Allocating Amounts with Recurring Journals and MassAllocations

You can allocate amounts from any cost pool (revenues, expenses, assets, or liabilities) to various accounts using recurring journals and Mass Allocation formulas.

With a recurring journal entry formula, you define a separate journal entry for each allocation. You can group related allocation entries together in a recurring journal batch. Use recurring journal entries to perform simple or complex allocations. For example,
you can allocate a portion of your rent expense to another division, or, you can allocate a pool of marketing costs to several departments based on the ratio of department revenues to total revenues.
You define a separate recurring journal entry formula for each allocation, and you can group related allocation entries even if they are for different ledgers, together in a recurring journal batch. Each line of the recurring journal entry contains a target account, as well as the formula you want to use to calculate the allocation amount. Reserve the last line of each entry for the offsetting account. Enter line number 9999 and the offsetting account to have General Ledger automatically generate the offsetting amount. You do not need to enter a formula to calculate the offset.

With MassAllocations, you define one formula to generate allocation journal entries for a group of cost centers, departments, divisions, and so on. You define the allocation pool, the allocation formula, and the target and offset accounts for each MassAllocation formula. You can also group combine related MassAllocation formulas into batches.

Using recurring journal entry and MassAllocation formulas, you can perform a variety of allocations, including:

  • Net Allocations
  • Step–Down Allocations
  • Rate–Based Allocations
  • Usage–Based Allocations
  • Standard Costing Allocations

Creating Net Allocations
Net allocations are allocated amounts that reflect changes to the cost pool. Rather than reallocating the entire revised amount, a net allocation allocates only amounts that update the previous allocations. The net effect is the same as reversing the previous allocations and posting the entire new allocation amount. This enables you to rerun the allocations as many times as you want in the same accounting period without overallocating.
You can create net allocations by generating MassAllocation formulas in incremental mode.

Creating Step-Down Allocations
Step-down allocations distribute amounts from one allocation pool to a subsidiary allocation pool. For example, you might first allocate a portion of your facility costs to your MIS department, then allocate total MIS costs (including the allocated facility
costs) to other departments.
To create a step-down allocation, you must create a different recurring entry or MassAllocation formula batch for each allocation step. Each accounting period, generate and post the first allocation batch, then generate and post each subsequent allocation batch.

Creating Rate-Based Allocations
Rate-based allocations use current, historical or estimated rates to allocate costs such as employee benefits, commissions, bad debt, warranty costs and overhead. For example, you might want to allocate warranty costs to each division based on sales revenues and
a warranty loss rate. To create a rate-based allocation, define a recurring journal or MassAllocation formula using the statistical balance of the appropriate accounts to compute the rate. Alternately, you can enter a formula that uses a fixed rate to represent your best estimate of future costs. Each accounting period, adjust your estimated rate by revising the formula definition.

Creating Usage-Based Allocations
Usage-based allocations use statistics such as headcount, units sold, square footage, number of deliveries or computer time consumed to calculate allocation amounts. For example, you might want to allocate your rental expense based on square foot usage.
To create a usage-based allocation, define a recurring journal formula using the appropriate statistical account balance to compute the allocation amount. Each accounting period, adjust the statistical account balance to reflect the correct usage for the period before you generate the usage-based allocation formula.

Using Allocations for Standard Costing
You can use statistics such as sales units, production units, number of deliveries or customers served to perform standard costing. For example, you might want to calculate cost of sales based on sales units and a standard cost per unit. To perform this type of standard costing, define a recurring journal entry formula using the appropriate statistical account and a fixed amount for standard cost. Or, you can maintain the standard cost as a statistic in a different account. Each accounting period, adjust the statistical account balances before generating the recurring journal formula.

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