Allocation is the process of distributing monetary amounts to one or more accounts or account/dimension combinations based on allocation rules. There are two types of allocations—fixed and variable. Fixed allocation is used to distribute specified percentages of a transaction amount to distribution accounts/dimensions.

For example, corporate advertising expenses might be shared across specific departments. Department A would get 70 percent of the advertising expense, Department B would get 20 percent, and Department C would get 10 percent.

Variable allocation is used to distribute fluctuating percentages of a transaction amount to various accounts/dimensions.

For example, you could allocate corporate advertising costs based on each department's sales in proportion to total departmental sales.

Each allocation rule has four primary components—general, source, destination, and offset. Each of these components provides a critical piece of the information needed to process allocations. The following allocation methods are available:

• Basis

• Fixed percentage

• Fixed weight

• Spread even

If the allocation method for an allocation rule equals Basis, then you must also define a separate ledger allocation basis rule. There are five components to the basis rule.

• The general component is where the user specifies options including, but not limited to allocation method, intercompany rule settings, and whether the rule is active or not. General settings dictate what fields are available in the subsequent rule tabs.

• The source component is where the user specifies the source data for the allocation, and is also called the allocation pool or "bucket." Amounts can come from the general ledger, or you can specify a fixed value for the source of the allocation.

• The destination defines how the result of the allocation calculation should be distributed to the destination distribution lines.

• The offset defines offset entries that balance the destination distribution lines. These entries typically are used in place of the accounts/dimensions specified in source.

• The basis describes what the allocation calculation is based on and defines in what proportion the source amounts are allocated to the destination distribution lines. Reference to basis will be used only when the Allocation Method = Basis, because it is the only one that requires basis type information.