75 Understand Configured Hubs
This chapter contains the topic:
An organization might need to settle transactions across companies in a manner that does not conform to the detail method or the hub method of intercompany settlements. For example:
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An organization might need to have two hub companies in the same environment at the same time. Each hub company would have its own set of companies within its hub.
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An organization might need to designate one hub company for certain intercompany settlements and a different hub company for other settlements.
75.1 About Configured Hubs
Configured hubs are groups of companies that your organization can define, or configure, to accommodate non-standard intercompany settlements. When you configure a hub, you define the relationships between the companies in the hub. You also designate which company in the hub can settle transactions with other hubs. The system uses your configured hub definitions to ensure that only authorized intercompany settlements occur.
Organizations that create transactions in multiple currencies can settle intercompany transactions through a hub company that uses a common currency rather than between two companies that do not use a common currency. Multi-currency adjusting entries can occur at the intercompany settlement level.
The system maintains configured hub information in the Inter/Intra Company Account Relationships table (F09190).
75.1.1 What Are the Rules for Configured Hubs?
To define configured hubs for your organization, use the following rules:
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You can create multiple hubs.
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You must assign every company to a hub.
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In each hub, you can have one hub company. You designate the other companies in the hub as member companies.
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If you designate a hub company, the following rules apply:
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A member company can settle only with the hub company or another member company of the same hub.
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An intercompany settlement between two member companies goes through the hub company.
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A hub company can settle with a member company of the same hub or with another hub company.
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If you do not designate a hub company in a hub, the following rules apply:
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The member companies can settle only with each other.
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The company that is on the first line of a journal entry becomes the designated hub for that transaction.
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The system calculates intercompany settlements for configured hubs in the same way that it calculates standard intercompany settlements. The only difference is that an organization that uses configured hubs can have multiple hub companies.
75.1.2 Example: Configured Hub with Hub Company
The following illustrates how intercompany settlements occur in a configured hub with a hub company. Denver is set up as a configured hub in the Intercompany Hub user defined codes table (09/HB)
In this example, one company (7) accrues a liability incurred by another company (100). The designated hub company in the Denver configured hub is company 50.
The system creates one automatic entry that involves more than two accounts as follows:
| Document | Company | Account | Description | Debit | Credit |
|---|---|---|---|---|---|
| JE 20 | 50 | 50.8150 | Expenses | 300 | |
| JE 20 | 100 | 100.8110 | Expenses | 200 | |
| JE 20 | 7 | 7.4110 | Accounts Payable | 500 |
When you post the entry, the system generates the following intercompany entries:
| Document | Company | Account/Sub/Type | Description | Debit | Credit |
|---|---|---|---|---|---|
| AE 20 | 100 | 100.1291/00050/A | Intercompany Receivables/Payables | 200 | |
| AE 20 | 50 | 50.1291/00100/A | Intercompany Receivables/Payables | 200 | |
| AE 20 | 7 | 7.1291/00050/A | Intercompany Receivables/Payables | 500 | |
| AE 20 | 50 | 50.1291/00007/A | Intercompany Receivables/Payables | 500 |
The following T-accounts also illustrate the entries in this example:
Figure 75-2 Intercompany T-Account Entries
Description of "Figure 75-2 Intercompany T-Account Entries"
The automatic entries are identical to those that the system would create using the detail method. However, with configured hubs, the designated hub remains the same regardless of which company is on the first line of the journal entry.
75.1.3 Example: Configured Hub without Hub Company
The following illustrates how intercompany settlements occur in a configured hub without a hub company.
Figure 75-3 Configured Hub Without a Hub Company
Description of "Figure 75-3 Configured Hub Without a Hub Company"
In this example, one company (7) accrues a liability incurred by another company (100). There is no designated hub company.
The system creates one automatic entry that involves more than two accounts as follows:
| Document | Company | Account | Description | Debit | Credit |
|---|---|---|---|---|---|
| JE 20 | 50 | 50.8150 | Expenses | 300 | |
| JE 20 | 100 | 100.8110 | Expenses | 200 | |
| JE 20 | 7 | 7.4110 | Accounts Payable | 500 |
When you post the entry, the system generates the following intercompany entries:
| Document | Company | Account/Sub/Type | Description | Debit | Credit |
|---|---|---|---|---|---|
| AE 20 | 100 | 100.1291/00050/A | Intercompany Receivables/Payables | 200 | |
| AE 20 | 50 | 50.1291/00100/A | Intercompany Receivables/Payables | 200 | |
| AE 20 | 7 | 7.1291/00050/A | Intercompany Receivables/Payables | 500 | |
| AE 20 | 50 | 50.1291/00007/A | Intercompany Receivables/Payables | 500 |
The following T-accounts also illustrate the entries in this example:
Figure 75-4 T-Account Entries in a Configured Hub Without a Hub Company
Description of "Figure 75-4 T-Account Entries in a Configured Hub Without a Hub Company"
The automatic entries are identical to those that the system would create using configured hubs without a designated hub company. However, the company that is on the first line of the journal entry becomes the designated hub for the transaction.
For example, the designated hub would be company 100 for the following journal entry:
| Document | Company | Account | Description | Debit | Credit |
|---|---|---|---|---|---|
| JE 20 | 100 | 100.8110 | Expenses | 200 | |
| JE 20 | 50 | 50.8150 | Expenses | 300 | |
| JE 20 | 7 | 7.4110 | Accounts Payable | 500 |
75.1.4 Example: Configured Hubs for Multi-Currency
The following illustrates how multi-currency intercompany settlements can occur in a configured hub environment.
Figure 75-5 Multi-Currency Settlements in a Configured Hub Environment
Description of "Figure 75-5 Multi-Currency Settlements in a Configured Hub Environment"
In the following example, you create a journal entry for 1,000.00 USD to transfer funds from an American company (company 50) to a French company (company 71). The exchange rate of 5 EUR equals 1 USD.
You have entered transaction amounts in USD to both companies. It is considered a domestic transaction because the transaction currency is the same as the currency of the company of the account on the first line. This company is also the designated hub for the transaction because it is the first line of the journal entry.
The system creates entries in the AA (actual amounts) ledger as follows:
| Account | Amount | Ledger Type |
|---|---|---|
| 50.1110.BEAR | 1000.00- USD | AA |
| 71.1110.FRANCE | 1000.00 USD | AA |
(Mode = D)
In the following chart, the system also creates an entry for the transaction in the CA (foreign currency) ledger. The value for company 71 (the foreign company) is the USD (foreign) value of the transaction. There is a CA value for company 50 only to keep the CA ledger in balance.
| Account | Amount | Ledger Type |
|---|---|---|
| 50.1110.BEAR | 1000.00-USD | CA |
| 71.1110.FRANCE | 1000.00 USD | CA |
(Mode = F)
When you post the journal entry, the system creates an adjusting entry to correct the domestic amount of the non-base currency. In the following chart, this entry is 4,000.00 EUR to the AA ledger:
| Account | Amount | Ledger Type | Action |
|---|---|---|---|
| 50.1110.BEAR | 1000.00- USD | AA | JE posted to AA ledger |
| 71.1110.FRANCE | 1000.00 EUR | AA | JE posted to AA ledger |
| 71.1110.FRANCE | 4000.00 EUR | AA | AE to adjust original 1000 USD to 5000 EUR ((1000 _ 5)-1000)
Line Extension Code = AM |
| 50.1110.BEAR | 1000.00- USD | CA | JE posted to CA ledger |
| 71.1110.FRANCE | 1000.00 USD | CA | JE posted to CA ledger |
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The 4000.00 EUR amount is the net of [(foreign value of the transaction multiplied by exchange rate) - value of the transaction as already posted].
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The total EUR amount is 5,000.00.
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The system does not display this adjusting entry on the Journal Entries form. It adds the original AA entry and the adjusting entry and then displays the total as one amount on Account Ledger Inquiry and on all printed journals and G/L reports.
During the settlement process, the system creates the final entries that complete the intercompany settlement and keep the two companies in balance. For company 50, these are USD amounts. For company 71, they are EUR amounts in the AA ledger:
| Account/Sub/Type | Amount | Ledger Type |
|---|---|---|
| 50.1291/00071/A | 1000.00 | AA |
| 71.1291/00050/A | 5000.00- | AA |
| 50.1291/00071/A | 1000.00 | CA |
| 71.1291/00050/A | 1000.00- | CA |
The following T-accounts also illustrate the settlement process in this example. You create a journal entry to credit the cash account for company 50 and debit the cash account for company 71. The system records these entries in USD, as entered, in both the AA (actual amounts) and CA (foreign currency) ledgers:
Figure 75-6 Journal Entry T-Accounts for Multi-Currency
Description of "Figure 75-6 Journal Entry T-Accounts for Multi-Currency"
When you post this journal entry, the system creates an entry in the AA (actual amounts) ledger to convert the USD amount to EUR for company 71. The exchange rate for USD to EUR is 1:5, for a total of 5000.00 EUR.
The system has already debited company 71 the amount of 1000.00 from this account, so it debits an additional 4000.00:
Figure 75-7 Posting Process for Multi-Currency
Description of "Figure 75-7 Posting Process for Multi-Currency "
During the settlement process, the system creates additional automatic journal entries to transfer the money between the companies:
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If you use these transactions, the intercompany accounts in balance reports will show that the accounts are out of balance because of the different currencies.75.1.5 How Does the System Enforce Configured Hubs?
The system uses the Inter/Intra Company Account Relationships table to evaluate each transaction between companies. If you have defined a valid intercompany relationship, the system processes the transaction. If not, the system issues an error message and does not process the transaction.
If you create intercompany transactions outside of the functional server, the system validates them during posting. The system will not post an invalid intercompany transaction.
75.1.6 What You Should Know About
| Topic | Description |
|---|---|
| Methods of intercompany settlement | In order to use configured hubs, you must set up a detailed method of intercompany settlement (method D or 2) rather than a hub method. You cannot have a hub company already defined for your organization. |
| Settlements between hubs | The system issues a warning message if you try to perform an intercompany settlement between two hub companies. You can proceed after you acknowledge the message. |