A key policy decision during implementing Oracle Fusion for Receipt Accounting for Expense category PO lines is choosing between “Accrue at Receipt” or “Accrue at Period End”. In our Managed Service journey, we have seen many clients facing issues because of uninformed decisions regarding Accrue at Receipt or Period end resulting in piling up of expense accruals, inaccurate expense booking etc.
Making well-informed decisions is essential and relies on a thorough understanding of the business and expert guidance. A wrong decision here can impact the functioning of the business process and result in inaccurate financial reporting. For instance, a company misreporting just 3% on a $10 million expense budget could be presenting $300,000 in errors in a financial statement.
A wrong decision can impact the organization in following ways –
The key differences of these two Accrual concepts are as below –
- Accrue at receipt (also known as perpetual accrual) – The Accounting entry for expense and accrual is recorded when you create Receipt in Oracle. When you create accounting for the invoice, the accrual is reversed, and the accounts payable liability is recorded.
For Inventory category PO Lines, “Accrue at Receipt” option is selected by default.
- Accrue at period end – No accounting entry is made when a Receipt is created in Oracle for items or services and the expense is recorded only when the invoice is booked. There is no major dependency on receipt creation for booking the expense. We need to run the “Create Period End Accruals” process to create accrual journal entries for all uninvoiced receipts. The entries are automatically reversed in the next period.
Accounting entries in different scenarios:
Events | Accrue at Receipt | Accrue at Period End |
PO Creation | No Entry | No Entry |
Receipt Creation | Receiving (Dr)
Accrual (Cr) |
No Entry |
Expense booking (Put Away) | Expense (Dr)
Receiving (Cr) |
No Entry |
Invoice booking | Accrual (Dr)
Liability (Cr) |
Expense (Dr)
Liability (Cr) |
Period End Accrual
(For Uninvoiced Receipts) |
No Entry | Expense (Dr)
Accrual (Cr) |
Difference between Accrue at Receipt vs Period End:
Metrics | Accrue at Receipt | Accrue at Period End |
Expense Accrual | On Receipt Creation | On Invoice Booking |
Separate Accrual at month end | Not Required | At Month End for Uninvoiced Receipt |
Inflow of Expense to Project | On Receipt Accounting | On Invoice Accounting |
Inflow of Expense to Fixed Assets | Possible on Receipt Accounting | Only on Invoice Accounting |
Accrual Write Off | Required | Not Required |
Invoice Price Variance (Difference between Purchase & Invoice) | Invoice Price Variance generated during invoice processing | Charged directly to expense instead of Invoice Price Variance |
Non-Recoverable Tax variance tracking in case of rate change | Tax Variance generated during invoice processing | Charged directly to tax instead of Tax Variance |
Using Multi-Period Accounting (MPA) | MPA not possible to be used | MPA can be used for these lines |
Reconciliation Report for Uninvoiced Receipt | Accrual Reconciliation Report | Uninvoiced Receipt Accrual Report |
Budget release in case of Encumbrance accounting | Funds released on Receipt creation | Funds released on Invoice creation |
In the Accrue at Receipt method, timely booking of receipts is crucial for recognizing expenses. If the organization lacks personnel to perform real-time receiving, it can disrupt the expense booking process. We have observed that organizations choosing the Accrue at Receipt option for expense items often face delays in expense recognition due to delays in creating receipts.
For example, one of the entities was following a Cost-Plus model for raising the invoices to customer from Projects Contract. But there was no dedicated user who would record the receipts resulting in inadequate costs being reported.
Key factors to consider before deciding Accrue at Receipt vs Accrue at Period End Option:
The decision needs to be taken based on the nature of the business processes and the different types of expenses. The following are the key parameters to be considered –
Metrics | Accrue at Receipt | Accrue at Period End |
Company has requirement to book the expenses once goods/services are received in Oracle. |
√ |
X |
Company has business SOP in place for doing the receiving for all different type of goods/services. |
√ |
X |
Company has decentralized operations and services are received at different places. It is difficult to have users perform the receiving at different places. |
X
|
√
|
Company does not have designated team/reasonable team size to perform the receiving within the system. |
X
|
√
|
Company has requirement to accurately update Project Forecasts on monthly basis based on Project Cost. |
√ |
X |
Company has requirement of Fixed Assets to be capitalised based on accurate date placed in service i.e. receipt date. |
√ |
X |
Based on above considerations, the client should determine the business process that they need to follow considering available resources and then take a decision whether they want to go for Accrue at Receipt or Accrue at Period End.
Accrual Flexibility in Oracle – Receipt or Period End:
- For Expense category PO Lines, the client will have an option on the Manage Common Options for Payables and Procurement page to be set as Accrue at receipt or period end.
- However, the default value of Accrue at Receipt or Period end can be changed at the PO Line Schedule level based on specific requirement for that PO Line.
For example, if client has selected Accrue at receipt at the setup level but for a PO Line of Insurance expense, the user needs to have the multiperiod accounting to be created, then the user can change to Accrue at Period end for this PO Line.
Best Practices when using Period end accrual:
- At the end of accounting period, you must run “Create Uninvoiced Receipt Accrual” process after closing the Accounts Payable period and transferring all the Accounts Payable invoices to Cost Management, and before you close the General Ledger period.
- Run the Create Un invoiced Receipts Accruals process in the Report accrual run mode to review the entries before it gets posted. The report helps you to understand the details about the Uninvoiced purchase order receipts for which accruals will be created. After analysis of the report and making required updates, the process should be run in final mode.
- Auto Reversal of the receipt accrual entries should be set.
Best Practices when using Accrue at Receipt:
- In case of Accrue at Receipt, PO line should not have Invoice Match option as “Order” and Match Approval level as “2-way”. As in such case, the receipt creation might be missed and expense would be charged only if the receipt is booked, resulting in under-reporting of expenses.
- Accrual Reconciliation Report should be run on periodic basis and open entries should be analysed.
- Accrual Aging and Receiving Inspection account should be reconciled and analysed at regular intervals. Timely Accrual write-off should be done for the open Purchase orders where the Invoices are not received for the Receipts created or vice versa.