Intercompany Balancing Rules

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

Specify the intercompany receivables and intercompany payables accounts that you want to use as the template for building the intercompany receivables and intercompany payables accounts. The intercompany balancing feature then uses these rules to generate the accounts of the balancing lines it creates.

Journals lines are first summarized by the legal entity and are balanced by the legal entity. Since a legal entity can have many primary balancing segment values, it's possible that a journal could have multiple lines for a legal entity with different primary balancing segment values. In that case, when intercompany balancing is done, the lowest primary balancing segment value within each legal entity in the journal is used. After this, balancing occurs across balancing segment values within each legal entity.

These same rules are also used to generate the intercompany receivables account and intercompany payables account of transactions entered in the Intercompany module.

The intercompany balancing rules are also used to generate the intercompany receivables account for the provider side of an intercompany transaction. And balancing rules are also used to generate the intercompany payables account for the receiver side of an intercompany transaction.

Caution:

After you create an Intercompany balancing rule, you can't modify them. But you can end date an existing rule and create a new rule.

Defining Intercompany Balancing Rules

You can define intercompany balancing rules at these levels:

1. Primary balancing segment

2. Legal entity

3. Ledger

4. Chart of accounts

The rules are evaluated in the order shown. For example, you can define a Primary Balancing Segment rule and a Legal Entity level rule. If both rules can be 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, define a different rule for each legal entity and one chart of accounts rule to cover any gaps. You can gain even more granularity by defining rules for specific journal and category combinations or intercompany transaction types.

Using Chart of Accounts Rules for Intercompany

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.

Intercompany Balancing then evaluates the journal source and journal category combination in determining which rule to use for balancing. This is the order of precedence.

• 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

Additional Intercompany Balancing and Clearing Company Options

Additional Intercompany Balancing and Clearing options are used to balance the second balancing segment or the third balancing segment or both, when a transaction is unbalanced by one of these segments but is already balanced by the primary balancing segment. This option is defined for a ledger but you can create rules for various Source and Category combinations.

Additional Intercompany Balancing and Clearing options include these settings:

• Intercompany Receivables and Intercompany Payables accounts: You can use as the accounts as the template to build balancing accounts for balancing segment 2 and balancing segment 3 when the journal is already balanced by primary balancing segment.

• Summarization options: You can choose to summarize lines within a legal entity before balancing lines are generated by choosing the Summary Net option. Alternatively choose the Detail options so lines aren't summarized before balancing within a legal entity. Note that summarization always applies to balancing lines generated in a cross legal entity scenario.

• Clearing company options: Oracle recommends to always set clearing company options to handle many-to-many journals. This avoids balancing failing during General Ledger Posting or Subledger Accounting Create Accounting process.

Clearing Company Options

You can choose to set clearing company options to balance a many-to-many journal. Set these options to manage your clearing company balancing.

• Clearing Company Condition: Choose when to use a clearing company.

  • Use clearing company only for intracompany journals.

  • Use clearing company for all many-to-many journals.

  • Error out if many-to-many journal. The default value for this option.

• Clearing Company Source: Choose how the clearing company value is derived for your balancing lines, from these options:

  • Default clearing balancing segment value.

  • Manually entered clearing balancing segment value. Note that if you select Manually entered clearing balancing segment value, then you must manually enter a value in the create journals screen. This option doesn't work for subledger accounting entries as they don't have a field on the user interface to enter this value.

• Clearing Company Value: If you selected Default clearing balancing segment value for Source, you must select a primary balancing segment value in this field. This value is used to balance your intracompany or many-to-many journals.