Oracle Cloud Payables | how to modify Proration Method of MPA
Business Example
In payable perspective there are business scenarios such as insurance premium, where organization
receives invoice for the services to be availed for current as well as future period. Accounting of such
invoices is done in multiple periods. Multiperiod Accounting (MPA) is a feature in fusion financial to map
such business scenarios.
To elaborate, let’s take an example. Let’s say organization buys insurance to cover risk for the period 01
Jan‐2018 to 31‐Dec‐2018. The payment term of the insurance premium is annual and so organization
receives invoice of let’s say $12000 on 01‐Jan‐2018 to avail service of risk coverage for the period 01
Jan‐2018 to 31‐Dec‐2018. Organization pays the premium in one go but actual service is availed for for
the period 01‐Jan‐2018 to 31‐Dec‐2018. As per accounting principles actual expense need to be booked
when it’s actually availed. So in business perspective there are below 2 requirements:
a) Book liability of $12000 on 01‐Jan‐2018‐ This known as Accrual accounting entry in MPA
b) Recognize actual expense as and when period gets over‐ this is known as Recognition
accounting entry in MPA
Above both requirements need to be met with single invoice.
Below need to be done in Fusion payables to meet above requirements:
a) Create MPA Invoice in Payables when organization gets the invoice. Accrual accounting entry for
the invoice would be as follows
Accrual Dr
Liability Cr
12000
12000
b) The invoice will be paid as any other invoice to relieve the liability
c) As and when an accounting period gets over expense need to be recognized in respective
period. So on 31‐Jan‐2018 when Jan‐18 period will get over, below recognition accounting entry
would be created:
Recognition
Accrual
Dr
Cr
Amount
Amount
Amount for recognition journal can be different depending on proration method to be followed by
organization. Below are two different proration method:
a) Prorate equally in all periods
b) Prorate on number of days in respective period
Seeded MPA configuration recognizes the expenses as mentioned in point “a” from above.
Setup and Transaction
Complete solution discussed in this paper has 2 parts,
a Setup and Transaction with proration method on seeded journal line rule
b Setup and Transaction with changed proration method on custom journal line rule
E Setup and Transaction with proration method “Prorate by Number of Periods for
Invoices”
In this scenario we will use seeded setup. So let’s review relevant seeded setup.
E.1 Setup
We will use seeded Vision Operations USA ledger and Vision Operations business unit in our test case.
Verify Accounting method used by respective ledger.
Navigate Financials Define Common Applications Configuration for Financials Define Ledgers Define
Accounting Configurations Specify Ledger Options
Note:
Accounting method: Standard Accrual
Next Step: Review proration method with seeded recognition journal line
P
ag
Oracle/Client Confidential - For internal use only
e 5
Navigate Financials Define Invoicing and Payment Configuration Defind Subledger Accounting for
Invoicing and Payments Define Subledger Accounting Methods Manage Journal Line Rules
Search for “Multiperiod item Expense Recognition” for Invoice
Click on “Accounting Attributes Assignments” tab
Note:
Entered Amount: Prorate by Number of Periods for Invoices
“Prorate by Number of Periods for Invoices” is the prorartion method used by seeded Journal Line Rule
to recognize expenses for MPA Invoice.
E.2) Transaction and Accounting
Login as Business user to create Payable Invoice.
Create Payable Invoice with Multiperiod Accounting details
Note:
Amount: 12000
Line Amount: 12000
Distribution Account: 01‐000‐4508‐0000‐000 (This is the account taken as expense recognition
A
cc
ou
nt
fo
r t
he
MP
)
Accounting date: 1/29/18 (Accounting date for accrual accounting entry)
A I
nv
oi
ce
P
ag
Oracle/Client Confidential - For internal use only
e 6
Click on “Multiperiod Accounting” tab to enter MPA related information on invoice