This chapter explains why a separate DBA system is required for each of your operating entities and how each system uses the financial transfer to update a central general ledger.
What is an operating entity?
If you have multiple production facilities, each such facility is a separate operating entity. In addition to production facilities, if you have a non-production remote warehouse with significant transit time, it is also considered to be an operating entity.
Each operating entity must have its own DBA system
Each operating entity must be furnished with its own DBA system, which requires separate product licenses. Each system will have its own database, its own users, and its own customers, suppliers, items, sales orders, jobs, and purchase orders.
Why must each operating entity have its own DBA system?
Each operating entity must have its own system because DBA has a single-entity architecture. MRP and shop control, which are inventory-driven processes, only work properly when used with a single factory where all inventory is locally available for immediate issuing, receiving, and picking. Shop rates, which drive absorption costing of labor and overhead, can only be calculated and applied properly within a single operating entity.
Separate systems provide much better control
Even if it were possible to manage multiple operating entities within a single system, it would not be desirable. It is much easier to manage an operating entity when it has its own system with its own users, items, BOMs, customers, suppliers, MRP, and shop control.
Each operating entity uses the financial transfer
Each operating entity uses the financial transfer to update your financial accounting system to reflect its activities. The financial accounting system is used as a single system for selling and administrative purposes across all operating entities.
Structure your main chart of accounts for multiple entities
The chart of accounts in your financial accounting system must be structured to accommodate each of your operating entities. Each entity should be given its own set of accounts so that inventory, work in process, sales, COGS, and absorption accounts are clearly itemized. Financial statements can be formatted with subtotals to get blended results across multiple operating entities.
Each entity uses the DBA standard chart of accounts
Within each operating entity’s own accounting system, the DBA standard chart of accounts will be used. The cross-reference accounts, however, will be different and will correspond to the operating entity’s own unique set of accounts in the main general ledger.
When one operating entity supplies another:
There are situations where one operating entity supplies another with subassemblies or finished items. In this case the entity is set up as a supplier within the entity that uses the items. Conversely, that entity is setup as a customer in the other entity. The customer entity submits POs to the supplier entity as needed to meet its requirements. Those POs are entered in the supplier entity as sales orders, which drive MRP and production.
When POs are submitted from one operating entity to another, each item’s estimated cost should be used as the PO price to achieve accurate product costing within the customer entity where the item is used.
