Best practices on Designing Chart of Account in Fusion Application

Objective:

The most important part of implementation is to plan the structure of Chart of account which should align with the business requirements and future prospects.

Chart of Account Components:

As we know that in Fusion applications the chart of account, calendar, accounting conventions and currencies are called the 4 C’s and are the main components required to create ledger. The components of Chart of account is shown below -

Chart of Account:

The chart of account is an accounting key flexfield that we configure and use as he underlying structure for organizing our financial information and reporting. In Oracle Fusion Applications, the chart of account is:

• Flexible: We should design an account structure that meet our reporting needs and anticipates the way organization runs now and in future.

• Hierarchical: That should summarize accounting information from multiple perspectives by creating accounting hierarchies.

• Secure: We should use segment security and cross-validation rules to secure the data and prevent the creation and use of incorrect accounts.

How to decide on Chart of Account Segments:

1. We should assign each business dimension a separate segment

   • Keeping each business dimension in a separate segment to improve the reporting.

   • Examples are: Combining location and department into one segment can prevent retrieving data by department across locations or restricting certain departments to specific accounts.

2. We should avoid having more than one meaning for each segment

   • Multiple meaning would complicate default values in a segment during data entry, isolating different data for reporting, or logically assigning codes or numbers to segment values.

   • Examples are: Assigning one generic segment for sub-account, project and product elements prevent analysis of product sales by individual project.

3. We should consider creating one or two segments to handle any future reporting requirements.

4. Usage of alpha characters only in parent account segments

   • Enter numerical child value characters using the ten-key pad and avoid shifting hand position for alpha characters.

5. We should consider data entry efficiency while ordering the segments;

   • Place segments with defaults at the beginning, end, or in both the beginning and end of the chart of accounts so the segments requiring data entry are grouped together.

6. Creating Global Chart of account:

We should create uniform chart of account when we are the organization is operating globally. This help in consolidating the reports for the organization as a whole..

Creating Vertical structures:

• Hierarchies can be used to summarize balances vertically. This can be used to reduce the number of required segments.

Considerations before configuring COA segments

We need to decide (???)

• Whether to allow alphabetical characters in the chart of accounts.

• The size of chart of account segments. Best practices recommend 5 to 9 segments.

• The coding scheme for the chart of accounts values, for example asset account with 1, liability account with 2, revenue account with 3 and expense account with 4.

• Numeric and alphanumeric values.

• Numeric: Use for easier data entry because we can use the ten-key pad. The sort order and ranges are easier to configure.

• Alphanumeric: Set up the codes in all uppercase to enable consistency and ease of sorting and querying.

• Both Numeric & alphanumeric: Use numeric codes for child values and alpha codes for parent values. This would allow us to visually distinguish levels of the hierarchy for reporting and inquiry.

However regardless of whether we use numbers or alphanumeric characters, we must use the char (character) format type while defining value sets.

Few conditions should be followed while configuring-

• We must create value sets first and then add the sets to the structure and instance even though the Manage Chart of Accounts Values Sets appears second in the Setup and Maintenance work area list. We should not create values before assigning the value sets to the structure and instance as the value attributes such as Allow Posting or Account type are not available for data entry. After creating the structure and instance, we should create values for value sets.

• Creating cross-validation rules before creating account combinations will ensure that we do not accidentally create invalid account combinations. Cross-validation rules only affect the creation of new account combinations created after the rules are enabled.

Segment Attributes:

While creating values for Chart of account we need to attaching attributes-

• Whether it’s a summary (parent) code or a child code.

• Allow posting for the code or not

• Similarly allow budgeting or not

• Account type is grouping of account like asset, liability, etc

• Third party control accounts: While defining natural account segment values, we can designate an account as a control account using the attributes in the Manage Values page from the Setup and Maintenance work area.

Let us understand the meaning of options available:

1. Customer: Restricts journal posting to this account to those from the sub-ledgers that use a customer on a transaction, example: Receivables.

2. Supplier: Restricts journal posting to this account to those from the sub-ledgers that use a supplier on a transaction, example: Payables.

3. Restrict Manual Journals: No manual journals are allowed to use this account.

4. Yes: Restricts this account to all sub-ledgers

5. No: Not a control account.

Customer, Supplier and Yes values also restrict manual journal ledger journal entries.

Anjan Mukerji

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