Oracle® Fusion Accounting Hub Implementation Guide 11g Release 1 (11.1.4) Part Number E20374-04

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9 Define and Maintain Intercompany Processing Rules

This chapter contains the following:

Manage Intercompany System Options

Manage Intercompany Organizations

Define Invoicing Options

Manage Intercompany Balancing Rules

Manage Ledger Balancing Options

Manage Intercompany Transactions

Reconcile Accounts

Manage Intercompany System Options

Intercompany System Options: Explained

Define intercompany system options to set up intercompany processing rules at the enterprise level, based on your specific business needs.

In order to maintain consistency throughout an enterprise, intercompany transaction processing rules should be defined at the enterprise level. By standardizing these rules, an enterprise can minimize disputes, decrease processing time, and cut administrative costs.

Before setting up intercompany system options, you need to determine how you will process your intercompany transactions, for example, to:

• Enforce an enterprise-wide currency or allow intercompany transactions in local currencies.

• Allow receivers to reject intercompany transactions.

• Determine the minimum transaction amount that will be processed.

The system options are:

• Intercompany Batch Numbering

• Intercompany Currency

• Minimum Transaction Amount

• Conversion Rate Type

• Allow Receiver to Reject Transactions

• Intercompany Calendar and Period Type

• Default Transaction Type

Intercompany Batch Numbering

The intercompany batch numbering option defines whether to use system generated or manual transaction batch numbering.

Select the System Generated option to use only one automatic sequence number in intercompany within an instance. The sequence numbers are unique within the instance. All transactions created in intercompany will use this sequence.

Use the Manual option to manually enter a batch number, up to 20 characters.

Intercompany Currency

Standardize transaction processing by selecting an intercompany currency. Intercompany transactions are always entered in this currency in all legal entities within the enterprise. This simplifies transaction processing, and eliminates foreign exchange rate fluctuation risks. If an intercompany currency is selected, it will populate and default value and overwrite any existing value in Minimum Transaction Currency.

You may not update the Minimum Transaction Currency if intercompany Currency is entered.

Minimum Transaction Amount

The minimum transaction amount represents a minimum threshold intercompany transaction amount, and prevents the submission of immaterial transactions for small amounts, which are non-value added. In order to implement this rule, you must select a minimum transaction currency for processing intercompany transactions. These two system options must be related to ensure that when comparing a transaction amount to the minimum transaction amount, the two numbers are entered in the same currency, allowing for an accurate comparison.

Conversion Rate Type

Choose a conversion rate type if you enter intercompany transactions in a foreign currency. This rate type is used to convert all foreign currency transactions to functional equivalents when transactions are transferred to general ledger, receivables and payables. To ensure that intercompany accounts remain balanced, set a corporate-wide conversion rate type that cannot be changed by any intercompany trading partner within the enterprise.

Allow Receiver to Reject Transactions

Use this system option to determine if receivers of intercompany transactions can reject transactions or not. For example, if your company policy requires intercompany transactions be approved, but do not allow receivers to reject the transactions, then you can use this system option to implement your policy.

Intercompany Calendar and Period Type

You can have an intercompany calendar that is separate from the general ledger calendar. This ensures that the opening and closing of periods can be controlled separately from the general ledger calendar. The Period Type value is defaulted from the selected accounting calendar and cannot be updated. It indicates the type of period defined for that calendar.

If an intercompany calendar is chosen, the intercompany transactions will be validated against this calendar for period open and close.

In order to update the intercompany calendar to use a different general ledger accounting calendar, the intercompany period status for all intercompany transaction types must either be Never Opened or Closed.

Default Transaction Type

Optionally select one of the enabled intercompany transaction types to use as the default type for all new intercompany transactions.

Manage Intercompany Organizations

Managing Intercompany Organizations: Points to Consider

The Manage Intercompany Organizations task allows you to define the legal entities that are classified as intercompany organizations. The intercompany organization can act either as a provider or a receiver in an intercompany transaction.

Optionally assign a receivables and payables business unit to the organization if you require invoice generation. When you create a transaction for this organization use an invoicing transaction type. Invoices will be generated in Oracle Fusion Receivables and Oracle Fusion Payables for the business units specified.

You can initiate an intercompany transaction only for those organizations that you have access to. If a new organization is added after the system is configured, the intercompany accountant or system administrator should ensure that access is given to the appropriate users.

You can disable the intercompany organization if there are no open transactions for the organization.

When creating an organization, the following attributes should be considered:

• Legal Entity

• Receivables and Payables Business Units

• Default Organization Contact

Legal Entity

Each intercompany organization must be associated with a legal entity, but you can associate more than one organization to a legal entity.

Receivables and Payables Business Units

The available business units are those associated with the ledger to which the selected legal entity belongs. This assignment is optional, but is needed when the organization is the provider, and intercompany invoices are required.

If you enter the wrong receivables or payables business units, you can still correct them as long as the organization is not yet used in an intercompany transaction, regardless of the transaction status.

The organization can be disabled if there are no open transactions, and all transactions for that organization are having either New or Complete status.

Default Organization Contact

The default organization contact is the contact person assigned to the intercompany organization. The contact person can be assigned to one or more organizations.

Define Invoicing Options

Maintaining Customer and Supplier Assignments: Points to Consider

The intercompany customer and supplier assignments are used to identify each legal entity and the customer and supplier each legal entity represents. The assignments are used to derive the customers and suppliers for intercompany invoicing.

When intercompany invoicing is required for the intercompany transaction type, you must associate a customer and a supplier with the legal entities of the provider and receiver of the intercompany transaction, so that receivables and payables invoices can be generated. You can associate a legal entity with either a customer account or supplier, or both.

Customer Account

Assign a unique customer account to the legal entity of the organization that receives and approves intercompany transactions. The customer must have an active site, and it must not be an external customer.

Supplier

Assign a unique supplier to the legal entity of the organization that initiates intercompany transactions. The supplier must have an active primary pay site.

Additional Considerations

A customer or a supplier can be associated with only one legal entity. Once a customer or a supplier is associated with a legal entity, it cannot be associated with another legal entity.

The customer account and supplier assigned to the legal entity can be modified at any time, regardless of the existing transaction status.

Intercompany Receivables Assignments: Explained

Use Oracle Fusion Intercompany to generate invoices for intercompany transactions.

Defining Receivables Assignments

Set up your receivables assignments by mapping an intercompany transaction type and a receivables business unit to the receivables transaction type and receivables memo line. Oracle Fusion Receivables will use the receivables transaction type and the receivables memo line to process intercompany transactions transferred to the receivables application. You can configure specific receivables transaction types, and receivables memo lines, that you use for each intercompany transaction type for a receivables business unit. Invoices can then be transferred to Oracle Fusion Payables and recorded there.

Intercompany provides a default receivables transaction type of Intercompany and a default receivables memo line of Global Intercompany. These defaults are used when there are no other assignments. However, you can choose to set up individual assignments for each receivables business unit and intercompany transaction type to override the default values.

First, select a business unit and intercompany transaction type, and then select the receivables transaction type and receivables memo line. The receivables transaction type values available are derived from the reference data set for the receivables transaction type assigned to the business unit. The receivables memo line values are derived from the reference data set for receivables memo line assigned to the business unit.

Manage Intercompany Balancing Rules

Intercompany Balancing Rules: Explained

Intercompany balancing rules are used to generate the accounts needed to balance journals that are out of balance by legal entity or primary balancing segment values.

You specify the intercompany receivables and intercompany payables accounts you want to use. The intercompany balancing feature then uses these rules to generate the accounts of the balancing lines it creates.

Defining Intercompany Balancing Rules

You can define intercompany balancing rules at the following rule levels:

1. Primary balancing segment

2. Legal entity

3. Ledger

4. Chart of accounts

The rules are evaluated in the order shown above. For example, you can define a Primary Balancing Segment rule and a Legal Entity level rule. If both rules are used to balance a particular journal, the Primary Balancing Segment rule is used, as it has a higher precedence.

You have flexibility in defining your intercompany balancing rules. You can have a simple setup in which you define one rule for your chart of accounts. This rule is used for all intercompany balancing for all ledgers that use this chart of accounts. Alternatively, you can have a more granular set of rules. For example, you can define a different rule for each legal entity and one chart of accounts rule to cover any gaps in your rule definitions. You can gain even more granularity by defining rules for specific journal and/or category combinations or intercompany transaction types.

Intercompany Balancing Rules: Examples

This topic provides examples of intercompany balancing rules and the intercompany balancing lines generated. These rules are used to generate the accounts needed to balance journals that are out of balance by legal entity or primary balancing segment values.

Simple Chart of Accounts

In this scenario you have one chart of accounts for all ledgers. The chart of accounts has an intercompany segment. You are using this intercompany segment and the company segment to identify the intercompany trading partners for each transaction. You do not have a need to track their intercompany activity at a granular level such as by journal source and journal category or by intercompany transaction type.

Setup

• InFusion USA Chart of Accounts

• Ledger, Legal Entity, Primary Balancing Segment Value Assignments

• Chart of Accounts Rule

• Journal Balancing

  • Journal before Balancing

• Journal Balancing

  • Journal after Balancing

Legal Entity and Chart of Accounts Rules

In this example the legal Entity InFusion Textiles intercompany manufacturing activities are tracked separately from its non-manufacturing activities. In order to achieve this legal entity level rules are defined specifically between the legal entity InFusion Textiles and the two manufacturing legal entities, InFusion Products (East) and InFusion Products (West). A chart of accounts rule is created to cover all other intercompany activities.

Setup

• InFusion USA Chart of Accounts

• Ledger, Legal Entity, Primary Balancing Segment Value Assignments

• Chart of Accounts Rule

• Legal Entity Level Rule

• Journal Balancing

  • Journal before Balancing

• Journal Balancing

  • Journal after Balancing

Using Chart of Accounts Rules for Intercompany Balancing: Examples

Use chart of accounts rules for intercompany balancing. You have flexibility in defining your intercompany balancing rules with the setup of a single chart of accounts rule to use for all ledgers that use this chart of accounts.

When you create a chart of accounts rule, you specify the chart of accounts, intercompany receivables, and intercompany payables accounts you want to use, as well as the source and category. It is recommended that the intercompany receivables account be an asset type account, and the intercompany payables account be a liability type account.

You can define rules that are applied to a specific source and category, such as Payables and Invoices, or a specific intercompany transaction type, such as Intercompany Sales. Alternatively, you can choose to create rules for all sources and categories by selecting the source of Other and the category of Other.

You can have a more complex structure and define multiple rules between pairs of ledgers, legal entities, or primary balancing segment values. If you choose to have rules at various levels, then intercompany balancing evaluates the rules in the following order.

1. Primary balancing segment rules

2. Legal entity level rules

3. Ledger level rules

4. Chart of accounts rules

It is therefore recommended that you set up a chart of accounts rule for every chart of accounts structure you have. This will ensure that Intercompany Balancing will always find a rule to use to generate balancing accounts.

Intercompany Balancing will then evaluate the journal source and journal category combination in determining which rule to use for balancing. The order of precedence is as follows.

• Specific journal source and journal category

• Specific journal source and journal category of Other

• Journal source of Other and specific journal category

• Journal source of Other and journal category of Other

Chart of Accounts Rule Example

In this scenario, you choose to track intercompany balancing for companies with values 3000, and 4000 to separate intercompany accounts. You will set up specific rules are set up at the primary balancing segment value level for this. A chart of accounts rule is created for all other intercompany activity.

Setup

InFusion USA Chart of Accounts

Ledger, Legal Entity, and Primary Balancing Segment Value Assignments

Chart of Accounts Rule

Rule No. 1

• Chart of Accounts: InFusion USA

• Source: Other

• Category: Other

• Transaction Type: None

Primary Balancing Segment Rules

Rule No. 2

• From Ledger and To Ledger: InFusion USA

• From Primary Segment Value: 3000

• To Primary Segment Value: 4000

• Source: Other

• Category: Other

• Transaction Type: None

Rule No. 3

• From Ledger and To Ledger: InFusion USA

• From Primary Segment Value: 3000

• To Primary Segment Value: 5000

• Source: Other

• Category: Other

• Transaction Type: None

Rule No. 4

• From Ledger and To Ledger: InFusion USA

• From Primary Segment Value: 4000

• To Primary Segment Value: 3000

• Source: Other

• Category: Other

• Transaction Type: None

Rule No. 5

• From Ledger and To Ledger: InFusion USA

• From Primary Segment Value: 4000

• To Primary Segment Value: 5000

• Source: Other

• Category: Other

• Transaction Type: None

Intercompany Balancing Lines Generated for Out of Balance Journal No. 1

• Source: Manual

• Category: Adjustment

Intercompany Balancing Lines Generated for Out of Balance Journal No. 2

• Source: Manual

• Category: Adjustment

Manage Ledger Balancing Options

Defining Ledger Balancing Options: Explained

Ledger balancing options are defined for the ledger to balance the second balancing segment and/or the third balancing segment, when a transaction is unbalanced by one of these segments.

Ledger balancing options include the following settings:

• Oracle Fusion Receivables and Oracle Fusion Payables accounts used for ledger balancing

• Summarization options

• Clearing company options

Receivables and Payables Accounts used for Ledger Balancing

You can choose to specify the receivables and payables accounts to be used, if your chart of accounts has the second balancing segment and/or the third balancing segment enabled. These accounts are used for the balancing lines generated when a journal is balanced by its primary balancing segment values but is not balanced by its second balancing segment and/or third balancing segment.

Summarization Options

You can choose to summarize balancing lines generated for a primary balancing segment out of balance scenario, where all the primary balancing segment values are assigned to the same legal entity, by specifying the Summarization option of Summary Net or Detail. You can choose to summarize by primary balancing segment value or alternatively have individual balancing lines (that have not been summarized) generated. Note that summarization always applies to balancing lines generated in a cross legal entity scenario.

Clearing Company Options

You can choose to set clearing company options to balance a journal with different primary balancing segment values that all belong to a single legal entity. Set the following options to handle your clearing company balancing.

• Clearing Company Condition

  • Choose to balance using a clearing company value for all journals or for journals with many legal entities on the debit side and many legal entities on the credit side.

  • The default value for this option is to error Many-to-Many journals.

• Clearing Company Source

  • Choose how the clearing company value is derived for your balancing lines, from the following options:

    • Default clearing balancing segment value.

      • Choose this option if you want a single specific primary balancing segment value for your clearing company.

    • Default Rule.

      • Choose this option if you want to allow the system to derive the clearing company value from a default intercompany balancing rule.

    • Manually entered clearing balancing segment value.

      • Choose this option if you want to enter the clearing company value when you create a journal.

• Clearing Company Value

  • If you chose the default clearing balancing segment value as your clearing company source, you can enter your chosen primary balancing segment value in this field.

Defining Ledger Balancing Options: Examples

This topic provides examples of ledger balancing options, the setup required, and the journal before and after balancing.

Simple Ledger Balancing with no Clearing Company Options

In this scenario the enterprise has the second balancing segment and the third balancing segment enabled for its chart of accounts. The journal is balanced by primary balancing segment but is out of balance by the second balancing segment and the third balancing segment.

Setup

• InFusion USA Chart of Accounts

• Ledger, Legal Entity, Primary Balancing Segment Value Assignments

• Ledger Balancing Options

• Journal Balancing

  • Journal Before Balancing

• Journal Balancing

  • Journal after Balancing

Ledger Balancing Options with Detail Summarization and Clearing Company Options Set

In this scenario the enterprise has the second balancing segment and the third balancing segment enabled for its chart of accounts. Management has decided to use a clearing company for balancing Many-to-Many journals only. Since the primary balancing segment values in the journal are out of balance intercompany balancing is required. Additionally, since clearing company options have been specified they will be used to balance the journal. Note that if the primary balancing segment values were balanced and only the second balancing segment and the third balancing segment were out of balance, the clearing company options would not be used.

Setup

• InFusion 1000, USA Chart of Accounts

• Ledger, Legal Entity, Primary Balancing Segment Value Assignments

• Chart of Accounts Rule

• Ledger Balancing Options

• Clearing Company Options

• Journal Balancing

  • Journal before Balancing

• Journal Balancing

  • Journal after Balancing

Manage Intercompany Transactions

Generating Intercompany Receivables and Intercompany Payables Accounts for Manual Transactions: Examples

The receivables (AR) and payables (AP) accounts for manual intercompany transactions are generated automatically by Oracle Fusion Intercompany. Enter distributions for the transaction and intercompany generates the receivables and payables accounts, based on the intercompany balancing rules setup.

Intercompany uses the attributes of the batch, such as transaction type, provider and receiver legal entities, to ascertain which rule to use. Intercompany then uses the rule, and the segment details of the first distribution account for the provider, to build the intercompany account combination for the provider side of the transaction. Similarly, intercompany builds the intercompany account for the receiver side of the transaction, based on the first receiver distribution account.

Intercompany will evaluate the rules in the following order.

1. Primary balancing segment rules

2. Legal entity level rules

3. Ledger level rules

4. Chart of accounts rules

If there is no matching rule at the lower levels, then intercompany will use the chart of accounts rule. It is therefore recommended that you set up a chart of accounts rule for every chart of accounts structure you have. This will ensure that intercompany will always find a rule to use to generate the intercompany receivables and intercompany payables accounts for transactions.

Intercompany will then evaluate the transaction type in determining which rule to use to generate the receivables or payables account. A rule with a specific transaction type takes precedence over a rule defined for the All Other transaction type.

Generating Intercompany Receivables and Intercompany Payables Accounts for Manual Transactions Example

In this scenario you choose to track your intercompany sales for the farming and textile companies separately from other intercompany activities. Separate intercompany accounts are used for these two companies. A chart of accounts rule is created for all other intercompany activity.

Setup

InFusion USA Chart of Accounts

Ledger, Legal Entity, and Primary Balancing Segment Value Assignments

Chart of Accounts Rule

Rule No. 1

• Chart of Accounts: InFusion USA

• Source: None

• Category: None

• Transaction Type: All Other

Legal Entity Rules

Rule No. 2

• From Ledger and To Ledger: InFusion USA

• From Legal Entity: InFusion Farms

• To Legal Entity: InFusion Textiles

• Source: None

• Category: None

• Transaction Type: Intercompany (IC) Sales

Rule No. 3

• From Ledger and To Ledger: InFusion USA

• From Legal Entity: InFusion Farms

• To Legal Entity: InFusion Production

• Source: None

• Category: None

• Transaction Type: Intercompany Sales

Rule No. 4

• From Ledger and To Ledger: InFusion USA

• From Legal Entity: InFusion Textiles

• To Legal Entity: InFusion Farms

• Source: None

• Category: None

• Transaction Type: Intercompany Sales

Rule No. 5

• From Ledger and To Ledger: InFusion USA

• From Legal Entity: InFusion Textiles

• To Legal Entity: InFusion Production

• Source: None

• Category: None

• Transaction Type: Intercompany Sales

Intercompany Accounts Generated for Intercompany Debit Transactions

This table displays the Receiver side of the transaction.

Intercompany Accounts Generated for Intercompany Credit Transactions

This table displays the Receiver side of the transaction.

Reconcile Accounts

Intercompany Reconciliation: Explained

Intercompany reconciliation provides you with reports to assist you with reconciling your intercompany receivables and intercompany payables accounts, and to identify any differences.

The main goal of the reports is to make it easy for you to identify either the receiver side or provider side of a transaction that has not been posted to the intercompany receivables or intercompany payables account.

The reports show the following intercompany lines:

• Intercompany receivables and intercompany payables lines generated by the intercompany balancing feature

• Intercompany receivables and intercompany payables lines generated for the provider and receiver of each intercompany transaction

The following are not included on the intercompany reconciliation reports:

• Ledger balancing lines generated when the primary balancing segment value is in balance but either the second balancing segment or the third balancing segment is out of balance

• Clearing company balancing lines

Reconciliation Reports

The reconciliation reports show the Entered or Transaction amount of the accounting entries booked to the intercompany receivables and payables accounts for a pair of provider and receiver legal entities. Since the accounted amounts may be different if the conversion rates used for the intercompany receivables and intercompany payables are different, you can choose to run the reports using an additional currency and conversion rate that will convert all amounts into a common currency for comparison.

The intercompany reconciliation process starts with running the Extract Intercompany Reconciliation Data process. Choose from a variety of parameters to determine what data will appear on your reports. For example, choose the provider legal entity and receiver legal entity for which you want to run reconciliation.

Once the Extract Intercompany Reconciliation Data process has completed successfully, choose your request from the Oracle Business Intelligence Publisher (BI Publisher), BI Publishing Options list of values and view the Reconciliation Period Summary report. This report displays the intercompany receivables and intercompany payables balances in summary for a period, and any differences between them. Drill down on the hyperlinks to view the balances by source and then by journal lines. You have full drill down capabilities to the general ledger journal, subledger accounting entry and source receivables or payables transaction.

Extract Intercompany Reconciliation Data

This process extracts data used to generate reports that can be viewed and utilized to assist with reconciliation.

You can run the report from the Intercompany Reconciliation task, and optionally schedule the report to run periodically.

Extract Intercompany Reconciliation Data Parameters

Ledger associated with the provider organization. Exclude secondary and reporting currency ledgers.

Legal entity of the provider organization.

Accounting period of the provider ledger.

Ledger associated with the receiver organization.

Legal entity of the receiver organization.

Accounting period of the receiver ledger.

Currency for converting the accounted amount.

Conversion rate type for the additional currency.

Conversion rate date for the additional currency.

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