In one of our previous training articles linked here on Intercompany Accounting training, you learnt how to define Intercompany Balancing Segment in Fusion Financials.
A sample use case for Intercompany Transaction in Fusion General Ledger
In this training article, you will learn how intercompany balancing journal lines are created in Oracle Fusion Financials General Ledger. In a typical processing scenario between Company Fusion Practices and its affiliate Company Apps2Fusion….Company Fusion Practices receives a $1000 invoice for supplies that are used by both Company Fusion Practices and Company Apps2Fusion. Company Fusion Practices makes a journal entry for $1000 in the Oracle Fusion general ledger under Fusion Accounts Payable and splits the expense with Company Apps2Fusion, resulting in journal entries under expenses of $600 for Fusion Practices and $400 for Apps2Fusion. This is because Fusion Practices consumes the bigger chunk of this supplies purchased from Vendor.
In this scenario of Intercompany Transactions, the Company Fusion Practices has a liability of $1000 and an expense of $600. Company Apps2Fusion has $400 in expenses and zero liability. At this point, Company Fusion Practices’s books are out of balance and must be reconciled through intercompany journal entries in Fusion GL.
Above mentioned case is a typical Intercompany transaction with distributed expenses. Now, lets assume that you are trying to mimic the above example via a manual journal in Oracle Fusion Financials General Ledger. This will result in the following journal lines in a journal
Company Fusion Practices
Credit Payables Liability $1000
Debit Expense Account by $600
Company Apps2Fusion
Debit Expense Account by $400
Note - There is no credit entry here
You will notice that the Credits in journal will match debits, i.e. $1000
But the credit and debits within the Company Fusion Practices do not match up.
Likewise, the credits and debits within Apps2Fusion do not match up either
Auto creation of balancing lines
In Fusion Financials when Legal Entities are unbalanced but the journals are balanced then intercompany balancing lines are auto-generated as per the rules defined in Intercompany setup.
Oracle Fusion Financials, we can define Upto 3 balancing segments. Therefore in the sequence of training screenshots below, you will see how the system automatically generates the balancing journal lines to ensure that journals are balanced by credit=debit not just at journal level, but also at the balancing segment level, i.e. the Entity/Company segment.
In Oracle Fusion Financials Common Module the Intercompany is supported as the internal business activity between two or more related legal entities within the same enterprise. An Intercompany segment label can define a segment in a chart of accounts structure. A segment with this label means that Oracle Fusion Accounting Hub will populate a value in this segment to identify the trading partner for the intercompany transaction or the contra primary segment value, whenever it generates intercompany receivable or payable lines using the Intercompany Balancing Rules.
Automatic intercompany balancing journal creation in the Oracle Fusion Accounting Hub ensure proper recording of journals across legal entities.
Intercompany balancing rules are defined for pairs of primary balancing segment values, pairs of legal entities, pairs of ledgers, or for a chart of accounts structure. These accounts are used to build the accounts for intercompany balancing lines. Account combinations for intercompany balancing lines are automatically created based on combinations of source, category, and balancing segment values of the line to be balanced.
How to define intercompany balancing rules
Manage Inter company-->Searh for the desired Ledger and select a value because it is a mandatory field when defining inter company balancing rules.
Enter & select a value.
Net click on Manage Ledger Balancing Options.
Click on journal entry to create a journal
You will notice that four journal lines have been automatically added. This is made possible due to COA rules defined earlier in this article
Net let us create another journal, but each three belong to the same Ledger.
You will notice that the posting creates balancing lines to balance company values within the Legal Entity.
Apps2Fusion Articles 