Intercompany Accounting Setup in Oracle Fusion/ PART I
Learn how to set up Intercompany Accounting step by step in Oracle Fusion
What is Intercompany Accounting?
Intercompany accounting involves recording financial transactions between different legal entities within the same parent company.
Let’s say Legal entity “A” performs some business activity (e.g. Consultancy, Miscellaneous expenses etc.) for Legal entity “B”. To record the business activity in books, Legal entity “A” will create an Intercompany Transaction. On submitting an intercompany transaction, system creates Outbound
transaction for legal entity “A”. Additionally system creates Inbound Transaction for Legal entity “B”.
Legal entity “A” is providing business value to legal entity “B”, so it (“A”) will be receiving some monetary value back in future from legal entity “B”. To make this reflected in accounting, the value which is going to be received in future by legal entity “A” is parked in “Intercompany receivable account” of legal entity “A”.
Legal entity “B” is getting business value from legal entity “A”, it’s a liability for Legal entity “B”. To make this reflected in accounting, the offset of Liability is parked in “Intercompany Payable account” of legal entity “B”.
Let me illustrate it for better comprehension:
Accounting Entries for Entity A ( provides service and increases Revenue):
Intercompany Receivables Dr
Revenue Cr
Accounting Entries for Entity B ( receives services/ liability increases):
Expense/Service Dr
Intercompany Payables Cr
To map the above requirement, the following steps are performed:
a) Basic set up (like setting up Ledgers, Accounting calendar etc.) in “GL”
b) Intercompany System set up
c) Intercompany transaction to capture the Intercompany business activity
d) Automatic Creation of Outbound and Inbound transactions
e) Approval of Inbound transaction by Receiver Organization
f) Receivable Invoicing in Receivables of Vision Services
g) Payables invoicing in Payables of Vision Operations
Intercompany Transaction Set up
Before transaction flow, setup needs to be completed. Setup for Intercompany is related to General ledger and Intercompany accounting.
A) General Ledger Setup
Our business example is related to 2 different ledgers, hence those ledgers must be configured if it’s not done already.
Navigate Financials>Define Common Applications Configuration for Financials>Define Ledgers>Define Accounting Configurations>Specify Ledger Options
Note: Chart of Accounts: Accounting Flexfield
Retained Earning Account: From here we can see that this ledger (Entity A) has 5 segments.
Next Step: Check Ledger Setup for Entity B ledger
Navigate Financials>Define Common Applications Configuration for Financials>Define Enterprise Structures for Financials> Define Financial Reporting Structures>Define Calendars>Manage Accounting Calendars
Next Step: verify Legal Entity Assignment for the ledgers
Navigate Financials>Define Common Applications Configuration for Financials>Assign Legal Entities
Next Step: Verify or define Accounting calendar
Navigate Financials>Define Common Applications Configuration for Financials>Define Enterprise Structures for Financials> Define Financial Reporting Structures>Define Calendars>Manage Accounting Calendars
“MonthlyCalendar” is the calendar which we will be using in Intercompany. This completes the setup in General Ledger.
Guys, this completes my Part I for Intercompany. As it is a broad section, I will see you in Part II where I will explain Intercompany Setup step by step.
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I am an Oracle Functional Specialist with more than 6 years of experience. I help clients to understand software capabilities and to analyze business needs. My main goal is to recommend solutions and ultimately guide through all phases of Oracle Cloud Applications. I am also inspired to write about life, improvement and personal growth.
