Oracle Apps Intercompany Accounting in R12

Intercompany Accounting in R12:

How it happens in 11i:

In 11i, intercompany transactions used to be created when a transaction has happened between two different balancing segments. Consider a payment for 100 in Payables has happened where the balancing segment for the liability account is ‘001’ and balancing segment on the cash/cash clearing is ‘002’. For the below illustration let us know the chart of accounts has three segments Company Code, Account and Cost Center.

Acct Class                                Acct                      Credit                         Debit

---------------                            -----------              --------                        -------

Cash/clearing                          001.xx.xx                100

Liability                                              002.xx.xx                                                                 100

Since the accounting entries are not balanced by the balancing segments, intercompany lines would be created when posting happens in GL. The setup for intercompany accounts is to be done at the GL side.

R12 Intercompany Accounting:

In R12 accounting between two different balancing segments differs from how it was done in 11i in the following ways.

If a transaction has been created between two different balancing segments belonging to the same legal entity for the ledger, then intracompany lines are created for balancing.

If a transaction has been created between two different balancing segments belonging to the different legal entities for the ledger, then intercompany lines are created for balancing.

Steps for Intercompany setup in R12.

Let us assume the company codes (which is the balancing segment) ‘001’ and ‘002’ belong to two different legal entities (LE1 and LE2) under the same ledger.

We will be creating a payment with cash clearing account as 001.xx.xx and liability account as 002.xx.xx

We need to complete the below steps to ensure proper intercompany accounting entries are created for the above payment.

In the Intercompany accounts setup, two accounts need to be setup. One is Intercompany receivables account and another is Intercompany Payables account. The account for receivables should be Asset and account for payables should be Liability.

Create account ‘0010’ for the account segment corresponding to Company code ‘001’ and ‘002’ and mark the Account Type as ‘Asset’ in the qualifier.

Create account ‘0020’ for the account segment corresponding to Company code ‘001’ and ‘002’ and mark the Account Type as ‘Liability’ in the qualifier.

Create the below four accounting combinations.

001.0010.00

001.0020.00

002.0010.00

002.0020.00

Go to Accounting setup manager.

Query for the ledger

Under the setup step for the primary ledger, click on the update option for the Intercompany Accounts.

Click on define relationship for the legal entity LE1. Under the intercompany accounts section, click on Add Another Row. Give the transacting balancing segment value as ‘001’, trading partner legal entity as ‘LE2’ and trading partner balancing segment value as ‘002’.

Click on Define Accounts.

Give the intercompany receivables account as 001.0010.00 and intercompany payables account as 001.0020.00.

Note: The start date on the intercompany receivables and payables account should be before the transaction date, else Create Accounting would not be able to find the correct intercompany account.

The above steps need to repeated for the legal entity LE2.

Click on define relationship for the legal entity LE2. Under the intercompany accounts section, click on Add Another Row. Give the transacting balancing segment value as ‘002’, trading partner legal entity as ‘LE1’ and trading partner balancing segment value as ‘001’.

Click on Define Accounts.

Give the intercompany receivables account as 002.0010.00 and intercompany payables account as 002.0020.00.

Test the Intercompany Account setup:

Create an invoice ‘Test Inter1’ with the charge account as ‘002.xx.xx’ and liability account as ‘002.yy.yy’. Validate and account the invoice.

Pay the invoice using a bank account where pooled account is not enabled. The cash account setup for the bank account is ‘001.xx.xx’.

Account for the invoice. The accounting entries created for the payment would be as follows

Acct Class                                Acct                      Credit                         Debit

-------------                               -------------           ------------                  ------------

Cash                                        001.xx.xx             100

Liability                                  002.xx.xx                                                 100

Intercompany                          001.0010.00                                             100

Intercompany                          001.0020.00         100

This is the basic setup required for intercompany in SLA.

Please add in your suggestion for any modification/comments.