Oracle Intercompany White Paper

Fusion Applications White Paper
White Paper on Intercompany

Accounting in Fusion Financials
Author: Sanjay Prasad
Reviewed By:
Creation Date: 14-Jan-2018
Last Updated: 22-Jan-2018
Version: 1.0
Status: FINAL
Oracle/Client Confidential - For internal use only Page 1

Table of Contents
INTRODUCTION.................................................................................................................................3
A) OBJECTIVE...................................................................................................................................................................3
B) SCOPE/OUT OF SCOPE................................................................................................................................................3
C) TERMS USED...............................................................................................................................................................3
D) CONCEPT....................................................................................................................................................................4
BUSINESS CASE............................................................................................................................ 6
E) BUSINESS EXAMPLE....................................................................................................................................................6
SETUP............................................................................................................................................ 8
F) SETUP..........................................................................................................................................................................8
F.1) General Ledger Setup......................................................................................................................................8

F.2) Setup in Intercompany..................................................................................................................................11
TRANSACTION PROCESSING....................................................................................................... 19
G) TRANSACTION FLOW................................................................................................................................................19
G.1) Intercompany Transaction...........................................................................................................................19

G.2) Approve Inbound Intercompany Transaction...............................................................................................24
G.3) Intercompany Outbound Transaction..........................................................................................................25
G.4) Intercompany Receivable Invoice.................................................................................................................27
G.5) Intercompany Payable Invoice.....................................................................................................................32

Introduction
A) Objective
This document is useful to understand following in Fusion financials:
a) Concept of Intercompany Accounting

b) Detailed explanation on Set up for Intercompany Accounting
c) Intercompany Transaction flow
Purpose of this document to elaborate business flow in Intercompany accounting.
B) Scope/Out of Scope
We are going to detail below in this paper:
a) Setup steps related to Intercompany Accounting
b) Transaction flow for Intercompany Accounting
This paper will not cover:
a) Details of Related setup in General Ledger, Payables and Receivables
C) Terms Used
Below are terms specifically used in Intercompany accounting feature of fusion financials:
a) Provider Organization: The organization which provides some service to another Internal
Organization.
b) Recipient Organization: The organization which receives the service from provider organization
c) Inbound Transaction
d) Outbound Transaction
e) Intercompany Receivable Account
f) Intercompany Payables Account
All the above mentioned terms can be understood by referring to following example:
Let’s say Legal entity “Y” performs some business activity (e.g. Consultancy, Miscellaneous expenses etc.)
for Legal entity “Z”. To record the business activity in books, Legal entity “Y” will create an Intercompany
Transaction. On submitting intercompany transaction, System creates outbound transaction for legal
entity “Y”. Additionally system creates Inbound Transaction for Legal entity “Z”.
Legal entity “Y” is providing business value to legal entity “Z”, so it (“Y”) will be receiving some monetary
value back in future from legal entity “Z”. To make this reflected in accounting, the value which is going

to be received in future by legal entity “Y” is parked in “Intercompany receivable account” of legal entity
“Y”.
Legal entity “Z” is getting business value from legal entity “Y”, it’s a liability for Legal entity “Z”. To make
this reflected in accounting, the offset of Liability is parked in “Intercompany Payable account” of legal
entity “Z”.
D) Concept
Many a times in real business there are business transactions between different legal entities, such as
intercompany sales, doing expenses on behalf of another legal entity etc. The respective legal entities
can be part of same Ledger or different ledger. Intercompany accounting feature of fusion financials is
designed to process transactions (which needs to be accounted) between different legal entities. In
respect to organization structure broadly there are below two different scenarios for intercompany
transactions:
a) Transaction between legal entities of same Ledger

b) Transaction between legal entities of different ledgers
Let us take an example of following financial structure:
In an organization there are 2 Primary Ledgers:
a) Ledger : “A”
a. Ledger “A” has following Legal entities assigned:
i. Legal entity: X
1. Legal entity “X” has following balancing segments assigned:
a. 01
b. 02
ii. Legal entity: Y
1. Legal entity “Y” has following balancing segments assigned:
a. 03
b. 04
b) Ledger: “B”
a. Ledger “B” has following Legal entities assigned:
i. Z
1. Legal entity “Z” has following balancing segments assigned:
a. 05
b. 06
First set of Intercompany transaction is as below:
i) Transaction between Balancing segments “01” and “02”

ii) Transaction between Balancing segments “03” and “04”
iii) Transaction between Balancing segments “05” and “06”

Second set of intercompany transactions is as below:
iv) Transaction between Balancing segments “01” and “03”

v) Transaction between Balancing segments “01” and “04”
vi) Transaction between Balancing segments “01” and “05”
vii) Transaction between Balancing segments “01” and “06”
viii) Transaction between Balancing segments “02” and “03”
AND SO ON
In this paper we are going to cover Second set of intercompany transaction.
To implement the Intercompany business scenario, we need to use Intercompany Accounting feature in
Fusion Financials. Intercompany transaction processing gets integrated with following modules:
a) General Ledger (GL)

b) Accounts Receivables (AR)
c) Accounts Payables (AP)

Business Case
E) Business Example
We will use following fictitious business example to understand the set up and transaction:
A legal entity attached with Ledger “Vision Services” performs two different types of business activities
on behalf of legal entity of ledger “Vision Operations”. After completion of the business activity, the
activity need to be recorded in system.
The business activity is recorded as Intercompany transaction as the transaction is across legal entities. In
this example Vision services provides business related service to Vision operation, hence Vision Services
is “Provider” and Vision Operations” is “Receiver” in this example. After providing the service, Provider
Organization i.e. Vision Services records Intercompany Transaction in System. The transaction created,
becomes as Outbound Intercompany transaction for Vision Services and Inbound Intercompany
Transaction for Vision Operations.
Vision services is providing service to Vision operations, so Expected Accounting entry for Vision service
is:
Intercompany Receivables Dr
Revenue Cr
Expected Accounting for Vision Operations:

Expense/Service Dr
Intercompany Payables Cr
Above is generic accounting entry, in our case as there are two different business activities for Vision
operation so Vision operation would like to book the activity in two different account, so in this case
expected accounting for Vision Operations is as below:
Expense/Service (1) Dr
Expense/Service (2) Dr
Intercompany Payables Cr
If invoicing is required across the legal entities (in our case we are going to test the scenario where
invoicing is needed), then for tracking purpose:
a) Vision services needs an Intercompany Receivable Invoice and
b) Vision operations needs an intercompany payables invoice
To map the above requirement, following steps are performed:
a) Basic set up (like setting up Ledgers, Accounting calendar etc.) in “GL”

b) Intercompany System set up
c) Intercompany transaction to capture the Intercompany business activity
d) Automatic Creation of Outbound and Inbound transactions

e) Approval of Inbound transaction by Receiver Organization
f) Receivable Invoicing in Receivables of Vision Services
g) Payables invoicing in Payables of Vision Operations

Setup
Complete solution discussed in this paper has 2 parts, Setup and Transactional flow.
F) Setup
Before transaction flow, setup need to be completed. Setup for Intercompany is related from General
ledger and Intercompany accounting. Before setting up Intercompany Accounting, few setups in general
ledger need to be done if it does not exist already. Setup need to be performed with user having
implementation project assigned to.
F.1) General Ledger Setup

Our business example is related to 2 different ledgers, hence those ledgers must be configured if it’s not
done already.
After Logging in, navigate to respective Implementation project.
Navigate Financials>Define Common Applications Configuration for Financials>Define Ledgers>Define

Accounting Configurations>Specify Ledger Options
Note:
Chart of Accounts: Services Accounting Flex
Retained Earning Account: From here we can see that this ledger has 4 segments
Next Step: Check Ledger Setup for Vision Operations ledger

Note:
Number of sements for Vision oeprations is 5
Next Step: verify Legal Entity Assignment for the ledgers

Navigate Financials>Define Common Applications Configuration for Financials>Assign Legal Entities
Vision Services legal entity is assigned to Vision Services ledger
Vision Operations legal entity is assigned to Vision Operations ledger
Next Step: Verify or define Accounting calendar

Navigate Financials>Define Common Applications Configuration for Financials>Define Enterprise
Structures for Financials> Define Financial Reporting Structures>Define Calendars>Manage Accounting
Calendars
“Accounting12Month” is the calendar which we will be using in Intercompany.
This completes setup in General Ledger.

Next Step: Setup to be performed in Intercompany.
F.2) Setup in Intercompany

Intercompany related setup need to be performed after completing/verifying set up in general ledger.
Next Step: Configure System Options for Intercompany Accounting

Navigate Financials>Define and Maintain Intercompany Processing Rules>Manage Intercompany System
Options
To edit the system option use Edit button.
Next Step: Define Intercompany Transaction Type

Intercompany transaction type is used while creating intercompany transaction. This configuration
controls below for the transactions created using the speciffic transaction type:
a) Invoicing: If selected “Yes” then system would created Intercompany receivable and payable
invoices, else after approval if intercompany transcation, accountings can directly be
transferred to general ledger
b) Manual Approval: If selected “Yes” then on submission of intercompany transaction, receiver
organization to approve the Inbound transcation for further processing.
Navigate Financials>Define and Maintain Intercompany Processing Rules>Manage Intercompany
Transaction Types
We will use “Intercompany Sales” in our example.

Note:
Invoicing- its selected “Yes”, so system will create Intercompany receivable and payable invoice
for provider “Vision Services” and receiver “Vision Operations” respectively.
Next Step: Open period for the intercompany transaction type

Navigate: Financials>Define and Maintain Intercompany Processing Rules>Manage Intercompany Period
Status

Period status is maintained at Transaction type level.
Query for accounting period for the Intercompany Transaction Type
Status of respective period is “Open.

If its not open then click in Open button to open the period.
Next Step: Create Intercompany organization for respective legal entities
Navigate: Financials>Define and Maintain Intercompany Processing Rules>Manage Intercompany

Organization

Search if already Intercompany organization is defiined.
Search for “Vision Services”
Note:
Organization Name: IC Vision Services
Receivabales Business Unit: Vision Services , System will create receivable invoice with this BU,
for any Intercompany Transaction for IC Vision Services
Payables Business Unit: Vision Services , System will create payable invoice with this BU, for
any Intercompany Transaction for IC Vision Services
Create or Verify intercompany organization for second legal entity of our example, “Vision Operations”

Review Intercompany organization defined for legal entity “Vision Operstaions”
Note:
Organization Name: SSC Operations 01, we are going to use this Intercompany Organization in
our test case.
Next Step: Provide data access for the Intercompany organization defined to user.
Navigate: Financials>Define and Maintain Intercompany Processing Rules> Manage Intercompany

Organizations Data Access for Users

Check if “Intercompany Accountant” role is given to user for the Intercompany Organization defined (SSC
Operations 01 and IC Vision Services in our case), if not then click on plus symbol and add the role.
“FINUSER1” is assigned “Intercompany Accountant” role for Inercompany organizations “SSC Operations
01” and “IC Vision Services”
Next Step: Define Intercompany customer supplier association. This we need to perform to configure
respective Customer or supplier for which intercompany receivable or payable invoice to be cretaed by
system.
Prerequistie:
Customer and supplier defined for business units related to intercompany transaction.
Navigate: Financials>Define and Maintain Intercompany Processing Rules> Define Invoicing Options
Manage Intercompany Customer Supplier Association
Note:
For legal entity “Vision Services” System would create intercomopany receivable invoice with
customer account number 1627320
For legal entity “Vision Services” System would create intercomopany payable invoice with
Supplier number 7402
Similarly check customer supplier association for Vision Operations legal entity

As per above definition:
For legal entity “Vision Operations” System would create intercomopany receivable invoice with
customer account number 4017
For legal entity “Vision Operations” System would create intercomopany payable invoice with
Supplier number 20061
To create receivable invoice Transaction Type and Memo line are required.
Next Step: Configure Intercompany Receivables Assignment
Prerequisties: Transaction type and Memo line is defined in Receivable for respective Business unit
Navigate: Financials>Define and Maintain Intercompany Processing Rules> Define Invoicing Options
Manage Intercompany Customer Supplier Association
System will pick transaction type and memo line from above configuration to cretae intercompany
receivable invoice. If its not defined for speciffic business unit then system would select values for
default assignment.
Next step: Define intercompany accounts
Navigate Financials> Define and Maintain Intercompany Processing Rules>

Manage Intercompany Balancing Rules
Search Intercompany Balancing Rules for Vision Operations ledger
Refer the rule defined for Intercompany Transaction Type “I/C sales” we are going to use in this test case.
Note:
Recivables account: 01-000-1810-0000-000, as per above configuration this account will be
taken by system to record any intercompany receivable amount for Vision Operation generated
for “To Ledger” and other parameters shown above.
Payables account: 01-000-2440-0000-000, as per above configuration this account will be

taken by system to record any intercompany payable amount for Vision Operation generated

Note:
Recivables account: 01-000-1810-000, as per above configuration this account will be
taken by system to record any intercompany receivable amount for Vision Services generated
Payables account: 01-000-2440-000, as per above configuration this account will be

taken by system to record any intercompany payable amount for Vision Services generated
This completes setup for the business scenario we discussed.

Transaction Processing
G) Transaction Flow
Let’s recall the business scenario we started with. Vision services performs some business activity for
Vision Operations. Expectation is below from system:
a) Intercompany transaction to capture the Intercompany business activity

b) Automatic Creation of Outbound and Inbound transactions
c) Approval of Inbound transaction by Receiver Organization
d) Receivable Invoicing in Receivables of Vision Services
e) Payables invoicing in Payables of Vision Operations
G.1) Intercompany Transaction

Prerequisites: Assign “Intercompany Accountant” role to business user who creates Intercompany
Transaction.
Log in to application
Prerequisites: The user must have below assigned to him/her:

Role: “Intercompany Accountant” for the intercompany organizations for which
User is going to transact.
In our case user “FINUSER1” is given access to intercompany organizations “IC Vision Services” and “SSC
Operations 01”
Navigate: Navigator>Intercompany Accounting>Transactions

Intercompany Accounting> Transactions is the region to perform different intercompany related
transactional activity.
Navigate to Book symbol In right. This displays all the activities we can perform.
Click on “Create Transaction” link

Batch Number: System generated number for the Intercompany transaction
Provider: Select Intercompany organization related to Legal entity intiating the intercompany
transaction. In our case its IC Vision Services, it’s the intercompany organization defined for legal
entity Vision services
Transaction Type Name: Select Intercompany Transaction Type.
Control Amount: It can be enetered in case intiator is entering more than one intercompany transcation
In Same batch. For example Vision services performed different business activity (Miscellaneous
expenses, consultancy etc.) for one or more than one different legal entity (Vision operations in
our case) and each activity need to be seperatly for accounting purpose.
Batch Amount: This gets calculated automatically as total of amount of intercompany transactions
enteted in batch. Currently its shown as 0 as no intercompany transaction is enetered in batch.
Amount Difference: Its difference between Control amount and Batch amount.
Next step: Click on Plus symbol in Transactions region to create Intercompany transaction in the batch.

Receiver: Select intercompany organization with the legal entity with which intiator legal entity
transacted. In our case its “SSC Operations 01” related to Legal Entity “Vision Operations”.
Enter the amount of transaction in Debit. In our case its 160 USD.
Point to note Batch amount in “Batch” region changed to 160 from 0.
Next step: Click on Plus symbol in Transaction:Distributions>Provider
Enter the account of provider intercompany organization, Amount in Credit.

Next step: Click on Receiver Tab and click on Plus symbol to add details for receiver.
Enter account and amount for Receiver intercompany organization. As per our business example there 2
different business activity for Vision Operation the Receiver intercompany organization so enter 2
distributions with Account and Amount.
Note:
Amount entered “Debit” side in in Receiver tab
Amount entered “Credit” side in in Provider tab
Next Step: Click on Submit button to complete the Intercompany Transaction
This completes Intercompany transcation. Intercompany Batch Number cretaed is 72329.

System would cretae Outbound intercompany transaction for Provider Vision Services and Receiver
Vision operations.
Next step: Approve Inbound intercompany transcation

G.2) Approve Inbound Intercompany Transaction
Query the Intercompany Inbound Transaction created

Navigation: Navigator>Intercompany Accounting>Transactions>Manage Intercompany Inbound
Transactions
This opens Intercompany Inbound transaction search page.
Search for Inbound transaction by Intercompany batch number.
Select the transaction and click on Approve button.

Next step: Review status of the Intercompany transcation

Transcation status: Approved
Next step: Review Intercompany Outbound Transaction
G.3) Intercompany Outbound Transaction

Query the Intercompany Outbound Transaction created
Navigation: Navigator>Intercompany Accounting>Transactions>Manage Intercompany Outbound
Transactions
This will open Outbound transaction search page

Search by Intercompany batch number
To review the transcation, click on the link for Batch Number
On approval system created respective expected accounting:

Note: Accounting for Provider
Debit account is the Intercompany Receivable account defined in “Manage Intercompany
Balancing Rules” configuration
Credit account is taken as what enetered in “Provider” tab while creating Intercompany

transaction
Next Step: Review Accounting for Receiver
Click on “Receiver” Tab
Note: Accounting for Receiver

Credit account is the Intercompany Payable account defined in “Manage Intercompany
Balancing Rules” configuration
Debit account is taken as what enetered in “Receiver” tab while creating Intercompany
transaction
This completes review of Outbound transaction.

Next Step: Creation of Intercompany receiveable Vision services to
G.4) Intercompany Receivable Invoice

As per business requirement, Vision service should have Receivable invoice created to track its
receivable.
Run “Transfer Intercompany Transactions to Receivables“to get receivable invoice created for the
Intercompany transaction.
Navigate: Navigator> Intercompany Accounting>Transactions
Click on “Book” icon at upper right corner.

Click on “Transfer to Receivables” to submit “Transfer Intercompany Transactions to Receivables”
process.
Enter parameters as per requirement.

Note: Value for parameter “Run Receivables Invoice Import” is selected as “Yes” so this process will
spawn Auto Invoicing to import Receiveable invoice. If its selected as “No” then Auto Invoice process
need to be submitted seperatly.
Click on “Submit” button.
Track the submitted process in process monitor.

Check output of “Import Autoinvoice: Execution Report” to check if any exception occurred.
Review status of Intercompany Transcation
Status is “Transferred to Receivables”.

This means receivable invoice is created.
Next Step: Review Receivable Invoice

Navigation: Navigator>Receivables>Billing
Click on “Manage Transactions”

Search for transactions with Transaction Source “Global Intercompany”
System shows Receivable invoice with Transaction Source “Global Intercompany”
Transaction Number: 181

Open the transaction by clicking on Transaction Number
Note:
Bill-to Name: Internal-Vision Operations, its same which is configured in “Manage Intercompany
Customer and Supplier Assignments”
To check accounts in Receivable Invoice, Navigate Actions>Review Distribution

Review Distributions of Receivable Invoice
Note:
Receivable Account: Its taken from “Manage Intercompany Balancing Rules” configuration
Revenue Account: Its taken from the Account enetered in “Provider” tab while creating
Intercompany transaction
Rounding Account: Its derived as per applicable Receivable configuration
The receivable invoice to be accounted and accounting to be trsnaferred to general ledger as standard
process.
This completes receivable invoice ceation.

G.5) Intercompany Payable Invoice
As per business requirement, Vision Operation must have Payable invoice to track its Intercompany
payable liability.
Next Step: Get Intercompany invoice created.

Navigate: Navigator> Intercompany Accounting>Transactions
Click on “Book” icon at upper right corner.
Click on “Transfer to Payables” to submit “Transfer Intercompany Transactions to Payables” process.
Enter parameters as per requirement.

Note: Value for parameter “Run Payables Invoice Import” is selected as “Yes” so this process will spawn
“Import Payables Invoices”. If its selected as “No” then “Import Payables Invoices” need to be submitted
seperatly.

Click on “Submit” button.
Track the submitted process in process monitor.
Next Step: Review Payable Invoice

Navigation: Navigator>Payables>Invoices

To query the Invoice, Click on “Manage Invoices”
This opens Serch page for Payable Invoice
Query for Invoice Number 181 for Vision Operations

Click on Invoice Number link to open the Invoice
Note:
Invoice amount:160
Supplier: Internal-Vision Services, its same which is configured in “Manage Intercompany
Customer and Supplier Assignments”
Lines: There are 2 Lines. This in in consistent to the business example where 2 different business
activities were done for Vision Operations
To check the distribution accounts, edit the invoice

Distribution Combinations: It’s the same account which we enetered for receiver while creating
Intercompany transaction
Next Step: Verify Liability account, it should be same as intercompany payable account defined while
configuring “Manage Intercompany Balancing Rules”
Click on “Show More” link in Invoice Header Region
The payable invoice to be validated, accounted and accounting to be trsnaferred to general ledger as
standard process.
This completes creation of Intercompany Payable Invoice.


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Fusion Applications White Paper

White Paper on Intercompany

Oracle/Client Confidential - For internal use only Page 1

F.1) General Ledger Setup......................................................................................................................................8

G.1) Intercompany Transaction...........................................................................................................................19

Oracle/Client Confidential - For internal use only Page 2

a) Concept of Intercompany Accounting

a) Setup steps related to Intercompany Accounting

b) Transaction flow for Intercompany Accounting

This paper will not cover:

a) Details of Related setup in General Ledger, Payables and Receivables

Oracle/Client Confidential - For internal use only Page 3

a) Transaction between legal entities of same Ledger

Let us take an example of following financial structure:

In an organization there are 2 Primary Ledgers:

First set of Intercompany transaction is as below:

i) Transaction between Balancing segments “01” and “02”

Oracle/Client Confidential - For internal use only Page 4

iv) Transaction between Balancing segments “01” and “03”

In this paper we are going to cover Second set of intercompany transaction.

a) General Ledger (GL)

Oracle/Client Confidential - For internal use only Page 5

Expected Accounting for Vision Operations:

b) Vision operations needs an intercompany payables invoice

To map the above requirement, following steps are performed:

a) Basic set up (like setting up Ledgers, Accounting calendar etc.) in “GL”

Oracle/Client Confidential - For internal use only Page 6

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F.1) General Ledger Setup

After Logging in, navigate to respective Implementation project.

Navigate Financials>Define Common Applications Configuration for Financials>Define Ledgers>Define

Next Step: Check Ledger Setup for Vision Operations ledger

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Next Step: verify Legal Entity Assignment for the ledgers

Vision Services legal entity is assigned to Vision Services ledger

Vision Operations legal entity is assigned to Vision Operations ledger

Next Step: Verify or define Accounting calendar

Oracle/Client Confidential - For internal use only Page 9

“Accounting12Month” is the calendar which we will be using in Intercompany.

This completes setup in General Ledger.

F.2) Setup in Intercompany

Oracle/Client Confidential - For internal use only Page 10

To edit the system option use Edit button.

Next Step: Define Intercompany Transaction Type

We will use “Intercompany Sales” in our example.

Next Step: Open period for the intercompany transaction type

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Status of respective period is “Open.

Navigate: Financials>Define and Maintain Intercompany Processing Rules>Manage Intercompany

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Oracle/Client Confidential - For internal use only Page 13

Navigate: Financials>Define and Maintain Intercompany Processing Rules> Manage Intercompany

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Next step: Define intercompany accounts

Navigate Financials> Define and Maintain Intercompany Processing Rules>

Payables account: 01-000-2440-0000-000, as per above configuration this account will be

Oracle/Client Confidential - For internal use only Page 17

Payables account: 01-000-2440-000, as per above configuration this account will be

This completes setup for the business scenario we discussed.

Oracle/Client Confidential - For internal use only Page 18

a) Intercompany transaction to capture the Intercompany business activity