G.2 Profitability Management Allocation Engine

The Profitability Management allocation engine generates complex accounting transactions that have the effect of increasing or decreasing running balances for the accounts that are debited or credited. A single allocation rule may generate dozens, hundreds, or even thousands of debits and credits. In constructing allocation rules, however, you must take care to ensure (1) that the resulting debits and credits constitute a balanced transaction and (2) that your debits and credits match your business intent when you constructed the rule.

The following example shows the result of an allocation rule that gathers expenses for all-expense GL Accounts from Cost Center 100 (a total of $4,500 of expense), debits three destination centers (Cost Centers 1, 2, and 3), and credits Cost Center 100. In this example, only three GL accounts are booked to Cost Center 100 (expense accounts 1, 2, and 3). The effect of this rule is to assign all of the expenses in Cost Center 100 to Cost Centers 1, 2, and 3; and to “relieve” (credit) Cost Center 100 by the same amount.

Table G-3 Debit-Credit Entries

Debit	Credit
Expense Account 1 for Center 1: $300	Expense Account 1 for Center 100: ($1,200)
Expense Account 1 for Center 2: $400	Expense Account 2 for Center 100: ($1,500)
Expense Account 1 for Center 3: $500	Expense Account 3 for Center 100: ($1,800)
Expense Account 2 for Center 1: $400
Expense Account 2 for Center 2: $500
Expense Account 2 for Center 3: $600
Expense Account 3 for Center 1: $500
Expense Account 3 for Center 2: $600
Expense Account 3 for Center 3: $700

In the example above, only expense accounts (debit accounts) are being debited or credited, because the allocation rule's Source was defined to focus on expense accounts. As a second example, imagine a similar allocation but for revenues booked to Cost Center 100 that you wish to distribute to Cost Centers 1, 2, and 3.

Table G-4 Debit-Credit Entries

Debit	Credit
Revenue Account 1 for Center 100: ($1,200)	Revenue Account 1 for Center 1: $300
Revenue Account 2 for Center 100: ($1,500)	Revenue Account 1 for Center 2: $400
Revenue Account 3 for Center 100: ($1,800)	Revenue Account 1 for Center 3: $500
	Revenue Account 2 for Center 1: $400
	Revenue Account 2 for Center 2: $500
	Revenue Account 2 for Center 3: $600
	Revenue Account 3 for Center 1: $500
	Revenue Account 3 for Center 2: $600
	Revenue Account 3 for Center 3: $700

In this second example, only revenue accounts (credit accounts) are debited or credited because the allocation rule's Source was defined to focus on revenue accounts. Note that in both examples, you need to take care in how you construct the definition of your allocation debits and credits to obtain the desired results. Generally, when you are allocating expenses or assets, you “target” receiving centers (or products or other dimensions) in your debit specification; and you offset the sources of those debit accounts in your credit specification. Conversely, when you are allocating revenues or liabilities or equity, you “target” receiving centers (or products or other dimensions) in your credit specification; and you offset the sources of those credit accounts in your debit specification.

Note that in both examples, the allocation rule's outputs were limited to only one type of account (debit accounts in the first example and credit accounts in the second example). When designing allocation rules, you generally need to take care that your allocation sources contain only one type of account. More specifically, you need to analyze your target accounts types as will be explained below.