Designing a Chart of Accounts and Enterprise Structure in Oracle Fusion ERP Cloud

Designing a Chart of Accounts and
Enterprise Structure in
Oracle Fusion ERP Cloud
Prithis Das – Dynamique Solutions LLC
March 9, 2018
Drury Lane Conference Center
Oakbrook Terrace

Presenter’s background - Prithis Das
• In the Oracle ERP space since 1997
• Founder of Dynamique Solutions LLC, an Oracle Silver Partner
• Consulting experience with Big 5 and other major organizations
• Oracle Certified Specialist in all the Oracle ERP Cloud Financials modules
• Oracle Certified Specialist in Oracle E-Business Suite Financials modules
• Chartered Accountant and Management Accountant from India
• Multiple presentations on Oracle technologies at major Oracle events
• Contact:
• Cell: +1.630.3649457
• Email: prithis.das@dynamique.us
• LinkedIn: www.linkedin.com/in/prithisdas/
• Web: www.dynamique.us
Dynamique Solutions LLC

AGENDA

Agenda
• Oracle Chart of Accounts design
• Oracle Accounting Flexfield
• Design considerations and best practices
• Oracle Enterprise Structure design
• Elements of the Enterprise Structure
• Consolidation
• Example of Enterprise Structure
• Q&A

CHART OF ACCOUNTS DESIGN

Chart of Accounts
• Defines detail of transactions
in Ledger
• Ensures balanced entries
within legal entities
• P&L and Balance Sheet
account types
• Supports capabilities for
reporting and analytics
• Supports consolidations,
hierarchies, etc

Chart of Accounts: The Oracle Accounting Flexfield
• Accounting Flexfield - definition of the
segments (dimensions) that comprise
the chart of accounts
• Segment - dimension needed to record
or report cost such as company, line of
business, cost center, natural account,
product, intercompany
• Account combination – contains a
completed code of segment values that
uniquely identifies an account in the
chart of accounts
XX - XX - XXXXX - XXX - XXXX - XX
Company | LOB | Account | Department | Product | Intercompany

Chart of Accounts: The Oracle Accounting Flexfield
The chart of accounts structure defines the key attributes for your chart of accounts:
• Number of segments
• Segment sequence
• Segment names and prompts
• Segment labels, for example, natural account and balancing
• Default value sets.

Number of segments
• A minimum of 3 segments are required
• Balancing segment (Legal Entity/Company)
• Natural Account
• Cost Center (Optional segment, however if Expenses or Assets are being
implemented, a Cost Center segment is mandatory)
• Oracle Cloud allows a maximum of 30 segments, with up to 25 characters in each
segment
• Typically 5 to 8 segments are configured in the Accounting Flexfield
• In Oracle Cloud, you cannot increase/decrease the number of segments once
deployed.

Segment sequence
• Each segment must be assigned a display
sequence number starting from 1.
• Typically the Balancing segment (Legal
Entity/Company) is designated as the
first segment
• Intercompany segment is typically one of
the last segments
• Least used segment, such as a Future
segment is typically at the very end

Segment names and prompts
• Each segment must have a segment name
• The Balancing Segment is typically named “Legal Entity” or “Company”
• The Natural Account segment is typically named “Account”
• The Cost Center segment can be named “Department” or “Cost Center”
• Each segment can be assigned a Prompt or a display name and a short name
• The Prompt appears on data entry screens whenever the Accounting Flexfield
window is opened
• The short name appears on certain screens such as Account Monitor, where
there are a large number of visible fields

Segment labels
Identifies certain segments in your chart of accounts
and assigns special functionality to those segments
• Balancing
• Reflects organizational units, both legal and management
• Controls inter/intra-company reporting
• Determines P&L and Balance Sheet reporting
• All transactions with a Balancing Segment must balance for Debits and Credits
• Natural Account
• Core segment of the chart of accounts used to classify each transaction
• Cost Center (required when Assets and Expenses are implemented)
• Collection of costs managed by someone
• Generally aligned with the department structure
• Assets uses this segment to charge depreciation

Segment labels (contd.)
Identifies certain segments in your chart of accounts and assigns special functionality
to those segments
• Intercompany
• Used to track “due from” and “due to”
• Same values as Balancing segment
• Best practice is to have an intercompany segment if the organization has
intercompany transactions
• Management
• Management segment label for the Accounting Flexfield is not supported in
Oracle Cloud yet.

Value Sets
• A value set is a “container” for your
values.
• A value set is attached to each segment to
provide formatting and validation of the
set of values used with that segment
• Each Accounting Flexfield segment must
have a value set. There is no “free text”
segment.

Segment size considerations
• Segment length for each segment should be sufficient to incorporate child values
and parent values for reporting hierarchies as well as allow for growth
• Consider the addition of new legal entities, new product lines, new cost centers
in the future. The segment lengths should be sufficient to accommodate for
future growth.
• Allow enough room for values within a segment for future growth
• Increment numbers depending on new values additions anticipated within each
segment

Independent vs Dependent segments
• Dependent segments values are based on the value selected in the previous
segment (which is Independent)
• Oracle Cloud requires that all Accounting segments must be Independent.
Dependent segments in the Accounting Flexfield are not supported.
• An alternative to using dependent segments is to use cross validation rules that
restrict the user from combining certain segment values.

Dynamic combination creation
• Dynamic combination creation (a.k.a. Dynamic Insertion) allows for automatic
creation of new account combinations during transaction entry
• If this feature is turned off, the system will prevent creation of new combinations
during transaction entry
• If turned off, new combinations will need to be manually pre-created by a
System Administrator (someone who has access to the Setups) before they can
be used in transactions
• Dynamic insertion is turned on or off at the Chart of Accounts Structure Instance
level
• Most commonly, Dynamic insertion is turned on (default setting)

Future segment
• An additional segment or segments reserved for future use when the need arises
• Commonly one or two segments are configured as Future
• Future segments will be visible on data entry screens, and data upload
spreadsheets
• A default value of “0000” or similar can be setup to save data entry time
• If the user chooses to key in the Account combination instead of the Flexfield
pop-up, she will need to key in the Future segment value
• Future segments can be omitted from configured Reports
• When it is decided to use this segment, the segment prompt can be changed from
“Future” to something else, such as “Product”, however, this will require a System
Administrator with familiarity with GL setups

Project segment?
• A Project segment is sometimes used to capture costs at a Project level if Oracle
Projects is not part of the modules being configured
• If the Projects Financials solution of Oracle Cloud is being implemented, then a
separate Project segment is not necessary
• Project-level reports are obtained directly from the Projects module if
implemented

Segment delimiter (separator)
• Possible delimiters are
• !
• *
• +
• - (fairly common)
• . (most common)
• :
• =
• ^
• |
• ~
• Segment delimiter counts towards the length of
the accounting string
• Delimiter must be typed in if the user chooses to
type in the account on a screen
• Delimiter does not have to be entered on GL
spreadsheet uploads

Design considerations
• Each segment of the CoA should
represent a unique reporting
dimension. Do not mix multiple
dimensions in a single segment
• Consider using an Intercompany
segment where there are
multiple entities. This will reduce
the number of due-to/due-from
natural accounts and facilitate
easier definition of automatic
eliminations for consolidation of
financials
Scenario 1 – One segment Scenario 2 – Two segments
Natural Account Natural Account Intercompany
IC Receivable from Co.1 IC Receivable Co.1
IC Receivable from Co.2 IC Payable Co.2
IC Receivable from Co.2 Co.3
IC Payable to Co.1
IC Payable to Co.2
IC Payable to Co.3
Department Region Department
Accounting Region 1 Region 1 Accounting
Accounting Region 2 Region 2 Sales
Accounting Region 3 Region 3
Sales Region 1
Sales Region 2
Sales Region 3

Units of similar dimensions
• Visualize each segment as a unit
dimension of the business.
Combine units that are based on
similar dimensions to avoid using
multiple segments that measure
the same dimension.
• For example, group regions and
districts into one segment with
parent-child hierarchies
• Avoid alpha characters in the CoA
• Parents are the exception
Region Region District
Region 1 (Parent) Region 1 District 1
- District 1 (Child) District 2
- District 2 (Child) Region 2 District 3
Region 2 (Parent) District 4
- District 3
- District 4

Global Chart of Accounts
• A standardized approach to accounting
• A designated account structure format and set of values that all entities in a group
use to provide consistency across all ledgers.
• Facilitates standard business analysis and apples to apples performance reporting.
• Enables account derivation in intercompany and cross legal entity situations.
• Eliminates mapping and data rework on consolidation.
• Facilitates the use of Ledger Sets,
• Reduces configuration complexities
• Streamline the month-end and year-end closing processes

Design considerations: Summarization of Information
• Information is summarized from the sub-ledgers before posting to the General Ledger
• Details are stored in the sub-ledgers
• For AR, individual customer balances are stored in the sub-ledger, eliminating the need
to have a GL account for each customer
• Projects balances are stored in the Projects module, eliminating the need to have a GL
account for each project
• Summarization also occurs in different forms:
• Balances are automatically summarized at the Summary (parent) level for accounts
• By Account Combination, e.g., Multiple Liability lines on a Journal are summarized to a
single line
• By Account Class, e.g., Multiple invoices are grouped, and summarized on the same
journal

ENTERPRISE STRUCTURE DESIGN

Oracle Cloud: Enterprise Structure Elements
• Enterprise
• Overall context and global headquarter location – One Enterprise per instance
• Ledgers – defined by 4 C’s, and governed by a set of processing options
• Currency
• Calendar
• Chart of Accounts
• Accounting Convention
• Legal Entities – registered under a country’s law
• Have unique legal and/or tax identifier
• Legal Entities that share the 4 C’s can be accounted for in the same ledger
• Business Units segregate subledger data (AR, AP, PO, Projects)
• Inventory Organizations - An organization for which you track inventory transactions and balances

Currencies
• Oracle Cloud comes pre-loaded with all the ISO currency codes
• STAT currency is used for statistical journal entries, which can be one-sided entries
• Multi-currency functionality in Oracle Cloud is designed in accordance with:
• United States Statement of Financial Accounting Standards 52 (SFAS #52)
• International Accounting Standards 21 (IAS 21 requirements)
• The following three currency processes are performed in Oracle Fusion Applications:
• Conversion
• Revaluation
• Translation
• Rate Types
• Spot
• Corporate
• User

Calendar
• A calendar defines the accounting year and the period that it contains
• Start date
• Define your calendar with a start date at least one year prior to the period in
which you start entering transactions or uploading historical data
• After you open the first accounting period for a ledger, prior periods cannot be
opened
• Period Frequency
• Monthly, Quarterly, Yearly, 4-4-5, 5-4-4, 4-5-4
• An adjusting period can be setup
• Typically adjusting period is setup for a single day at the end of the period
• Adjusting period can overlap with the regular period

Accounting Convention/Method
• Oracle Cloud provides Standard Accrual as a seeded Accounting method
• Based on US GAAP
• Accounting methods such as Cash Basis are not supported yet in Oracle Cloud (as of
Release 13)

Legal Entities
• By definition, a Legal Entity is a person or organization that can legally enter into a
contract
• In accounting terms the Legal Entity is the smallest organizational unit for which you
need to be able to produce a balanced set financial statements. The Legal Entity is
the initiator and owner of a given transaction.
• A legal company for which you prepare fiscal or tax reports. You assign tax
identifiers and other legal entity information to this type of organization.
• Each Legal Entity is attached to a single Primary Ledger through a Balancing
Segment value

Ledger
• A Ledger is identified by 4 basic components (chart of accounts, currency,
accounting calendar, accounting method) and a set of ledger processing options
• Each accounting setup requires a primary ledger, and optionally, can include one
or more secondary and reporting currency ledgers
• Reporting currencies are additional currency representations of primary ledgers
or secondary ledgers
• The number of ledgers is unlimited and determined by your business structure
and reporting requirements.

Ledger
• Three types of Ledgers are defined in Oracle Cloud using the four components that are
already defined: Chart of Accounts, Calendar, Currency and Accounting Method.
• Primary Ledger: Main record keeping ledger and a required component. The Primary
Ledger is closely associated with the subledger transactions and provides context and
accounting for them.
• Secondary Ledger: Optional ledger, linked to a Primary Ledger for the purpose of tracking
alternative accounting. A secondary ledger can differ from its Primary Ledger in its Chart
of Accounts, Calendar, Currency, Accounting Method, or processing options.
• Reporting Currency Ledger: Optional, additional currency representation of a Primary or
Secondary Ledger. A reporting currency ledger can differ from its source ledger in its
currency and some processing options, but shares the same chart of accounts,
accounting calendar, and accounting method with its related ledger.

Ledger Sets
• When Chart of Accounts and Calendar options are the same for different ledgers,
they can be grouped into Ledger Sets
• Once the Chart of Accounts and Calendar starts to vary, ledgers can no longer be
grouped in Ledger Sets
• Runs reports or process across all the ledgers in the Ledger Set
Option
Chart of
Accounts
Calendar Currency Accounting Convention
Ledger in Single Ledger
Set
1 Same Same Same Same Yes
2 Same Same Different Different Yes
3 Different Different Same Same No
4 Different Different Different Different No

Business Unit
• A Business Unit is an enterprise element that processes and generates business
transactions on behalf of one or more legal entities
• A business unit performs one or more business functions that determine what
activities it is used for
• Examples include billing and revenue management, customer payments, payables
invoicing, procurement, requisitioning, etc.
• Business units are used for:
• Partitioning transactions – business transactions stored in a business unit are
stored separately from transactions processed in other business units
• Secure transactions – assign business units to your users
• Share reference data – reference data objects such as payment terms can be
shared across multiple business units.

Business Unit
• You assign a business unit to one Primary Ledger and a default Legal Entity.
• A business unit can process transactions on behalf of one or more legal entities.
• There is no direct relationship between a business unit and a legal entity
• The mapping is inferred from the primary ledger assigned to the business unit
and its associated legal entities

Inventory Organization
• An organization for which you track inventory transactions and balances, and/or an
organization that manufactures or distributes products.
• Examples include (but are not limited to) manufacturing plants, warehouses,
distribution centers, and sales offices.
• Applications that secure data by Inventory Organization include (Inventory, BOM,
Engineering, WIP, MRP, Capacity, Purchasing and Receiving). To run any of these
applications, you must choose an organization that has been classified as an
inventory organization.

Consolidation Methods
Oracle offers the following consolidation solutions:
• Reporting Only consolidations
• If all your ledgers share the same Chart of Accounts and Calendar
• Balance Transfer consolidations
• If your subsidiary and corporate ledgers have either or both different charts of
accounts or different calendars
• Financial Management consolidations
• If there are complex factors in your financial consolidation requirements, such
as:
o Complex company structures such as joint ventures, minority interest
holdings, partially owned subsidiaries
o Multiple non-GL systems supporting non-financial industrial metrics.

Reporting Only vs Balance Transfer
Reporting Only Consolidation - Pros
• No need to run additional processes to consolidate unless ledgers have a different
currency than the consolidation currency
• View the consolidated balances anytime. This cannot be done in the Balance
Transfer method because that method requires a balance transfer to be done first.
• Faster close.
Reporting Only Consolidation – Cons
• Requires a standardized COA and Calendar for the subsidiaries and corporate
ledgers to group ledgers into ledger sets

Reporting Only vs Balance Transfer
Balance Transfer Consolidation - Pros
• Does not requires a standardized COA and Calendar
Balance Transfer Consolidation – Cons
• May require an additional consolidation ledger to maintain balances, or the
current parent ledger can serve as the consolidation ledger
• Need to maintain COA mappings
• Outdated balance transfers need to be reversed and posted. A new balance
transfer process needs to be run each time a source ledger’s balance changes.

Worldwide Enterprises
LegalEntity
USA Company 101
USA Company 102
USA Company 103
USA Company 104
USA Company 105
CAN Company 201
CAN Company 202
CAN Company 203
MEX Company 301
MEX Company 302
GBR Company 401
GBR Company 402
IND Company 501
USD Primary
Global COA
4-4-5 calendar
USD currency
Standard Accrual
PrimaryLedger
CAD Primary
Global COA
4-4-5 calendar
CAD currency
Standard Accrual
MXN Primary
Global COA
4-4-5 calendar
MEX currency
Standard Accrual
GBP Primary
Global COA
4-4-5 calendar
GBR currency
Standard Accrual
INR Primary
Global COA
4-4-5 calendar
INR currency
Standard Accrual
Enterprise
Elimination Ledger
Global COA
4-4-5 calendar
USD currency
Standard Accrual
Secondary
Ledger(s)
CAD Secondary
Global COA
4-4-5 calendar
CAD currency
Standard Accrual
MEX Secondary
Global COA
4-4-5 calendar
USD currency
Standard Accrual
GBR Secondary
Global COA
4-4-5 calendar
GBP currency
Standard Accrual
INR Secondary
Global COA
4-4-5 calendar
INR currency
Standard Accrual
USD Secondary
Global COA
4-4-5 calendar
USD currency
Standard Accrual
Reporting
Currency
CAD-USD Reporting
Balance level
GBP-USD Reporting
Balance level
INR-USD Reporting
Balance level
BusinessUnit
USA BU CAN BU MEX BU GBR BU IND BU
Subledgers
Payables
Receivables
Cash Management
Assets (Corporate,
Tax)
Payables
Receivables
Cash Management
Assets (Corporate,
Tax)
Payables
Receivables
Cash Management
Assets (Corporate,
Tax)
Payables
Receivables
Cash Management
Assets (Corporate,
Tax)
Payables
Receivables
Cash Management
Assets (Corporate,
Tax)
USD Primary
CAD-USD Reporting
MEX Secondary
GBP-USD Reporting
INR-USD Reporting
Elimination Ledger
ReportingConsolidation
EnterpriseStructureexample

Questions?

Designing a Chart of Accounts and
Enterprise Structure
in Oracle ERP/Fusion Cloud
Prithis Das – Dynamique Solutions LLC Cell: +1.630.3649457
Email: prithis.das@dynamique.us
LinkedIn: www.linkedin.com/in/prithisdas/
Web: www.dynamique.us

Designing a Chart of Accounts and Enterprise Structure in Oracle Fusion ERP Cloud

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