Labor Distribution Accounting Example

Definition

The purpose of this appendix is to provide an understanding of balancing journal entries that are created during payroll, labor distribution, and grants processing.

Payroll Balancing Overview

In Oracle Human Resources, there is a hierarchy for payroll costing. Labor costs can be assigned at the following levels with payroll at the highest level:

In Human Resources and Payroll, each element is linked to a payroll using the Cost Allocation flexfield segments. Each element and payroll combination is costed using the payroll costing hierarchy, with the balancing account being an appropriate liability or cash account defined in the Element Link window.

Entries made at the lower levels override entries at higher levels.

For information on labor costs, see The Oracle HRMS Cost Allocation Key Flexfield Example, Oracle HRMS Enterprise and Workforce Management Guide.

Labor Costing Example

The labor costing example includes the following parts:

In the labor costing example, payroll is run and costed for two employees. These payroll costs are distributed to Oracle Grants Accounting and Oracle General Ledger. These costs are then adjusted using Labor Distribution.

In this example, the balancing account is payroll liability.

Labor Costing

The following examples illustrate labor costing.

  1. Two employees are on the monthly payroll at Oracle University. They are John Smith with a monthly salary of $2,400 and Mary Marshall with a monthly salary of $3,600. The one element is Regular Salary.

    Total payroll costs are $6,000 for the current month. These costs are processed and costed from Payroll to General Ledger as shown in Table 1.

    Example of Labor Costing
    Account Total Payroll Costs Debit/Credit
    Payroll Clearing (00.000.1500) $6,000 Debit
    Payroll Liability (00.000.2100) $6,000 Credit

  2. Labor schedules are established at the employee assignment level for each employee in Labor Distribution.

    Table 2 shows schedule lines for John Smith.

    Schedule Lines for John Smith
    Charging Instructions Labor Schedule
    GL Account 10.200.6010 20%
    OGM DOD Project 80%

    Table 3 shows schedule lines for Mary Marshall.

    Schedule Lines for Mary Marshall
    Charging Instructions Labor Schedule
    GL Account 10.300.6010 40%
    OGM NSF Project 60%

  3. Through Labor Distribution, current payroll is matched with schedule lines for each employee. Table 4 shows the distribution lines created.

    Distribution Lines Created for John Smith and Mary Marshall
    Employee Charging Instructions Distribution Amount
    John Smith GL 10.200.6010 $480
    John Smith DOD Project $1,920
    Mary Marshall GL 10.300.6010 $1,440
    Mary Marshall NSF Project $2,160

  4. Labor Distribution summarizes and transfers distribution lines to the appropriate General Ledger accounts and Grants Accounting projects. Table 5 shows the journal entries created by the General Ledger journal.

    Journal Entries Created by the General Ledger Journal
    Journal Entries Amount Debit/Credit
    GL 10.200.6010 $480 Debit
    GL 10.300.6010 $1,440 Debit
    Payroll Clearing $1,920 Credit

    Table 6 shows the labor distribution transactions that Grants Accounting imports.

    Labor Distribution Transactions Imported by Grants Accounting
    Grants Accounting Project Amount
    DOD Project $1,920
    NSF Project $2,160

  5. In Grants Accounting, concurrent processes are initiated to transfer labor costs to General Ledger. Table 7 shows the journal entries created according to the AutoAccounting setup in Grants Accounting after the concurrent processes complete.

    Journal Entries Created According to the AutoAccounting Setup in Grants Accounting
    Account Amount Debit/Credit
    GL 20.000.6000 $4,080 Debit
    Payroll Clearing $4,080 Credit

    Note: The AutoAccounting setup in Grants Accounting must include an appropriate payroll clearing account. If it is important that the payroll clearing account net to zero, then the AutoAccounting setup in Grants Accounting must generate the same payroll clearing account as defined in Labor Distribution. This labor costing example assumes that this is true.

    For information on defining auto accounting, see How to Use AutoAccounting, Oracle® Public Sector Financials User's Guide.

  6. Table 8 shows the entries for each General Ledger account. After all processes and steps are complete, the payroll clearing has a zero balance and appropriate General Ledger accounts show debit balances for labor expenditures.

    General Ledger Journal Account Entries for Labor Costing
    Account Example Number Debit Credit
    00.000.1500, Payroll Clearing 1. $6,000  
      4.   $1,920
      5.   $4,080
    00.000.2100, Payroll Liability 1.   $6,000
    10.200.6010, General Fund.Engineering.Salary 4. $480  
    10.300.6010, General Fund.Cardiology.Salary 4. $1,440  
    20.000.6000, Restricted Fund.General.Salary 5. $4,080  

Labor Costing for Past Payroll Period

The following example illustrates labor costing for a retropay payroll run for the past period. If distribution adjustments exist for an employee, then the application will use those adjustments to derive the corrected distribution percentages, which will override the scheduled percentages.

Assume that two employees are on a monthly payroll at Oracle University. They are John Smith with a monthly salary of $2,400, and Mary Marshall, with a monthly salary of $3,600. The one element is Regular Salary.

The total payroll cost is $6,000 for the past month, that is December 2006.

Labor Schedule of John Smith for December 2006

Charging Instructions Labor Schedule
GL Account 10.200.6010 20%
OGM DOD Project 80%

Labor Schedule for Mary Marshall for December 2006

Charging Instructions Labor Schedule
GL Account 10.300.6010 40%
OGM NSF Project 60%

Oracle Labor Distribution enables you to match the current payroll with the schedule lines for each employee. The following table shows the distribution lines that the PSP: Create Distribution Lines process creates.

Distribution Lines for John Smith and Mary Marshall

Employee Charging Instructions Distribution Amount
John Smith GL 10.200.6010 $480
John Smith DOD Project $1,920
Mary Marshall GL 10.300.6010 $1,440
Mary Marshall NSF Project $2,160

The application enables you to summarize and transfer the distribution lines to the appropriate General Ledger accounts and Grants Accounting projects.

After the Distributions were summarized and transferred, it was found that the labor schedule for Mary Marshal was incorrect and adjustments needed to be made so that the effective distributions are as below.

Adjusted Distribution Percentages for Mary Marshall for December 2006

Charging Instructions Adjusted Percentage
GL Account 10.300.6010 50%
OGM NSF Project 50%

A retropay payroll is run for the past month of December 2006. The amounts paid for regular salary element for Mary Marshal and John Smith are $100 each. The following table shows the distribution lines that the PSP: Create Distribution Lines process creates. Notice that the corrected distribution percentages are used for Mary Marshal.

Employee Charging Instructions Distribution Amount
John Smith GL 10.200.6010 $20
John Smith DOD Project $80
Mary Marshall GL 10.300.6010 $50
Mary Marshall NSF Project $50

Labor Distribution summarizes and transfers distribution lines to the appropriate General Ledger accounts and Grants Accounting projects. The following table shows the journal entries created by the General Ledger journal.

Journal Entries Created by the General Ledger Journal

Journal Entries Amount Debit/Credit
GL 10.200.6010 $20 Debit
GL 10.300.6010 $50 Debit
Payroll Clearing $70 Credit

The following table shows the labor distribution transactions that Grants Accounting imports.

Labor Distribution Transactions Imported by Grants Accounting

Grants Accounting Project Amount
DOD Project $80
NSF Project $50

In Grants Accounting, concurrent processes are initiated to transfer labor costs to General Ledger. The following table shows the journal entries created according to the Auto Accounting setup in Grants Accounting after the concurrent processes complete.

Journal Entries Created According to the Auto Accounting Setup in Grants Accounting

Account Amount Debit/Credit
GL 20.000.6000 $130 Debit
Payroll Clearing $130 Credit

The following table shows the entries for each General Ledger account. After all processes and steps are complete, the payroll clearing has a zero balance and the corresponding General Ledger accounts show debit balances for labor expenditures.

General Ledger Journal Account Entries for Labor Costing

Account Table Number Debit Credit
00.000.1500, Payroll Clearing   $200  
  6 (GL import)   $70
  8 (Grants to GL)   $130
00.000.2100, Payroll Liability     $200
10.200.6010, General Fund.Engineering.Salary 6 (GL import) $20  
10.300.6010, General Fund.Cardiology.Salary 6 (GL import) $50  
20.000.6000, Restricted Fund.General.Salary 8 (Grants to GL) $130  

Distribution Adjustments

The logic for distribution adjustments is the same as that of regular Labor Distribution transactions.

The following examples illustrate distribution adjustments in the labor costing example.

  1. After the payroll was distributed, it was determined that only 50% of John Smith's time should have been charged to the DOD project instead of 80%. The other 30% should be charged to the General Fund.Engineering.Salary account, 10.200.6010.

    After adjusting the distribution in the Distribution Adjustments window, the entries in the Adjusted Distributions region of the Distribution Adjustments window are as shown in Table 9, with the calculations shown in parentheses.

    Entries in the Adjusted Distributions Region of the Distribution Adjustments Window
    Charging Instructions Amount Calculations
    DOD Project -$1,920  
    DOD Project $1,200 ($2,400 x 50%)
    GL 10.200.6010 $720 ($2,400 X 30%)
    Unaccounted Balance $0.00  

  2. After the distribution adjustment is entered and approved, Labor Distribution creates General Ledger journal entries as shown in Table 10.

    General Ledger Journal Entries
    Account Amount Debit/Credit
    GL 10.200.6010 $720 Debit
    Payroll Clearing $720 Credit

    After the distribution adjustment is entered and approved, the Grants Accounting import is created as shown in Table 11.

    Grants Accounting Import
    Project Amount
    DOD Project -$1,920
    DOD Project $1,200

    The Grants Accounting transfer to General Ledger process creates the import and posting entries shown in Table 12 using AutoAccounting.

    Import and Posting Entries Using AutoAccounting
    Account Amount Debit/Credit
    Payroll Clearing -$720 Credit
    GL 20.000.6000 for DOD Project -$720 Debit (1,200-1,900)

  3. Table 13 shows the entries for each General Ledger account transaction. Labor Distribution processes all adjustments as positive or negative debits and the clearing account as positive or negative credits.

    General Ledger Journal Account Entries for Distribution Adjustments, John Smith
    Account Example Number Debit Credit
    00.000.1500, Payroll Clearing 1. $6,000  
      4.   $1,920
      5.   $4,080
      7.   $720
      8.   -$720
    00.000.2100,Payroll Liability 1.   $6,000
    10.200.6010, General Fund.Engineering.Salary 4. $480  
      7. $720  
    10.300.6010, General Fund.Cardiology.Salary 4. $1,440  
    20.000.6000, Restricted Fund.General.Salary 5. $4,080  
      8. -$720  

  4. After the payroll was distributed, it was determined that Mary Marshall should have only 10% of her time charged to the General Fund in General Ledger instead of 40%. The other 30% should be charged to the NSF Project.

    After adjusting the distribution in the Distribution Adjustments window, the entries in the Adjusted Distributions region of the Distribution Adjustments window are as shown in Table 14, with the calculations shown in parentheses.

    Entries in the Adjusted Distributions Region of the Distribution Adjustments Window
    Charging Instructions Amount Calculations
    GL 10.300.6010 -$1,440  
    NSF Project $1,080 ($3,600 x 30%)
    GL 10.300.6010 $360 ($3,600 x 10%)
    Unaccounted Balance $0.00  

  5. After the distribution adjustment is entered and approved, Labor Distribution creates General Ledger journal entries as shown in Table 15.

    General Ledger Journal Entries
    Account Amount Debit/Credit
    GL 10.300.6010 -$1,080 Debit
    Payroll Clearing -$1,080 Credit

    The Grants Accounting import is created as shown in Table 16.

    Grants Accounting Import
    Project Amount
    DOD Project $1,080

    The Grants Accounting transfer to General Ledger creates import and posting entries using AutoAccounting as shown in Table 17.

    Import and Posting Entries Using AutoAccounting
    Account Amount Debit/Credit
    Payroll Clearing $1,080 Credit
    GL 20.000.6000 (for DOD Project) $1,080 Debit

  6. Table 18 shows the entries for each General Ledger account transaction. Labor Distribution processes all adjustments as positive or negative debits and the clearing account as positive or negative credits.

    General Ledger Journal Account Entries for Distribution Adjustments, Mary Marshall
    Account Example Number Debit Credit
    00.000.1500, Payroll Clearing 1. $6,000  
      4.   $1,920
      5.   $4,080
      7.   $720
      8.   -$720
      10.   -$1,080
      11.   $1,080
    00.000.2100, Payroll Liability 1.   $6,000
    10.200.6010, General Fund.Engineering.Salary 4. $480  
      7. $720  
    10.300.6010, General Fund.Cardiology.Salary 4. $1,440  
      10. -$1,080  
    20.000.6000, Restricted Fund.General.Salary 5. $4,080  
      8. -$720  
      11. 1,080