3/8/2018 Document 604441.

Copyright (c) 2018, Oracle. All rights reserved.

Setting Up Intracompany and Intercompany Accounting - an Example (Doc ID 604441.1)

In this Document

Purpose
Scope
Details
Intracompany Balancing Rules
Evaluation Order
Summary Net and Detail Mode
Journal Mode
Balancing API for Intercompany Journals
Intercompany Balancing
Intercompany Accounts at the Balancing Segment Value Level
Setting Up Balancing
Set up Legal Entities and Ledgers
Set up Intracompany Balancing Rules
Set up Intercompany Accounting
Still Have Questions?
References

APPLIES TO:

Oracle Financials Common Modules - Version 12.0.1 and later

Oracle General Ledger - Version 12.0.1 and later
Information in this document applies to any platform.

PURPOSE

Setting up Intracompany and Intercompany Accounting - An example

Please also review:

Note 418649.1 Advanced Global Intercompany (AGIS) in Release 12 (R12) - Setup, Transaction Processing and Reports:
Note 785167.1 Advanced Global Intercompany Troubleshooting AGIS Workflow White Paper

SCOPE

To assist in setting up Intracompany and Intercompany Accounting

DETAILS

Intracompany Balancing Rules

Intracompany balancing rules are used for creation of balancing lines on journals between balancing segment values either
within the same legal entity, or where there is no legal entity context.

Intracompany balancing rules are used when more than one balancing segment value exists on a transaction or journal
entry, as long as you have selected the Balance Intracompany Journals option for the ledger. You cannot post a journal in
general ledger when the debit and credit amounts for each balancing segment value do not net to zero. These journals
can be balanced automatically if you setup balancing rules and enable the option to balance cross-entity journals.

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You must define intracompany balancing rules if you want to balance journals automatically. You may define as many or
as few balancing rules as you choose, and each balancing rule may have many accounting rules. Because balancing is an
automated process, there should be at least one balancing rule with at least one accounting rule to proceed. This default
balancing rule should be defined for the journal source Other and journal category Other for the ledger and legal entity
you wish to balance. The default accounting rule on each balancing rule is defined for the debit balancing segment value
All Other and credit balancing segment value All Other.

With intracompany accounting, you can define both a debit (due from) and credit (due to) balancing segment, which gives
you more control over each balancing relationship. You can specify different debit and credit accounts for each different
intracompany trading partner, which is represented by a specific balancing segment value.

All Other is also available as a balancing segment value if you want the balancing segment value to use the same due to /
due from accounts for every intracompany trading relationship that has not been specifically defined.

If you set up a specific debit and credit balancing segment value, then the exact debit and credit accounts are used. If you
use All Other, the appropriate trading partner balancing segment value replaces the balancing segment of the account
combination.

For balancing many-to-many journals there are several balancing segment values with net debits and net credits on a
transaction and it is not possible to determine which balancing segment value is trading with which balancing segment
value. You can decide whether to use a clearing balancing segment value or a default rule to handle these transactions.

Evaluation Order

Intracompany balancing allows you to define as much flexibility as your business dictates. When there are many balancing
rules defined, the Balancing API uses an evaluation order to pick the appropriate rule. Once the balancing rule is selected,
there may also be several accounting rules that must be evaluated on the balancing rule. The Balancing API uses the same
order for evaluating accounting rules, and understanding this evaluation order will help you define your balancing rules
and your accounting rules.

1. Explicitly defined rules are checked first, and they take precedence over all other rules.

a. For balancing rules, this means a specific combination of journal source and journal category exists for the ledger and
legal entity. For example, a balancing rule for the journal source Adjustment and the journal category Assets.

b. For accounting rules, this means a specific combination of debit balancing segment value and credit balancing
segment value. For example, debit balancing value '01' and credit balancing segment value '02'.

2. If the Balancing API finds no explicit match, then it next searches for a rule with explicitly defined combined with a
default value.

a. For balancing rules, this means a combination of a specific journal source and the default journal category for the
ledger and legal entity. For example, a balancing rule for the journal source Adjustment and the journal category Other.

b. For accounting rules, this means a combination of a specific debit balancing segment value and the default credit
balancing segment value. For example, debit balancing value '01' and credit balancing segment value All Other.

3. If the Balancing API finds no match, then it next searches for a rule with a default value combined with an explicitly
defined value.

a. For balancing rules, this means a combination of the default journal source and a specific journal category for the
ledger and legal entity. For example, a balancing rule for the journal source Other and the journal category Assets.

b. For accounting rules, this means a combination of the default debit balancing segment value and a specific credit
balancing segment value. For example, debit balancing value All Other and credit balancing segment value '02'.

4. Finally, if the Balancing API finds no match after checking for all three previous steps, then the default value should be
used.

a. For balancing rules, this means a combination of the default journal source and the default journal category for the
ledger and legal entity. For example, a balancing rule for the journal source Other and the journal category Other.

b. For accounting rules, this means a combination of the default debit balancing segment value and the default credit
balancing segment value. For example, debit balancing value All Other and credit balancing segment value All Other.
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Summary Net and Detail Mode

You determine the level that the Balancing API uses when balancing journals by selecting either Summary Net or Detail. If
you select Detail, each line on the journal is balanced individually and a balancing line is generated for each line on the
journal. If you select Summary Net, the Balancing API summarizes the debits and credits for each balancing segment
value on the journal, determines the overall net debit or net credit for each balancing segment value, balances using the
net amounts for each balancing segment value, and produces a summary balancing line for each balancing segment value.

When processing in Summary Net mode, the Balancing API retains the differences in exchange rates for lines with the
same balancing segment value. Also note that for lines with negative amounts (debits or credits), if the Balancing API is
set to process in Detail mode, the sign of each original line is retained in the balancing line. If the Balancing API is set to
process in Summary Net mode, negative debits are interpreted as positive credits and negative credits as positive debits,
because each balancing segment value is summarized.

Journal Mode

In order to balance a journal, the journal type must be determined. A journal may be one-to-one, one-to-many, many-to-
one, and many-to-many. The type of journal is determined by netting the debit and credit amounts for each balancing
segment value and examining the trading relationship.

Below are examples of each journal mode.

One to One

In a one-to-one journal, there is only one balancing segment value with a net debit, and only one balancing segment value
with a net credit.

This example uses a chart of accounts with three segments: balancing, natural account, and intercompany. Assume you
define the accounts shown in the table below for a specific legal entity, source, category, and the balancing level is set to
Summary Net.

Dr BSV Cr BSV Debit Account Credit Account

All Other All Other XX-4000-XX XX-2000-XX

02 01 02-4001-01 01-2002-02

You create the following journal, shown in the table below, which the Balancing API must balance:

Line Account Dr Cr
1 01-5200-00 6600.00

2 02-5555-00 2300.00
3 01-1122-00 1000.00

4 02-1280-00 7900.00

The Balancing API sums the debits and credit for each balancing segment value to determine the type of journal. In the
example shown in the table below, the journal is one-to-one (01 to 02) and 01 is trading with 02.

BSV Net Dr Net Cr

01 5600.00

02 5600.00

The Balance By option is set to Summary Net, so the each balancing segment is netted and balanced with one line. The
Balancing API creates the balanced journal shown in the table below:
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Line Account Dr Cr Description

1 01-5200-00 6600.00 Original line

2 02-5555-00 2300.00 Original line

3 01-1122-00 1000.00 Original line

4 02-1280-00 7900.00 Original line

5 01-2002-02 5600.00 Net credit 02-01

6 02-4001-01 5600.00 Net debit 02-01

The result is now each balancing segment value balances.

One to Many

In a one-to-many journal, there is only one balancing segment value with a net debit and many balancing segment values
with a net credit. All credit balancing segment values are assumed to be trading with the single debit balancing segment
value (the driving segment), and all credit balancing segment values balance with the single debit balancing segment
value.

This example uses a chart of accounts with three segments: balancing, natural account, and intercompany. Assume you
define the accounts shown in the table below for a specific legal entity, source, category, and the balancing level is set to
Summary Net.

Dr BSV Cr BSV Debit Account Credit Account

All Other All Other XX-4000-XX XX-2000-XX

02 01 02-4001-01 01-2002-02
03 01 03-4003-01 01-2003-03

You create the following journal, shown in the table below, that the Balancing API must balance:

Line Account Dr Cr
1 01-5200-00 5600.00
2 02-5000-00 1200.00

3 01-1111-00 1200.00
4 02-1280-00 2400.00

5 03-1450-00 3200.00

The Balancing API sums the debits and credit for each balancing segment value to determine the type of journal. In the
example shown in the table below, the journal is one-to-many with 01 on the debit side, 02 and 03 on the credit side, and
01 being the driving segment.

BSV Net Dr Net Cr

01 4400.00
02 1200.00

03 3200.00

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The Balance By option is set to Summary Net, so each credit balancing segment is netted and balanced with one line
against the single debit balancing segment. The Balancing API creates the balanced journal shown in the table below:

Line Account Dr Cr Description

1 01-5200-00 5600.00 Original line

2 02-5000-00 1200.00 Original line

3 01-1111-00 1200.00 Original line

4 02-1280-00 2400.00 Original line

5 03-1450-00 3200.00 Original line

6 02-4001-01 1200.00 Net debit 02-01

7 01-2002-02 1200.00 Net credit 02-01

8 03-4003-01 3200.00 Net debit 03-01
9 01-2003-03 3200.00 Net credit 03-01

The result is now each balancing segment value balances.

Many to One

In a many-to-one journal, there are many balancing segment values with a net debit and only one balancing segment
value with a net credit. All debit balancing segment values are assumed to be trading with the single credit balancing
segment value (the driving segment), and all debit balancing segment values balance with the single credit balancing
segment values.

This example uses a chart of accounts with three segments: balancing, natural account, and intercompany. Assume you
define the accounts shown in the table below for a specific legal entity, source, category, and assume the balancing level
is set to Detail.

Dr BSV Cr BSV Debit Account Credit Account

All Other All Other XX-4000-XX XX-2000-XX

01 03 01-4001-03 03-2001-01
02 03 02-4002-03 03-2002-02

03 All Other 03-4003-XX XX-2003-03

You create the following journal, shown in the table below, which the Balancing API must balance:

Line Account Dr Cr

1 01-5200-00 5600.00
2 02-5000-00 3200.00

3 01-1111-00 3200.00
4 02-1280-00 2400.00
5 03-1450-00 3200.00

The Balancing API sums the debits and credit for each balancing segment value to determine the type of journal. In the
example shown in the table below, the journal is one-to-many with 01 and 02 on the debit side, and 03 on the credit side,
and 03 being the driving segment.

BSV Net Dr Net Cr

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01 2400.00

02 800.00
03 3200.00

The Balance By option is set to Detail, so the Balancing API begins processing with the first line and skips all the lines of
the driving segment (03). The Balancing API creates the balanced journal shown in the table below:

Line Account Dr Cr Description

1 01-5200-00 5600.00 Original line

2 02-5000-00 3200.00 Original line

3 01-1111-00 3200.00 Original line

4 02-1280-00 2400.00 Original line

5 03-1450-00 3200.00 Original line

6 01-2003-03 5600.00 Net credit 03-01

7 03-4003-01 5600.00 Net debit 03-01

8 02-2003-03 3200.00 Net credit 03-02

9 03-4003-02 3200.00 Net debit 03-02

10 01-4001-03 3200.00 Net debit 01-03

11 03-2001-01 3200.00 Net credit 01-03

12 02-4002-03 2400.00 Net debit 02-03

13 03-2002-02 2400.00 Net credit 02-03

The result is now each balancing segment value balances.

Many to Many

In a many-to-many journal, there are many balancing segment values with a net debit and many balancing segment
values with a net credit. With a many-to many journal, there is no automated way to determine which balancing segment
values should balance against each other, so you must use a default rule or clearing company.

Note: If you need more detail and do not want to use

a default rule or clearing company, use Oracle
Intercompany for complex many-to-many transactions.

This example uses a chart of accounts with three segments: balancing, natural account, and intercompany. Assume you
define the accounts shown in the table below for a specific legal entity, source, and category. The many-to-many
balancing option is set to Use Clearing Balancing Segment Value and the balancing level is set to Summary Net. The
clearing balancing segment value is 99.

The result is now each balancing segment value balances.

Dr BSV Cr BSV Debit Account Credit Account

All Other All Other XX-4000-XX XX-2000-XX

02 99 02-4099-99 99-2002-02

04 99 04-4099-99 99-2004-04

99 01 99-4001-01 01-2099-99

99 03 99-4003-03 03-2099-99

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You create the following journal, shown in the table below, which the Balancing API must balance:

Line Account Dr Cr

1 01-5200-00 1800.00

2 02-5000-00 1200.00

3 03-1220-00 4700.00
4 04-1870-00 1000.00

5 01-1111-00 1200.00

6 02-1280-00 2400.00

7 03-1450-00 3200.00
8 04-1110-00 1900.00

The Balancing API sums the debits and credit for each balancing segment value to determine the type of journal. In the
example in the table below, the journal is many-to-many with 01 and 03 on the debit side, 02 and 04 on the credit side.

BSV Net Dr Net Cr

01 600.00
03 1500.00

02 1200.00

04 900.00

The Balance By option is set to Summary Net, so each balancing segment is netted and balanced with one line against the
clearing balancing segment value.

Line Account Dr Cr Description

1 01-5200-00 1800.00 Original line

2 02-5000-00 1200.00 Original line

3 03-1220-00 4700.00 Original line

4 04-1870-00 1000.00 Original line

5 01-1111-00 1200.00 Original line

6 02-1280-00 2400.00 Original line

7 03-1450-00 3200.00 Original line

8 04-1110-00 1900.00 Original line

9 03-2099-99 1500.00 Net credit 99-03

10 99-4003-03 1500.00 Net debit 99-03

11 01-2099-99 600.00 Net credit 99-01

12 99-4001-01 600.00 Net debit 99-01

13 04-4099-99 900.00 Net debit 04-99

14 99-2004-04 900.00 Net credit 04-99

15 02-4099-99 1200.00 Net debit 02-99

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16 99-2002-02 1200.00 Net credit 02-99

The result is now each balancing segment value balances, as does the clearing balancing segment value.

Balancing API for Intercompany Journals

If each balancing segment value represents a different legal entity, intercompany accounts are used to balance a journal
with these balancing segment values. The intercompany payables and intercompany receivables accounts are used, rather
than intracompany balancing rules.

The Balancing API is used by general ledger and subledger accounting to build accounting lines automatically. The
Balancing API uses Intracompany Balancing Rules for balancing segment values in the same legal entity, or those with no
legal entity context. The Balancing API uses intercompany payables and receivables accounts when each balancing
segment value represents a different legal entity.

The Intracompany Rules were enhanced to allow users to setup rules at the ledger level (No legal Entity context) and use
them even when balancing segment values are assigned at Legal Entities level.
Before this, only Intracompany journals could be balanced using a Clearing balancing segment value based on the No
Legal Entity context intracompany rules.
With this feature, you have the option to define a custom profile option named "FUN: Balance Using Intracompany Rules
Only" .
When enabled (set to Yes), this will allow you to use the Intracompany Rules defined at Ledger level (No Legal Entity
context) in order to balance Intercompany journals too.
See Document 1640618.1 R12: How To Balance Intercompany Journals Using a Clearing Balancing Segment Value (BSV)?

If there are both intercompany and intracompany lines in the same transaction, the Balancing API will first perform
intercompany balancing across legal entities, and then intracompany balancing across balancing segment values within
each legal entity. Intercompany balancing results in debits and credits balanced for each legal entity. Afterwards,
intracompany balancing results in debits and credits balanced for each balancing segment within each legal entity. The
Balancing API is called when posting journals in general ledger, or when accounting for transactions in the subledgers.

Intercompany Balancing

Intercompany journals are the journals that involve balancing segment values that map to different legal entities. These
journals are balanced for each legal entity by using their intercompany accounts. The Balancing API uses the intercompany
accounts defined for the relevant effective date range. Since multiple accounts may be defined for the same date range,
Balancing API will pick the accounts flagged with the Use for Balancing indicator (see Set Up Intercompany Accounting) .
The offsetting debit for a legal entity goes into its intercompany receivables account. The offsetting credit goes into the
legal entity's intercompany payables account.

Intercompany accounts may be defined at the legal entity level. That is, each transacting legal entity has different
intercompany accounts defined for different trading partner legal entities regardless of which specific balancing segment
values of those legal entities are used in the journals. The transacting and trading partner balancing segment values are
then not explicitly specified in the definition and are set to All.

Intercompany accounts may be defined at the balancing segment level of the legal entities. In other words, a transacting
legal entity can use different accounts for different transacting balancing segment values depending on what the trading
partner legal entity and trading partner balancing segment value are. In that case, transacting or trading partner balancing
segment values may be explicitly specified in the intercompany account definitions.

There are several types of intercompany journals possible. The Balancing API will first determine the type of the
intercompany journal (one-to-one, one-to-many, many-to-one, or many-to-many) with respect to the legal entities. For
intercompany balancing there is no Clearing Company usage and all legal entities are balanced by summary net with
respect to each other.

The following examples consider these types journals and how they are balanced. Since it is easier to follow the process
when the intercompany accounts are defined at the legal entity level, those scenarios are considered first. The way the
journals are balanced for intercompany account definitions at the balancing segment value level is explained afterwards.
For the scenarios below assume that the ledger is assigned to a Shared accounting configuration and has a chart of
accounts with three segments: balancing, natural account, and intercompany segments.
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Intercompany Accounts at the Legal Entity Level

One Legal Entity to One Legal Entity

Suppose that legal entity LE1 maps to balancing segment values 10 and 11, while LE2 maps to balancing segment values
20 and 21. Consider the following intercompany account setup:

Transacting Transacting Trading Trading Account Intercompany

LE BSV Partner Partner Account Type
LE BSV

LE1 All LE2 All 10-4020-00 Receivables

LE1 All LE2 All 10-2020-00 Payables

LE2 All LE1 All 20-4010-00 Receivables

LE2 All LE1 All 20-2010-00 Payables

Journal 1:

1 10-5200-00 1800.00

2 20-5000-00 1800.00

Since Journal 1 is between two balancing segment values (BSV's) that belong to different legal entities (LE's) then
intercompany accounts will be used to balance it. First the After the balancing entries are added, the journal is shown
below:

Journal 1 - Balanced by legal entity:

1 10-5200-00 1800.00 Original

2 20-5000-00 1800.00 Original

3 10-2020-00 1800.00 Balancing

4 20-4010-00 1800.00 Balancing

Next, consider the following journal that contains more balancing segment values:

Journal 2:

1 10-5200-00 1800.00

2 11-5200-00 600.00
3 10-5300-00 600.00

4 20-5000-00 1800.00

This is a one legal entity to one legal entity journal between legal entities LE1 and LE2. After the summary net balancing
entries are added, the journal is shown below:

Journal 2 - Balanced by legal entity:

1 10-5200-00 1800.00 Original

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2 11-5200-00 600.00 Original

3 10-5300-00 600.00 Original

4 20-5000-00 1800.00 Original

5 10-2020-00 1800.00 Balancing

6 20-4010-00 1800.00 Balancing

Notice that Balancing API adds lines 5 and 6 to make the journal balanced for each legal entity. In other words, the debits
and credits net to zero for both LE1 and LE2. However, notice that for LE1 we still need to perform intracompany
balancing since the entries are not balanced by balancing segment values (10 or 11). Intracompany balancing within LE1
will be performed using the relevant intracompany balancing rules. Suppose that the relevant intracompany balancing rule
(summary net, no clearing company) is as follows:

Dr BSV Cr BSV Debit Account Credit Account

All Other All Other XX-4000-XX XX-2000-XX

Then intracompany balancing lines 7 and 8 are added to Journal 2. Journal 2 thus shows the results of both intercompany
and then intracompany balancing.

Journal 2 - balanced by legal entity and balancing segment value:

1 10-5200-00 1800.00 Original

2 11-5200-00 600.00 Original

3 10-5300-00 600.00 Original

4 20-5000-00 1800.00 Original

5 10-2020-00 1800.00 Balancing

6 20-4010-00 1800.00 Balancing

7 10-4000-11 600.00 Balancing

8 11-2000-10 600.00 Balancing

Many legal entity to One legal entity and One legal entity to Many legal entity types of journals are balanced similar to the
One-to-One type. That is, each legal entity on the "Many" side is balanced against the legal entity on the "One" side.

Many Legal Entities to Many Legal Entities

For Many-to-Many intercompany journal type, it is not possible to determine which legal entity is trading with which
trading partner. The Balancing API uses the intercompany accounts defined for the All Other legal entity trading partner.

BSV 10 maps to LE 1. BSV 20 maps to LE 2. BSV 30 maps to LE 3. BSV 40 maps to LE 4. Consider the following
intercompany account setup:

Transacting Transacting Trading Trading Account Intercompany

LE BSV Partner Partner Account Type
LE BSV

LE1 All All Other All 10-2001-00 Payables

LE2 All All Other All 20-4002-00 Receivables

LE3 All All Other All 30-4003-00 Receivables

LE4 All All Other All 40-2004-00 Payables

Consider the following journal.

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Journal 3:

1 10-5200-00 1600.00

2 40-5111-00 1200.00

3 20-5000-00 1000.00
4 30-1400-00 1800.00

This journal is a Many-to-Many journal since multiple legal entities are present on both the debit and the credit side. Since
the Balancing API cannot determine the explicit trading partners for each legal entity, the intercompany accounts set up
for All Other trading partner legal entity are used:

Journal 3 - balanced by legal entity:

1 10-5200-00 1600.00 Original

2 40-5111-00 1200.00 Original

3 20-5000-00 1000.00 Original

4 30-1400-00 1800.00 Original

5 10-2001-00 1600.00 Balancing

6 40-2004-00 1200.00 Balancing

7 20-4002-00 1000.00 Balancing

8 30-4003-00 1800.00 Balancing

Intercompany Accounts at the Balancing Segment Value Level

Previous examples demonstrated how intercompany accounts can be defined and used at the legal entity level.
Intercompany accounts can also be defined in the context of balancing segment values, or at the balancing segment value
level. So the account definition could explicitly refer to the transacting balancing segment value and the trading partner
balancing segment value. This way, different accounts can be used for the same two trading legal entities depending on
which balancing segment values both entities are using. In general, each combination of transacting legal entity,
transacting balancing segment value, trading partner legal entity, and trading partner balancing segment value may have
its own intercompany account definition.

The journal entries for each legal entity can be composed of several balancing segment values belonging to this legal
entity. The intercompany balancing procedure in case of intercompany accounts defined for various combinations of
transacting and trading partner balancing segment values is very similar to the way the journals are balanced with account
definitions at the legal entity level. Just like in the case of account definitions at the legal entity level, intracompany
balancing may take place after intercompany balancing entries are added for each legal entity.

Balancing API will proceed according to the steps outlined below for intercompany balancing in the general case (when
some accounts are defined at the balancing segment value level):

1. Group all debits and credits by legal entity. Determine the number of legal entities involved in the journal. There are 4
possibilities:

2. One legal entity to One legal entity journal: the journal is between two legal entities. For a journal between two legal
entities, determine the balancing segment values involved on the side of each legal entity. There are 4 possibilities:

a. One balancing segment value to One balancing segment value: for each legal entity determine what intercompany
accounts will be used to do intercompany balancing. We will look for and use an intercompany receivables account to
create an offsetting debit. We will look for and use an intercompany payables account to create an offsetting credit. The
Use for Balancing flag in Intercompany Accounts UI tells us which account should be used in balancing when multiple
accounts are defined. The determination of the intercompany accounts is performed according to the Hierarchy Table
below starting with rule 1 (From LE, From balancing segment value, To LE, To balancing segment value) and stopping
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when an account is found.

b. One balancing segment value to Many balancing segment values: same as for One balancing segment value to One
balancing segment value case except the Hierarchy Table rules checked are 2, 4, and 5.

c. Many balancing segment value to One balancing segment value: same as for One to One balancing segment value
case except the Hierarchy Table rules checked are 3, 4, and 5.

d. Many balancing segment value to Many balancing segment value: same as for One balancing segment value to One
balancing segment value case except the Hierarchy Table rules checked are 4 and 5.

Rule Number Intercompany Accounts Defined for

1 Transacting LE, Transacting BSV, Trading Partner LE,

Trading Partner BSV
2 Transacting LE, Transacting BSV, Trading Partner LE
3 Transacting LE, Trading Partner LE, Trading Partner BSV

4 Transacting LE, Trading Partner LE

5 Transacting LE, Trading Partner All Other Legal Entities

Table 1 Hierarchy Table

3. One legal entity to Many legal entity journal: the balancing procedure for this case is to break down the journal into One
LE to One LE journals and perform intercompany balancing within each journal (each journal then is One to One and be
balanced as shown in step 2).

4. Many legal entity to One legal entity journal: same as One legal entity to Many legal entity journal.

5. Many legal entity to Many legal entity journal: this journal is balanced for each legal entity by using the Transacting
Legal Entity and Trading Partner All Other Legal Entities accounts.

6. The application was enhanced via Bug:11883614 to derive the intercompany accounts from the specific rules for the
above type of journal.
If the specific rules are not defined then the accounts will be derived from the default rule (All Other).
See Note:1464007.1 for more information.

Consider the following setup. The COA for this example has two segments: balancing, and natural account. Assume that
balancing segment values 10 and 50 map to legal entity LE1, balancing segment values 20 and 60 map to legal entity LE2,
and balancing segment values 30 and 70 map to legal entity LE3. The intercompany accounts are set up as follows:

Transacting LE Transacting BSV Trading Partner TradingPartner Account Intercompany

LE BSV Account Type

LE1 All LE2 20 10-2022 Receivables

LE1 All LE2 20 10-4022 Payables
LE1 50 LE2 All 50-2025 Receivables

LE1 50 LE2 All 50-4025 Payables

LE1 All LE2 All 10-2020 Receivables

LE1 All LE2 All 10-4020 Payables

LE1 All LE3 30 10-2030 Receivables
LE1 All LE3 30 10-4030 Payables

LE1 All LE3 All 10-2044 Receivables

LE1 All LE3 All 10-4044 Payables

LE2 20 LE1 All 20-2010 Receivables

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LE2 20 LE1 All 20-4010 Payables

LE2 All LE1 All 20-2011 Receivables

LE2 All LE1 All 20-4011 Payables

LE2 All LE3 All 20-2030 Receivables
LE2 All LE3 All 20-4030 Payables

LE3 All LE1 All 30-2050 Receivables

LE3 All LE1 All 30-4050 Payables

LE3 30 LE1 All 30-2077 Receivables
LE3 30 LE1 All 30-4077 Payables

LE3 All LE2 All 30-2020 Receivables

LE3 All LE2 All 30-4020 Payables
LE3 30 LE1 50 30-9977 Receivables

LE3 30 LE1 50 30-9987 Payables

Now consider Journal 4:

1 10-5200 2800.00
2 50-5200 1000.00
3 20-5000 500.00

4 60-5000 300.00
5 30-1400 1000.00

With respect to legal entities, we can represent it as follows:

LE1 1800.00
LE2 800.00

LE3 1000.00

So this journal is a one legal entity to many legal entity journal. We will only show how INTERCOMPANY balancing will be
performed. Note that INTRACOMPANY balancing within each LE will be performed after the entries are balanced for each
LE.
This journal with respect to legal entities is composed of LE1 on the "One" side and LE2 and LE3 on the "Many" side.
Consider LE1 to LE2 entries. Notice that on the side of LE1 we have two BSV's: 10 and 50. Also note that on the side of
LE2 we have two BSV's: 20 and 60. So our LE1 to LE2 journal is a Many balancing segment value to Many balancing
segment value journal. So the offsetting entry for LE1 is a credit to the Payables account from the rule Transacting
LE=LE1, Trading Partner LE=LE2: 10-4020. The offsetting entry for the LE2 is a debit to the Receivables account from the
rule Transacting LE=LE2, Trading Partner LE=LE1: 20-2011.
Next consider the LE1 to LE3 entries. On the side of LE1 we still have two balancing segment values (10 and 50). On the
side of LE3 we have one balancing segment value (30). For LE1 the offsetting entry is a credit to the Payables account
from the rule
Transacting LE=LE1, Trading Partner LE=LE3, Trading Partner BSV=30: 10-4030. For LE3 the offsetting entry is a debit to
the Receivables account from the rule Transacting LE=LE3, Transacting BSV=30, Trading Partner LE=LE1: 30-2077.

Journal 4 - balanced by legal entity:

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1 10-5200 2800.00 Original

2 50-5200 1000.00 Original

3 20-5000 500.00 Original

4 60-5000 300.00 Original
5 30-1400 1000.00 Original

6 20-2011 800.00 Balancing

7 10-4020 800.00 Balancing

8 30-2077 1000.00 Balancing

9 10-4030 1000.00 Balancing

Setting Up Balancing

To set up intercompany and intracompany balancing, you must set up legal entities, ledgers, enable the Balance
Intracompany Journals ledger option, and define intercompany accounts and intracompany balancing rules. If the Balance
Intracompany Journals option is not enabled, no intracompany balancing rules can be defined.

Set up Legal Entities and Ledgers

To set up ledgers and legal entities:

1. Navigate to the Accounting Setup page.

2. Define your legal entity. For more information, see Legal Entities in Accounting Setup.
3. Define your ledger. For more information, see Ledgers in Accounting Setup.
a. Enable the Balance Intracompany Journals option.
4. Define your accounting configuration by assigning legal entities and ledgers.
5. Proceed to define Intracompany Balancing Rules and Intercompany Accounts.

Set up Intracompany Balancing Rules

To set up intracompany balancing rules:

1. Navigate to the Intracompany Balancing Rules page for the relevant configuration ledger in Accounting Setup Manager.
2. In the Intracompany Balancing Rules Summary page, select the legal entity for which the balancing rules will be
defined. Note that you may also select a special value of No Legal Entity if you want to associate the rule with the ledger.
Click on Define Rules.
3. Observe various source-category combinations for which balancing rules have already been defined. Click the Create
Rule button to create balancing rules for a new source-category combination.
4. In the Create Intracompany Balancing Rules page, select a source and category for which you want to define the rules.
5. You may add descriptive flexfield information at the balancing rule level with Intracompany Rule Descriptive Flexfield.
You may also use the Intracompany Accounts Descriptive Flexfield at the accounting rule level.
6. Enter a debit (due from) and credit (due to) balancing segment value for each debit and credit intracompany account.
You can choose All Other to have each balancing segment value use the same due to and due from accounts for every
intracompany trading relationship that has not been explicitly defined.
7. In the Options subtab specify:
a. if you want Summary Net or Detail level of summarization;
b. if you want the Clearing Balancing Segment Value to be used for All Journals or only for Many to Many journals;
c. how to proceed if the clearing company is necessary yet unspecified:
i. use the Default Clearing Balancing Segment Value (you have to specify that value in the field below the dropdown
list)
ii. use the Manually Entered Balancing Segment Value. This option should not be used for journals coming from
subledgers since there is no way to specify a clearing company
for them.

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iii. use the Default Rule. The Default Rule is the All Other-All Other rule. It can only be used if the Clearing Balancing
Segment Value is used for Many to Many journals.
8. Click Apply to save your changes.

Note: For more details on the effect of the different settings of the Clearing Balancing Segment Value, see 1:1
Intracompany Rules Defined not Being Used When Clearing Balancing Segment is Also Required (Document
2017341.1)

Set up Intercompany Accounting

To set up intercompany accounting:

1. Navigate to the Intercompany Accounts page for the relevant configuration ledger in Accounting Setup Manager.
2. Click on the Define Relationships icon for the relevant legal entity.
3. In the Intercompany Accounts table, select the Transacting Balancing Segment Value for the intercompany accounts.
Select the Trading Partner Legal Entity and the Trading Partner Balancing Segment Value. For both the Transacting
Balancing Segment Value and Trading Partner Balancing Segment Value you can select the special value All to define
accounts at the legal entity level. Note that if you have mapped your balancing segment values to legal entities, only the
relevant balancing segment values will be available for selection. For example, only balancing segment values that are
mapped to the transacting legal entity can be selected as the Transacting Balancing Segment Values.
4. The Trading Partner Ledger will be selected automatically and cannot be changed. If the accounts are defined for the
primary transacting ledger, then the primary ledger of the trading partner legal entity will be selected. If the accounts are
defined for the secondary transacting ledger, then only the same secondary ledger can be used as the trading partner
ledger.
5. Click on the Define Accounts icon for the relevant trading partner.
6. In the Define Accounts page, specify intercompany receivables and payables accounts you want to use with the trading
partner. Specify the effective date ranges for your accounts.
7. You may also enter descriptive flexfield information using the Intercompany Receivables Accounts and Intercompany
Payables Accounts descriptive flexfields.

Note: If the intercompany accounts are being defined between two legal entities that share the same
ledger, a Use For Balancing radio button allows you to specify which of these accounts is to be used
for balancing intercompany journals in General Ledger and Subledger Accounting Architecture.

Attention: You may choose "All Other" in the Trading Partner Legal Entity allows you to define the
same accounts for all trading partners. This approach is not recommended since it will be challenging
to reconcile intercompany balances.

8. Click Apply and save your work.

Note: New functionality has now been provided through the profile "FUN: Balance Using Intracompany Rules Only",
which allows using the Intracompany Rules defined for No Legal Entity context for balancing of both Intracompany and
Intercompany journals.
This also brings the new functionality where Intercompany journals can be balanced using a user chosen clearing BSV
instead of the BSV derived from the All Other - All Other rule.
For more details on see Note:1640618.1 R12: How To Balance Intercompany Journals Using a Clearing Balancing
Segment Value (BSV)?

Still Have Questions?

To discuss this information further with Oracle experts and industry peers, we encourage you to review, join or start a
discussion in the My Oracle Support General Ledger Community.

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REFERENCES

NOTE:1640618.1 - R12: How To Balance Intercompany Journals Using Intracompany Rules or a Clearing Balancing
Segment Value (BSV)?
NOTE:1369250.1 - New AGIS System Option "Derive Intercompany Accounts from Intracompany Balancing Rules" to Allow
Intracompany Rules to Be Used If No Intercompany Accounts Defined

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