If you enable Automatic Offsets, and if you use a pooled bank account for the payment, then Payables automatically creates cash, discount, withholding tax, and gain/loss distributions for each invoice distribution.
You can use Automatic Offsets in both cash and accrual basis accounting. In cash basis books, the offsetting journal entries created during payment processing balance invoice distributions directly; in accrual basis books, they balance the invoice offsetting liability entries. See: Automatic Offsets and Invoice Processing; Accounting Methods.
If you do not enable Automatic Offsets or if you create a payment using a non-pooled bank account, then Payables creates a single accounting entry for the Cash account specified at the bank account. When you distribute an invoice across multiple balancing segments, the invoice will not balance by balancing segment. However, General Ledger can automatically create balancing intercompany receivable/payable entries for transactions that do not balance by balancing segment if you have enabled the Balance Intercompany Journals option for your ledger. See: Intercompany Accounting.
If you enable Automatic Offsets, you can choose to pool any or all of your bank accounts. The cash in a pooled bank account is shared by multiple balancing segments; the cash in a non-pooled bank account is associated with a single balancing segment. If you do not enable Automatic Offsets, you can only have non-pooled bank accounts. See: Banks.
As mentioned above, Automatic Offsets functions only when you make payments out of pooled bank accounts.
When you create a payment from a pooled bank account using Automatic Offsets, Payables automatically builds the cash account for payment accounting entries based on the Cash Account specified for the bank account. Payables uses the Automatic Offset Method you specified (Balancing or Account) to build these cash accounts. See: Accounting Methods Payables Options.
If you selected Balancing as your Automatic Offset Method, then Payables takes the cash account specified for your pooled bank account, substitutes the balancing segment with the balancing segment for the corresponding invoice liability account.
If you selected Account as your Automatic Offset Method, Payables uses the invoice liability account and substitutes only the account segment from the pooled bank account's Cash Account
Examples: The following examples show the difference between accounting with a pooled account when you use either the Balancing Segment method or the Account method. In both examples the following details are the same:
Account structure: Balancing Segment-Cost Center-Account
Supplier site liability account: 000-000-2300
Pooled bank account Cash account: 000-000-1100
Note: If the bank account is not pooled, then in both examples you would instead have a single credit to the Cash account for $100 to account 000-000-1100
Invoice Accounting Entries:
Dr. Expense $60 101-100-4500
Cr. Liability $60 101-000-2300
Dr. Expense $40 200-201-4610
Cr. Liability $40 200-000-2300
Payment Accounting Entries:
Dr. Liability $60 101-000-2300
Cr. Cash $60 101-000-1100
Dr. Liability $40 200-000-2300
Cr. Cash $40 200-000-1100
Invoice Accounting Entries:
Dr. Expense $60 101-100-4500
Cr. Liability $60 101-100-2300
Dr. Expense $40 200-201-4610
Cr. Liability $40 200-201-2300
Payment Accounting Entries:
Dr Liability $60 101-100-2300
Cr. Cash $60 101-100-1100
Dr. Liability $40 200-201-2300
Cr. Cash $40 200-201-1100
If you use Automatic Offsets with the Balancing method and have chosen System Account as your Discount Distribution Method in the Payables Options window, Payables prorates the entire discount amount across your invoice distributions when you pay an invoice that crosses multiple balancing segments. The balancing segment from the offsetting invoice distribution replaces the balancing segment of your system Discount Taken account when Payables builds the accounts for these entries. See: Payment Payables Options; Accounting Methods Payables Options.
If you use Automatic Offsets with the Account method and you have chosen System Account as your Discount Distribution Method in the Payables Options window, then Payables prorates the entire discount amount across your invoice distributions when you pay an invoice that crosses multiple GL accounts. All GL account segments except the account segment from the offsetting invoice distribution replace the segments of your system Discount Taken account when Payables builds the accounts for these entries.
If you use Automatic Offsets with the Balancing method and you use Automatic Withholding Tax, then Payables creates a withholding tax distribution for each balancing segment represented in each group of invoice distributions that have the same withholding tax group assigned to them. To build the GL account on the withholding tax distribution, Payables uses the balancing segment from the invoice distribution (or group of like distributions) and all other segments from the GL account on the withholding tax code.
If you use Automatic Offsets with the Account method and you use Automatic Withholding Tax, then Payables creates a withholding tax distribution for each group of invoice distributions that use the same withholding tax group and the same GL account. To build the GL account on the withholding tax distribution, Payables uses the account segments from the GL account on the withholding tax code and uses all other segments from the invoice distribution (or group of like distributions).
If you enable Automatic Offsets you can still apply a prepayment to an invoice, even if the invoice is distributed across multiple balancing segments. To ensure that the prepayment application is balanced by balancing segment, you should set up Intercompany Accounting in Oracle General Ledger. For more information about applying prepayments, see: Apply/Unapply Prepayments Window Reference. For information about setting up Intercompany Accounting, see: Intercompany Accounting.
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