Cross-Charge: Borrowed & Lent and Inter-Company Processing in Oracle Projects

An Oracle White Paper August, 2011

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Table of Contents
Cross Charge Overview ................................................................................................................................. 3 Cross Charge Terminology ............................................................................................................................ 3 Cross Charge Processing Methods ................................................................................................................ 3 Borrowed and Lent Accounting Processing .................................................................................................. 4 Intra-Operating Unit ..................................................................................................................................... 4 Required Setup ......................................................................................................................................... 4 Example ..................................................................................................................................................... 5 Screen Shots .......................................................................................................................................... 6 Inter-Operating Unit ..................................................................................................................................... 8 Required Setup ......................................................................................................................................... 8 Example ..................................................................................................................................................... 9 Inter Company Billing .................................................................................................................................. 10 Setup & Example ..................................................................................................................................... 10 Transfer Price Rules .................................................................................................................................... 13 Transfer Price Schedules ............................................................................................................................. 14 Transfer Price Amount Calculation ............................................................................................................. 15 References .................................................................................................................................................. 18

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Cross Charge Overview

The act of charging costs directly to a project outside your own organization, operating unit, ledger, legal entity or business group. Cross charge is the act of entering a transaction where the expenditure organization and project/task owning organization are different. For Example -

Employee - ABC belongs to Organization "Org1" He is working for a Project - "Project1" which belongs to a different organization "Org2" If he enters a Time card against "Project1", this is a cross charge transaction.

Cross Charge Terminology

1. Borrowed and Lent - A method of processing cross charge transactions that generates accounting entries to pass cost or share revenue between the provider and receiver organizations within a legal entity. 2. Cross charge transaction - An expenditure item whose provider operating unit is different from the receiver operating unit, the provider organization is different from the receiver organization or both. 3. Cross charge type - There are three types of cross charge transactions Intercompany (across legal entities) Interoperating unit(across operating units) Intraoperating unit (within a single operating unit).

4. Intercompany billing - A method of internally billing work performed by a provider operating unit and charged to a project owned by a receiver operating unit. The provider operating unit creates a Receivables invoice, which is interfaced as a Payables invoice to the receiver operating unit. 5. Provider operating unit - The operating unit whose resources provide services to another project or organization. (Expenditure operating unit) 6. Provider organization - For cross charge transactions, the organization that provides resources to another organization. The default is the expenditure organization or the nonlabor resource organization, which can be overridden using the Provider and Receiver Organization Override client extension. 7. Receiver operating unit - An operating unit whose projects receive services from another project or organization. (Project operating unit) 8. Receiver organization - The organization whose project (task) receives services from another project or organization. (Task owing organization) 9. Transfer price - The price agreed upon by the provider and receiver organizations in a cross charged transaction.

Cross Charge Processing Methods

Borrowed and Lent Accounting - This processing method can be used for cross charge transactions between different Operating units within same legal entity (Inter-operating Unit) or between organizations within same Operating unit (Intra-Operating Unit).

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Project just creates accounting entries to pass costs and revenue across organizations without generating internal invoices. Intercompany Billing Accounting - Using this method, Projects generates physical invoices and corresponding accounting entries at agreed upon transfer prices between internal seller (provider) and buyer (receiver) organizations when they belong to different legal entities or operating units. No Cross Charge Process - This method will not result in any cross charge processing for transactions that cross organizations

Borrowed and Lent Accounting Processing

As stated above borrowed and lent processing method creates accounting entries ONLY to pass costs or share revenue (the transfer price amount determines the cost or revenue amounts) between the provider and receiver organizations within a legal entity.

Note: - This method cannot be used for intercompany (cross legal entities) cross charges.
If we choose to pass costs from the Provider to the Receiver then this processing method will

a. Debit the cost from the Receiver (or Lent) organization. b. Credit the cost account to the Provider (or Borrowed) organization.
Similarly, if we choose to share Revenue then this processing method will

a. Debit the Revenue from the Receiver (or Lent) organization. b. Credit the Revenue to the Provider (or Borrowed) organization.

Intra-Operating Unit
Intra-Operating Unit is a scenario where both the Provider and Receiver organization are within the same Operating Unit.

Required Setup
1. Cross Charge should be enabled both at Project and Task Level. Along with the transfer price Rules Set. 2. In the Implementation Options Screen, under the Cross Charge tab (Cross Charges within an Operating Unit), the Processing Method selected should be "Borrowed and Lent". 3. The following Auto Accounting Functions should be setup. Borrowed and Lent Credit Account Borrowed and Lent Debt Account Labor Revenue Borrowed Account Usage Revenue Borrowed Account

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Example
Let us consider the scenario below: Provider Organization - Services-East Receiver Organization - Services-West Operating Unit - Vision Services Legal Entity - Vision Services 1. Create a Project - "AA-Borrowed-Lent Project" Organization - Services-West 2. Enable Cross Charge at the Project Level. Enable Cross Charge at the Task Level for Task 4.0 3. Enter a Pre-Approved Expenditure Against the above project. Employee: - Marlin, Ms Amy (who belongs to "Services-East" organization, which is different from the Project Organization) 4. Distribute the costs by running PRC: Distribute Labor Costs 5. Run PRC: Distribute Borrowed and Lent Amounts Once the above processes are completed, in the Expenditure Inquiry screen we can verify the following: Cross Charge Proc Method is populated as - Borrowed and Lent Cross Charge Type - Intra Operating Unit (as both Provider and Receiver belongs to same OU) Transfer Price Amount.

6. Run PRC: Generate Cost Accounting Events. 7. Run PRC: Generate Cross Charge Accounting Events. 8. Run PRC: Create Accounting. Page 5 of 18

Screen Shots

Figure 1 Project Screen

Figure 2 Project Level Setup

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Figure 3 Task Level Cross Charge Setup

Figure 4 Pre-Approved Batch

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Figure 5 Expenditure Enquiry

Inter-Operating Unit
Inter-Operating Unit is a scenario where both the both Provider and Organizations are from different Operating Units.

Required Setup
1. Cross Charge should be enabled both at Project and Task Level. The transfer price Rules should be set at Project and Task level. 2. In the Implementation Options Screen, under the Cross Charge tab (Allow Cross Charges to all Operating Units within Legal Entity), the Processing Method selected should be "Borrowed and Lent". This has to be set in the Receiver Operating Unit

Figure 6 Implementation Options

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3. In the Provider Operating Unit: Go to Setup Costing Provider and Receiver Controls Search for the Operating Unit - Vision Services (Provider OU) Under provider controls Receiver section, add the Receiver Operating Unit Enable Allow Cross Charge Select Borrowed & Lent for the Processing Method

Figure 7 Provider/Receiver Controls

4. The following Auto Accounting Functions should be setup. Borrowed and Lent Credit Account Borrowed and Lent Debt Account Labor Revenue Borrowed Account Usage Revenue Borrowed Account

Example
Let us consider the scenario below: Vision Services R+D Receiver OU Vision Services Provider OU. Legal Entity - Vision Services 1. Go to the Receiver Responsibility Create Project - "AA-Borrowed Lent 3" Organization - Vision Services R+D 2. Enable Cross Charge at the Project Level. Enable Cross Charge at the Task Level for Task 3.0 3. Go to the Provider Responsibility Enter a Pre-Approved Expenditure Against the above project. Page 9 of 18

Employee - Marlin, Ms Amy (who belongs to "Services-East" organization, which is different from Project OU) 4. Distribute the cost (Run PRC: Distribute Labor Costs). 5. Run PRC: Distribute Borrowed and Lent Amounts Once the above processes are completed, in the Expenditure Inquiry screen we can verify the following details: Cross Charge Proc Method is populated as - Borrowed and Lent Cross Charge Type Inter-Operating Unit (as Provider and Receiver belongs to different operating units) Transfer Price Amount.

6. PRC: Generate Cost Accounting Events. 7. PRC: Generate Cross Charge Accounting Events. 8. PRC: Create Accounting.

Figure 8 Expenditure Inquiry screen

Inter Company Billing

Inter Company Billing is a method of billing work performed by a provider operating unit and charged to a project owned by a receiver operating unit. The provider operating unit creates a Receivables invoice, which is interfaced as a Payables invoice to the receiver operating unit. Using this method, Projects generates physical invoices and corresponding accounting entries at agreed upon transfer prices between internal seller (provider) and buyer (receiver) organizations when they belong to different legal entities or operating units. For Inter Company Billing the Provider and Receiver must be in different legal entities.

Setup & Example

Consider the following Operating units which belong to two different legal entities.

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Legal Entity 1 - Projects Vision Communications Receiver Operating Unit Legal Entity 2 - Projects Vision Services Provider Operating Unit Projects Vision Services provides resources to work on a project related to Project Vision Communications. 1. Go to Setup Costing Provider and Receiver Controls. Query up the Provider Operating Unit (Vision Services in our example) Under the Provider Controls Tab. Setup the Receiver details as follows: Receiver Operating unit = Vision Communications Enable Allow Cross Charge Processing Method = Inter Company Billing Inter Company Billing Project = (Inter Company Project created in Provider OU) Enter an Invoice Grouping Method.

2. Go to Setup Costing Provider and Receiver Controls. Query for the Receiver OU (Vision Communications in our example) Under the Receiver controls Tab, setup the Provider details as follows: Operating Unit = Vision Services The supplier will be defaulted based on the setup done in the Implementation Options screen in Vision Services (Provider OU) under the Internal Billing Tab. Enter a Supplier Site (mandatory). If not done the Receiver project will not be available in the Pre-Approved batches screen to enter Expenditure Items.

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3. A Transfer Price Schedule should exist for the corresponding Provider and Receiver combination

4. Auto accounting Setup The function Intercompany Invoice Accounts should be configured 5. In Projects Vision Communications OU (Receiver Operating Unit) Create a project "Contract New Project" Enable Cross charge at both Project and Task Levels. Under the Cross Charge Section, assign an Intercompany Tax Receiving Task at the project level 6. In Projects Vision Services OU (Provider Operating Unit) Create an Intercompany project type (Intercompany Billing should be enabled) The project type should be a Contract project type Create a template and project based on the above project type.

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In the project, under Customers and Contacts, ensure that the customer contact is be the one defined, in the Vision Communications (i.e. Receiver OU) in the Implementation Options screen Internal Billing Receiver Options (Customer name) The project should have baselined funding.

7. Enter a pre-approved Expenditure Item against project "Contract New Project" 8. Distribute the cost. Note: The expenditure item should be entered and distributed from the Provider Responsibility 9. 10. 11. 12. From The Provider Responsibility Run PRC: Generate Intercompany Invoices for a Single Project. Approve and Release the Invoice. Run PRC: Interface Intercompany Invoices to Receivables Go to a Receivables Responsibility for the operating unit and run the Auto invoice Import Program. 13. Run PRC: Tieback Invoices from Receivables Once the processes are successfully completed, data will be inserted into the following AP tables: AP_INVOICE_LINES_INTERFACE AP_INVOICES_INTERFACE 14. Run the Payables Open Interface Import from a Payables responsibility (In the Receiver OU i.e. Vision Communications Responsibility) 15. Run PRC: Interface Supplier Costs (In the Receiver OU i.e. Vision Communications Responsibility)

Transfer Price Rules

Transfer price refers to the price that two organizations agree upon for cross charge purposes. Transfer price rules allow you to indicate how the transfer price is calculated. The calculations are based on Transfer Price Basis Base the transfer price on the raw cost, burdened cost, or revenue amount of the transaction Cross-charge calculation method you can optionally burden, use bill rate schedules or a percentage markup to calculate the transfer price from the basis To define a Transfer Price Rule Navigate to Setup Costing Cross Charge Transfer Price Rules 1. Enter a unique Rule Name. 2. Select type Labor or Non-Labor 3. Specify the description and effective dates. 4. For Basis select Raw Cost, Burden Cost or Revenue 5. Select one of the following Calculation Methods to determine the transfer price. Basis - Use the transfer price with no further adjustments. Burden Schedule - Specify name of the burden schedule to apply to the basis.

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Bill Rate Schedule - For Operating Unit, specify the name of the operating unit that owns the bill rate schedule that you want to use. For Schedule Specify the schedule bill rate schedule name to apply to the basis.

6. In the Apply field, enter a percentage (zero or any positive number) The % is the amount of markup or discount to the transfer price amount calculated by the rule. A number less than 100 indicates a discount, greater than 100 indicates a markup.

Transfer Price Schedules

A transfer price schedule is a list of transfer price rules. In the simplest transfer price schedule there would be one transfer price rule which all provider and receiver pairs would use. Oracle Projects supports more complex schedules so your organizations can negotiate their own transfer price rules. You can define one transfer price schedule consisting of different rules for different organization pairs or multiple schedules consisting of different rules for the same pair of organizations. You can assign different transfer price schedules at the project and task levels. To define a Transfer Price Schedule, navigate to Setup Costing Cross Charge Transfer Price Schedule 1. Enter a unique schedule name. 2. Select type (Labor or Non-Labor) 3. Specify the description and effective dates. 4. Enter the lines. Line num - Enter a line num greater than zero. Provider - Enter the provider operating unit, organization name Receiver (optional)- Enter Receiver Operating unit, organization name. If we leave Receiver blank then this transfer price schedule applies to any receiver organization receiving transactions from the specified Provider organization. Labor and Non-Labor Rules - select the corresponding Labor or Non-Labor Rules as defined above. Apply % - The % is the amount of markup or discount to the transfer price amount calculated by the rule. A number less than 100 indicates a discount, greater than 100 indicates a markup.

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Transfer Price Amount Type Cost and Revenue - Applies to all the Cross Charge Transactions Cost - Applies to transactions when the assigned work type has an amount type to Cost Revenue Applies to transactions when the assigned work type has an amount type to Revenue Effective Dates - Effective dates for the line. Default - Choose one schedule line to be default to this schedule. Project uses this line to derive the transfer price if none of the lines match your transaction. It is not mandatory to define one line as default; however, if it cannot determine a rule to apply to a transaction then an error message is raised.

Transfer Price Amount Calculation

Case 1 -

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Define a Rule as follows: Type = Labor Basis = Raw Cost Use = Basis Apply = 100 % Attach the above rule to a Schedule. In the Schedule Apply % = 100 % Transfer amount type = Cost Attach the schedule at the task level. Based on the above setup, this rule is used only for Labor Transactions. Assume we have entered a Pre-Approved Time Card and distributed the cost, and let us assume that Raw Cost is Calculated as - 2000 once the cost is distributed. Now when we run the Distribute Borrowed and Lent Process, Transfer Price is calculated as follows: Since the rule is based on Raw Cost, Raw cost of the transaction is considered. Initial Transfer Price = (Raw Cost * Apply % in the Rule) = (20000 * 100/100) = 2000. Since the Schedule also has the Apply % as 100. Final Transfer price amount = (Initial Transfer Price * Apply % in the Schedule Line) = (2000 * 100/100) = 2000. In this case Transfer Price Amount will be - 2000. In the same example lets assume that at both rule and schedule we have defined Apply % = 50. Initial Transfer price = (Raw Cost * Apply % in the Rule) = (2000 * 50/100) = 1000. Once the rule % is applied, the schedule % is applied on the calculated Amount Final Transfer Price Amount (Initial Transfer Price * Apply % in the Schedule Line) = (1000 * 50/100) = 500. Since the Schedule also has the Apply % as 50. In this case Transfer Price Amount will be - 500 Case 2 Rule Using Bill Rate Schedule With the same above example, lets say, instead of using Basis, we have selected "Bill Rate Schedule" The rule is defined as follows Type = Labor Basis = Raw Cost Use = Bill Rate Schedule and a Rate schedule is attached. Apply = 50 %

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Attach the above rule to a Schedule. In the Schedule: Apply % = 50 % Transfer amount type = Cost Attach the schedule at the task level. Enter a Pre-Approved time card with quantity 50 and distribute the cost. If the rate defined in the rate schedule attached above is 200 then the transfer price is calculated as follows: In this case since a rate schedule is attached, raw cost will not be taken into consideration. Initial Transfer Price = (Quantity * Rate * Apply %) = (50 * 200 * 50/100) = 5000 Final Transfer Price = (Initial Transfer Price * Apply % defined at the Transfer Schedule Line level) = (5000 * 50/100) = 2500 The Transfer Price will be 2500. Case 3 Using a Burden Schedule The rule is defined as follows: Type = Labor Basis = Raw Cost Use = Burden Schedule Apply = 50 % Attach the above rule to a schedule, and in the schedule: Apply % = 50 % Transfer amount type = Cost Entered a Pre-Approved time card, and distribute the cost. Assume the cost calculated is 3000. The Transfer Price is calculated as follows: In this case since a Burden Schedule is attached, based on the Raw Cost, the burden cost will be calculated considering the burden schedule attached to the rule. Let us assume burden cost calculated is 1500 Initial Transfer Price = (Burden Cost * Apply %) = (1500 * 50/100) = 750 Final Transfer Price = (Initial Transfer Price * Apply % defined at the Transfer Schedule Line level) = (750 * 50/100) = 375 The Transfer Price will be 375. Note - Similar Logic applies if we use Basis as Burden Cost or Revenue.

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References
Oracle Project Costing User Guide Oracle Project Costing Student Guide

Cross-Charge/Borrowed-Lent/Inter-Company Processing in Oracle Projects Aug-11 Authors: Patlola Venkat Ram Reddy & Sateesha Honnegowda Copyright Oracle Corporation 1995 All Rights Reserved Printed in the U.S.A. This document is provided for informational purposes only and the information herein is subject to change without notice. Please report any errors herein to Oracle Corporation. Oracle Corporation does not provide any warranties covering and specifically disclaims any liability in connection with this document. Oracle is a registered trademark and enabling the Information Age.

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