The cloud enterprise structure consists of five critical components
An enterprise is an umbrella organization that consists of a set of legal entities under it. As a best practice, a single enterprise organization is created per cloud instance.
2. Legal entities
A legal entity is any company or organization that is legally recognized and can own, trade assets, and employ people. The legal entities are configured based on the legal and statutory requirements in the jurisdiction in which the organization is registered; for example, in the European Union, a company can be registered in one EU member country and do business in all member countries.
A ledger is a bookkeeping entity that records all accounting transactions for the legal entities under it. The following types of ledgers can be defined in Oracle Cloud ERP:
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Primary ledger: This is the main record-keeping ledger. It is created with a standardized model chart of accounts (COA), calendar, and accounting methods of the global enterprise. However, the currency varies based on the local country of operations.
Secondary ledger: The secondary ledger is an optional setup linked to a primary ledger to track alternative accounting. A secondary ledger can differ from its primary ledger in its COA, calendar, currency, accounting method, or processing options. Organizations typically configure a secondary ledger when a local division of an organization in a country:
- Follows a different COA (China, France, Mexico), calendar (India, Brazil), accounting methods (France), or processing rules dependent on industry/government regulation
- Needs to consistently pass adjustment journal entries to comply with local regulations or accounting practices
Reporting ledger: The reporting ledger is another optional setup, which is an additional currency representation of a primary ledger. Reporting currencies are used if organizations only need to maintain an accounting representation that differs in currency alone.
Best practices in ledger design
- Organizations ideally should have different primary ledgers for every country/industry in which they operate. Ease of operations, currency considerations, business needs, segregation of duties, and local/legal requirements make this design a best practice.
- The currency of the primary ledger can vary depending on the country, with reporting ledgers used for corporate reporting. This enables standard accounting representation, ease of consolidation, and common baselines for management/statutory reporting.
- As much as possible, organizations should have a global standardized COA, calendar, and account rules for all primary ledgers across the organization.
- A secondary ledger should be used for local/legal reporting needs. It is not advisable to pass entries or make adjustments in the primary ledger for local reporting purposes (unless they are minimal).
- The focus should be on optimizing the number of ledgers. The effort and complexity of maintenance, intercompany accounting, reporting, and consolidation increase with the number of ledgers used
How to Design Modern Enterprises in Oracle Cloud