Application Rule Sets in Oracle Receivables

Application Rule Sets in Oracle Receivables

Application Rule Sets determine how Receivables reduces the balance due for a transaction's line, tax, freight, and late charges.

The following are types of Application Rule Sets in Receivables:

Line First - Tax After: Apply to the open line item amount first. Apply any remaining amount in the following order: tax, freight, and then late charges.

This rule set first applies the payment to the open line amount, and then applies the remaining amount to the associated tax. If the payment is greater than the sum of the line and tax, Receivables attempts to close each open item by applying the remaining amount in the following order, stopping when the payment has been fully applied:

1. Freight
2. Late charges

Any remaining receipt amount is applied using the Overapplication Rule. This is the default application rule set in the System Options window.

Line and Tax Prorate: Apply a proportionate amount to the open line item amount and the open tax amount for each line. Apply any remaining amount to freight and then to late charges.

This rule set applies a proportionate amount of the payment to the open line and tax amount for each line. If the payment is greater than the sum of the open line and tax amounts, Receivables attempts to close each open item by applying the remaining amount in the following order, stopping when the payment has been fully applied:

1.      Freight

2.      Late charges

Any remaining receipt amount is applied using the Overapplication Rule.

Prorate All: Apply a proportionate amount to the line, tax, freight, and late charges.

This rule set applies a proportionate amount of the payment to each open amount associated with a debit item (for example, any line, tax, freight, and late charge amounts for this item).
Receivables uses the following formula to determine the applied amount:
Applied Amount = open application line type amount / sum of application line types in rule details * Receipt Amount
Any remaining receipt amount is applied using the Overapplication Rule.

Overapplication Rule

Each application rule set includes an Overapplication Rule by default. This rule applies any remaining receipt amount after the balance due for all charges has been reduced to zero. If the transaction type for the debit item has the Allow Overapplication check box set to Yes, Receivables applies the remaining amount to the lines, making the balance due negative. If the item's transaction type has Allow Overapplication set to No, you can either place the remaining amount on-account or leave it 'Unapplied'.
When using AutoLockbox, Receivables uses your AutoCash Rule Set to determine how to apply the remaining amount.

Note: In an application rule set, each line type (line, freight, and tax) must appear once and only once.

Note: While defining Application Rule Set you cannot enter a sequence number for the Overapplication rule. By default, this rule is last in the sequence for each application rule set.

Attention: Receivables automatically assigns the Overapplication rule to each application rule set. You cannot delete this rule. The Overapplication rule applies any remaining amount after the balance due for each item has been reduced to zero. If the transaction type of the debit item allows overapplication, this rule prorates the remaining amount between each line and its associated tax amount, making these amounts negative. If the transaction type does not allow overapplication, you can either place the remaining amount on-account or leave it 'Unapplied'.

N: Setup>Receipts>Application Rule Sets

To define an application rule set:

1. Navigate to the Application Rule Sets window.
2. Enter a Name and Description for this rule set. 
3. Enter the Sequence number for this application rule. Receivables applies payments in this sequence, beginning with the lowest sequence number.

Note: You cannot enter a sequence number for the Overapplication rule. By default, this rule is last in the sequence for each application rule set. 

4. Enter an application Rule. Each rule will correspond to a line type (for example, lines, freight, or charges), so you should give your rule a descriptive name. Each rule set must have at least one application rule.

Attention: Receivables automatically assigns the Overapplication rule to each application rule set. You cannot delete this rule. The Overapplication rule applies any remaining amount after the balance due for each item has been reduced to zero. If the transaction type of the debit item allows overapplication, this rule prorates the remaining amount between each line and its associated tax amount, making these amounts negative. If the transaction type does not allow overapplication, you can either place the remaining amount on-account or leave it 'Unapplied'.

5. Enter Rule Details for this application rule. This section indicates the type of charges and the tax handling for this rule. Choose a Type of Line, Freight, or Charges. You need to enter at least one type for your rule set.

6. If you chose a Type of 'Line', choose a Tax Treatment. Choose one of the following:

Prorate: Choose this option to proportionately reduce the net amount of the line and associated tax amounts.

Before: Choose this option to first reduce the open tax amount, then apply any remaining amount to the line.

After: Choose this option to reduce the open line amount, then apply any remaining amount to the associated tax.

Note: The default Tax Treatment for your Freight and Charges types is None. This option ignores tax, since you cannot tax freight and charges in Receivables. You cannot choose None for your Line type.

7. To automatically adjust this line type to account for any rounding corrections within this rule set, check the Rounding Correction box. When an amount is prorated among several line types, Receivables must use one of the line types to account for the rounding adjustment. Each application rule set must have one and only one rounding correction line type.

Suggestion: Assign the Rounding Correction to the line type that is usually the largest portion of your invoices. By doing this, the rounding correction will have the least effect on the overall remaining and applied amounts for this line type.

8. Repeat the previous steps for each rule you want to add to this rule set.

9. When you are satisfied with this rule set definition, check the Freeze box. Receivables verifies that your application rule set is defined properly and that it does not violate any basic application guidelines. If this rule set fails validation, Receivables displays an error message. In this case, modify your rule set definition, then check the Freeze box again to revalidate it.

Attention: A rule set must be 'frozen' before you can assign it to a transaction type or use it as your default rule it in the System Options window. Additionally, after you freeze an application rule set, you cannot update or delete it.