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Depreciation Question

Posted on December 12th, 2010 by Sanjit Anand ||Email This Post Email This Post

Reader asked:

I am technical person and will you able tell where does depreciation really reflects in financial statement context.. we know it is a non cash item but , up to that extent profit gets reduced, so where does it really reflect in Balance sheet?

As mention is last post, various impact in financial impact would be:

  • P&L = Depreciation expense
  • Balance sheet = Accumulated depreciation
  • Cash Flow Statement = Adjusted in Operating Cash Flow as a non cash expense

Here is explanation in layman language :

  1. It’s first recorded on Balance Sheet as a fixed asset when cash paid or liability incurred for payment.
  2. Then your cost center is responsible for a recurring charge (depreciation), similar to a lease payment for the use of the fixed asset (office furniture, leasehold costs, PC equipments, phone system, etc.) over time until fully paid (depreciated).
  3. Balance Sheet also keeps track of charges called accumulated depreciation until the recorded charges reduce the fixed asset to a zero book value. That’s when it’s fully recouped from cost centers.
  4. Your P&L account is charged with the recurring charges (depreciation) for book purposes (intercompany allocation) which in essence requires no cash transfer because it’s already paid/charged on fixed asset account.
  5. Your cost center is to reimburse for the use of the fixed assets over the estimated life or statutory tax period, and as a result reduces your cost center’s net profit.
  6. Cash flow wise doesn’t change because your cost center is one of many inside the same company’s cash account. It’s simply paying one hand to the other, so your cost center’s profit gets debited on paper for depreciation, and it’s a non-cash transfer – simply a journal entry the accountants keep track monthly, quarterly, semi-annually or annually.

In another word an accrual based accounting system, depreciation expense matches the cost of the asset with the revenues generated by it over it’s useful life to get a better picture of true profit (or loss) in a specific period. If you were to expense the asset at the time of purchase (cash based) you would have artificially low profit in the period the asset was purchased and artificially high. On the Balance Sheet, Accumulated depreciation reduces the value of the asset to reflect the expensed portion moreover the the cash flow statement will give you the picture of cash movement in a specific period.

Hope this helps to understand. Wait for next post for accounting details for asset life cycle :)

Posted in Oracle Asset | No Comments »

Detail of Fixed Asset Accounting

Posted on December 11th, 2010 by Sanjit Anand ||Email This Post Email This Post

Fixed asset accounting is a most important part of a any company’s financial accounting and reporting system because fixed, or long-term, assets generally represent substantial investments. A company’s top management usually asks department heads and finance managers to establish fixed asset accounting procedures that conform to accounting principles, industry standards and governmental directives.

Fixed Asset accounting involves the following main aspects:

  1. Acquisition of a Fixed Asset: You need to consider the capitalization of incidental costs, treatment of assets acquired in foreign exchange, treatment for leased assets, etc.
  2. Depreciation: There may be separate rates of depreciation for Company Law and Income Tax purposes etc etc
  3. Retirement of Assets: You need to consider the treatment of profit/ loss on sale of asset, writing back the accumulated depreciation pertaining to the asset sold, etc.
  4. Other than these you have other aspects too:
    1. Tracking
    2. The Inventory Process
    3. Financial Reporting : Two accounts is mostly important in BS and P & L context, which is as discussed below.

dgreybarrow Depreciation accounts

  • Balance sheet accounts: the net value of the asset (carrying amount or book value of the asset) is preserved through two accounts:
    • Gross (acquisition) cost
    • Accumulated depreciation
  • Income statement account
    • Depreciation expense of the current year
  • Balances and details of these accounts are used in supplementary disclosures in the notes to the accounts.

Next post you will see the greatest and latest accounting details for Oracle EBS 11i/R12 for different.

Posted in Oracle Asset | 1 Comment »

Public API’s for FA Transactions

Posted on December 7th, 2010 by Sanjit Anand ||Email This Post Email This Post

So far Oracle FA is have all the good things except the lack on reporting.Oracle FA is now offer lot of public API’s that can be used to interfacing with third party or Oracle application other modules. Here are some of transaction’s API’s:

Read the rest of this entry »

Posted in API Integration, Oracle Asset | No Comments »

Asset Reclass Programmatically

Posted on December 4th, 2010 by Sanjit Anand ||Email This Post Email This Post

Last article you have seen some insight functionlity for Fixed asset Reclass functionality and Business need.

Majority of time whenever there is merger/acquisitions or Instance consolidation exercise reclassification plays an important role specially when you as project team not allow any new category . Mapping all assets and aligning with Parent’s company existing Category is major challenge depending volume of assets. The more challenge come to IT when you did not find right fitment for Mass reclassification native screen to cater the requirement quickly thus Reclass via API’s Programmatically is good options indeed.

dgreybarrow API availability for Reclass

You can use Reclass API that uses the FA_RECLASS_PUB.DO_RECLASS procedure

You can achieve

  • This API can also be used to automatically reclassify assets in all the tax books that are associated with the corporate book where the reclassification originated.
  • You can automatically reclassify assets to all of the reporting books when MRC is enabled and without generating any rounding issues.

Let take a quick look the API details and Usage part.

Read the rest of this entry »

Posted in API Integration, Oracle Asset | No Comments »

GL Future Period Opend accidentally

Posted on December 4th, 2010 by Sanjit Anand ||Email This Post Email This Post

Here is one the query from User.

In our GL module, in Dec 2010, some how some one has opened the Jan-11 period (either by accidentally or by mistake), and then immediately they have closed the period.So now our requirement is , the Jan-11 period should be Future Entry status. They donot want to open this period untill all thier activites for Dec 2010 completes.

And from the form , we donot have the option to change the Jan-11 period to Future Entry. Could you please help us how we can change the Mar-11 period to Future entry? Any data fix?

So answer would be:

There is no way within the application to set the period status back to Future Enterable after the period has been opened. You can close the period as work around so it prevent users from posting entries to this period. Hope this helps.

Posted in Oracle General Ledger | No Comments »

Understanding Kagami Statements

Posted on December 2nd, 2010 by Sanjit Anand ||Email This Post Email This Post

In Japan, bank transfers are the most commonly used method of payment.

Japanese banks charge a fee for each transfer that a business requests.

Therefore Kagami, is issued as the general billing procedure for Japanese businesses, which help customers avoid excessive bank charges, a monthly summarized invoice, .

Businesses that use monthly summarized invoicing do not issue invoices for every goods delivery. Instead, businesses establish a monthly cutoff date with the customer and issue one invoice that summarizes all of the customer’s business transactions for the prior month.

Kagami statements include this information:

  • Bill to name and address for the customer.
  • Billing period.
  • Although billing periods vary by customer, the beginning of the period must be the day after the last cutoff date. The end of the previous period is the cutoff date.
  • Open amount as of the cutoff date.
  • The open amount is summarized by sales, cash receipts, adjustments, and so on.
  • Detailed information, such as invoice number, item number, and price, from each sales order.

Posted in Oracle Receivable | No Comments »

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