GL consolidation and Elimination Entries
Posted: 18 January 2009 04:44 AM
Total Posts:  2
Joined  2008-05-04

HI Robert and others

I have a question on Consolidation and Elimination Entries in Oracle GL R12 , which needs both Application knowledge and Functional knowledge

If we have a situation where there are multiple Balancing segment values ( each representing a company ) but a single Legal Entity ( all the companies belong to the same group which report as a group).  The groups can have transactions between them, but at the end of the year, there is a need to report Balance Sheet and Income Statement for the Group.

Since Balance sheet and Income statements need to be prepared for the group, GL consolidation is required. This would be done using FSGs as companies are all under one Entity having different Balancing Segment Values. But for this Consolidation, the intra company transactions need to be eliminated so that the balances are not overstated in the consolidation - which happens due to the intra-company transactions.

My first question is how does the Application recognise the intra-Company transactions that need to be eliminated (if the process needs to be automated).
My second question related question is - Should this the recognition be a manual process or an automated process. My understanding is -an automated process is better practice.

An example would probably make my questions clear :

Assume we have a 3 segment Accounting Structure - Company.NaturalAccount.Intercompany(IC)

If two companies, one with Company value 01 buys goods from another company with Company value 02, but both within the same Legal Entity , we will have the following transaction.

01.Expense.00   Dr £500
  02.Revenue.00   Cr £500

Assume the Intra-Company balancing rules have been setup with the same Intra-Company Payables and Intra-Company Receivable Account : Intercompany Pay/Receive Account for the Journal Source and Category this transaction uses.
For simplicity lets assume this transaction is entered as a Manual Journal in GL. When this transaction is posted , the application creates two intra-company balancing lines , so that the Journals balance for each company value . The journal should now be as follows:

01. Expense.00 Dr £500   (Original Journal Line)
  01. Intercompany Pay/Receive.02 Cr £500         ( Application Generated based on Intra-Company Balancing Rule)
02.Intercompany Pay/Receive.01 Dr £500           ( Application Generated based on Intra-Company Balancing Rule)
  02. Revenue.00   £500   (Original Journal Line)

Now the application generated journal lines can easily be identified based on a value other than ‘00’ being present in the IC Segment. These can be eliminated on Consolidation. But how will the other two Journal lines - which are over stating the Legal Entity’s Expense and Revenue ( as they haven’t really been incurred by the Legal Entity) be Eliminated? How will the Application identify these lines - if this process needs to be automated?




Vivek Shinde
Wolverhampton, UK