Understanding Step-Down Allocations

A Step-Down Allocation is a method for automatically disbursing the Period Balance from a "collector" Allocation Account among other accounts, called the Step Accounts.  Various distribution methods are allowed, including by percentage, amount, and based on another account.  Examples for using allocations include disbursement of office supplies and utility bills among departments.

General Procedure:

1.  To define a disbursement, you must set up the allocation during Step-Down Allocation Maintenance, which specifies the Allocation Account (the "parent"), the type of disbursement, and the Step Accounts (the "children") that are to receive the disbursement.  Once the allocations are defined, they rarely need to be maintained.
Tips:

• You can use any existing General Ledger Account Number as an Allocation Account Number (also called a Control Account) or a Step Account Number.

• You can see a listing of the allocations by selecting the Print Step-Down Allocations option for the Chart of Accounts Report.
   

2.  To create the journal entries in the general journal using the defined allocations, you must run Create Step-Down Allocations.  You can run it one or more times per period.  When you run Create Step-Down Allocations, you can select which Allocation Account balances are to be disbursed at the time, and you can fill in variables for certain types of disbursements.
Tips:

2. Usually, you only run this program once per period, although there may be circumstances where you create allocation journal entries at different times within the period, or even more than once per period.

3. The journal entries use the AL (Allocation) Journal Code.

4. The Reference field for the created journal entries is automatically assigned as "Step-down."

5. The Transaction Description field for the created journal entries comes from the Step-Down Header Description.

Allocation Types:

When you create the allocation definitions during Step-Down Allocation Maintenance, you must specify the type of allocation.  Allocation types let you define each disbursement according to a fixed or variable percentage, an amount, or by a calculated percentage based on another account.

To see a chart of Allocation Types, click More.

Allocation Type Examples:

• 1 - Fixed Percent, click More.

   

  In the following example, you set up the allocation so that the total office supplies expense is distributed to the office supplies expense accounts for individual departments based on a fixed percentage for each department.

   

  Allocation Type 1 - Fixed Percent Example:

  

   

  If the balance of the journal entries for account 8010-01 (OFFICE SUPPLIES - TOTAL) is $100.00 for this period, the Create Step-Down Allocation routine generates the following journal entries based on the fixed percentages:

  Account #	Department	Fixed %	Trans. Amt.
  8010-10	Office Supplies - Commercial	20	20.00 Dr
  8010-20	Office Supplies - Residential	30	30.00 Dr
  8010-30	Office Supplies - Industrial	10	10.00 Dr
  8010-40	Office Supplies - City Desk	40	40.00 Dr
  8010-01	Office Supplies - Total	100%	$100.00 Cr

  ---

   

• 2 - Variable Percent, click More.

   

  In the following example, you set up the allocation so that the total heating fuel expense is distributed to the heating fuel expense accounts for individual departments based on a percentage that varies each period.

   

  Allocation Type 2 - Variable Percent Example:

  

   

  If the balance of the journal entries for account 8020-01 (HEATING FUEL - TOTAL) is $200.00 for this period, the Create Step-Down Allocation routine generates the following journal entries based on the percentages that you enter:

  Account #	Department	Entered %	Trans. Amt.
  8020-10	Heating Fuel - Commercial	10	20.00 Dr
  8020-20	Heating Fuel - Residential	20	40.00 Dr
  8020-30	Heating Fuel - Industrial	30	60.00 Dr
  8020-40	Heating Fuel - City Desk	40	80.00 Dr
  8020-01	Heating Fuel - Total	100%	$200.00 Cr

  ---

   

• 3 - Variable Amount, click More.

   

  In the following example, you set up the allocation so that the total electricity expense is distributed to the electricity expense accounts for individual departments using amounts that vary each period.  In this case, assigning percentages is not appropriate, so you opt to manually figure the amounts each period.

   

  Allocation Type 3 - Variable Amount Example:

  

   

  If the balance of the journal entries for account 8030-01 (ELECTRICITY - TOTAL) is $300.00 for this period, the Create Step-Down Allocation routine generates the following journal entries based on the amounts that you enter:

  Account #	Department	Entered Amt.	Trans. Amt.
  8030-10	Electricity - Commercial	100.00	100.00 Dr
  8030-20	Electricity - Residential	50.00	50.00 Dr
  8030-30	Electricity - Industrial	60.00	60.00 Dr
  8030-40	Electricity - City Desk	90.00	90.00 Dr
  8030-01	Electricity - Total		$300.00 Cr

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• 4 - Based on Another Account, click More.

   

  When you use Allocation Type 4, the system calculates each individual Base Account's percentage of the total of all of the Base Account balances.  Then it uses that percentage to distribute the Allocation Account amount to each Step Account.

  ABC Co. has four departments with their own sales accounts.  The sales for ABC Co. at month end is the total of all these sales accounts.  The company wants to disburse the phone bill according to sales by department.  In this example, the following data is used:

  Base Account #	Department	Monthly Sales	Calculated % of Total *
  8300-10	Commercial - Sales	5,000.00	20
  8300-20	Residential - Sales	7,500.00	30
  8300-30	Industrial - Sales	2,500.00	10
  8300-40	City Desk - Sales	10,000.00	40
  Total of Base Accounts		25,000.00	100

   

  * Tip:  The Base Account percent of total is calculated by the Create Step-Down Allocations routine as follows:

  Base Account % = (Base Account Balance / Total of Base Account Balances) X 100

   

  Allocation Type 4 - Based On Another Account Example:

  

   

  If the phone bill is $1,200.00 for this period, the Create Step-Down Allocation routine makes entries to the telephone expense accounts for each sales department based upon the percentages calculated above.  Because the phone usage is difficult to track by department, this keeps the expense category in line with sales for each department.  The Create Step-Down Allocation routine generates the following journal entries:

  Step Account #	Department	Calculated % of $1200	Trans. Amt.
  8040-10	Telephone - Commercial	20	240.00 Dr
  8040-20	Telephone - Residential	30	360.00 Dr
  8040-30	Telephone - Industrial	10	120.00 Dr
  8040-40	Telephone - City Desk	40	480.00 Dr
  8040-01	Telephone - Total	100%	$1,200.00 Cr

   

Create Step Down Allocation Example:

To see an example of the Create Step-Down Allocations window, click More.