Example 2: Interunit Accounting with Contract Liability

The following example examines the entries generated by PeopleSoft Contracts when PeopleSoft Contracts manages revenue for a fixed-amount contract line. In this example, the user enabled contract liability recognition at the either the contract line or product group level.

First, establish a new contract with these parameters:

Field Name Value Comments

Contract Number.

9999999

 

Contracts business unit.

USA1

 

General Ledger business unit that is mapped to the Contracts business unit.

123

The currency for this PeopleSoft General Ledger business unit is USD.

All balance sheet entries are managed on PeopleSoft General Ledger business unit 123's books, including: contract liability, contract asset or inventory, and billed AR.

Billing business unit.

 

All billing plans within the contract must be mapped to Billing business units that are associated with PeopleSoft General Ledger business unit 123.

Contract gross amount/currency code.

100,000/DEM

The contract was signed on January 1999, but no accounting is booked until there is activity against the contract.

Billing currency.

DEM

 

To perform interunit accounting with contract liability, you:

  1. Run the Contract Liability process for the accounting month January 1999 to book entries to the balance sheet: DEM 100,000 @ 1/99 rate .599018 = USD 59,901.80.

  2. Bill for the total contract amount.

    PeopleSoft Contracts sends the billing information to PeopleSoft Billing; the system books accounting entries upon finalization of invoice. The accounting month for the bill finalization is February 1999. In February 1999, the contract total in the currency of the primary PeopleSoft General Ledger business unit (GLBU 123) = DEM 100,000 @ 2/99 rate .580930 = USD 58,093.00.

  3. True-up contract asset in PeopleSoft General Ledger by using PeopleSoft General Ledger functionality for balances and base amounts with foreign and differing currencies.

    To enable this functionality, the Amount-based Revenue process and PeopleSoft Billing populate the Foreign Amount field with the DEM value of DEM 100,000.

    Revaluation in PeopleSoft General Ledger compares February 1999 balances for both amount fields and translates at the current rate of .580930. The system compares the foreign amount = 0 (DEM 100,000 − DEM 100,000) at .580930 = 0 to the base amount = (USD 1,808.80), then generates a reduction entry crediting foreign exchange gain or loss and debiting contract asset (in this scenario) for the difference = 1,808.80.

  4. Indicate that revenue should be recognized.

    On the Accounting Distribution page, you have split the revenue between two PeopleSoft General Ledger business units: 50 percent to GLBU 123 and 50 percent to GLBU XYZ. The currency code for GLBU XYZ is in CAD. The accounting month for this transaction is May 1999.

    When you run the Amount-based Revenue process, the system generates the entry for the interunit transfer from GLBU 123 to GLBU XYZ. The system uses GLBU 123's currency as the base currency code for the transfer: USD 59,901.80 * 50% = USD 29,950.90 @ 5/99 rate (USD/CAD) 1.4565 = CAD 43,623.49.