Financial Accounting Hub (FAH)

What is Financial Accounting hub (FAH)

The Financial Accounting Hub is an integration tool which enables customers to integrate data from Non-Oracle source systems or sub-ledgers such as Billing/Banking, any 3rd Party Accounting or Insurance systems.  Specific rules can be applied to the data as it passes through the hub into the Oracle General Ledger. Oracle Financials Accounting Hub enables the transformation of information from disparate systems into a centrally and consistently maintained accounting repository. The core strengths of Oracle Financials Accounting Hub include its ability to create a single source of accounting truth for multiple external and legacy systems using business user-defined accounting rules. 

Oracle Financials Accounting Hub allows the integration of External Application by centralizing the definition and maintenance of accounting rules in a business user orientated repository. Accounting journals are created with a rules transformation engine, validated, and stored in an auditable format in a single location.  FAH acts as the accounting engine for any sub-ledger (Oracle or non-Oracle), create adjusting journal entries, and provide drill back from General Ledger (GL) to FAH,

How Does FAH Works:

FAH is an uptake of SLA. It is basically standalone Subledger Accounting (SLA), it allows to use Oracle SLA and GL to perform the accounting for third party / External applications.

Using Accounting Method Builder (AMB) Tool, FAH Efficiently Create Accounting for Multiple Heterogeneous Source Systems Oracle Financials Accounting Hub provides a flexible rules builder for business users to create accounting rules once and deploy them many times across different external and legacy systems. Legacy systems that do pre-accounting can pass journals through the hub to validate and store the accounting in the accounting repository for a single, reliable, enterprise wide view.

Financial Accounting Hub (FAH) V/S Sub-Ledger Accounting (SLA)

• The Financial Accounting Hub (FAH) is very similar to the Subledger Accounting product (SLA). In fact, looking merely at the functionality, there's no difference between FAH and SLA.
• The only distinction between both products is that with SLA you get seeded event models for all Oracle Subledger modules that require accounting and if desired one can use the components from these seeded event models to create your own customized Subledger Accounting Method.
• While with a FAH organizations get the possibilities to register external applications as Subledger, from which they can build their own event model, and use the SLA functionality to create accounting for the events originating from their external applications.

FAH Event Model:

FAH/SLA uses an Event Model consisting of Event Entities with underlying Event Classes, and at the lowest level we have the Event Types which in their turn belong to the Event Classes.

The accounting is entirely event-driven meaning that for each Event Type you can define how you would like the accounting to be created. This is done using Journal Line Types, Journal Entry Descriptions and Account Derivation Rules which tie together in a Journal Lines Definition. Conditions can be applied at various levels, and optionally you can use Mapping Sets and/or Supporting References.

For each Event Type such a Journal Lines Definition can be build. These Journal Lines Definitions roll up into an Application Accounting Definition.  The Application Accounting Definitions are grouped together under a Subledger Accounting Method, which is the component that gets tied to the ledger (In R12 a ledger consists of calendar, currency, chart of accounts and Subledger Accounting Method).

FAH transaction Flow:

FAH allows to use Oracle SLA and GL to perform the accounting for third party applications. Using Accounting Method Builder (AMB) Tool, The Application Accounting Events, Accounting events of source External application are mapped and stored in the SLA tables. External/Source Application’s accounting event’s for, accounting attributes and transactions supporting references are kept in FAH transactions objects.  When user submits accounting program,

• Accounting program fetches the applicable accounting events from SLA Tables depending the External application and Event model.
• The Configured Accounting definition rules are then applied and Loaded FAH transactions objects
• journal entries for the External Application are then created and stored in the SLA Tables.
• SLA journal entries for External application are transferred to GL using standard Oracle Transfer to GL Program.

Accounts Receivables Accounting Flow

Accounts Receivables Accounting Flow

Receivables creates default accounts for revenue, receivable, freight, tax, unearned revenue, unbilled receivable, finance charges, and AutoInvoice clearing (suspense) accounts using the information specified in your AutoAccounting structure.

AR Transactions

When a regular AR invoice is entered, Receivables creates the following journal entry:

        DR Receivables

                       CR Revenue

                       CR Tax (if you charge tax)

                       CR Freight (if you charge freight)

AR Receipt

When cash is received, Receivables creates the following journal entry:

        DR Cash

                       CR Receivables

Other Scenarios for Accounts Receivables Accounting Are

Bill in Arrears

If you enter an invoice with a Bill in Arrears invoicing rule, Receivables creates the following journal entry:

In the first period of Rule:

        DR Unbilled Receivables

                       CR Revenue

In all periods of Rule, for the portion that is recognized:

        DR Receivables

                       CR Unbilled Receivables

                       CR Tax (if you charge tax)

                       CR Freight (if you charge freight)

Bill in Advance

If you enter an invoice with a Bill in Advance invoicing rule, Receivables creates the following journal entries.

In the first period of the rule:

        DR Receivables

                       CR Unearned Revenue

                       CR Tax (if you charge tax)

                       CR Freight (if you charge freight)

In all periods of the rule for the portion that is recognized.

        DR Unearned Revenue

                       CR Revenue

Accounts Receivables Credit Memos

When you credit an invoice, debit memo, or chargeback, Receivables creates the following journal entry:

        DR Revenue

        DR Tax (if you credit tax)

        DR Freight (if you credit freight)

                       CR Receivables (Credit Memo)

        DR Receivables (Credit Memo)

                       CR Receivables (Invoice)

When you credit a commitment, Receivables creates the following journal entries:

        DR Revenue

                       CR Receivables

Commitments

When you enter a deposit, Receivables creates the following journal entry:

        DR Receivables (Deposit)

                       CR Unearned Revenue

When you enter an invoice against this deposit, Receivables creates the following journal entries:

        DR Receivables (Invoice)

                       CR Revenue

                       CR Tax (if you charge tax)

                       CR Freight (if you charge freight)

        DR Unearned Revenue

                       CR Receivables (Invoice)

When you apply an invoice to a deposit, Receivables creates a receivable adjustment against the invoice. Receivables use the account information you specified in your AutoAccounting structure to create these entries.

When cash is received against this deposit, Receivables creates the following journal entry:

        DR Cash

                       CR Receivables (Deposit)

Receipts

When you enter a receipt and fully apply this receipt to an invoice, Receivables creates the following journal entry:

        DR Cash

                       CR Receivables

When you enter an unapplied receipt, Receivables creates the following journal entry:

        DR Cash

                       CR Unapplied

When you enter an unidentified receipt, Receivables creates the following journal entry:

        DR Cash

                       CR Unidentified

When you enter an on-account receipt, Receivables creates the following journal entry:

        DR Cash

                       CR On-Account

When your receipt includes a discount, Receivables creates the following journal entry:

        DR Receivables

                       CR Revenue

        DR Cash

                       CR Receivables

        DR Earned/Unearned Discount

                       CR Receivables

Receivables uses the default Cash, Unapplied, Unidentified, On-Account, Unearned, and Earned accounts that you specified in the Remittance Banks window for this receipt class.

When you enter a receipt and combine it with an on-account credit (which increases the balance of the receipt), Receivables creates the following journal entry:

        DR Cash

                       CR Unapplied Cash

To close the receivable on the credit memo and increase the unapplied cash balance, Receivables creates the following journal entry:

        DR Receivables

                       CR Unapplied Cash

When you enter a receipt and combine it with a negative adjustment, Receivables creates the following journal entries:

        DR Cash

                       CR Receivables (Invoice)

        DR Write-Off

                       CR Receivables (Invoice)

Set up a Write-Off account when defining your Receivables Activity.

When you enter a receipt and combine it with a positive adjustment, Receivables creates the following journal entries:

        DR Cash

                       CR Receivables (Invoice)

        DR Receivables (Invoice)

                       CR Write-Off

When you enter a receipt and combine it with a Chargeback, Receivables creates the following journal entries:

        DR Cash

                       CR Receivables (Invoice)

        DR Receivables (Chargeback)

                       CR Receivables (Invoice)

        DR Chargeback

                       CR Receivables (Chargeback)

Set up a Chargeback account when defining your Receivables Activity.

How to Define Segment Values in Accounting Flex field in Release 12.2

How to Define Segment Values in Accounting Flex field in Release 12.2 

Not able to Search Value sets in R12.2

In Release 12.2 Value set Insert/Update depends on Security access. To Insert/Update the Accounting Flex filed segment values for a specific user, User need to follow below steps

By Default in R12.2 a user will not be able to see any values in the value set / Key Flexfield values Form and will receive an error

FRM-40212: Invalid value for field FLEX_VALUE_SET-NAME

To Insert/Update the Accounting Flex filed segment values for a specific user, User need to be provided with appropriate Grants.

Please follow below steps toad Grants for User to Insert and update Value Sets.

Responsibility : Functional Administrator

Go to Navigation : Security à Grants à  Create Grant

1.Name            :Give Name as Required

2.Grantee Type :Select as Specific User

3.Grantee         :Select the Required User Name from List of Values

4.Object           :Select Object as ''Flexfield Value Set Security Object(1)'' from List of Values

5.Set               :Select the Set as ''Flexfield Value Set Security Insert/Update Set'' from List of values .

6. Click on ''Apply'' Button

Add the Object Data Context : All Rows

Select the Set as ''Flexfield Value Set Security Insert/Update Set'' from List of values

After creating the grants from functional administrator, we will be able to perform the following in Value set and Key Flex field Values form:

i) Access the values in Name field LOV, when we Find Values By Value Set.
ii) Access the values in Application,Title,Structure & Segment field LOV's, when we Find Values By Key 
Flexfield
iii) Access the values in Application,Title,Structure & Segment field LOV's, when we Find Values By 
Descriptive Flexfield
iv) Access the values in Application, Name & Parameter LOV's, when we Find Values By Concurrent Program.

The Trial Balance and its Significance in the Accounting Process

The Trial Balance and its Significance in the Accounting Process

Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements. The report is primarily used to ensure that the total of all debits equals the total of all credits, which means that there are no unbalanced journal entries in the accounting system. Ledger balances are segregated into debit balances and credit balances. If all accounting entries are recorded correctly and all the ledger balances are accurately extracted, the total of all debit balances appearing in the trial balance must equal to the sum of all credit balances.

Trial balance ensures that for every debit entry recorded, a corresponding credit entry has been recorded in the books in accordance with the double entry concept of accounting. If the totals of the trial balance do not agree, the differences may be investigated and resolved before financial statements are prepared.

Ledger accounts are closed at the end of each accounting period by calculating the totals of debit and credit sides of a ledger. The difference between the sum of debits and credits is known as the closing balance. This is the amount which is posted in the trial balance


If there are subsidiaries in an organization that report their results to a parent company, the parent may request an ending trial balance from each subsidiary, which it uses to prepare consolidated results for the entire company.


Types of Trial Balance

Un-Adjusted trial balance
When the trial balance is first printed, it is called the un-adjusted trial balance.

Adjusted trial balance
Then, when the accounting team corrects any errors found and makes adjustments to bring the financial statements into compliance with an accounting framework (such as GAAP or IFRS), the report is called the adjusted trial balance.

Post-closing trial balance
The adjusted trial balance is typically printed and stored in the year-end book, which is then archived. Finally, after the period has been closed, the report is called the post-closing trial balance.


Trial Balance Format
The initial trial balance report contains the following columns:
1. Account number
2. Account name
3. Ending debit balance (if any)
4. Ending credit balance (if any)
Each line item only contains the ending balance in an account. All accounts having an ending balance are listed in the trial balance;


Limitations of a trial balance
Trial Balance only confirms that the total of all debit balances match the total of all credit balances. Trial balance totals may agree in spite of errors. An example would be an incorrect debit entry being offset by an equal credit entry. Likewise, a trial balance gives no proof that certain transactions have not been recorded at all because in such case, both debit and credit sides of a transaction would be omitted causing the trial balance totals to still agree. Types of accounting errors and their effect on trial balance are more fully discussed in the section on Suspense Accounts.

How to prepare a Trial Balance
Following Steps are involved in the preparation of a Trial Balance:
1. All Ledger Accounts are closed at the end of an accounting period.
2. Ledger balances are posted into the trial balance.
3. Trial Balance is prepared and errors are identified.
4. Erred Entries may be posted to Suspense Account Unless Approrpiate Rectification is identified.
5. Errors identified earlier are rectified by posting corrective entries.
6. After the Posting the Adjustments are incorporated in Traila balance. They can be specifically noted in order to highlight the Adjustments.

Accounts Receivables Auto Accounting

Accounts Receivables Auto Accounting:

Define Auto Accounting to specify how you want Receivables to determine the general ledger accounts for transactions that you enter manually or import using Auto Invoice. Receivables create default accounts for revenue, receivable, freight, tax, unearned revenue, unbilled receivable, finance charges, bills receivables accounts, and Auto Invoice clearing (suspense) accounts using this information. When you enter transactions in Receivables, you can override the default general ledger accounts that Auto Accounting creates. You can control the value that Auto Accounting assigns to each segment of your Accounting Flex field, such as Company, Division, or Account. You must define Auto Accounting before you can enter transactions in Receivables.

To define Auto Accounting:

1. Navigate to the Automatic Accounting window.

2. Enter the Type of account to define. you may Choose from the following to configure the type of Account you wish to setup the rule for

Auto Invoice Clearing: The clearing account for your imported transactions. Receivables use the clearing account to hold any difference between the specified revenue amount and the selling price times the quantity for imported invoice lines. Receivables only use the clearing account if you have enabled this feature for the invoice batch source of your imported transactions.

Bills Receivable: The bills receivable account for your transaction. Receivables use this account when you exchange transactions for bills receivable.

Factored Bills Receivable: The factored bills receivable account for your bills receivable transactions.

Freight: The freight account for your transaction.

Receivable: The receivable account for your transaction.

Remitted Bills Receivable: The remitted bills receivable account for your bills receivable transactions.

Revenue: The revenue and finance charges account for your transaction.

Tax: The tax account for your transaction.

Unbilled Receivable: The unbilled receivable account for your transaction. Receivables use this account when you use the Bill In Arrears invoicing rule. If your accounting rule recognizes revenue before your invoicing rule bills it, Receivables uses this account.

Unearned Revenue: The unearned revenue account for your transaction. Receivables use this account when you use the Bill In Advance invoicing rule. If your accounting rule recognizes revenue after your invoicing rule bills it, Receivables uses this account.

Unpaid Bills Receivable: The unpaid bills receivable account for your bills receivable transactions.

For each segment, enter either the table name or constant value that you want Receivables to use to get information. When you enter an account Type, Receivables displays all of the segment names in your Accounting Flexfield Structure. Segments include such information as Company, Product, Department, Account, and Sub–Account. Receivables let you use different table names for different accounts. Choose one of the following table names:

Bill To Site: Use the bill–to site of the transaction to determine this segment of your revenue, freight, receivable, Auto Invoice clearing, tax, unbilled receivable, and unearned revenue account.

Drawee Site: Use the site table to determine this segment of your bills receivable, factored bills receivable, and remitted bills receivable and unpaid bills receivable account.

Sub-ledger Accounting Configuration - Part 1

Sub Ledger Accounting method (SLAM):

SLA is a rule based accounting Engine that introduced the ability to define how transactions originating in Sub Ledgers can be Accounted. Hence in order achieve this high level of flexibility SLA is accommodated with lot of configurable and predefined components.

This article will talk about different Predefined and configurable components of SubLedger Accounting which are used to setup accounting rules in order to achieve various accounting requirement.

Below mentioned are Predefined Components of SLA. We will talk about their specific Examples as we move on.

Predefined Components of SLA:

Entities:

Entities in SLA represent a Specific Document category in the Application. For example an Invoice or Payment in Account Payables. 

Event Class:

Event Class in SLA represents a specific type of the entity for which the Corresponding accounting entry will be generated. For Example a Standard Invoice is a Type Of invoice there by Standard Invoice will be an Event class for the Entity AP Invoice.

Event Type:

Event type is an Action or an event which should be defined as trigger for the creation of accounting entries.

For example: in reference to a Standard accounting requirement an Standard Invoice should get accounted once it is validated. Hence the Event which will initiate the accounting for the invoice is Validation. So Standard invoice validation is the Event Type for Event Class Standard Invoice

In Order to explain the complete concept let’s take one more example.

There should be accounting entries generated for Cancellation of a credit memo. And hence Credit Memo is a Type of Account Payables invoice.

Entities à AP invoice

Event Class à Credit Memo

Event à Cancellation.

Sub-Ledger Accounting

Sub-Ledger Accounting

Sub ledger accounting traditionally had accounting rules spread across multiple Products and Sub ledger applications hence it was Difficult to keep the rules up to date and manage.

And if there used to be any requirement which requires a different Accounting treatment as per different geographies, Regulations  or entity it was extremely difficult to implement and many times the ultimate solution was to implement a customization or pass manual Adjustment entries.

The New Sub Ledger accounting feature of oracle E-business Suite R12 popularly known as SLA addresses such issues through a central accounting rule engine allowing among other things, Superior controller ship of definition of accounting rules.

SLA is a rule based accounting Engine that introduced the ability to define how transactions originating in Sub Ledgers can be Accounted. One of the significant benefits of SLA is the ability to generate multiple accounting representations (IFRS and local GAAP) for a single sub ledger transaction.

Hence in Simple words, Different from 11i where accounting Entries used to get created in respective Sub ledgers and then get transferred to GL, In R12 the Entries get created using SLA for all the Sub ledger applications and then gets transferred to GL. Hence it would be appropriate to say SLA is placed between different Sub ledgers such as AP, AR, CE, PA and General Ledger as mentioned in below. 

Sub Ledger Accounting Gives capability to Massage/ Change the accounting entries which gets generated as part of the Standard Sub Ledger application specific account so as to have the accounting entries posted to the desired accounts to address various geographies or entity specific accounting requirement

Above Example shows how the accounting String (A.B.C.D) generated by SubLedger Applications (Eg: AP, AR, CE) can be altered to A1.B1.C1.D1 to achieve specific Accounting requirement and then can be transferred to general Ledger.