First of all we need to take note that, in ERP Implementations, while there are customizations of some/many requirements of the Client, we are not customizing all the requirements, but are going to set the Oracle Applications in a way to meet Basic Accounting Concepts & Practices and majority of the requirements of the Client Organization. This is also in view of the fact that the requirements can be endless leading to endless customization which would not be possible from Time and Money perspectives and one need to draw a line.
Hence the two basic criterias that
we need to take care of or keep in mind whilst ERP Implementation are the
following:
-
Basic Accounting Concepts & Practices
- The Features of Oracle Application, especially to meet the above point.
Coming to – Basic Accounting Concepts and Practices, one major concept is the System of Double Entry for recording of transactions in Books of Accounts.
For the application (i.e., implementation) of this Double Entry concept into the ERP System, Oracle has its own way of doing so.
In case of Oracle Applications, every entry finally has its reflection in the General Ledger. Here in Oracle Applications, it may so happen that for recording a transaction an account is credited in Finance Family Module and another account is debited in Procurement Family Module or an account is debited and another account is credited within the Finance Family Modules itself.
For Eg. Crediting Creditor A/c
under Accounts Payable Module of the Finance Family
Modules &
Debiting Raw Material A/c under
Inventory Module of the Procurement Family
Modules
OR
Debiting Plant & Machinery
A/c under Fixed Assets Module of the Finance Family
Modules &
Crediting Bank of
Family
In either of the cases mentioned
above, the final reflection will be in General Ledger (GL), where transaction
is validated to have a Double Entry System. In Oracle Applications we have to
assign this check by setting the Balancing Segment. As an Organizational Chart
can be very huge and wide spread and also because there are various Modules of
Oracle which run on Single Entry System (looking at it from stand alone
perspective), for implementation of an ERP, there has to be integration of data
and ultimately the Debit Balances matching the Credit Balances. Logically
speaking the final peak at which Debit and Credit Balances should match is at
the top of an Organizational Chart. So applying the same logic, in the Test
Case of ABC Group, the ABC Group (i.e., the Business Group) is where the Debit
and Credit Balances should match.
But in the above example, as ABC group is just a Business Group and not a Legal Entity, the Legal Entities have separate Books of Accounts, so ideally the 2nd topmost level where Debit and Credit Balances should match is at the Legal Entity level. So ideally as per general accounting practices the Balancing Segment in the Test Case of ABC Group should be at the Legal Entity level, i.e., at the ABC India Ltd. and ABC Electricals Ltd. level. This is also because the Set of Books (for Transaction recording) is defined at this level. We can also simultaneously define the Balancing Segment at the ABC Group level in the Set of Books maintained for reporting purpose.
Now, the second most important factor of Basic Accounting Concepts & Practices is to account for the monetary value of the transaction. This is done by debiting and/or crediting an account head by the monetary value for that transaction. For all transactions, there has to be atleast one account head. To take care of this validation, that, atleast one account head is debited or credited whilst recording a transaction, the “Natural Account Segment’ is defined.
Thus from the above details it is clear as to what are the Balancing Segment and the Natural Account Segment and their significance in Oracle Applications. Please note while these two are Mandatory Segments that are to be defined, the defining of all other segments is optional
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