign case, you pay from a bank account denominated in a foreign currency. In the international case, you pay from a multi-currency bank account denominated in your functional currency. In this situation, you may have to reconcile manually rather than automatically, if the bank statement records the payment in your functional currency.

Note: Both examples assume that you have enabled the Allow Reconciliation Accounting Payables option. If you have not enabled this option, the accounting entries will credit the Cash account directly. Also, note that the Allow Reconciliation Accounting Payables option may be called the Cash Clearing Account option in your release of Oracle Payables.

Example 1 - Reconciling a Functional Currency Payment

You install Oracle General Ledger and Oracle Payables, and define US dollars (USD) as the functional currency for your set of books. You enter Accrual Basis as your accounting method. You enter an invoice for 100 USD, approve, pay, and post the invoice. Below are the accounting entries created during each activity. When you transfer the invoice and payment accounting entries to General Ledger from Payables, Journal Import creates a journal entry in your functional currency.

Activity Accounting Entries
Enter invoice for 100 USD DR Expense 100 USD
CR AP Liability 100 USD
Pay invoice, taking 5 USD discount DR AP Liability 100 USD
CR Discount 5 USD
CR Cash Clearing 95 USD
Reconcile payment with bank
statement, including bank
charges of 2 USD 		DR Cash Clearing 95 USD
DR Bank Charges 2 USD
CR Cash 97 USD

Example 2 - Reconciling a Foreign Currency Payment

You install Oracle General Ledger and Oracle Payables, and define US Dollars as the functional currency for your set of books. You enter Accrual Basis as your accounting method. You enter an invoice for 100 French francs (FF) and approve the invoice with a Corporate exchange rate. The Corporate exchange rate on the date you enter the invoice is 4:1. When you transfer the invoice to General Ledger, Payables transfers accounting information in both your foreign currency (100 FF) and your functional currency (25 USD) and Journal Import creates a journal entry in your functional currency.

When you pay the invoice, the exchange rate has increased to 5:1, representing a gain in your functional currency of 4 USD. You transfer your payment information to General Ledger and Journal Import creates a journal entry to record the invoice payment along with the realized gain.

When you reconcile the payment, the exchange rate has increased again, to 6:1, representing an additional gain in your functional currency of 2.67 USD. You transfer your payment information to Oracle General Ledger and Journal Import creates a journal entry to record the reconciled payment along with the realized gain.

Note: This example assumes that you transfer data from Payables to General Ledger after each activity.

Activity Accounting Entries
Enter invoice for 100 FF
(exchange rate 4 FF = 1 USD) 		DR Expense 100 FF (25 USD)
CR AP Liability 100 FF (25 USD)
Pay invoice, taking 20 FF discount
(exchange rate 5 FF = 1 USD) 		DR AP Liability 100 FF (25 USD)
CR Cash Clearing 80 FF (16 USD)
CR Discount 20 FF (5 USD)
CR Exchange Rate Gain 0 FF (4 USD)
Reconcile payment with bank
statement, including bank
charges of 6 FF
(exchange rate 6 FF = 1 USD) 		DR Cash Clearing 80 FF (16 USD)
DR Bank Charges 6 FF (1 USD)
CR Cash 86 FF (14.33 USD)
CR Exchange Rate Gain 0 FF (2.67 USD)

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