How To Inter-Company Charging, Consolidation and Elimination

Transcription

1 How To Inter-Company Charging, Consolidation and Elimination

2 DOCUMENT SUMMARY SHEET Document Type: How To Document Title: Non Vendor Payments Document Summary: File Name: HowTo - Consol and Elimination draft.odt Created on: Thursday, 13 November 2014 Created by: S Sackett Last Modified on: Thursday, 13 November 2014 Last Modified by: S Sackett NOTES 1. Responsibility is disclaimed for any loss or damage (including but not limited to damage resulting from the use by the client of the document) suffered by any other person for any reason at all including but not limited to negligence by ADAXA Pty Ltd (ADAXA). 2. Whilst this document is accurate to the best of our knowledge and belief, ADAXA cannot guarantee the completeness or accuracy of any description or conclusions based on the supplied information. 3. The recommendations contained in the document are advisory and ADAXA has no responsibility for the management or operation of any recommendations that may be implemented by the client. 4. This document is licensed under the terms shown at Adaxa Pty Ltd Page 1

3 Table of Contents Purpose of this Document 1.1 Introduction... 4 Inter-Company Charging, Consolidation, Elimination 2.1 Background Transaction Types Automatic Consolidation and Elimination Setup...6 Organisation Setup 3.1 Group Summary Organisation(s) The Elimination Organisation Other Operating Organisations System Configuration Parameter 'Post to OrgTrx'...9 Charge Codes 4.1 Charge Codes The Charge Record The Charge GL Accounts Counter Documents 5.1 Counter Document Setup Step 1 Linking the Organisation to a Business Partner Step 2 Create the Counter Document Rules...13 Intercompany Charge Transactions 6.1 External Purchase Distributing Purchase Costs to Other Group Members Generated Intercompany Sales Invoices Ledger Postings Elimination Postings Generated Intercompany Vendor Invoices...20 Reporting on the Intercompany Transactions Consolidation Eliminations 2011 Adaxa Pty Ltd Page 2

4 8.1 Consolidated Report with Eliminations GL Journals GL Journals Inventory Valuation Adjustment 10.1 Period End Adjustments Adaxa's Offices and Contacts Australia New Zealand United States of America Adaxa Pty Ltd Page 3

5 1 Purpose of this Document 1.1 Introduction This document shows how intercompany recharging, consolidation and automatic elimination can be performed in the ADempiere ERP&CRM system. The work was performed by Adaxa Pty Ltd. Please refer any questions to page 4 of 32

6 2 Inter-Company Charging, Consolidation, Elimination 2.1 Background ADempiere provides a number of capabilities to support transactions between group member companies. To utilise these capabilities the system must be be configured so that: each legal entity is set up as a separate Organisation. the Account Schema Element for Organisation is ticked as 'Balanced' A Business Partner (BP) record is created and 'linked' to each Organisation on the BP window. With this setup the system will ensure that each Organisation/Company's remain in balance. 2.2 Transaction Types There are two primary types of transactions that the system has to deal with. Type 1: A posting which has one side in (say) Org1 and the other side in (say) Org3. When this happens the system will insert balancing entries into the system default accounts for Intercompany Due To and Intercompany Due From as shown below in the blue circled area. Intercompany balancing entries will be created in the posting of any document which has elements that cross an Organisational boundary. 'Document' means GL Journal, Invoice, Material Receipt, Customer Shipment etc). page 5 of 32

7 Type 2: In many circumstances a transaction between two companies must be evidenced by an accounting document typically with GST or VAT applied. Where this requirement exists, ADempiere allows (say) a customer invoice to be created in Org1, with appropriate tax, and the corresponding vendor invoice is automatically created in Org3. This is explained further below. In order to produce consolidated accounts the transactions which occur between member companies in the group need to be eliminated. The next section shows how this is done in ADempiere. 2.3 Automatic Consolidation and Elimination Setup ADempiere performs consolidations by posting the required consolidation elimination entries for every document that is processed. The system knows which customers and suppliers are within the Group because those links are defined in the Business Partner window. A Typical Corporate Tree i.e. the elimination of intra-group transactions happens in the Elimination Org at the first common parent in the corporate tree. page 6 of 32

8 3 Organisation Setup 3.1 Group Summary Organisation(s) This example has a single level. If there were multiple levels, each level would have a summary parent org like Group above and each would have an Elimination Org linked to that parent summary org. The summary Org for which Consolidated Accounts can be produced is linked to its Consolidation Elimination Org. (excuse the pink colour... it is set to highlight this is a test system, not production) 3.2 The Elimination Organisation The Elimination Org has its intercompany Tax Suspense Account set: page 7 of 32

9 The Tax Suspense Account performs the following function. Assume Org1 invoices Org2 for $100 of coffee and adds 15% GST. The posting is as follows: Org 1 transactions are: Org1 Intercompany Debtors Org1 Coffee account 115 (100) Org1 GST on Sales (15) Org Elim transactions are: TrxOrg OrgElim Intercompany Debtors OrgElim Coffee account OrgElim InterCo Tax Suspense (115) Org1 100 Org1 15 Org1 Org2 transactions are Org2 Intercompany Creditors Org2 Coffee account Org2 GST on Purchases (115) Org Elim transactions are: OrgElim Intercompany Creditors OrgElim Coffee account OrgElim InterCo Tax Suspense21520 TrxOrg 115 Org2 (100) Org2 (15) Org2 After the eliminations are netted off for consolidated reporting the remaining amounts are: Org1 GST on Sales Org2 GST on Purchases (15) 15...which is correct if the related companies are charging tax on inter-company sales. The sales and purchases, intercompany debtors and creditors are all eliminated but the tax liability remains. We will later show how the sales invoice entered in Org1 automatically created the vendor invoice in Org2. Note that Role based controls must be used to prevent users from logging into the Elimination Orgs and entering transactions. Senior accounting staff should be the only people with direct access to the Elimination Orgs. A role should typically allow access only to a single org so users can not erroneously create postings that cross Org boundaries. page 8 of 32

10 3.3 Other Operating Organisations. Example Org1, Org2, Org3.. these Orgs are set up as normal. 3.4 System Configuration Parameter 'Post to OrgTrx' [still to be applied to the system In the accounts posting there are two Org columns, Document Org and Transaction Org. OrgTrx is not typically used. When the relevant System Config flag is set to 'Y' then the GL Posting routine is modified so that posting to the OrgElim also show in the OrgTrx column the Document Org from where the posting line origin ated. These are the items shown in red text in the posting summary above. page 9 of 32

11 4 Charge Codes 4.1 Charge Codes Charge Codes are aliases for general ledger accounts. They exist in ADempiere for a number of reasons. The reason that is relevant here is that the Charge Code records two account codes for each Charge, one for an 'expense' context and one for a 'revenue' context. When OrgA selects the Charge 'Coffee' in a sales invoice to Org2, the sale value would be posted in Org1 to (say) '41000 Coffee Sales'. In Org2, the Vendor invoice will also have a line also with the same Charge Code of 'Coffee' but the expense context will post it to '51000-Coffee purchases') [Another function of Charges, not relevant here but always asked about, is as follows: ADempiere allows multiple charts of accounts (called an Accounting Schema) to be used concurrently, the 'Charge' code is used so that GL account codes can be recorded for that Charge in each accounting schema. (so 'Coffee purchases' can be account in account schema 1 and in account schema 2). Multiple account schemas are typically used when there are multiple functional currencies in the group] 4.2 The Charge Record The Charge record displays: Note that Landed Cost is ticked only to display the Cost Distribution and Cost Element Fields... the Charge shown above is obviously not a 'Landed Cost' charge. page 10 of 32

12 4.3 The Charge GL Accounts Note that the Charge will have an 'Accounting' record for each Accounting Schema page 11 of 32

13 5 Counter Documents 5.1 Counter Document Setup 'Counter Documents' is the name given to the functionality within ADempiere that allows a document in one organisation to automatically create another document in a different Organisation. 5.2 Step 1 Linking the Organisation to a Business Partner A Business Partner (BP) is a customer, vendor or employee (and may be all three) The BP is 'linked' to the relevant Org record to create the association by clicking on the button at the bottomright. page 12 of 32

14 5.3 Step 2 Create the Counter Document Rules Counter Document Rules are typically set up for: Purchase Order in Org1 creates Sales Order in Org2 Customer Shipment in Org2 creates Vendor Material Receipt in Org1 Customer Invoice in Org2 creates Vendor Invoice in Org1 Vendor Payment in Org1 creates a Customer Payment in Org2 The Document Action dropdown shown above allows you to define whether the system created documents will be in Draft or Completed (etc) for full details of setting up Counter Documents please see the HowTo guide on the Adaxa website. page 13 of 32

15 6 Intercompany Charge Transactions 6.1 External Purchase Assume the following set of transactions occur Org1 buys some Training from Training Services Limited the invoice line was put to the Charge with a name of '71410 Staff Training'. The posting shows: page 14 of 32

16 6.2 Distributing Purchase Costs to Other Group Members When the Invoice is 'Completed' the invoice line will then display a button Distribute Cost' at the bottom of the screen.. Clicking on the 'Distribute Cost' button displays the following form: The first dropdown allows you to choose whether you want to allocate as a percentage or nominate a money amount. The second dropdown lets you chose the invoice type desired. The Business Partners displayed are the related companies of Org1. (Org1 is obviously excluded) We select 25% to each BP and click the green tick page 15 of 32

17 6.3 Generated Intercompany Sales Invoices The system creates a Sales Invoice to each of Org2 and Org3 and opens a window for each. See the two 'Invoice (Customer)' tabs displayed below. The Document Status is initially set to'drafted' to allow for review and editing before completion. It converts to Completed after clicking the Document Action button. When the Sales Invoice in Org1 is 'Completed' the Counter Document Rule will cause a Vendor Invoice to be created in Org3. page 16 of 32

18 When the first Sales Invoice is completed the status line at bottom left tells us that a counter document was created. As shown in the previous screen capture, the 'Referenced Invoice' field provides a 'hotlink' to open the newly created Vendor Invoice provided you have access rights to that organisation's records. The second Customer Invoice (shown dimmed in the toolbar) when completed will create a Vendor Invoice in Org2. The source invoice details are captured in the Description field. The Sales Invoice that was created displays... page 17 of 32

19 6.4 Ledger Postings The Posting of the Sales Invoice shows 6.5 Elimination Postings If you click on the 'Enter Query' tab you can select 'Display Elim Entry' The full Posting is then shown when you click the process button page 18 of 32

20 You can see that if you print the Org1 accounts there will be Training Income of $500 in the Revenue account If you print the consolidated accounts which then includes the Consol Elim org then the consolidated training revenue will be zero. You can also see that Elimination of the GST has been put to 'Intercompany tax elimination' so that the real tax liability remains in the Consolidated accounts and Intercompany receivables have been netted to zero. page 19 of 32

21 6.6 Generated Intercompany Vendor Invoices The auto-created Vendor Invoice Shows Again the 'Referenced Invoice' field links back to the origination invoice in Org1. Clicking on the link will open the associated document. page 20 of 32

22 The Vendor Invoice in Org2 displays the following information... and the invoice posts posts as follows (also showing the elimination entries) Note that the expense has gone to expense account and it has been eliminated back to zero on consolidation. page 21 of 32

23 7 Reporting on the Intercompany Transactions A report is selected for this day and only for Org1 as follows: page 22 of 32

24 A summary version of the above report shows: The report shows that Org1 had a $2000 training expense of which it invoiced out $1000. We have $150 GST on (intercompany) sales, $300 GST on purchases, $1150 in Intercompany AR and $2300 in AP... all as expected. page 23 of 32

25 8 Consolidation Eliminations 8.1 Consolidated Report with Eliminations Printing the equivalent report for all organisations in a summarised format shows as follows: page 24 of 32

26 Looking at the account totals we can see that after eliminations the consolidated information is: $2300 AP liability to the external creditor. $150 GST liability (arising from the intercompany sales of 2 x $500) $450 GST recoverable on purchases ($300 on external and 2 x $75 on the internal purchases, and $2000 staff training expense from the external purchase. That all seems correct... The standard financial report writer would pick up the same values as above. page 25 of 32

27 9 GL Journals 9.1 GL Journals General Ledger Journals can have lines which span across organisational boundaries as shown below. The posting engine in ADempiere will always create the necessary 'Intercompany Due To' and Intercompany Due From' transactions to ensure that the Orgs rial balance always sums to zero. Uncompleted work... note that GL Journal postings not yet modified to deal with creating Elim Org trx. To display the Elimination Entries tick the box the journal is already generating additional entries to the Intercompany Account Due/From we can easily cre ate the extra lines needed for elimination... this needs to have a separate sys config flag somewhere.. and separate to the flag for invoices/inouts. The entry above will add the following lines: page 26 of 32

28 A report which includes Org1, Org3 and Elim1 will show zero movement in any of the accounts. page 27 of 32

29 10 Inventory Valuation Adjustment 10.1 Period End Adjustments Where inventory related transactions occur between related organisations a number of elminations have to occur. The sales and purchase transactions occur as shown above. This leaves inventory valuation adjustments to be made. Example: Org 1 buys 12 widgets from an external supplier at $10 each Org1 sells 10 widgets to Org2 at $15 each to Org2. This sale transaction is eliminated Org2 buys 10 widgets from Org1 at $15 each. The cost per widget is set in Org2 as $15 each. This purchase transaction is eliminated. Org 2 sells 5 widgets to an external customer at $21 each. A cost of sale transaction is created in Org2 as 5 x $15 = $75. These transactions are not eliminated automatically. On a group consolidated basis in inventory we show purchase cost of $10 db $120 sell cost of $15 cr 75 The consolidated cost of sale is overstated by 5 x ($15-$10) = $25 An entry is required in the Elimination Organisation Dr Inventory $25 Cr Cost of Sales ($25) This adjustment is done at period end as a revering journal based on the output of a special purpose report. A flag is set against the Product code for each product that is the subject of an intercompany sale. <report still being developed> The report extracts for each flagged product a list of the purchases in Org2 of that product and identifies the supplier (as the product could additionally have been purchased from external supplier) and orders the purchases by date. It then identifies those instances of that product where a cost adjustment is required and calculates the cost adjustment...end... page 28 of 32

30 have to figure out how to make section turn landscape... The following spreadsheet shows other transactions in more detail. Note that an end of period journal is required to adjust for unrealised gains in inventory which has been pur chased from related entities and not yet sold. Test transactions and how they are eliminated focussing on inventory values etc. page 29 of 32

31 Adaxa's Offices and Contacts Information of a general nature about Adaxa and its services can be found at or obtained by sending an to info@adaxa.com with a description of the information that you would like to receive. If you are an existing client and wish to initiate a request for software support please send an to helpdesk@adaxa.com with as much detail as possible about the nature of your support request. For all other information please contact the Adaxa office nearest to you. Australia Address: Level 1, 10 Kylie Place, Cheltenham, Victoria, 3192, Australia Contacts: Office (Within Australia) (Outside of Australia) New Zealand Address: 73 Boston Road, Mt Eden, Auckland, 1023, New Zealand Contacts: Office (Within New Zealand) (Outside of New Zealand) United States of America Address: PO Box 6350 Oceanside, CA Contact: Office Main Fax page 30 of 32