Conversely, when you are allocating revenues or liabilities or equity, you “target” receiving centers (or products or other dimensions) in your credit specification and you offset the sources of those credit accounts in your debit specification. Generally, when you are allocating expenses or assets, you “target” receiving centers (or products or other dimensions) in your debit specification and you offset the sources of those debit accounts in your credit specification. Note that in both examples, you need to take care in how you construct the definition of your allocation debits and credits to obtain the desired results. In this second example, only revenue accounts (credit accounts) are being debited or credited because the allocation rule's Source was defined to focus on revenue accounts. Revenue Account 3 for Center 100: ($1,800) Revenue Account 2 for Center 100: ($1,500) Revenue Account 1 for Center 100: ($1,200) As a second example, imagine a similar allocation but for revenues booked to Cost Center 100 that you wish to distribute to Cost Centers 1, 2, and 3. In the example above, only expense accounts (debit accounts) are being debited or credited because the allocation rule's Source was defined to focus on expense accounts. Table 3: Debit-Credit EntriesĮxpense Account 1 for Center 100: ($1,200)Įxpense Account 2 for Center 100: ($1,500)Įxpense Account 3 for Center 100: ($1,800) The effect of this rule is to assign all of the expenses in Cost Center 100 to Cost Centers 1, 2, and 3 and to “relieve” (credit) Cost Center 100 by the same amount. In this example, only 3 GL accounts have been booked to Cost Center 100 (expense accounts 1, 2, and 3). The following example shows the result of an allocation rule that gathers expenses for all expense GL Accounts from Cost Center 100 (a total of $4,500 of expense), debits three destination centers (Cost Centers 1, 2, and 3), and credits Cost Center 100. In constructing allocation rules, however, you must take care to ensure (1) that the resulting debits and credits constitute a balanced transaction and (2) that your debits and credits match your business intent when you constructed the rule. A single allocation rule may generate dozens, hundreds, or even thousands of debits and credits. The Profitability Management allocation engine generates complex accounting transactions that have the effect of increasing or decreasing running balances for the accounts that are debited or credited. Profitability Management Allocation Engine Table 1: Standard Accounting Conventionsįor example, if you generate an accounting transaction for a new loan, your transaction would debit the appropriate asset GL account (a debit account) for the new loan thus increasing the running balance for the Loan GL account and would credit cash (also a debit account) thus reducing the running balance for the Cash GL account. Conversely, when you post a credit to a credit account, you increase the running balance for that credit account and when you post a debit to a credit account, you reduce the running balance for that credit account. Additionally, when you post a debit to a debit account, you increase the running balance for that debit account and when you post a credit to a debit account, you reduce the running balance for that debit account. Under standard double entry accounting rules, accounting transactions must contain balanced debits and credits. The following sections describes the debit credit conventions within the Management Ledger table. Appendix G: Debit and Credit Conventions 28 Appendix G: Debit and Credit Conventions
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