Step 2. Usage Based Rent Allocation
The next step is to define the further allocations from the account (7420) to allocate all IT costs, including the allocated rent amount from the above allocation, to other departments based on the space usage.
To achieve this, we need to first enter the statistical journal to record the space used by each department where the costs need to be allocated.
Enter Statistical Journal on usage
Define mass Allocation Formula to allocate the total IT costs under account 7420 to three departments 210, 220 and 230.
• Line A: It refers to the account/amount which is to be allocated. In our example, we have taken account instead of amount.
• Line B & C refers to the ratio used for redistributing the amount to all depts. (Area occupied by one Child Department /Total area occupied by all child departments)
• Looping is attached to the parent department i.e. ‘200’ to include all child departments assigned to it.
• All other segments are constant.
• In C line ‘S’ (Summing) is attached again to parent segment to calculate the total area occupied by all child depts. assigned to that parent dept.
• Line ‘T’ refers to the target account in which the allocated Depreciation amount will go. In our example the IT cost from cost center will go to the IT account of respective depts. which will be the target account. Again ‘L’ Looping is attached to the parent segment to include all child segments assigned to it.
• Line ‘O’ refers to offset account which is generally same as ‘A’ Line. It is offsetting the IT amount accounted in 110 (Cost Center) because now the amount will move from this account to respective department’s account.
• In Line B & C, in currency Type column, Statistical is selected to include statistical amount since the amount is to be allocated based on floor area occupied.
Save it and close the form
Select ‘Validate All’ to validate the batch. General Ledger submits a concurrent request to validate the batch.
Auto Allocation Set – Step Down
Now assign the above rules defined in auto allocation set and indicate if it is step-down or Parallel allocation.
In our example, it is step down allocation. Select the first allocation rule to be executed. In this case it is fixed percentage allocation and then the next sequence i.e. Usage based allocation.
Below are the pre- Allocation Balances in the below accounts:
Submit AutoAllocation Set to generate the allocation journals. You can also schedule it to run periodically.
On submission AutoAllocation launcher following sub-processes for each allocation in the step.
Since this type of allocation also auto posts the allocation journal so you will see the posting program launched for each rule.
Let’s look at the allocation journals generated by the above programs.
Fixed Percentage Allocation: This is the first allocation rule in the allocation set. This allocates the rent amount based on fixed percentage. It generates three journals for each of the accounts where amount needs to be allocated.
The allocation transfers $5000 to account 7405 (10000 x 50%)
The allocation transfers $3000 to account 7650 (10000 x 30%)
The allocation transfers $2000 to account 7420 (10000 x 20%)
The next allocation is Usage Based Allocation. Since this step-down allocation, the pool account 7420 allocated the total amount, including the rent allocation ($8000 + $2000) to departments 210, 220 and 230, in the ratio of their usage.
The next type of advance journal entry is recurring journal. Define recurring journals for journals that repeat every accounting period, such as accruals, allocation charges. There are three major type of recurring journals:
Here is the process flow of how recurring journal works:
To define a recurring journal formula entry, you must create a recurring journal formula batch. Your batch can contain a single recurring journal entry definition, or you can group related recurring journals into the same batch.
You can create two types of recurring journal formula batches as follows:
• Single Ledger Recurring Journal Formula Batch: Single ledger batches affect only one ledger in the batch.
• Multiple Ledger Recurring Journal Formula Batch: Multiple ledger batches can affect multiple ledgers in the batch. You can define recurring journal formulas across ledgers.
You can create recurring journal formula batches that include ledgers that have the same chart of accounts, calendar, and period type as the data access set of your current responsibility. When you generate the recurring journal formula batches, you must have read or read and write access to the ledger and balancing segment value or management segment value to generate recurring journals.
Formula Recurring Journal – Example
Let’s taken example to define the formula based recurring journal. In this example, we would like to create the reserve for bonus every month based on 15% of the revenue.
Enter a Name and optional Description for the recurring journal batch.
Create recurring journal entries for the batch.
Enter the debit line for the Bonus expense account. In the Formula, enter the percentage and the account basis for the calculation. In this case it is the revenue account instead of amount.
Enter the offset line and denote it as Line ‘9999’. In this case it is bonus accrual account.
Save the journal and close it.
Submit the recurring journal batch. Below is the journal generated based on the formula defined:
Skeleton Recurring Journal – Example
In the skeleton type journal, just enter the line number and account. System will generate the journal with blank amount.
You can now enter the amounts in debit and credit columns and complete the journal.
Standard Recurring Journal – Example
In this example, enter the journal lines with debit and credit amount.
The negative amount will indicate the credit line.
Below is the journal generated:
Mass Allocations vs Recurring Journals
In mass allocations, a single formula can perform multiple allocations across the ledgers. By including parent values in allocation formulas, you can allocate to the child values referenced by the parent without having to enumerate each child separately.
Recurring journal has one formula per line. Your formulas can be simple or complex. Each formula can use fixed amounts and/or account balances, including standard, end-of-day, or average balances, actual or budget amounts, statistics, and period-to-date or year-to-date balances from the current period, prior period, or same period last year.
Below is the summary of using mass allocations vs recurring journals: