What is Multi Period Accounting
I want to explain it from business perspective first. Supposed that there is a service type company, they have received whole money from their customer, but they have not provided the whole service finally. The whole service will be provided within 12 months from current month. Against accrual basis concept, the company can’t recognize revenue for the whole money amount to current month, even though they received whole money in current month. They need to defer the revenue to the following 12 months. The accounting entries should be like below
Dr. Receivables 1200 (current month)
Cr. Deferred Revenue 1200 (current month)
Dr. Deferred Revenue 200 (current month)
Cr. Revenue 200 (current month)
Dr. Deferred Revenue 200 (next month)
Cr. Revenue 200 (next month)
Dr. Deferred Revenue 200 (the last month)
Cr. Revenue 200 (the last month)
As similar as revenue recognition, prepaid expense also has the similar accounting behavior like above, for example, the company pays the rent bill for the whole year at the beginning of the year.
Without multi period accounting feature, customer can make the AR transaction or AP invoice with the distribution of deferred revenue/expense account at the first period, and then move it to revenue/expense account in each following period through GL journals. By this way, customer may forget to take this action during period ending process, because this is the manual work. (Maybe recurred journal template can help on this something)
From R12, Oracle provided multiple period accounting feature to allow customer create accounting for multi period together for a single accounting event, even the period may have not been opened. For example, in AP, when AP invoice validated and accounted, all of the accounting entries are created for the whole 12 periods.
Multi Period Accounting in Oracle E-Business Suite
The functionality is primarily used to recognize revenue like above example or a prepaid expense. But the feature still has a lot of limitations, so Oracle Receivables developed its own revenue recognition functionality. They don’t use the MPA feature provided by Oracle Subledger Accounting. As they are doing the similar thing, I will introduce both of them and compare them in a series of blog post.
- Revenue Recognition
- Multi Period Accounting Setup in SLA