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In Part 1 of this article, we learnt about basics of intercompany and Intracompany  and we also understood about accounting treatment of Intercompany transactions.  We also saw impacts of intercompany transactions along with usage of intercompany segments. In this part 2, we will understand about Intercompany transactions processing in Fusion Application. we will also learn about how to manage Intercompany transactions.

Intercompany Overview in Fusion Application

In Oracle Fusion Financial, Intercompany supports business activity between two or more related legal entities within the same enterprise. An Intercompany segment label defines a segment in a chart of accounts structure which means a segment with this label in Oracle Fusion Subledger Accounting helps to populate a value in this segment to identify the trading partner for the intercompany transaction by using Intercompany Balancing Rules.

Refer to Article ORACLE FUSION FINANCIALS GL INTERCOMPANY BALANCING LINES" written by Anil to understand how balancing lines are auto generated.

Automatic intercompany balancing journal creation in Oracle Fusion Financials ensure proper recording of journals across legal entities and Intercompany balancing rules are defined for pairs of primary balancing segment values, pairs of legal entities, pairs of ledgers, or for a chart of accounts structure. These accounts are used to build the accounts for intercompany balancing lines.

Account combinations for intercompany balancing lines are automatically created based on combinations of source, category, and balancing segment values of the line to be balanced. Intercompany transaction account definition rules are used to build the default distribution accounts for intercompany transactions for a specific ledger.

 

Intercompany General Ledger Integration in Fusion Application-

Below are the two options to complete processing of intercompany transactions in Oracle Fusion General Ledger.

General Ledger Integration

In this option, intercompany transactions are directly transfer to the Fusion General Ledger if we do not need intercompany invoices. General Ledger transfer process allows to automatically transfer to multiple ledgers with a single submission request.

Once we are through with the above step of posting transactions in general ledger, then we can inquire on account balances or journal lines, and drill down to the source intercompany transaction.

Intercompany Receivables and Payables Integration

 

 

Integration with Oracle Fusion Receivables and Oracle Fusion Payables is applicable if we require invoices to be generated for intercompany transactions. The invoices will be created in Oracle Fusion Receivables and recorded in Oracle Fusion Payables. See below diagram-

 

We can enter transactions using the user interface or import them from an external source as shown in the above diagram. Intercompany uses Receivables and Payables to generate the invoices. Process receivables invoices for the appropriate intercompany customers by running the Transfer to Receivables with auto invoice import. Then we need to record the invoice in payables by running Transfer to Payables. Invoices generated in the receivables system will be recorded in the payables system against the intercompany suppliers, with the same amount and accounting date.

After Create Accounting process in receivables and payables, we need to transfer accounting entries to General Ledger. We can drill down from general balances or journal lines to general ledger journal entries, then to the subledger journal entry, and finally to the source receivables or payables transaction.

 

Intercompany Key Features

Manual intercompany transactions can be created by using the Create Transaction task, Single Batch Spreadsheet Entry task from an external system into interface tables. From here we can transfer and post transactions to General Ledger or to Oracle Fusion Receivables and Payables where invoices are generated and recorded.

 

Intercompany Balancing

Adding Due To or Due From lines to journal entries to ensure debits equal credits for each legal entity or management entity that requires balance sheet reporting and we have options to balance by up to 3 balancing segments-

  • Primary balancing segment

  • Second balancing segment

  • Third balancing segment

Balancing is done only when subledger journal entries are created. To maintain consistency throughout, intercompany transaction processing rules are defined at the enterprise level.

Manage Intercompany Transaction Types

We have to define intercompany transaction types to drive how transactions gets processed. Also we can determine if invoicing in receivables and payables is required.  There is need to define separate balancing rules with different accounts by intercompany transaction types.

Manage Intercompany Organizations

This allows to create intercompany organizations and assign legal entities to them. Intercompany organizations can act either as a provider or a receiver in intercompany transactions. Alternatively for invoice generation, we have to assign a receivables and payables business unit to the organization and we can initiate intercompany transaction only for accessible organizations.

While creating an organization, following attributes are considered-

  • Legal Entity

  • Receivables Business Unit

  • Payables Business Unit

  • Default Organization Contact

                        

Intercompany Customer and Supplier Assignments

Intercompany customer and supplier assignments are used for generating and recording invoices for intercompany transactions. Supplier and customers are associated with legal entity to generate invoices for a particular intercompany transaction type. A unique customer account is to be assigned to the legal entity of the organization that receives and approves intercompany transactions. Similarly assign supplier to legal entity of an organization where intercompany transactions happen. A customer or a supplier can not be associated with more than one legal entity. Customer account and supplier assigned to the legal entity can be modified at any time, regardless of the existing transaction status.

Manage Intercompany Balancing Rules

Intercompany balancing rules are used to generate the accounts required to balance journals that are out of balance by legal entity or primary balancing segment values. Intercompany balancing feature uses rules to generate the accounts of the balancing lines it creates. We can define intercompany balancing rules at the following levels-

  • Primary balancing segment

  • Legal entity

  • Ledger

  • Chart of accounts

Primary Balancing Segment rule has a higher precedence than Legal Entity rule and legal entity has higher precedence than ledger.

Chart of Accounts Rules for Intercompany Balancing

Intercompany balancing rules that are based upon a chart of accounts can be used by all ledgers that uses that chart of accounts. To create a chart of accounts rule, we have to specify the chart of accounts, intercompany receivables and payables accounts, source, and category. We can define rules that are applicable to a specific source and category, such as payables and invoices, or a specific intercompany transaction type, such as intercompany sales. If we set ups a chart of accounts rule for every chart of accounts structure then this will ensure that intercompany balancing always finds a rule to generate general ledger accounts for balancing lines. Intercompany Balancing will then evaluate the journal source and journal category combination to determine which rule to use for balancing.

 

Reconciliation Reports

In order to identify any difference while reconciling intercompany receivables and intercompany payables accounts, Intercompany reconciliation provides some reports.These reports also helps to identify intercompany transactions that are not yet posted to the intercompany receivables or intercompany payables accounts and shows following intercompany lines-

  • Intercompany receivables and intercompany payables lines generated by the intercompany balancing feature.

  • Intercompany receivables and intercompany payables lines generated for the provider and receiver of each intercompany transaction

The reconciliation reports show the Entered or Transaction amounts of the journal entries booked to the intercompany receivables and payables accounts for a pair of provider and receiver legal entities.

While running these reports, additional currency and conversion rates can be used to convert all amounts into a common currency for comparison.


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