Accruals Vs Reversals

Prepared by:
Mathew George

CONFIDENTIAL: To protect the

confidential and proprietary
information included in this
material, it may not be disclosed
or provided to any third parties
without the approval of
Hewitt Associates LLC.
Accruals Technical Overview

What is an accrual and why is it necessary?

Accrual Types at Hewitt

Balancing Accruals at Hewitt

Issues with Accruals

Future Enhancements

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SEC Requires Accrual Method

The following quote is from Wikipedia:

“The US Securities and Exchange Commission requires that all

publicly traded companies follow GAAP, thus all publicly
traded companies publish their financial statements using
accrual-based method.”

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Accrual - Objective

The objective of accrual basis accounting (recognizing revenues

when earned rather than when cash is received, and recognizing
expenses when incurred rather than paid) is the measurement of
income.

Accrued expenses are items of expense that have been incurred

during the period, but have not yet been recorded or paid. To be
recorded as an expense the amount must be measurable with
sufficient certainty (i.e. product/service was received and the dollar
amount of expense for the product/service is determinable).

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Two Types of Accounting in my words

• Accrual – record revenue and expenses in the period that they

occurred. For example, record the expense for a consultant in the
month that the consultant worked.

• Cash – record revenue and expenses when cash is exchanged. For

example, when using a consultant wait for the consulting companies
invoice to be received and paid before recording the expense.

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Wikipedia Definition of Accrual vs. Cash
Accrual-basis accounting records financial events based on events that
change your net worth (the amount owed to you minus the amount you owe
others). Standard practice is to record and recognize revenues in the period in
which they incur and to match them with related expenses in a process known
as matching or expense matching. Even though cash is not received or paid in a
credit transaction, they are recorded because they are consequential in the future
income and cash flow of the company. Accrual-basis is GAAP compliant.

Cash-basis accounting is a method of bookkeeping that records financial

events based on cash flows and cash position. Revenue is recognized when cash
is received and expense is recognized when cash is paid. In cash-basis
accounting, revenues and expenses are also called cash receipts and cash
payments

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Issues before Accruals Implemented at Hewitt

• Expenses high in the first period of fiscal year because prior fiscal
year expenses were recorded late.

• Budget not met because expenses recognized in a later accounting

period.

• Invoices were processed late because of the decentralization of

receiving invoices in the field and lack of imaging.

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A different view

Accruals is a way to create accounting entries when they actually

cannot be created through normal procurement processes (ie, even
before booking an expense) . Or Accruals is a way to create
accounting entries when it is too early to generate accounting entries
in vchr_acctg_line table.

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Accrual Types at Hewitt – See Lotus Notes Doc

• Receipt Accruals
— PS delivered
— Custom
• Vendor Accruals (invoice image)
• Manual Accruals
• Revenue Reclassification
• Expense Report Airline Tickets

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1) Receipt Accruals

Suppose you received 20,000 USD in materials in a month, but were

billed for only 5,000 USD. The Receipt Accrual process ensures that
your expense accounts reflect the remaining 15,000 USD in
upcoming debits.

This helps reduce the impact of unexpected debits to your expense

accounts. Without Receipt Accrual, this 15,000 USD is hidden until
the debits bill and post to your expense accounts.

Receipt accruals are handled by the following processes.

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Receipt Accruals Cntd ..

• PS delivered process - is an AppEngine named PO_RECVACCR

(FNPORA02-FNPORA03) runs to create an accrual for receipts that exist without
a voucher or with a voucher but not fully matched. This populates
accounting entries both the accrual as well as its offsetting entry in
RECV_LN_ACCTG table (Not H_RECV_LN_ACCTG table). This
usually has project information and when project information exists, it is
sent to project costing (proj_resource).

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Receipt Accruals cntd ..

If project information doesn’t exist the job FNAPPC04 (hpopcac1.sqr

– joins RECV_LN_DISTRIB and RECV_LN_ACCTG) and will bring
the data to proj_resource.

PS. Runs on 3rd business day. Can be run manually also. This job is not seen in the current active schedule

b) A custom program runs to modify the recurring services. These

are the receipts that are setup with a quantity of monthly, quarterly,
yearly, semi-annually or weekly. All the receipts are entered up-
front. The custom program adjust the quantity to match how many
receipts should have been processed.

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The custom programs - Receipt Accrual

FNPORA01 (hpoacc02.sqr) - This program has to be kicked off

before running the receipt accrual process. Interface is developed to
calculate, update the correct receipt accrual quantity for PO line
items distributed by amount.

FNPORA04 (hpoacc01.sqr) - This program has to be kicked off

immediately after running the receipt accrual process. Interface is
developed to calculate, update and report the correct receipt accrual
for Unit of Measurements equal to Month, Quarterly, Yearly, Semi
Annually and Weekly.
These Receipt accrual job stream (FNPORA01-FNPORA04) runs on 10 business days before LBD, 3
business days before LBD and also on LBD.

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2) Manual Accruals

There are two scenarios in which we need to do Manual Accruals.

c) If the invoice has not been received prior to month-end processing.

d) If a PO doesn't have a Req-id or Contract (say a non-regular
vendor provided some service like training), the invoice has to be
accrued manually.
There is also a data entry page for AP to enter manual accrual journal
entries. The accounting entries are stored in ps_h_man_ln_acctg
table. There was a new custom interface (starts with the process
hapmanac.sqr) built as part of the CP project to interface manual
accruals to project costing (ps_proj_resource). This
interface/process sequence (hmanacst.sqr & hmanacld.sqr
manually run by users (on 1st, 2nd & 3rd Business days)

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3) Vendor Accruals

This is based on the invoices that have been imaged but not created
into vouchers and not accrued by the receipt accrual process. The
accounting entries are stored in the ps_h_exp_ln_acctg table.
There was a new custom interface (hapvenac.sqr, run by users manually
on 3rd Business day) built as part of the CP project to interface project
data from the vendor accruals distribution table to proj_resource.
Run on day - 1. Takes one AP FTE's a half day to complete ??.

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Accruals Cntd ….

4) Revenue reclassifications
Revenue re-classification accounting entries were created from
receipt, vendor and manual accruals. The accrual job hexpac03.sqr
populates data into ps_h_acc_634500 table. This nightly month-end
job runs on the second business day of the month. There was a
new custom interface (hap634500) built as part of the CP project to
interface revenue re-class projects to proj_resource.
5) Expense Report and Airline Ticket Accruals
Submitted and Approved expense that have not been sent to
accounts payable. The data is in Lotus Notes. The airline tickets
includes travel that has occurred but the airline ticket is not on an
expense report.

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The accrual tables

The accrual entries are created in different ln_acctg tables

depending on the type of accrual (Manual, Vendor, Receipt).

Manual = h_man_ln_acctg
Vendor = h_exp_ln_acctg
Receipt = recv_ln_acctg

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Reversals: Here you go ……

There are mainly 3 processes that creates accrual reversals in

ps_proj_resource

HAPMANAC --> For manual Accrual reversals (hapmanac.sqr -

Custom program to load data from ps_h_man_ln_acctg to
proj_resource as accrual and its reversal (ARV) entry for the next
period with a new accounting date and by negating the transaction
amount values...
HAPVENAC --> For vendor accrual reversals (hapvenac.sqr -
Custom program to load data from ps_h_exp_ln_acctg to
proj_resource as accrual and its reversal (ARV) entry).

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Reversals Cntd ….

HAP63450 --> For Receipt/Manual and Vendor accrual reversals

(hap63450.sqr - Custom program to load data from
ps_h_acc_634500 to proj_resource as accrual and its reversal
(ARV) entry).
All these 3 jobs are run manually by users on 3rd Business day.

HPOPCAC1 --> For receipt accrual reversals (Sqr will upload

Receipt Accrual rows of the previous period from the Procurement
Sub System (RECV_LN_ACCTG/DISTRIB) into the
PROJ_RESOURCE table of the Project Costing Sub System.
Offsetting reversal entries (ARV) will be created for rows that were
inserted by the previous run (n-1) of this process.
PS. This job (FNAPPC04 -Runs on 3rd bus day run either by manually or from batch stream) is not seen in the current active
schedule.

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Accruals and Distribution tables

Do accrual reversals exist in distribution tables?

No, There are only offsetting entries with -ive amount values
(created in the following distribution tables)

PS_H_MAN_ACC_STG staged by hmanacst.sqr. The credit offset

entries are created later by HEXPAC03 (Run by users manually on 3rd
business day, The job name is FNAPAC04)

PS_H_MAN_LN_ACCTG - Populated by hmanacld.sqr that also

creates Manual Accrual rows (debit) for data in the above staging
table

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Accruals & Distrib Cntd …

PS_H_EXP_LN_ACCTG - Populated by hexpac01.sqr/hexpac11.sqr

that creates double sided (DST for Credit and ACC for Debit
entries) Expense Accrual rows for data in the imaging workbaskets
(H_INVC_IMAGE table). Runs on LBD, job names FNAPAC01 (U.S) & FNAPAC11
(Canada).

PS_RECV_LN_ACCTG - An AppEngine named PO_RECVACCR

(Jobs FNPORA02-FNPORA03, Runs on LBD-10, LBD-3, LBD) that creates both the accrual
as well as its reversal entry in RECV_LN_ACCTG table (Not
H_RECV_LN_ACCTG).

Entries are added into PS_H_ACC_634500 table from the above

tables for journal generator to create accounting entries.

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The HEXPAC03

The SQR HEXPAC03 (job FNAPAC04) creates

a) Create credit offset entries for manual accrual rows in the

PS_H_MAN_LN_ACCTG table (debit entries were already created
by the load process - hmanacld.sqr).

b) Inserts account 634500 rows (both Cr & Dr rows) from

PS_H_EXP_LN_ACCTG, PS_H_MAN_LN_ACCTG &
PS_RECV_LN_ACCTG tables into PS_H_ACC_634500 table for
journal generator to create accounting entries.

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Issues with Accruals

• Invoices without an order number can not be accrued automatically

with vendor accruals. Need the PO or vendor contract number to
link in the accounting information.
• Business Analyst required to make manual accruals
— knowledge of the business
— communication with people in the business
— good estimates
• Associates not creating a requisition delays the accruals and
payment.
• Hourly contractor accruals are manual and inconsistent. A best
practice is to setup contractors on HA time card and use this
data to create an accrual. This is not always followed.

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 Conclusion
Generally for all Accruals (Manual, Vendor and Receipt) the
offsetting rows/entries are created by the same instances of the same programs which
inserts the accounting entry but with a different accounting_dt (next month's beginning
date) and amt ( = amount * -1), except in the following cases

a) For accruals loaded by hmanacld.sqr, the credit offset entries are created
later in PS_H_MAN_LN_ACCTG table by HEXPAC03 (now seen as online process – can
be run online as well, process name FNAPAC04 runs on 3rd business day ).

b) Process FNAPPC04 (SQR name - HPOPCAC1 Runs on 3rd bus day either
manual or stream) will upload Receipt Accrual rows of the previous period from the
Procurement Subsystem (obtained by joining PS_RECV_LN_DISTRIB and
PS_RECV_LN_ACCTG) into the PROJ_RESOURCE table of the Project Costing Sub-
system (with DESCR as 'PO RECEIPT ACCRUAL', and System source = 'APO').
Offsetting reversal entries will be created for rows that were inserted by the previous
run(n-1) of this process.)

Job Stream

FNAPAC04 --> FNAPAC05 --> FNAPPC04

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Summary - Accruals

(no voucher/invoice yet) no invoice or invoiced non-regular vendor

(i.e., PO doesn't have a Req-id or Cntrct)

Receipt Manual and/or

Imaged Invoice but not originally
receipt accrued

Vendor Accruals

The accrual data is processed from staging tables to

corresponding XXXXX_LN_ACCTG tables and then processed in
to
a) Project costing (through PS_PROJ_RESOURCE table after
directing reclassification entries to H_ACC_634500 table)
b) GL tables

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APPENDIX

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Vendor Accrual process flow

1) Imaging sends daily dump of invoices to the UNIX box. One file is
created for US (appo_new.txt ) and another for Canada
(canimage.txt ).

2 ) Two SQRs run to pull each file into People soft:

 h_apimag.sqr ==> pulls imaging file 'appo_new.txt' into people soft

table PS_H_INVC_IMAGE.
 h_apimgc.sqr ==> pulls imaging file 'canimage.txt' into people soft
table PS_H_CAN_INV_IMAGE.

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VA process flow – cntd…
3) On the Last Business Day of the month, the Vendor Accrual batch
schedule kicks off the following batch stream:

• FNAPAC01 -> kicks off hexpac01.sqr (Vendor Accrual Exception Report US)
• FNAPAC02 -> kicks off hexpac02.sqr (Vendor Accrual Report US)
• FNAPAC03 -> kicks off hexpac05.sqr (Excel Report by Workbasket)
• FNAPAC11 -> kicks off hexpac11.sqr (Vendor Accrual Exception Rpt CAN)
• FNAPAC12 -> kicks off hexpac12.sqr (Vendor Accrual Report CAN)
• FNAPAC13 -> kicks off hexpac05.sqr (Excel Report by Workbasket).

4) Create Excel spreadsheet and mail to defined mailbox.

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Imaging & Invoice flow

PeopleSoft Tables: h_invc_image and h_can_inv_image

Functional purpose: Used as an interface into the vendor accrual
process. Data is also for auditing.

Load Type: Full load

Frequency: M-F 7:00pm

Contacts: AP – Kathie DeMay, Diane Schwahn

PO – Ken Kohler, Kate Thilges
Imaging Team - Penny Wetherall

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 REQMAPPO REQMAPOC
Imaging Data Pull Imaging Data Pull
Cntd… (USA) (Canada)

Imaging & Invoice

FINAPPO.P.IMAGEDB.EXT
FINAPPO.P.CANADA.
IMAGDB.EXT

FNAPIMAG FNAPIMGC
Send Data to Unix Send Data to Unix
Mainframe

Unix

appo_new.txt canimage.txt

FNPOIR02
FNPOIR01
h_apimgc.sqr
h_apimag.sqr
(load table)
(load table)

ps_h_can_inv_image
ps_h_invc_image

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Customization done for Manual accruals
Process
potentially could
be automated to
File saved/moved to batchdata run monthly
directory Process to load
Excel Staging record in
Save XLS file
Template for PeopleSoft
to CSV file
Accruals

PeopleSoft

Accrual Staging Record Custom page

(Clone of Existing to edit
H_MAN_LN_ACCTG) exceptions /
load errors

Process ran after

all load errors are
corrected Process to load
Manual Accrual
records

Manual Accrual Records

(H_MAN_HDR,
H_MAN_LN_ACCTG)

Existing Accrual
processes
continue
uneffected

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