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Prepayments in Release 11i

Amish VanjariaOracle Corporation

Abstract

Oracle Payables introduces enhanced functionality andhandling of prepayments in 11i. To help introducethese enhancements, this paper will provide anoverview of entering and applying prepayments in 11i,a description of the new prepayment enhancements, thechanges in prepayments from release 10.7 and 11compared to 11i, and the accounting entries generatedby prepayments.

Scope

I. Enter PrepaymentII. Apply PrepaymentIII. Prepayment EnhancementsIV. Changes in Prepayments from Release 10.7 and 11

to Release 11iV. Accounting Entries for Prepayments

References

Oracle Payables Release 11i User’s Guide, pages 4-195& 4-214.

I. ENTER PREPAYMENT

To enter a prepayment in Release 11i:

1. In the Invoices window select Prepayment as theinvoice type and enter all basic invoiceinformation. Before entering distributions, proceedwith the next three steps.

2. Select a Prepayment Type:

• Temporary. You can apply this prepayment toinvoices after you approve and pay it, and afterthe settlement date.

• Permanent. You cannot apply this prepaymentto invoices.

3. The Settlement Date that defaults here is calculatedbased on your Prepayment Settlement DaysPayables option. You can update this value. You

cannot apply a Temporary prepayment to invoicesor expense reports before the settlement date.

4. If you want to restrict the prepayment’s applicationto invoices matched to a particular purchase order,enter a value for Prepayment PO Number.

5. Enter the distributions. You can enter distributionsmanually or automatically with Distribution Sets,purchase order matching, allocation, and automatictax calculation.

If you do not enter distributions automatically, thenwhen you navigate to the Distributions window andenter Item distributions, Payables defaults theprepayment account from the supplier site.

6. Review or modify the scheduled payments.

7. Approve the prepayment as you would any otherinvoice.

8. Save your work. The prepayment is ready forpayment. You must fully pay prepayments. Afteryou fully pay a Temporary prepayment, it isavailable to be applied.

II. APPLY PREPAYMENT

To apply a prepayment in Release 11i:

1. In the Invoices window, query either theprepayment or the invoice to which you want toapply it.

2. Choose the Actions button and select theApply/Unapply Prepayment check box. ChooseOK. The Apply/Unapply Prepayments windowopens. This window shows different informationdepending on what you queried, an invoice or aprepayment.

If you initially queried a prepayment, Payablesdisplays all invoices that are not fully paid and towhich the prepayment can be applied. If you wantto limit available choices, enter a query or use theFind Invoices to Apply window by choosing Findfrom the View menu.

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Check the Apply check box for each Prepaymentdistribution you want to apply to the invoice.Enter the amount to apply for each prepayment.Optionally change the GL Date, which is theaccounting date for the new Prepaymentdistributions that Payables creates when you applya prepayment. If you want to see more informationon an invoice, select it and choose the InvoiceOverview button.

If you initially queried an invoice, Payablesdisplays all approved and paid Prepaymentdistributions that you can apply to the invoice. Ifyou want to limit available choices, enter a queryor use the Find Prepayments to Apply window bychoosing Find from the View menu.

Check the Apply check box for each Prepaymentdistribution you want to apply to the invoice. Enterthe amount to apply for each prepayment.Optionally change the GL Date, which is theaccounting date for the new Prepaymentdistributions that Payables creates when you applya prepayment. If you want to see more informationon a prepayment select it and choose InvoiceOverview.

3. If you want to print a Prepayment RemittanceNotice for the supplier, select the Print check box.

4. Choose the Apply/Unapply button to apply theprepayment amounts you specified and to save yourwork.

5. When you apply a prepayment, in addition toupdating fields in the Apply/Unapply Prepaymentswindow, Payables updates the following fields.

• For the invoice:- Invoices window: Prepaid Amount;

Status is updated to reflect that the invoicehas been paid or partially paid.

- Distributions window: Payables creates anegative Prepayment type distribution onthe invoice populating the PrepaymentNumber and Prepayment Distributionfields. On the Prepayment distributionsyou can adjust the values in thedescription fields.

• For the prepayment:

- Invoices window: If you have applied allItem distributions, the invoice Status willchange from Available to Fully Applied.

- Distributions window: Prepay AmtRemaining

6. Save any changes and approve the invoice. Anyunpaid amount remaining on the invoice is readyfor payment.

III. PREPAYMENT ENHANCEMENTS

Prepayments are now treated much like standardinvoices. The following describes new enhancementsintroduced in 11i for Prepayments:

• A prepayment can be matched to a purchase order.The match is treated as a reservation of thequantity billed. Invoice price variance andexchange rate variance is not calculated at thispoint. You cannot change the unit price and finalmatching is not allowed. When the matchedprepayment is applied to an invoice, the matchedquantity on the prepayment is backed out of the POto reflect the balance of total quantity matched.

Example: You hire a general contractor for $5000and he requires a $1000 deposit. You create anamount based purchase order with the following:

Quantity = 5000Price = $1Unit of measure = eachCurrency = USD

You match a prepayment of $1000 to the PO.

Then later, you match the invoice to the PO for$5000. This will result in a message that says,"This action will result in an overbill". This isdue to the fact that you have already matched theprepayment for $1000. The invoice may go onhold due to your tolerance levels.

You apply the prepayment to the invoice. Thisreverses the "reservation" of the prepayment matchto the PO, resulting in a net match of $5000.

• A prepayment can be matched to a receipt.Prepayments matched to receipts behave the sameway prepayments are matched to purchase orders.The receipt matching is back out.

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• You can use automatic withholding tax onprepayments in the same fashion as standardinvoices. A reversal line for the withheld taxamount is inserted and a withholding invoice iscreated according to the system options. Thetiming of prepayment application is importantwhen using automatic withholding tax:

- If you have the Withholding Tax PayablesOption set to Apply Withholding Tax atInvoice Approval Time, and you apply theprepayment before Approval, the withholdingtax is calculated net of prepayments.

- If you submit Approval before you apply theprepayment, you must adjust the withholdingtax amount. You must also adjust thewithholding invoice if your Withholding TaxPayables Option is set to Create WithholdingInvoice at Invoice Approval Time or AtPayment Time.

You need to add a Withholding Taxdistribution line for negative $10 on theinvoice. Then, adjust the invoice anddistribution amount on the Withholding Taxinvoice to be $10.

• You can use any terms date, payment terms, anddistribution sets with prepayments.

Note: You cannot use a payment term that splitspayments into multiple payment lines withdifferent dates.

• You can use a distribution line type of item, tax,freight, or miscellaneous on a prepayment.

• A prepayment can be applied to an unapprovedinvoice.

• After applying a prepayment to an invoice, theprepayment does not need to be re-approved.

• Discounts can be taken on prepayments and arecalculated net of prepayments.

Example: Enter an invoice and a prepayment thathas terms of 2/10 Net 30.

Prepayment

Approved Prepayment $100 Terms: 2/10 Net 30

Pay prepayment within -$2 10 days therefore discount is applied.

Paid $ 98

Invoice

Approved Invoice $200 Terms: 2/10 Net 30

Apply prepayment -$100

$100

Invoice

Unapproved Invoice - $200 10% Withholding Tax

Apply Prepayment -$100

$100Approve Invoice - Withholding Tax line -$10 is created

Prepayment

Approved Prepayment $100

Paid $100

Invoice

Unapproved Invoice - $200 10% Withholding Tax

Approve Invoice - Withholding Tax line -$20 is created

Prepayment

Approved Prepayment $100

Paid $100

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When a prepayment is applied to an invoice, whichhas a discount, the discount on the invoice iscalculated net of prepayments. This way, thediscount amount is not overstated on the payment.You can adjust the discount amounts as needed.

• Multiple tax distributions and multiple linedistributions are allowed on prepayments.

• Invoice tax is calculated net of prepayments.

Line or Tax Code level tax calculation allows theuser to enter as many item lines associated withtaxes and then automatically calculate the taxbased on the tax code specified on the item lines.

If automatic tax calculation at the line level or taxcode level is used, and prepayments are appliedbefore the tax is calculated then Payables calculatesthe tax amount net of the prepayment application.

Note: If you use header level tax calculation, youmight need to manually adjust the invoice amount

and tax amount if the Prepayment distribution hasa tax code assigned.

IV. DIFFERENCE IN PREPAYMENTSFROM RELEASE 10.7 AND 11 TORELEASE 11i

Prepayments are handled differently in release 11i thanin previous releases of Oracle Payables. The mostnoticeable change is on the Invoice and Distributionswindow.

• The following fields were added to the Invoiceswindow:- Prepaid Amount- Withheld Amount

• The following fields were added to theDistributions window:- Prepayment Number- Prepayment Distribution- Prepayment Amt Remaining

The fields that are updated when an invoice is appliedto a prepayment have changed in release 11i.

• Example (Release 10.7 and 11): You have aprepayment that is paid in the amount of $15.15.This amount is applied to an invoice for $40.When the prepayment is applied to the invoice, theAmount Paid on the invoice becomes $15.15. Next,when the balance of the invoice, $24.85, is paid,the Amount Paid on the invoice becomes $40.

See Appendix A

• Example (Release 11i): You have a prepaymentthat is paid in the amount of $15.15. This amountis applied to an invoice for $40. When theprepayment is applied to the invoice, theprepayment amount of $15.15 now appears in thePrepaid Amount column and the Amount Paidremains zero on the invoice. Next, when thebalance of the invoice, $24.85, is paid the AmountPaid on the invoice is updated to only $24.85.

See Appendix B

V. ACCOUNTING ENTRIES FORPREPAYMENTS

For the following example of accounting entries,assume that we have:

Invoice

Unapproved Invoice – $200 Line level tax calculation

10% Prepay Sales Tax

Apply Prepayment -$100 $100

Approve Invoice - -$10

Prepayment

Approved Prepayment $100

Paid $100

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1. Entered a prepayment for $15.152. Entered an invoice for $40 and applied the

prepayment.3. Paid the balance of the invoice.

Release 10.7 and 11:Cash Liability Prepay Expense

Enter Prepayment 15.15 15.15Pay Prepayment 15.15 15.15Enter Standard Invoice 40.00 40.00Apply Prepayment toInvoice

15.15 15.15 15.15 15.15

Pay Balance of Invoice 24.85 24.85

Release 11i:Cash Liability Prepay Expense

Enter Prepayment 15.15 15.15Pay Prepayment 15.15 15.15Enter Standard Invoice 40.00 40.00Apply Prepayment toInvoice

15.15 15.15

Pay Balance of Invoice 24.85 24.85

Conclusion

It is my hope that this paper has helped youunderstand Prepayments in Release 11i.

About the Author

Amish Vanjaria is a Technical Analyst for theAccounts Payable team in Orlando.

APPENDIX A: Release 11.0.3

A

Invoice after prepayment of $15.15 is applied.

APPENDIX A: Release 11.0.3

A

Invoice paid in full after application of prepayment.

APPENDIX B: Release 11i

B

Invoice after prepayment of $15.15 is applied.

Invoice paid in full after application of prepayment.