Introduction
Tired of managing and reconciling huge data in Accrual accounts? We have designed a strategy to simplify the management of Accrual accounts in Oracle fusion which has saved 500+ hours of the users across multiple clients over a year.
Accruals act as a bridge between goods/services received and the corresponding invoice receipt. While accruals ensure accurate financial reporting, they must be cleared in a timely and consistent manner to avoid inflated liabilities and misstated books.
In Oracle Fusion, Accrual Clearing is the process of reconciling and eliminating accrued amounts once the corresponding supplier invoices are matched and accounted for.
Understanding Accrual Clearing in Oracle Fusion
Ms. Teresa, a Finance Controller of a multinational manufacturing company in the US, could not answer the statutory auditors when they asked the reasons for such huge accrual balance. The auditors insisted on clearing the long outstanding balances which do not represent a reasonable actual liability. Being confused with the further steps, she reached out to us to understand how is the accrual clearing process being managed in Oracle Fusion.
When a Purchase Order (PO) receipt is created for goods or services, Oracle Fusion automatically records an accrual — typically crediting the Accrual account. This entry represents the organization’s obligation to pay the supplier once the invoice is received.
When the supplier invoice is matched to the PO receipt and accounted for, Oracle Fusion generates the reversal of the accrual, effectively “clearing” the liability from the accrual account to the actual liability account (Accounts Payable).
- PO Receipt with Delayed Invoice
Goods/services are received in one accounting period, but the supplier invoice arrives in a later period. Accruals ensure the expense is recognized in the correct period and later cleared when the invoice posts.
- Year-End Cut-Offs
At financial year-end, outstanding accruals must be cleared promptly in the next period to maintain accurate carry-forward balances.
Business Cases Requiring Manual Accrual Clearing
Ms. Teresa appreciated the explanation and now she was more curious to understand what the situation would be where she would require a manual clearing to be done as the system automatically clears the accrual balance when the invoice is created.
She believed only the cases where the Invoice is not received from the supplier would require a manual clearing. But we explained that this is not the only case where manual clearing is required. All Unmatched or Overdue Accruals would be because of following reasons –
| Reasons | Nature of Balance in Accrual Account |
| Invoices are not received for a long time even after multiple follow ups with the supplier, but the receipt is created. | Credit Balance |
| Over Invoicing is created for the receipt | Debit Balance |
| There is a difference between PO and Invoice because of rounding amounts | Either Credit or Debit Balance |
| When the Return Receipt is created at difference price than the Receipt because a Change Order is created for PO. | Either Credit or Debit Balance |
| If the Receipt and Cost Accounting entries are not matching, then the difference shall be open at the Accrual account. | Either Credit or Debit Balance |
| If PO is cancelled after creating a receipt. | Credit Balance |
Flow of Reconciliation activities
After understanding the reasons for which Manual Clearing is required, Ms. Teresa was so confused with what steps need to be taken to identify such anomalies from such a huge chunk of data. They had not done any such detailed analysis in past 3 years since Oracle Fusion was implemented. Here, we provided the following steps to perform the reconciliation –
- Run Accrual Reconciliation Report from Schedule Process
This report provides the PO-wise list of open accrual balances including the transactions booked for each PO line including Receipt Accruals, Returns, Adjustments, Invoice/Credit Note created.
- Extract Manual entries in the Accrual Account using Account Analysis Report from Schedule Process
We can get the entries which are having source other than “Payables” and “Receipt Accounting”. Reason for such entries need to be analyzed and reversed. - Accrual Clearing of open transactions
After identifying the PO lines for which the open Accrual balances need to be adjusted, she needs to go the Adjust Accrual Clearing Balances task in the Receipt Accounting module and perform the manual clearing.
Issues in Accrual Reconciliation Process and Solutions provided
While performing the steps, Ms. Teresa faced many issues because the volume of transactions was very huge, and the analysis was not easy. Even after following the above steps, Ms. Teresa was unable to justify the auditors for the open balances. She also requested solutions to permanently solve these issues. The list of issues identified, and solution provided is as below –
| Issues | Examples | Solutions Provided |
| Manual entry directly in the Accrual account | Manual entries directly in GL for booking ad hoc accruals. | Categorize the Accrual account as “Third Party Control Accounts” under COA values and use separate account for booking manual ad hoc accrual entries. |
| Accrual entry for a different Accounting Class | Even after restricting manual entries in Accrual account, it can be used within Subledger transactions incorrectly. For Example, entering Accrual account as a Distribution combination while creating a Non-PO Matched line in AP Invoice will have the accounting class as “Item Expense” instead of “Accrual”. | A custom report has been developed by us to provide the information of Invoices where the accrual account is used without being matched to a purchase order. Additionally, we have enabled page level warning message through our “Orbri” plug-in to restrict entering accrual account while creating Non-PO Matched Invoice Line and enable approval workflows for Non-PO Matched Invoice Lines. |
| Accrual Reconciliation Report (Seeded) | This seeded report’s format cannot be used for analysis of larger data, and no aging is available. | We have created a custom report which provides PO wise data in a Tabular format along with the Accrual Open Balance Aging Analysis which is more user-friendly. |
| Missing Transactions for Returns | The Credit note is created by the Finance Department, but receipt return is not booked by the Stores Department or vice versa resulting in incorrect Accrual balances | Such inefficiencies in Business Processes were identified, and proper internal control processes were suggested so that no transaction booking is missed. |
| Inadequate Match Approval Level Configuration | When 2-way match option is selected, the invoice can be created even if the receipt is not created by the Stores Department. | Either 3-way or 4-way match options should be selected, and the business process should be defined to record the receipts by Stores department and then only the invoice can be validated. |
| Mapping Open balances with Accrual Clearing page | This is an identified Oracle bug where the balance in Accrual Clearing page might be different as against the actual PO wise open balance of Accrual because of some anomalies in Receipt and Cost Accounting entries. Oracle Bug – Bug 29783382 | We need to match these balances using the custom report as no such seeded report option is available and in case of any differences, the Accrual clearing entries need to be monitored. |
| Manual Clearing of Old Accrual balances | There is extreme manual effort to analyze and clear off the balances. | On timely basis the open Accruals shall be reviewed, and the old balances (eg., > 90 days) shall be cleared off for which no invoices are expected to be received using Automated Accrual Clearing Rules and Aging analysis. |
| Data Migration Strategy for open PO | Using same Accrual account for migrating open accrual balances and booking new transactions. This will make the account look clumsy and reconciliation difficult.
Using the same accrual account for migrating open accrual balances and recording new transactions can clutter the account and complicate reconciliation. |
While migrating open Purchase Orders or Receipts, a dummy account shall be used for parking the Accrual balances which are booked in the legacy system. This account shall only be utilized for booking the invoices received later which can help in better tracking of the Accrual balances. Once the balance in this account is zero, this account shall be disabled. |
Benefits of Reviewing Accrual Balances
After implementing the solution and monitoring the process for over a year, Ms. Teresa was applauded by the CFO, and they were able to notice significant benefits in following areas –
| Improved Financial Accuracy | Ensured that liabilities in the balance sheet truly reflect actual obligations, avoiding overstatement of inventory, expenses or liabilities. |
| Enhanced Audit Readiness | Clean, reconciled accrual balances make it easier to respond to statutory and internal audit queries which reduced audit risks and exceptions. |
| Better Cash Flow Planning | They had more accurate view of outstanding payables, which improved payment forecasting and working capital management. |
| Compliance with Accounting Standards | It aligns with IFRS and GAAP matching principles, ensuring expenses are recognized in the correct period and accruals are adjusted when it is no longer “probable” that an outflow of economic benefits will be required to settle the obligation. |
| Operational Efficiency | It helped identify bottlenecks and improving business processes
– delayed invoice submission by suppliers – delayed recording of invoices by AP Team – inefficiencies in goods receipt/return recording. |
| Improved Vendor Relationship Management | It facilitated faster resolution of discrepancies between POs, receipts, and invoices reduced disputes and built trust with suppliers. |
| Stronger Internal Controls | It acted as a control to detect anomalies, such as receipts without invoices, cancelled orders, or duplicate entries. |
Best Business Practices for Accrual Clearing Rules in Oracle
To minimize the manual intervention, we had defined Accrual Clearing rules based on the business process and policies followed by the client. The following considerations were discussed with Ms. Teresa while defining the rules –
- Accrual Clearing Rules – These are system configurations that determine how and when accrual balances are cleared. \Key elements based on which rules can be defined –
- Accrual account(s) mapping
- Source & event classes
- Matching criteria
- Ledger/BU scope
- Automation/manual choice
- Amount threshold
- Aging criteria
- Defined Business Unit wise Accrual Cutoff Rules to ensure adequate transactions are only considered under the Accrual Clearing Rules based on different terms of business in different geographies.
- Drafted an Accrual Clearing Policy considering the following pointers –
- Alignment with accounting standards and Localization impacts
- Ownership & Accountability
- Frequency of review
- Handling exceptions
Conclusion
Accrual clearing in Oracle Fusion is not just a system process; it is a critical financial control, and a well-defined policy which ensures that accrued liabilities are accurate, aged items are addressed, and financial statements remain reliable. By combining system capabilities, cross-functional collaboration, and industry best practices, many organizations along with Ms. Teresa were able to turn accrual clearing into a seamless part of their period-close routine and save a lot of effort in terms of time and money
Ankil, a Finance consultant with 4 years of hands-on experience in Oracle Fusion, shares practical insights on simplifying accrual clearing, a process often overlooked but critical for maintaining financial accuracy. Drawing from real client scenarios, he explains how the right strategy, automation, and governance can turn accrual management from a tedious reconciliation task into a powerful control tool that saves time and ensures cleaner financial closes.
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