Understanding Draft Setup

Draft Setup Overview

The setup for draft processing enables you to generate whatever accounting entries your organization requires at each step of the draft life cycle and to define different processing rules for each type of draft that you use. Draft processing uses the following options to determine how to process drafts:

• System functions.

• Draft business events.

• Draft types.

• Draft distribution codes.

• Bank account ChartFields.

You generate different accounting entries for an event based on which path the draft follows. PeopleSoft provides you with the ability to define how the system generates accounting entries for each draft event for each type of draft that you use.

Draft Business Events

A draft business event is an action that can occur during draft processing that generates accounting entries and audit history information. PeopleSoft Receivables delivers and supports the business events and defines the processing characteristics for the Receivables Update process for each one.

When you define draft types, you assign a system function to each event that occurs for the draft type and optionally define the draft distribution codes by business unit. This provides the flexibility to define the accounting entries that occur for each event, as necessary.

Draft Types

Draft types determine the processing characteristics for drafts. They also determine how to generate accounting entries for them. You use draft types to tailor draft processing and draft accounting entries to meet your processing requirements.

When you define your draft types, you specify the draft events for which you want to generate accounting entries. You also specify how to generate the accounting entries by assigning a system function to each of those events and optionally you assign separate draft distribution codes to each business unit for that draft type. In some cases, you may be able to select one of several system functions for a draft event based on your processing requirements. You also assign a system function that defines how to generate accounting entries when you dishonor a draft after the draft event.

Distribution Codes

Draft processing uses the distribution codes that you set up for these distribution types:

• Receivable

• Draft Receivable

• Remitted Draft Receivable

• Discount Draft Receivable

• Discount Draft Liability

• Dishonored Draft Receivable

When you create a draft item by running the Create Drafts Application Engine process (AR_DRAFTS) or by applying items to a draft on the draft worksheet, the system assigns draft distribution codes for each distribution type to the draft item. It uses the following hierarchy to determine the correct distribution code:

1. Distribution code linked to the accounts receivable (AR) distribution code on the Distribution Code page for the original item.

2. Distribution code assigned to the draft type and business unit combination on the Draft Type Distribution Codes secondary page.

3. Distribution code assigned to the business unit on the Receivables Definition - Accounting Options 2 page.

When you run the Receivables Update process, it looks at the system function that you assigned to the event it is currently processing to determine which type of draft distribution code to use. The process uses the distribution code that is assigned to the draft item to create the accounting entries.

If the draft item does not have a draft distribution code for the event, the Receivables Update process marks the draft in error. To correct the error, you need to assign the appropriate draft distribution code to the business unit. You also assign one to the draft type and business unit combination, and (if necessary), to the AR distribution code for the original item. Then, you click the Update Distribution Codes button on the Correct Posting Errors, Draft - Group Action page to add the distribution code to the item. When you rerun the Receivable Update process, it creates the correct accounting entries.

See Setting Up Distribution Codes.

Bank Account ChartFields

Several system functions use the ChartFields that you assign to your bank account on the External Accounts page. The types of cash control accounts that you set up depend on your country's accounting requirements. The following table lists the four cash accounts that you can assign to a bank account and their account types:

Each system function indicates which type of account to use to generate accounting entries. The Receivables Update process uses the cash account with the appropriate account type.

Bank Fees

When you discount a draft, you normally have to pay a bank fee or interest on the money that you collect prior to the due date. PeopleSoft provides a system function (DM-90) for bank fees. You need to set up an entry type and automatic entry type for bank fees and assign them an entry reason for interest. When you remit a discounted draft, you specify the entry type that is used to generate the accounting entries for bank fees. When you run the Receivable Update process on the discount date, the process creates an item for the draft fees that has a zero amount and automatically closes the item. The process uses the entry type for bank fees to generate the appropriate accounting entries.