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 Function documentation Accrual/Deferral of Expenses and Revenues 

Use

You can use this function to reflect expenses and revenues, from financial transactions or positions in the Transaction Manager, correctly in the balance sheet. They have to be assigned to the correct accounting period, irrespective of when they are due for payment or received.

Integration

  Accruals and deferrals are prerequisites for period-end closing in Financial Accounting.

  You require the following authorizations to execute this function:

Authorization Object

Activities

T_DEAL_PD (Product/transaction type authorization)

Activity 16 (execute) and 85 (reverse)

T_DEAL_PF (Portfolio authorization)

Activity 16 (execute) and 85 (reverse)

T_DEAL_DP (Securities account authorization)

Activity 16 (execute) and 85 (reverse)

T_DEAL_AG (Authorization group for customer-specific authorization checks)

Activity 16 (execute) and 85 (reverse)

F_T_TRANSB

Checks authorization for transactions TPM44 and TPM45

Prerequisites

  You can use the following IMG activities in Customizing for the Transaction Manager by choosing General Settings Accounting Accrual/Deferral Update Types.

  Define Update Types and Assign Usages

You need to specify the update types required to execute accrual/deferral and assign them to the usage Accrual/Deferral.

  Assign Update Types for Accrual/Deferral

In this activity you define which revenue flows can be accrued for which positions or transactions and how (accrual/deferral procedure or method).

Only update types for interest, accrued interest, fees, and any other profit-related flow with the following attributes can be accrued/deferred:

  Term from

  Term to

  Maturity

  Amount

  Days calculation method (in the case of interest payments, this can be derived from the interest calculation method.)

Block

You can specify whether to set a posting block for the accrual/deferral.

If you want to set a block, you can still decide whether the system displays a warning message or an error message if a conflict occurs. A conflict involves a position that has already been accrued or deferred and the resulting accrual/deferral needs to be adjusted.

If you choose to set a block and display an error message, you can only carry out the activity after reversing the accrual/deferral.

Otherwise, you can simply execute the activity. The next position accrual/deferral is then adjusted.

Grouping

As part of the difference procedure, you can jointly accrue/defer flows with different update types for a position or financial transaction. You can do this by making the same entry in the Grouping field for update types that are to be accrued/deferred together.

However, you must make sure that update types to be jointly accrued/deferred have the same type of revenue, the same flow direction, and the same currency. Flows with different currencies are always accrued/deferred separately.

Joint Accrual/Deferral of Flows (Difference Procedure)

  Assign Other Update Types for Difference Procedure

You require this IMG activity in particular situations:

  If you have used the Legacy Data Transfer to transfer accruals/deferrals for positions according to the difference procedure, you need to make sure that the accrual/deferral function recognizes the accrual/deferral flows. This way, the ‘old’ accruals/deferrals are taken into account with future accruals/deferrals.

  If you want to take into account accrued interest as part of accrual/deferral according to the difference procedure.

  In Customizing for the Transaction Manager, you need to indicate update types as being relevant for posting and define settings for account determination. To do this, choose General Settings Accounting Link to Other Accounting Components.

Note

You can use the Customizing settings delivered as a guide.

Note

You can migrate your Customizing settings if you have used the Transaction Manager in previous releases and have already made accruals/deferrals for OTC transactions using transaction TBB4. To do this, use the migration step OTC: Convert Customizing for Accrual/Deferral in the conversion programs in Customizing for the Transaction Manager by choosing General Settings Tools Conversion Programs.

Accruals/deferrals for OTC transactions that you executed with transaction TBB4 in an earlier release must first be migrated. To do this, the conversion program contains the migration step OTC: Convert Accruals/Deferrals. In Customizing for the Transaction Manager, choose General Settings Tools Conversion.

The migration steps are documented in the system. Choose This graphic is explained in the accompanying textHelp (Information on the Migration Step).

See also:

For more information, see the Implementation Guide (IMG) for the activities named above.

Features

  The function can be used with securities positions, positions from listed options and futures, and with OTC transactions.

  The system supports the following accrual/deferral procedures:

  Reset procedure

In the reset procedure, the profit-based flows are posted as affecting net income. Income is adjusted during accrual/deferral and the amount not yet affecting net income is posted as a liability or asset. The amounts (for Accruals and Deferrals) are determined and posted on a key date before being cleared (reset). If a profit and loss statement is output in the meantime, it will contain the profit/loss that occurred during the calculation period.

  Difference procedure

In the case of the difference method, the profit-based flow is posted to an asset or liability item on the due date without affecting net income. These items are then accrued/deferred gradually, affecting net income by degrees.

Discounts and premiums are accrued/deferred using the difference procedure. They are generally posted directly to the accrual accounts. The item is then written off proportionally and posted to revenues/expenses using the accrual/deferral function. The accrual/deferral amount is based on the period between the last accrual/deferral run and the key date of the current accrual. In this case, there is no reset posting.

Unscheduled writebacks as a result of unscheduled repayments or partial sales are disclosed separately.

Note:

If the payment date (due date) for a profit-related flow is in the middle of the calculation period, then it is at this time that the accrual becomes deferred. Consequently:

  If the accrual/deferral key date is before the payment/due date, the flow is accrued.

  If the accrual/deferral key date is after the payment/due date, the flow is deferred.

The reset procedure meets this requirement. In Customizing you can assign update types for accrual/deferral (see Assign Update Types for Accrual/Deferral) as well as for the reset function.

A profit-related flow cannot be accrued/deferred according to the difference procedure. In Customizing under Assign Update Types for Accrual/Deferral, you can therefore only assign an update type in accordance with the difference procedure.

  The following accrual/deferral methods are available to calculate the amounts to be accrued/deferred:

  Linear

Accrual/deferral amount = Total amount x days* / total number of days*

  Pro Rata Temp.

The accrual/deferral amount is calculated according to the formula used to calculate the interest flow to be accrued/deferred. The calculation is either on a linear or exponential basis. The number of interest days is calculated on the basis of the calculated from date and the accrual/deferral key date.

  Complete

The income amount is accrued/deferred in its entirety, regardless of the key date. This function is required, for example, to accrue/defer dividends in accordance with US GAAP.

  Pro Rata with Linear Discounting

The amount is first accrued/deferred over the calculation period and then discounted. This method can only be used as part of the reset procedure for Commercial Paper.

The accrual/deferral amount is calculated in two steps according to the methodPro Rata with Linear Discounting:

...

  In step 1, the amount in time A is calculated first according to the Pro Rata method.

  In step 2, amount A is discounted as follows:

Amount to be accrued/deferred =

 

  A

-------------------------------------

1  +   (T - D) * I

   --------------

   T * 100

 

whereby:

D = Days *

T = Total number of days *

I = Interest rate of the flow

* The days calculation method defined for the position or the flow to be accrued/deferred is used to determine the days / total number of days. The days calculation method is derived from the interest calculation method.

  Profits/losses incurred up to the key date are determined according to the accrual/deferral method for each profit-related flow.

Calculating the Accrual/Deferral Amount in Position Currency:

The amount in time is first calculated and used as a basis to calculate the amount to be accrued/deferred.

Overview: Amount in Time and the Accrual/Deferral Amount

This graphic is explained in the accompanying text

...

  a.  Reset procedure

In this procedure, the amount in time is determined (according to the selected accrual/deferral method) for the flow to be accrued/deferred. The resulting accrual/deferral amount depends on whether the item is an accrual or deferral. In the case of accruals, the amount in time corresponds to the accrual amount. In the case of a deferral, the deferral amount is the amount in time subtracted from the total amount of the flow.

This accrual method takes accrued interest in netting accounts into consideration if you have set the relevant indicator in Customizing under Assign Update Types for Accruals (Securities). See also: Netting Accrued Interest (Reset Procedure)

  b.  Difference procedure

In this procedure, the amount in time is determined (according to the selected accrual/deferral method) for the flow to be accrued/deferred. This is compared with the total amounts calculated for all previous accruals/deferrals. This accrual/deferral amount is the difference resulting from both amounts.

If the accrual/deferral amount is negative, the system generates an adjustment flow (update type Offsetting Flows for Accrual/Deferral). If you do not want the adjustment flow to be posted, you need to indicate the corresponding update type as not relevant for posting. (This portrays the behavior of the ’old’ accrual/deferral function for OTC transactions (TBB4))

Converting the Accrual/Deferral Amount into Valuation Currency:

The amount in time and the accrual/deferral amount are first calculated in position currency. If the position currency is different to the valuation currency, the amounts are converted into the valuation currency.

A) If you have selected the Default setting in the field Accrual/Deferral: Exchange Rate Category in Customizing by choosing Assign Update Types for Accrual/Deferral, the following rates are used:

  Accrual

This is translated using the market rate.

Exception: If the flow to be accrued'/deferred has already been posted with the difference procedure, the system uses the rate resulting from the amounts of the flow to be accrued/deferred.*

  Deferral

The system uses the rate that is derived from the amounts of the flow to be accrued/deferred.

*The difference procedure is as follows:

...

  a.  The amount in time in position currency is translated into the valuation currency using the rate resulting from the amounts of the flows to be accrued/deferred. Previous accruals/deferrals are then subtracted to give the amount to be accrued/deferred in valuation currency.

  b.  The accrual/deferral amount in position currency is then translated using the current market exchange rate. This amount is then posted as an accrual/deferral.

  c.  To obtain the total amount relevant for accrual/deferral in the valuation currency, the system generates a corresponding write-up or write-down flow.

Example:

A profit-related flow in foreign currency is posted at the exchange rate 1.2000 on 01/02 (USD 100 / EUR 120).

Accrual/deferral occurs at a later date (12/31). On the accrual/deferral key date, the exchange rate is 1.0000. The system generates the following flows:

  Accrual/deferral flow USD 100 / EUR 100

  Adjustment flow (write-down) USD 0 / EUR 20

B) If you have selected the Market Rate setting in the field Accrual/Deferral: Exchange Rate Category in Customizing by choosing Assign Update Types for Accrual/Deferral, the system always uses the market rate.

The difference procedure is as follows when you translate into the valuation currency:

...

  a.  The amount in time is translated into the valuation currency using the current market rate. Previous accruals/deferrals are then subtracted to give the amount to be accrued/deferred in valuation currency.

  b.  The accrual/deferral amount in position currency is then translated using the current market exchange rate. This amount is then posted as an accrual/deferral.

  c.  To obtain the total amount relevant for accrual/deferral in the valuation currency, the system generates a corresponding write-up or write-down flow.

The difference procedure may produce inconsistencies in the accruals/deferrals accounts or the payables and receivables accounts.

  In the case of a swap with variable interest rate:

  The interest rate is estimated by the Market Risk Analyzer.

  The data used for calculation is stored in a log.

  The accruals/deferrals can be executed according to valuation area.

  For each selected position/transaction and for a given key date, the system determines the profit-related flows for which accruals or deferrals need to be created. This means all flows intended for accrual/deferral and for which the accrual/deferral key date is within the flow calculation period.

  An accrual/deferral flow, which controls updating to Financial Accounting, is generated depending on the accrual/deferral procedure and the type of profit-related flow.

  The accrual/deferral flows can be posted directly to Financial Accounting. If you select the setting do not post immediately, you need to post the accrual/deferral at a later stage using the function Fix, Post, Reverse Business Transactions [transaction TPM10].

The default setting indicates that the flows should be posted immediately. The setting do not post immediately is intended for exceptional situations, such as the posting period not being open in Financial Accounting.

  You can carry out a test run.

  If you need to reverse the accrual/deferral run, you can use the Reverse Accrual/Deferral function.

Activities

Choose Transaction Manager Accounting Accrual/Deferral Execute Accrual/Deferral or Reverse Accrual/Deferral.

 

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