Cash Management Setup

Cash Management Set Up Steps and Usage Aspects

Oracle Cash Management Release 11i User’s Guide, Chapter 2 and and pages 2-2 to 2-27.

From Accounts Receivables Perspective Amit Kumar Singh Oracle Corporation

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Abstract

Improve your knowledge of Reconciliation Reconciliation Process in Cash Management by learning how to set up Cash Management and how to use it. This paper provides provides an overview of the Manual and Auto Reconciliation process, and basic functionalities involved in the process for instance Reversals & Corrections. This paper is written from the perspective of Accounts Receivable Module although it will contain some useful information for CE Reconciliations with Oracle general ledger and Oracle Payables also. All screenshots included in this paper is from AR side.

I. Overview Of Cash Management. Cash Management includes: a)

b)

Scope I. Overview Overview Of Cash Management Management.. II. Clearing Clearing Vs Reconcili Reconciliation ation III. What are the Set up Required for Manual Manual and Auto Reconcilations IV. What extra sets required for Reversals Reversals and Corrections V. Foreign Currency Banks Reconciliations Reconciliations VI. What are the Set ups for Reconciliation Reconciliation with Oracle General Ledger and Oracle Payables

c)

d) e)

Clearing manually or automatically your uncleared transactions lying in Accounts Receivables, Accounts payables, Oracle Payroll & General Ledger modules. It helps the user user to reconcile manually or automatically the payments and receipts and then review and correct the unreconciled transactions. Enter Bank Statements manually or automatically by importing from Open Interface tables. Prepare Prepare Cash forecast forecast.. Cash manageme management nt also also handles handles Multi Multi Currency Bank Statements and its reconcilation.

II. Clearing Of A Receipt Vs Reconciliation of a Receipt Clearing is an accounting event whereas reconciliation is not an accounting event. Clearing Transfers the amount amount from Remittance Remittance account to Cash Account. Whereas Reconciliation is just tallying of lines appearing in the bank statement with the Receipts in AR. However if you reconcile directly the transaction then the transaction gets cleared first itself and then in such a case reconciliation becomes an accounting event also.

Please note that this paper does not replace your Cash Management User’s User’s Guide. This paper is intended to give you a quick overview of the application, and some step-by-step setup instructions.

References For detailed information on all the Cash Management features, please read the following references.

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Cash Management Set Up Steps & Usage Aspects

III. What are the Set up Required for Manual and Auto Reconciliations? a) Set up Requirements in Accounts Receivables for the purpose of Manual and Auto Reconciliation i.

ii.

iii. iv.

Create one Account Code Combination (CCID) for your bank Account in Oracle General Ledger Create a Bank account and specify the above CCID in the Cash Account Create a Receipt Class and Use the above bank and Bank Account Create Manual Receipts Using the above Receipt class

Description Figure 1 Shows Receipt class and types of Clearance Methods. Receivables – Set up- Receipts-Receipt Class

Note: Status of a Receipt is important field from Cash management perspective. Receipt Status depends on three important fields in Receipt Class. i.

ii.

Remittance Method: if this is No Remittance then the receipt status will be remitted and this will require Clearing in CE. If the Remittance method is Standard or Factoring or Std & Factoring then the Receipt status will be Confirmed and this will require first Remittance which will then bring status of receipt to Remitted and then you can clear the same.

b) Clearing of Receipts and Payments in CE

There are two methods to clear the receipts and/or payments:

Matching: If the matching is Directly then the Status will be cleared. Directly is available only if you have no remittance. With Remittance method other than No Remittance this Directly is not available. If the Method is By Automatic Clearing then the Receipt can be both Auto Cleared or Manually cleared. IF the Method is By matching then Automatic clearing is not available only manual option can be used.

Automatic Clearing: Submit the Automatic Clearing program to automatically clear remitted receipts and clear or risk eliminate factored receipts in Receivables. Clearing remitted receipts debits your cash account and credits your remittance or factoring account. Go to AR – Requests – Submit – Automatic Clearing of Receipts Program Note: This Method will clear only those receipts, which have Automatic clearing as Matching Method.

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the dates to any date but not prior to the date of previous clearing /reconciliation.

c) Manual and Automatic Reconciliations in Cash Management I.

Manual Reconciliation

In Manual Reconciliation System works solely on the judgment of user i.

Enter Bank Statement Note: Bank Statement has two parts Header and Lines. Header details about Bank , Bank Account, Totals-control & Actual , Number of lines unreconciled and its amount . Complete the statement once no further changes are required.

Description Figure 2 running of Automatic Clearing Program in AR. Navigation: View-Requests

ii.

Enter Statement Line Statement line can be either Receipt, Misc Receipt, Payment, Misc Payment, NSF , Rejected, Stopped. Note : You must define bank Transaction codes for the bank . Although this is not a mandatory set up but is required for Auto Reconciliation to identify the source of the statement line , correction method , matching method.

ii.

Manually Reconcile with the available transactions or you can create manually a AR Receipt/ Misc Receipt / Payment from CE and then Reconcile.

iv. Create a Receipt/ Misc Receipt/Payment directly from CE

Description Figure 3 Shows the Output of Program ran in Figure 2 . Navigation : View-Requests

Note : When you create Misc Receipt system prompts for Creation of Misc Receipt with Reconciled status which is not in the case of Cash Receipt.

Manual Clearing: This is done by going to CE - > Bank Reconciliation - > Manual Clearing > you can also undo the cleared status of a cleared payment, receipt, or open interface transaction.

Note : You cannot change the amount of Receipt when you use Create from Statement.

Change Default Dates: You can change the Default dates which appear at the time of selecting the Receipt by going to Default Dates .You can change

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v.

Check Receipt Status after Reconciliation and status of line in bank statement Cash management tab gets populated with statement details and status changes from Remitted to Cleared if it was a remitted receipt. Statement line gets Reconciled Amount and status changes from Unreconciled to Reconciled.

Automatic Reconciliation matches the Statement lines of a statement with the Sub ledger Transactions automatically on the basis of following: i.

vi. Mark Statement Line: You can mark a statement line as Error or External. Marking makes the line not available for Reconciliation.

Tolerance: System Parameter has two fields in Auto tab region: Amount and Percent. Percent is calculated on statement amount. Tolerance amount is the lower of two. Tolerance in System Parameters form is in Functional Currency.

Note: Auto Reconciliation selects the transactions on the basis of Tolerance amount. Receipts selected will be Receipt Amount = < Receipt Amount +/- Tolerance Amount > After tolerance amount system looks for the matching Order.

vii. Unreconcile : You can unreconcile the reconciled line by going to Reconciled and selecting the line and then press Unreconcile. The Status of Receipt will change back to Cleared and the statement details will get deleted from the cash management tab in Receipt form .

ii.

Matching Order

Transaction: If order is transaction then the system will create Bank Charges for the difference amount. Batch : If Batch is the Order then the system will create a Misc Receipt for the tolerance amount.

II. Automatic Reconciliation

Note : After checking on the basis of Matching Order value in System Parameter form it looks for the receipts on the basis of value which was not selected. For example if value in System parameter form is Batch then after looking for on the basis of batch if unable to find a batch system will then check for transactions with the number given in statement line.

iii.

Matching Criteria

When Transaction is matching Order : ( Difference goes to Bank Charges) 1. Description Figure 4 System Parameters form .The Matching Criteria’s are set up in this form which is then used in Reconciliation Process. Navigation: Cash Management – Set up-System parameters

2.

3.

4

Receipt Number should match Statement Number or Invoice Number , Customer Name and Customer Bank Account in statement line should match the Receipt Details or Invoice Number and Customer Bank Account in statement line should match the Receipt Details


When Batch is matching Order then Deposit Number is the matching Criteria in the absence of Deposit Number batch Name. ( For the difference Misc receipt is created)

3.

Stopped ( this is for AP payments only )

If the receipt is not reversed in the AR and in Bank statement there is a reversal line then Auto Reconciliation first clears the receipt and reconciles the receipt line in bank with the cleared line of Receipt and then it reverses the receipt and reconciles the NSF line with the reversal line of Receipt.

Simulation Cases on Auto Reconciliation Tolerance : Amount = 100 and Percent 20%

Reversal can be ( NSF Action in Auto Recon parameters) :

Case 1 – Create a bank Statement , statement line Amount = 1000 Create a AR receipt of Rs 850 Run Auto Reconciliation from Submit Request in CE Result - Line will not be reconciled

1. Reverse Payment 2. Debit memo reversal Steps : 1.

Case 2 - Now change the Amount above to 900 Run Auto Reconciliation from Submit Request in CE Result Line will be reconciled. Check the bank charges field - 100 is in bank charges

2.

3. 4.

Create a bank transaction code with NSF as type Create a bank statement line with Receipt type and second line with NSF type. Use the NSF code. Run Auto Recon. Select NSF Action

Case 3 - create a remittance batch with three receipts amounting to 1000 Create a statement line with amount = 1050 Run Auto Reconciliation from Submit Request in CE Result : system will create a Misc Receipt of Rs. 50 Note : Incase of Remittance batch ensure that while running Auto Recon you must specify the payment method and Receivable activity other wise Auto Recon will fail.

IV.

What extra sets required for Reversals and Corrections

Description Figure 5 Shows bank transaction Code screen. Navigation : Cash Management –Set up- Bank transaction Code

Reversals and Corrections Reversals take place when the check clearing done by bank is reversed due to following reasons: 1. 2.

NSF ( Non Sufficient funds) Rejected

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transaction number as the adjustment line. However, the statement line can be a payment, receipt, miscellaneous payment, or miscellaneous receipt, as long as the amount netted out is within the tolerance of the original transaction.

Description Figure 6 Shows the NSF line created to demonstrate the Reversal functionality with type as NSF Navigation : Cash Management – Bank Reconciliations-Bank Statements

Corrections takes place when bank gives wrong credit and then to correct the error it either reverses the original credit and then gives a new credit (Reversal Correction method) or gives differential credit or debit to correct the mistake (Adjustment method)

1.

2. 3.

Description Figure 7

Create a bank transaction code for Misc Payment type line with Reversal as correction method and another for Adjustment correction method. Select matching against stt /stt, misc /misc/misc,stt Create lines for reversal method (one original, one Misc Payment for reversal and then

Reversal Method: Tries to match the reversal entry to a statement line that contains the same transaction number and opposite transaction type. For example, if the reversal entry is a miscellaneous receipt, then the program matches to a payment or miscellaneous payment. If the amounts net out to zero, then the program assumes there is a match and reconciles the statement lines.

Description Figure 8 Shows the Adjustment Method Navigation : Cash Management – Bank Reconciliations-Bank Statements

Note : in Reversal method reversal statement line and original line matches with each other And new correct entry matches with original receipt.

• Adjustment Method: Tries to find both a statement line and a transaction to match to the adjustment entry. The statement line must contain the same

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VI. What are the Set ups for Reconciliation with Oracle General Ledger and Oracle Payables

i. Create a Bank Transaction Code for AP and Gl Source Create a Receipt or Payment Type in Bank transaction code screen with Source as Journals Matching Criteria

1 CCID of Bank Account in Journal Line must be same as Cash Account in the Bank Definition 2 Journal Line must be Posted 3 Description field and the Number Field is the Matching Criteria used

Description Figure 9 Shows the Adjustment Method Navigation : Cash Management – Bank Reconciliations-Bank Statements

Reconciliation of AP to CE

Steps

V. Foreign Currency Banks Reconciliations

1 2 3

Foreign Currency Transactions

4 5

Receipt is in Foreign Currency / Bank is Functional Currency

6 7

In this case the tolerance amount will be the difference in Converted Amount of Receipt and Statement amount.

Assign a Payables Document to the bank Define one Supplier Create one Invoice and make payment in full Create Bank Transaction Code with Source as Payables Enter one Bank statement line of Type Payment in Bank Statement. Either Manually Reconcile or Auto For any Stopped Payment line in Bank Statement define bank transaction code for Stopped as type and source payables and then use this code in statement line.

Both Receipt and Bank is in foreign Currency In this case the Tolerance amount will first be converted into foreign currency using Rate type and Rate date as specified in System Parameters form.

Note : Rest will remain same as covered till now.

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The bank records both the original payment and the stopped payment on the same statement. In this case, the two transactions would null out and have no effect on the closing balance. This is the basis for the treatment of stopped payments by the method described above.

Description Figure 10 Shows Payment created in AP. Navigation –Payables- Payments-Payment

Description Figure 12 Shows Reconciliation of Stopped line with AP void payment Navigation : Cash Management – Bank Reconciliations-Bank Statements Case 2 The bank records the original payment and the stopped payment on two different statements or just records the stopped payment and not the original payment. In this case, the closing balance would be impacted.

Description Figure 11 Shows Payment created in AP. Navigation –Payables- Payments-Payment

Cash Management treats Payments as a source of Cash Outflow and Stopped Payments as a source of Cash Inflows. Since the Bank Statement Header has one field for Cash Inflow Sources (Receipts) and one for Outflow sources (Payments), Stopped Payments show up in the Receipts Field. There could be two scenarios, which would affect the Bank Statement Balance: Case 1

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Description Figure 15 Shows the Journal Created in oracle general Ledger with Description field populated . Navigation – Oracle General Ledger – Journals-Enter

Description Figure 13 Shows bank transaction code for Journal as Source . Navigation : Cash Management –Set up- Bank transaction Code

Conclusions It is our hope that this paper has helped you understand what Cash Management Reconciliations is , and how to set it up.

Description Figure 14 Shows the Lines in Cash Management reconciliation with Journals in Oracle General Ledger. Navigation : Cash Management – Bank Reconciliations-Bank Statements

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Cash Management Set Up Steps and Usage Aspects From Accounts Receivables Perspective January 2005 Author : Amit Kumar Singh

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Cash Management Setup

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