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Designing a Chart of Accounts and Enterprise Structure in Oracle Fusion ERP Cloud

This presentation explains how to design a Chart of Accounts and Enterprise Structure in Oracle Fusion ERP Cloud.

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Designing a Chart of Accounts and Enterprise Structure in Oracle Fusion ERP Cloud

  1. 1. Designing a Chart of Accounts and Enterprise Structure in Oracle Fusion ERP Cloud Prithis Das – Dynamique Solutions LLC March 9, 2018 Drury Lane Conference Center Oakbrook Terrace
  2. 2. Presenter’s background - Prithis Das • In the Oracle ERP space since 1997 • Founder of Dynamique Solutions LLC, an Oracle Silver Partner • Consulting experience with Big 5 and other major organizations • Oracle Certified Specialist in all the Oracle ERP Cloud Financials modules • Oracle Certified Specialist in Oracle E-Business Suite Financials modules • Chartered Accountant and Management Accountant from India • Multiple presentations on Oracle technologies at major Oracle events • Contact: • Cell: +1.630.3649457 • Email: prithis.das@dynamique.us • LinkedIn: www.linkedin.com/in/prithisdas/ • Web: www.dynamique.us Dynamique Solutions LLC
  3. 3. AGENDA Dynamique Solutions LLC
  4. 4. Agenda • Oracle Chart of Accounts design • Oracle Accounting Flexfield • Design considerations and best practices • Oracle Enterprise Structure design • Elements of the Enterprise Structure • Consolidation • Example of Enterprise Structure • Q&A Dynamique Solutions LLC
  5. 5. CHART OF ACCOUNTS DESIGN Oracle Fusion ERP Cloud Dynamique Solutions LLC
  6. 6. Chart of Accounts • Defines detail of transactions in Ledger • Ensures balanced entries within legal entities • P&L and Balance Sheet account types • Supports capabilities for reporting and analytics • Supports consolidations, hierarchies, etc Dynamique Solutions LLC
  7. 7. Chart of Accounts: The Oracle Accounting Flexfield Dynamique Solutions LLC • Accounting Flexfield - definition of the segments (dimensions) that comprise the chart of accounts • Segment - dimension needed to record or report cost such as company, line of business, cost center, natural account, product, intercompany • Account combination – contains a completed code of segment values that uniquely identifies an account in the chart of accounts XX - XX - XXXXX - XXX - XXXX - XX Company | LOB | Account | Department | Product | Intercompany
  8. 8. Chart of Accounts: The Oracle Accounting Flexfield Dynamique Solutions LLC The chart of accounts structure defines the key attributes for your chart of accounts: • Number of segments • Segment sequence • Segment names and prompts • Segment labels, for example, natural account and balancing • Default value sets.
  9. 9. Number of segments Dynamique Solutions LLC • A minimum of 3 segments are required • Balancing segment (Legal Entity/Company) • Natural Account • Cost Center (Optional segment, however if Expenses or Assets are being implemented, a Cost Center segment is mandatory) • Oracle Cloud allows a maximum of 30 segments, with up to 25 characters in each segment • Typically 5 to 8 segments are configured in the Accounting Flexfield • In Oracle Cloud, you cannot increase/decrease the number of segments once deployed.
  10. 10. Segment sequence Dynamique Solutions LLC • Each segment must be assigned a display sequence number starting from 1. • Typically the Balancing segment (Legal Entity/Company) is designated as the first segment • Intercompany segment is typically one of the last segments • Least used segment, such as a Future segment is typically at the very end
  11. 11. Segment names and prompts Dynamique Solutions LLC • Each segment must have a segment name • The Balancing Segment is typically named “Legal Entity” or “Company” • The Natural Account segment is typically named “Account” • The Cost Center segment can be named “Department” or “Cost Center” • Each segment can be assigned a Prompt or a display name and a short name • The Prompt appears on data entry screens whenever the Accounting Flexfield window is opened • The short name appears on certain screens such as Account Monitor, where there are a large number of visible fields
  12. 12. Segment labels Dynamique Solutions LLC Identifies certain segments in your chart of accounts and assigns special functionality to those segments • Balancing • Reflects organizational units, both legal and management • Controls inter/intra-company reporting • Determines P&L and Balance Sheet reporting • All transactions with a Balancing Segment must balance for Debits and Credits • Natural Account • Core segment of the chart of accounts used to classify each transaction • Cost Center (required when Assets and Expenses are implemented) • Collection of costs managed by someone • Generally aligned with the department structure • Assets uses this segment to charge depreciation XX - XX - XXXXX - XXX - XXXX - XX Company | LOB | Account | Department | Product | Intercompany
  13. 13. Segment labels (contd.) Dynamique Solutions LLC Identifies certain segments in your chart of accounts and assigns special functionality to those segments • Intercompany • Used to track “due from” and “due to” • Same values as Balancing segment • Best practice is to have an intercompany segment if the organization has intercompany transactions • Management • Management segment label for the Accounting Flexfield is not supported in Oracle Cloud yet. XX - XX - XXXXX - XXX - XXXX - XX Company | LOB | Account | Department | Product | Intercompany
  14. 14. Value Sets Dynamique Solutions LLC • A value set is a “container” for your values. • A value set is attached to each segment to provide formatting and validation of the set of values used with that segment • Each Accounting Flexfield segment must have a value set. There is no “free text” segment.
  15. 15. Segment size considerations Dynamique Solutions LLC • Segment length for each segment should be sufficient to incorporate child values and parent values for reporting hierarchies as well as allow for growth • Consider the addition of new legal entities, new product lines, new cost centers in the future. The segment lengths should be sufficient to accommodate for future growth. • Allow enough room for values within a segment for future growth • Increment numbers depending on new values additions anticipated within each segment
  16. 16. Independent vs Dependent segments Dynamique Solutions LLC • Dependent segments values are based on the value selected in the previous segment (which is Independent) • Oracle Cloud requires that all Accounting segments must be Independent. Dependent segments in the Accounting Flexfield are not supported. • An alternative to using dependent segments is to use cross validation rules that restrict the user from combining certain segment values.
  17. 17. Dynamic combination creation Dynamique Solutions LLC • Dynamic combination creation (a.k.a. Dynamic Insertion) allows for automatic creation of new account combinations during transaction entry • If this feature is turned off, the system will prevent creation of new combinations during transaction entry • If turned off, new combinations will need to be manually pre-created by a System Administrator (someone who has access to the Setups) before they can be used in transactions • Dynamic insertion is turned on or off at the Chart of Accounts Structure Instance level • Most commonly, Dynamic insertion is turned on (default setting)
  18. 18. Future segment Dynamique Solutions LLC • An additional segment or segments reserved for future use when the need arises • Commonly one or two segments are configured as Future • Future segments will be visible on data entry screens, and data upload spreadsheets • A default value of “0000” or similar can be setup to save data entry time • If the user chooses to key in the Account combination instead of the Flexfield pop-up, she will need to key in the Future segment value • Future segments can be omitted from configured Reports • When it is decided to use this segment, the segment prompt can be changed from “Future” to something else, such as “Product”, however, this will require a System Administrator with familiarity with GL setups
  19. 19. Project segment? Dynamique Solutions LLC • A Project segment is sometimes used to capture costs at a Project level if Oracle Projects is not part of the modules being configured • If the Projects Financials solution of Oracle Cloud is being implemented, then a separate Project segment is not necessary • Project-level reports are obtained directly from the Projects module if implemented
  20. 20. Segment delimiter (separator) Dynamique Solutions LLC • Possible delimiters are • ! • * • + • - (fairly common) • . (most common) • : • = • ^ • | • ~ • Segment delimiter counts towards the length of the accounting string • Delimiter must be typed in if the user chooses to type in the account on a screen • Delimiter does not have to be entered on GL spreadsheet uploads
  21. 21. Design considerations Dynamique Solutions LLC • Each segment of the CoA should represent a unique reporting dimension. Do not mix multiple dimensions in a single segment • Consider using an Intercompany segment where there are multiple entities. This will reduce the number of due-to/due-from natural accounts and facilitate easier definition of automatic eliminations for consolidation of financials Scenario 1 – One segment Scenario 2 – Two segments Natural Account Natural Account Intercompany IC Receivable from Co.1 IC Receivable Co.1 IC Receivable from Co.2 IC Payable Co.2 IC Receivable from Co.2 Co.3 IC Payable to Co.1 IC Payable to Co.2 IC Payable to Co.3 Scenario 1 – One segment Scenario 2 – Two segments Department Region Department Accounting Region 1 Region 1 Accounting Accounting Region 2 Region 2 Sales Accounting Region 3 Region 3 Sales Region 1 Sales Region 2 Sales Region 3
  22. 22. Design considerations Dynamique Solutions LLC Units of similar dimensions • Visualize each segment as a unit dimension of the business. Combine units that are based on similar dimensions to avoid using multiple segments that measure the same dimension. • For example, group regions and districts into one segment with parent-child hierarchies • Avoid alpha characters in the CoA • Parents are the exception Scenario 1 – One segment Scenario 2 – Two segments Region Region District Region 1 (Parent) Region 1 District 1 - District 1 (Child) District 2 - District 2 (Child) Region 2 District 3 Region 2 (Parent) District 4 - District 3 - District 4
  23. 23. Design considerations Dynamique Solutions LLC Global Chart of Accounts • A standardized approach to accounting • A designated account structure format and set of values that all entities in a group use to provide consistency across all ledgers. • Facilitates standard business analysis and apples to apples performance reporting. • Enables account derivation in intercompany and cross legal entity situations. • Eliminates mapping and data rework on consolidation. • Facilitates the use of Ledger Sets, • Reduces configuration complexities • Streamline the month-end and year-end closing processes
  24. 24. Design considerations: Summarization of Information Dynamique Solutions LLC • Information is summarized from the sub-ledgers before posting to the General Ledger • Details are stored in the sub-ledgers • For AR, individual customer balances are stored in the sub-ledger, eliminating the need to have a GL account for each customer • Projects balances are stored in the Projects module, eliminating the need to have a GL account for each project • Summarization also occurs in different forms: • Balances are automatically summarized at the Summary (parent) level for accounts • By Account Combination, e.g., Multiple Liability lines on a Journal are summarized to a single line • By Account Class, e.g., Multiple invoices are grouped, and summarized on the same journal
  25. 25. ENTERPRISE STRUCTURE DESIGN Oracle Fusion ERP Cloud Dynamique Solutions LLC
  26. 26. Oracle Cloud: Enterprise Structure Elements Dynamique Solutions LLC • Enterprise • Overall context and global headquarter location – One Enterprise per instance • Ledgers – defined by 4 C’s, and governed by a set of processing options • Currency • Calendar • Chart of Accounts • Accounting Convention • Legal Entities – registered under a country’s law • Have unique legal and/or tax identifier • Legal Entities that share the 4 C’s can be accounted for in the same ledger • Business Units segregate subledger data (AR, AP, PO, Projects) • Inventory Organizations - An organization for which you track inventory transactions and balances
  27. 27. Currencies Dynamique Solutions LLC • Oracle Cloud comes pre-loaded with all the ISO currency codes • STAT currency is used for statistical journal entries, which can be one-sided entries • Multi-currency functionality in Oracle Cloud is designed in accordance with: • United States Statement of Financial Accounting Standards 52 (SFAS #52) • International Accounting Standards 21 (IAS 21 requirements) • The following three currency processes are performed in Oracle Fusion Applications: • Conversion • Revaluation • Translation • Rate Types • Spot • Corporate • User
  28. 28. Calendar Dynamique Solutions LLC • A calendar defines the accounting year and the period that it contains • Start date • Define your calendar with a start date at least one year prior to the period in which you start entering transactions or uploading historical data • After you open the first accounting period for a ledger, prior periods cannot be opened • Period Frequency • Monthly, Quarterly, Yearly, 4-4-5, 5-4-4, 4-5-4 • An adjusting period can be setup • Typically adjusting period is setup for a single day at the end of the period • Adjusting period can overlap with the regular period
  29. 29. Accounting Convention/Method Dynamique Solutions LLC • Oracle Cloud provides Standard Accrual as a seeded Accounting method • Based on US GAAP • Accounting methods such as Cash Basis are not supported yet in Oracle Cloud (as of Release 13)
  30. 30. Legal Entities Dynamique Solutions LLC • By definition, a Legal Entity is a person or organization that can legally enter into a contract • In accounting terms the Legal Entity is the smallest organizational unit for which you need to be able to produce a balanced set financial statements. The Legal Entity is the initiator and owner of a given transaction. • A legal company for which you prepare fiscal or tax reports. You assign tax identifiers and other legal entity information to this type of organization. • Each Legal Entity is attached to a single Primary Ledger through a Balancing Segment value
  31. 31. Ledger Dynamique Solutions LLC • A Ledger is identified by 4 basic components (chart of accounts, currency, accounting calendar, accounting method) and a set of ledger processing options • Each accounting setup requires a primary ledger, and optionally, can include one or more secondary and reporting currency ledgers • Reporting currencies are additional currency representations of primary ledgers or secondary ledgers • The number of ledgers is unlimited and determined by your business structure and reporting requirements.
  32. 32. Ledger Dynamique Solutions LLC • Three types of Ledgers are defined in Oracle Cloud using the four components that are already defined: Chart of Accounts, Calendar, Currency and Accounting Method. • Primary Ledger: Main record keeping ledger and a required component. The Primary Ledger is closely associated with the subledger transactions and provides context and accounting for them. • Secondary Ledger: Optional ledger, linked to a Primary Ledger for the purpose of tracking alternative accounting. A secondary ledger can differ from its Primary Ledger in its Chart of Accounts, Calendar, Currency, Accounting Method, or processing options. • Reporting Currency Ledger: Optional, additional currency representation of a Primary or Secondary Ledger. A reporting currency ledger can differ from its source ledger in its currency and some processing options, but shares the same chart of accounts, accounting calendar, and accounting method with its related ledger.
  33. 33. Ledger Sets Dynamique Solutions LLC • When Chart of Accounts and Calendar options are the same for different ledgers, they can be grouped into Ledger Sets • Once the Chart of Accounts and Calendar starts to vary, ledgers can no longer be grouped in Ledger Sets • Runs reports or process across all the ledgers in the Ledger Set Option Chart of Accounts Calendar Currency Accounting Convention Ledger in Single Ledger Set 1 Same Same Same Same Yes 2 Same Same Different Different Yes 3 Different Different Same Same No 4 Different Different Different Different No
  34. 34. Business Unit Dynamique Solutions LLC • A Business Unit is an enterprise element that processes and generates business transactions on behalf of one or more legal entities • A business unit performs one or more business functions that determine what activities it is used for • Examples include billing and revenue management, customer payments, payables invoicing, procurement, requisitioning, etc. • Business units are used for: • Partitioning transactions – business transactions stored in a business unit are stored separately from transactions processed in other business units • Secure transactions – assign business units to your users • Share reference data – reference data objects such as payment terms can be shared across multiple business units.
  35. 35. Business Unit Dynamique Solutions LLC • You assign a business unit to one Primary Ledger and a default Legal Entity. • A business unit can process transactions on behalf of one or more legal entities. • There is no direct relationship between a business unit and a legal entity • The mapping is inferred from the primary ledger assigned to the business unit and its associated legal entities
  36. 36. Inventory Organization Dynamique Solutions LLC • An organization for which you track inventory transactions and balances, and/or an organization that manufactures or distributes products. • Examples include (but are not limited to) manufacturing plants, warehouses, distribution centers, and sales offices. • Applications that secure data by Inventory Organization include (Inventory, BOM, Engineering, WIP, MRP, Capacity, Purchasing and Receiving). To run any of these applications, you must choose an organization that has been classified as an inventory organization.
  37. 37. Consolidation Methods Dynamique Solutions LLC Oracle offers the following consolidation solutions: • Reporting Only consolidations • If all your ledgers share the same Chart of Accounts and Calendar • Balance Transfer consolidations • If your subsidiary and corporate ledgers have either or both different charts of accounts or different calendars • Financial Management consolidations • If there are complex factors in your financial consolidation requirements, such as: o Complex company structures such as joint ventures, minority interest holdings, partially owned subsidiaries o Multiple non-GL systems supporting non-financial industrial metrics.
  38. 38. Reporting Only vs Balance Transfer Dynamique Solutions LLC Reporting Only Consolidation - Pros • No need to run additional processes to consolidate unless ledgers have a different currency than the consolidation currency • View the consolidated balances anytime. This cannot be done in the Balance Transfer method because that method requires a balance transfer to be done first. • Faster close. Reporting Only Consolidation – Cons • Requires a standardized COA and Calendar for the subsidiaries and corporate ledgers to group ledgers into ledger sets
  39. 39. Reporting Only vs Balance Transfer Dynamique Solutions LLC Balance Transfer Consolidation - Pros • Does not requires a standardized COA and Calendar Balance Transfer Consolidation – Cons • May require an additional consolidation ledger to maintain balances, or the current parent ledger can serve as the consolidation ledger • Need to maintain COA mappings • Outdated balance transfers need to be reversed and posted. A new balance transfer process needs to be run each time a source ledger’s balance changes.
  40. 40. Worldwide Enterprises LegalEntity USA Company 101 USA Company 102 USA Company 103 USA Company 104 USA Company 105 CAN Company 201 CAN Company 202 CAN Company 203 MEX Company 301 MEX Company 302 GBR Company 401 GBR Company 402 IND Company 501 USD Primary Global COA 4-4-5 calendar USD currency Standard Accrual PrimaryLedger CAD Primary Global COA 4-4-5 calendar CAD currency Standard Accrual MXN Primary Global COA 4-4-5 calendar MEX currency Standard Accrual GBP Primary Global COA 4-4-5 calendar GBR currency Standard Accrual INR Primary Global COA 4-4-5 calendar INR currency Standard Accrual Enterprise Elimination Ledger Global COA 4-4-5 calendar USD currency Standard Accrual Secondary Ledger(s) CAD Secondary Global COA 4-4-5 calendar CAD currency Standard Accrual MEX Secondary Global COA 4-4-5 calendar USD currency Standard Accrual GBR Secondary Global COA 4-4-5 calendar GBP currency Standard Accrual INR Secondary Global COA 4-4-5 calendar INR currency Standard Accrual USD Secondary Global COA 4-4-5 calendar USD currency Standard Accrual Reporting Currency CAD-USD Reporting Balance level GBP-USD Reporting Balance level INR-USD Reporting Balance level BusinessUnit USA BU CAN BU MEX BU GBR BU IND BU Subledgers Payables Receivables Cash Management Assets (Corporate, Tax) Payables Receivables Cash Management Assets (Corporate, Tax) Payables Receivables Cash Management Assets (Corporate, Tax) Payables Receivables Cash Management Assets (Corporate, Tax) Payables Receivables Cash Management Assets (Corporate, Tax) USD Primary CAD-USD Reporting MEX Secondary GBP-USD Reporting INR-USD Reporting Elimination Ledger ReportingConsolidation Dynamique Solutions LLC EnterpriseStructureexample
  41. 41. Questions? Dynamique Solutions LLC
  42. 42. Designing a Chart of Accounts and Enterprise Structure in Oracle ERP/Fusion Cloud Prithis Das – Dynamique Solutions LLC Cell: +1.630.3649457 Email: prithis.das@dynamique.us LinkedIn: www.linkedin.com/in/prithisdas/ Web: www.dynamique.us Dynamique Solutions LLC

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