Some basic light on Intercompany and Intracompany in R12 GL

Intercompany and Intracompany in GL:

In R12 we have modified concepts to track the accounts for Intercompany and Intracompany Accounts.

Note: When compare to 11i the Intercompany is now Intracompany in R12 and there is a new concept introduced for Intercompany in R12.

Intercompany transactions are the Transactions between the balancing segments across legal entities.

Intracompany transactions are the Transactions between the balancing segments within the same legal entities or ledger.

Illustration on Intercompany and Intracompany as below:

To understand the concept of Intercompany and Intracompany further more let us consider our illustration as below for Intercompany:

Let us consider our Ledger as GSSTATA PL


Considering the above illustration if there are any transaction between balancing segment (COMPANY) 01 and 02 then it is intercompany transaction. If the transactions are between the balancing segment 03 and 04 then it is intracompany transaction.

Going further if the balancing segment 01 purchases Machinery from the 3rd Party (Say A) and the balancing segment 02 sells the Machinery to a 3rd Party (Say B). Now 01 is liable to pay money to A for this the transaction would be

Machinery A/C

To Payables A/C

And also balancing segment 02 has to receive cash from 3rd Party B so the transaction would be

Machinery A/C

To Receivables A/C

And apart from the above transaction there is also a exchange of the same machinery between 01 and 02, where in 02 is liable to pay 01 and 01 will be receiving funds from 02, now to avoid the confusion and to differentiate the accounting transaction between 01 and 3rd Party (Say A) and 01 and 02 transaction and 02 and 3rd Party (Say B). Now accounts can be created manually between 01 and 02 and also can be automated (Enabling the Inter Company setup). To automate the creation of accounts between 01 and 02 we need to setup the Inter company accounts in the application so that this will guide the application to generate separate accounts for the transaction between 01 and 02 adding to the transaction between 01 and 3rd Party and 02 and 3rd Party which is created earlier. For this the system automatically creates the accounts between 01 and 02 balancing segment (COMPANY) when there is a transaction between them using the accounts IC Receivables and IC Payables accounts that we need to define.

Enable the inter company flexfield qualifier to the company segment at our Chart of accounts

Navigation: Setup -> Financials -> Flexfield -> Key -> Segment

Application: General Ledger

Title: Accounting Flexfield

Code: GSSTATA (Chart of Account)

Unfreeze and then navigate to the segments, highlight Company and enable Intercompany Segment.

Later Freeze and COMPILE.

Next Step would be to define intercompany payables and intercompany receivables account at our Natural Account (Account Segment)

Navigation: Setup -> Financials -> Flexfield -> Key -> Values

Application: General Ledger

Title: Accounting Flexfield

Structure: GSSTATA (Chart of Account)

Segment: Account

Click on FIND

And navigate to the Qualifier Tab and then select the Account Type as LIABILITY.

The next step would be to enable the Balance Intercompany Journals Option at the Ledger

Navigation: Setup -> Financials -> Accounting Setup Manager

Search for the ledger: GSSTATA PL

Click on Update Accounting Option, under the Primary Ledger Section for the ledger option for the Ledger GSSTATA PL click on Update

Goto step 2 of the ledger Option, under the Journal Processing Section enable “INTERCOMPANY BALANCING JOURNAL”.

Going further we need to define the Intercompany Relationship and Intercompany Account to account for the transaction across Legal Entities.

Under the Primary Ledger Section.

Search for Intercompany Account and click on UPDATE.

Under the Legal Entity section for the GSSTATA MOTORS as Transaction Legal Entity, Click on UPDATE and in the navigated screen ADD ROW

Note: Change the Start Date to the Period APR 12 as the Default date would be System date.

Finally Click on Apply

Similarly do the same process as above for GSSTATA CONSULTANCY as Transaction Legal Entity. (ADD ANOTHER ROW)

Note: To account any transactions between GSSTATA MOTORS and GSSTATA CONSULTANCY be need to define the relationship between GSSTATA MOTORS and GSSTATA CONSULTANCY and also a relationship and vice versa (Say between GSSTATA CONSULTANCY and GSSTATA MOTORS)

After defining all the relationships and intercompany accounts, change the status to COMPLETE and click on DONE.

Note: we can edit the process of defining the intercompany relationship any time just by clicking on update. To delete the relationship just mention the end date and add another relationship.

The relationships between the balancing Segments can be defined as One To Many relationship and also Many To Many relationships this can be understood well with the below illustration.

The relationship between GSSTATA MOTORS and GSSTATA CONSULTANCY can be created in the below mentioned ways.

Consider GSSTATA MOTORS as Transaction Legal Entity

While selecting the Transaction Balancing Segment as 01 in the

LOV (List of Values) we can also find 02 and 03 as the transaction balancing segments

Now consider GSSTATA CONSULTANCY as Transaction Legal Entity to define the relationship vice versa as well.

Above is the illustration of One To One relationship.

Relationship can also be created as One To Many relationship as below

Consider GSSTATA MOTORS as Transaction Legal Entity

Also a Many To Many relationship can be defined as below;

Consider GSSTATA MOTORS as Transaction Legal Entity

Once all the relationships are defined and also the Status is changed to COMPLETE we shall test.

Create a Journal for testing whether our setup is done correctly as below

Navigation: Journals -> Enter

Name: IC JV1

We create the account as below

                                                                                                                                  DEBIT                                    CREDIT

01.00.00.00.1500 (Machinery Account)                                   200000

02.00.00.00.1500 (Machinery Account)                                                                                   200000

Now we POST the above Journal, though the Journal entry is not balanced (Debit account total is not equal or balanced with Credit account), this is possible to post as we have enabled the Intercompany setups.

Once the Journal is POSTED a Concurrent Program runs “POSTING: SINGLE LEDGER

Now if we re-check the journal IC JV1 we see that the application has added two additional lines as below:

                                                                                                                                   DEBIT                                CREDIT

01.00.00.00.3040 (IC Payables Account)                                                                                 200000

01.00.00.00.1040 (IC Receivables Account)                           200000

Finally there would be 4 lines in the Journal IC JV1

                                                                                                                                 DEBIT                                    CREDIT

01.00.00.00.1500 (Machinery Account)                                   200000

02.00.00.00.1500 (Machinery Account)                                                                                   200000

01.00.00.00.3040 (IC Payables Account)                                                                                 200000

02.00.00.00.1040 (IC Receivables Account)                           200000

If we observe the Journal is now balanced as well.

Going further with Intercompany and Intracompany we shall be discussing more on the Intracompany and the setup’s required for setting up Intracompany.

The above setup’s that were defined for Intercompany (All the setups defined before defining the Intercompany Relationships) hold good for Intracompany as well. Apart for the Intercompany setups there are some other setup’s adding to that which would be defined.

Before actually defining the setups for Intracompany we now understand as to why do we need those setup’s first.

Now if there are transactions between balancing segment 02 and 03 then they are Intercompany Transaction and if there are transaction between 03 and 04 then they are Intracompany Transactions. Now if we have a requirement to report the balances or total of all the intercompany receivables and intercompany payables at the legal entity level say GSSTATA FINANCE and not considering the transactions that involved other legal entity say GSSTATA CONSULTANCY (Say: As you are aware that there are transaction between 02 and 03 and also between 03 and 04 now to report the transactions that happened only between 03 and 04 the concept of Intracompany comes into picture with further setups for Intracompany are required).

Below are some important points pertaining to Intracompany that’s needs to be considered:

  1.  To account for Intercompany payables and intercompany Receivables (IC Payables and IC Receivables) at the legal entity level we need to use the CLEARING Company account.
  2. Clearing Company is used to account only the Intercompany payables and intercompany Receivables accounts
  3. We have to maintain a separate clearing company for each of the legal entity to account for IC Payables and IC Receivable.
  4. Defining a clearing company is optional.
  5. Clearing Company is used only for Intracompany transactions.

As mention let us also consider the following setup of intercompany

  1. Enable the Intercompany flexfield Qualifier
  2. Define intercompany Payables and Receivables
  3. Enable balancing Intercompany Journal

Adding to above setup we need to define the below setups

Adding the Clearing Company

Navigation: Setup -> Financials -> Flexfield -> Key -> Values

Application: General Ledger

Title: Accounting Flexfield

Structure: GSSTATA (Chart of Account)

Segment: Company

Click on FIND

Note: Check if there are 2 balancing segment value under a legal entity

Next would be assigning the clearing company to the legal Entity

Navigation: Setup -> Financials -> Accounting Setup Manger -> Accounting Setup

Search for the ledger: GSSTATA PL

Add the balancing segment value 04 (If added new) and 10 to the ledger and mention the start date to APR 12 as by default the date would be System Date.

Now define the Intracompany Balancing Rules.

Under Primary Ledger Section

Search for INTRACOMPANY BALANCING RULES, click on UPDATE.

To define the rule for GSSTATA FINANCE legal entity define rule and click on Create Rule.

Source: OTHER (For specific Sources as here we can mention some specific sources also)

Category: OTHER

Debit Balance: ALL OTHER (This would display the LOV of all the balancing segment Values which is associated to the legal entity)

Credit Balance: ALL OTHER

Debit Account:

COMPANY:                                         03

DIVISION:                                            00

LOCATION:                                         00

DEPARTMENT:                                  00

ACCOUNT:                                          1040                       (IC Receivables Account)

Credit Account:

COMPANY:                                         03

DIVISION:                                            00

LOCATION:                                         00

DEPARTMENT:                                  00

ACCOUNT:                                          3040                       (IC Payables Account)

Note: We no need to define the rule in reverse order (Vice Versa) as we have done in case of Intercompany.

The system would automatically create the accounts for all the other Balancing Segment values say 04.00.00.00.1040 and 04.00.00.00.3040.

Navigate to the next Tab OPTION.

(Here we define the Clearing Company)

Default Option:  Default Clearing Balance Segment Value is to be selected (The other option would be Manual, in this case the Clearing company account should be created manually for account the payables and receivable at the legal entity level)

Default Clearing Company Segment:  10

Then APPLY, change the status to COMPLETE and click on DONE

 

Now to test the changes we create a journal

Navigation: Journals -> Enter

Journal Name: Intra JV1

We create the account as below

DEBIT                              CREDIT

03.00.00.00.1500 (Machinery Account)                                   20000

04.00.00.00.1500 (Machinery Account)                                                                                   20000

 

Now when we post it gets posted successfully.

The new lines that are added by the application for the Journal Intra JV1 are as below as we have enabled the Intracompany setup would be

DEBIT                               CREDIT

03.00.00.00.3040 (IC Payables Account)                                                                                 20000

10.00.00.00.3040 (Clearing company Account)                                                                    20000

04.00.00.00.1040 (IC Receivables Account)                           20000

10.00.00.00.1040 (Clearing Company Account)                   20000

And the journal is now balanced.

Note: All the above illustration is considering that the Ledger GSSTATA PL is created earlier before actually defining the Intercompany and Intracompany accounts.

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Comments
12 Responses to “Some basic light on Intercompany and Intracompany in R12 GL”
  1. GOOD EFFORT, APPRECIATE

  2. anupam says:

    you are doing an awesome job..I’m a B.com graduate and would like to learn R12 (oracle financials). Please let me know if you have more blogs on the same..Thank you

  3. Bob From vegas says:

    Thank you very much! we went live on 12.1.3 a year ago and the consultants did not set up intracompany rules. Oracle support was baffled by my request of how to set up / why it does not work.

    Five minutes after reading this I was able to set the rules up correctly.

    Thanks!

  4. Vijay says:

    Superb !!!!!! EXCELLENT !!!!!!!!!!! well done…good job.

  5. subhash says:

    Real good job…excellent explanation of the complex subject

  6. Suji says:

    Thanks for explaining it in such a simple way ! Appreciate it.

  7. khan says:

    vry good really I appreciate to ur work

  8. Raman says:

    Good Job ….Thanks

  9. Narayana Kayala says:

    Explained Very Nicely..It is really helpful . Appreciate your Effort ..

  10. Bimal K says:

    Excellent Gunti Bhai !!!

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