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25 December 2012

Reconcile the Oracle EAM and Payroll to avoid duplicate entries in GL

Oracle EAM is not designed to automatically reconcile with payroll entries. Customer needs to setup the accounts used in resource absorption account (resource definition form) and WIP valuation account for resource (WIP Accounting class) appropriately to achieve the desired results. 
A recommendation that we provide to the customer base independent of the topic being discussed here is that the WIP valuation account and WIP variance account in the WIP Accounting class be set the same. In the context of these possibilities/recommendation, please see the below 3 cases

Case-1 :
If the resource absorption accounts are set the same WIP valuation accounts for resource cost element, then debit and credit will be to the same account and there is no net value posted in GL due to resource charging in eAM. However the cost of resources required /actually used in a eAM work order will be displayed as cost views in Estimated cost view and Actual Cost view. In this approach, you are accounting all payroll related expense through the Payroll module only and eAM just provides a view of the resource costs expended on the work order.

Case-2 :
If the resource absorption account is set the same as the payroll debit side account, then this has the net effect of consuming the payroll expense when maintenance expense is incurred due to utilization of the maintenance resources. So your financial statements would then reflect payroll expenses to the extent of non-maintenance related resources(people) and the maintenance expenses bucket would show all maintenance costs – both items used and resources used.

Case-3:
A third practice that customers employ is to have 3 separate accounts involved in the resource transaction process:


WIP Valuation (maintenance expense) - This account collects the resource cost at the current standard labor rate, the Debit entry for a resource transaction.
Resource Absorption (this is a clearing account) - This account collects the Credit side of the resource transaction.
Payroll (payroll expense) - This account collects actual payroll expense.

On a monthly basis, customers reconcile (compare) the Resource Absorption and Payroll accounts. The account is "cleared" by debiting or crediting the difference to Maintenance Expense account so that maintenance resource expense matches maintenance payroll expense. Of course, the financial statements are defined so that only one of the expense accounts is on the income statement and other reports (to avoid double counting of expenses). Also, the standard cost for resources is periodically adjusted. All of this is common practice for cost accounting.

Also, WIP Valuation and WIP Variance accounts should be set up with the same account code. This is the recommended practice employed by virtually all eAM users. Note that this is different from the normal practice for setting up Discrete Manufacturing. The only reason that the variance accounts appear on the Form for eAM is that we share the Form with Discrete Manufacturing.

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