Tag Archives: Revenue Recognition

Multi Period Accounting (MPA) 2 – Revenue Recognition

From Oracle official concept, revenue recognition is renue recognition. It belongs to AR. Multi Period Accounting is the concept of SLA. But in fact, they are the similar thing. One of  initial purpose of MPA is for revenue recognition, but it is not flexible enough for revenue recognition. So revenue recognition is still handled in Receivables itself.

Let’s have a look at revenue recognition first then compare it with multi period accounting feature in SLA.

1. Create AR transaction and assign Invoice Rule in AR transaction header. There are two options for Invoice Rule:

  • In Advance: Receiving money at first before revenue recogonition
  • In Arrears: Receiving money at last after revenue recogonition

2. Assign accounting rules in AR transaction line. Accounting Rule means the revenue recogonition schedule. The revenue recognition program/API calcualte the recogonition schedule against accounting rule. Only if invoice rule is assigned in header, accounting rule can be

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3. Once AR transaction is assigned with invoice rule and accounting rule, the original revenue account distribution will be changed to defered revenue account. It can be set up in AutoAccounting functionality. And receivable account distribution will be changed agasint invoice rule. If “In Arrears” is selected, the recevable account will be defaulted against the autoaccouting setup for Unbilled Receivable.

4. Complete the AR invoice.

5. Create Accounting with Final option.

6. Revenue Recognition: You have two options to recogonize revenue.

  • by concurrent program “Revenue Recognition Master Program”
  • by Revenue Accounting form. In the form, you can manage revenue and sales credits more flexible than concurrent program. You can schedule or unschedule the revenue recogonition and you can also partailly recogonize the revenue.

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7. Whatever you select to recogonize the revenue by concurrent program or form, the functionality will create series of AR transaction distributions with multiple period. And for each period, it create accounting event with type of “Invocie Update”. So by revenue recogonition, multiple events will be created. It’s one of the difference between MPA and Revenue Recogonition.

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Please note that, for normal transaction entry, you can’t key in unopened GL date. But for program inserting, it can.

8. Create Accounting againt for the new created events and distribution lines. The SLA journal entries are created for all of the periods even though the period is not opened.

  • For the opened GL period and future entry statsu GL period, the journal entry status is “Final”and can be transfered to GL.
  • For un-opened GL period, the journal entry status is “Invalid”and event status is unprocessed.
  • It is very strange that it depends on GL period but not Receivable period.
EVENT_ID APPLICATION_ID EVENT_TYPE_CODE EVENT_DATE ENTITY_ID EVENT_STATUS_CODE PROCESS_STATUS_CODE
3362490 222 INV_UPDATE 23-2月 -13 3295913 U I
3362489 222 INV_CREATE 23-1月 -13 3295913 P P

 

AE_HEADER_ID APPLICATION_ID LEDGER_ID ENTITY_ID EVENT_ID EVENT_TYPE_CODE ACCOUNTING_DATE GL_TRANSFER_STATUS_CODE GL_TRANSFER_DATE JE_CATEGORY_NAME ACCOUNTING_ENTRY_STATUS_CODE ACCOUNTING_ENTRY_TYPE_CODE AMB_CONTEXT_CODE PRODUCT_RULE_TYPE_CODE
5003040 222 1 3295913 3362489 INV_CREATE 23-1月 -13 N   Sales Invoices F STANDARD DEFAULT S
5002952 222 1 3295913 3362490 INV_UPDATE 23-2月 -13 N   Sales Invoices R STANDARD DEFAULT S

 

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9. When you open the next period and run create accounting again, the journal entry status will changed from Invalid to Final and transferred to GL module.

By summery, in revenue recogonition solution, Oracle insert the transaction ditribution line with multiple periods, create events for each period and create journal entries for each period. For unopened period, Oracle make its journal entries as “Invalid” until the period opened.

Multi Period Accounting (MPA) 1 – Introduction

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