Companies usually log expenses that need to be recognized on different periods, say for example an insurance policy that spans for a whole year.
According to accounting principles, “Expense to be recognized as and when services are rendered”, which implies the following in our insurance example:
- The expense of insurance should not be recognized as a whole for the period the invoice is recorded.
- Insurance service is going to be recognized for the coming year.
The Multiperiod accounting feature in Oracle Payables Cloud was developed to serve this purpose, it enables the users to record payables invoice that generates monthly entries to recognize the expenses over the specified term.
Below is the information required to record the multiperiod accounting:
- Expense recognition start date
- Expense recognition end date
- Accrual account (pre-paid expense account)
Assuming that a user recorded a multiperiod accounting invoice of 120,000 AED for the employees’ health insurance, and the start date for the insurance policy 1/2/2021 while the end date is 31/1/2022, after posting the invoice the following entry will be recorded:
Dr. Insurance Deferred Expenses 120,000 AED
Cr. Liability 120,000 AED
As part of the month closing procedures, the user will run the “create multiperiod accounting” process to generate the recognized expense entry for the current month, the entry will look like the following:
Dr. Insurance Expenses 10,000 AED
Cr. Insurance Deferred Expenses 10,000 AED
The user should the process mentioned as part of the month closing procedures until the expense is fully recognized and the expense recognition end date is reached.
Below is a full walkthrough of how to log the multiperiod accounting invoices on the Oracle payables cloud.
1.Record the invoice and fill in the start date, end date, and accrual account.
2. Post the invoice and notice that the invoice entry is posted to the deferred expense account.
3. Run the “multiperiod accounting” process.
4. Check the entry generated after the process has been completed.
Author: Mohammad Abdulfattah Hussein, Oracle Finance Consultant