Example of Consigned Inventory Accounting in a Global Purchase Order
Most large enterprises use a global procurement approach to their purchasing needs, where a central buying organization buys goods from suppliers on behalf of the internal organizations. This includes trade transactions involving consigned inventory executed under a global purchase order.
Oracle Receipt Accounting and Oracle Cost Accounting process these consigned inventory transactions and generate subledger journal entries. The following example illustrates:
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The physical and financial flow of consigned inventory in a global purchase order.
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Transactions that flow from Oracle Inventory Management into Cost Accounting and Receipt Accounting.
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Transactions that flow from Oracle Supply Chain Financial Orchestration into Cost Accounting and Receipt Accounting.
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Accounting entries that Cost Accounting and Receipt Accounting generate for the forward flow.
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Accounting entries that Cost Accounting and Receipt Accounting generate for the return flow.
Scenario
The supplier AND-Fresno ships the goods in consigned status to inventory organization M2-LA, through the purchasing trade organization M1-Seattle.
Interfaced Transactions
Cost Accounting and Receipt Accounting receive the following transaction from Inventory Management:
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Consignment Purchase Order (PO) #1000.
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Purchase Order price USD 100.
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Sold-to Legal Entity is LE1.
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Ship-to organization is M2-LA which is also the contingent owner. Contingent owner assumes ownership from the supplier when inventory is consumed.
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Receipt and put away transactions performed in M2-LA in consigned status.
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Ownership changes from supplier AND-Fresno to M2-LA through M1-Seattle when the goods are consumed.
The trade agreement, accounting rule sets, and associated purchase orders are set up in Supply Chain Financial Orchestration, and the transactions flow into Receipt Accounting and Cost Accounting. The shipment from supplier to inventory organization M2-LA is based on trade agreement GP #123 which has the following terms:
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Intercompany transfer price is USD 120.
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Intercompany invoicing is set to Yes.
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Profit tracking is set to Yes.
Analysis
Receipt Accounting and Cost Accounting create accounting distributions for the forward and return shipment of goods.
Accounting Entries
The following are accounting entries for the forward flow.
Receipt Accounting generates distributions under inventory organization M2-LA for the consigned shipment from supplier AND-Fresno to M2-LA.
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Basis of Amount |
---|---|---|---|---|---|
Receipt Accounting |
PO Receipt |
Consigned Clearing |
100 |
USD |
PO Price |
Receipt Accounting |
PO Receipt |
Consigned Accrual |
-100 |
USD |
PO Price |
Receipt Accounting |
PO Delivery |
Consigned Inventory |
100 |
USD |
PO Price |
Receipt Accounting |
PO Delivery |
Consigned Clearing |
-100 |
USD |
PO Price |
Receipt Accounting and Cost Accounting generate distributions under inventory organization M1-Seattle for the change of ownership from supplier AND-Fresno to M1-Seattle.
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Cost Element |
Basis of Amount |
---|---|---|---|---|---|---|
Receipt Accounting |
Trade Receipt Accrual |
Trade Clearing |
100 |
USD |
Not applicable |
PO Price |
Receipt Accounting |
Trade Receipt Accrual |
Accrual |
-100 |
USD |
Not applicable |
PO Price |
Receipt Accounting |
Trade In-Transit Receipt |
Trade In-Transit |
100 |
USD |
Not applicable |
PO Price |
Receipt Accounting |
Trade In-Transit Receipt |
Trade clearing |
-100 |
USD |
Not applicable |
PO Price |
Cost Accounting |
Trade In-Transit Issue |
Intercompany Cost of Goods Sold |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Trade In-Transit Issue |
Trade In-Transit |
-100 |
USD |
Material |
PO Price |
Receipt Accounting and Cost Accounting generate distributions under inventory organization M2-LA for the change of ownership from M1-Seattle to M2-LA.
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Cost Element |
Basis of Amount |
---|---|---|---|---|---|---|
Cost Accounting |
Transfer to Owned Issue |
Consigned Inventory Offset |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Transfer to Owned Issue |
Consigned Inventory |
-100 |
USD |
Material |
PO Price |
Receipt Accounting |
Consigned Receipt Consumption |
Consigned Accrual |
100 |
USD |
Not applicable |
PO Price |
Receipt Accounting |
Consigned Receipt Consumption |
Consigned Clearing |
-100 |
USD |
Not applicable |
PO Price |
Receipt Accounting |
Trade Receipt Accrual |
Trade Clearing |
120 |
USD |
Not applicable |
Transfer Price |
Receipt Accounting |
Trade Receipt Accrual |
Intercompany Accrual |
-120 |
USD |
Not applicable |
Transfer Price |
Cost Accounting |
Trade In-Transit Receipt |
Trade In-Transit |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Trade In-Transit Receipt |
Trade In-Transit |
20 |
USD |
Profit in Inventory |
Internal Markup |
Cost Accounting |
Trade In-Transit Receipt |
Trade Clearing |
-120 |
USD |
Material |
Transfer Price |
Cost Accounting |
Transfer to Owned (Receipt) |
Inventory Valuation |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Transfer to Owned (Receipt) |
Inventory Valuation |
20 |
USD |
Profit in Inventory |
Internal Markup |
Cost Accounting |
Transfer to Owned (Receipt) |
Trade In-Transit |
-100 |
USD |
Material |
PO Price |
Cost Accounting |
Transfer to Owned (Receipt) |
Trade In-Transit |
-20 |
USD |
Profit in Inventory |
Internal Markup |
Organization M2-LA returns goods to supplier AND-Fresno. The following are accounting entries for the return flow.
Receipt Accounting and Cost Accounting generate distributions under inventory organization M2-LA for the change of ownership from M2-LA to M1-Seattle:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Cost Element |
Basis of Amount |
---|---|---|---|---|---|---|
Cost Accounting |
Transfer to Consigned Receipt |
Consigned Inventory |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Transfer to Consigned Receipt |
Consigned Inventory Offset |
-100 |
USD |
Material |
PO Price |
Receipt Accounting |
Trade Return Accrual |
Intercompany Accrual |
120 |
USD |
Not applicable |
Transfer Price |
Receipt Accounting |
Trade Return Accrual |
Trade Clearing |
-120 |
USD |
Not applicable |
Transfer Price |
Cost Accounting |
Trade In-Transit Return |
Trade Clearing |
120 |
USD |
Material |
Transfer Price |
Cost Accounting |
Trade In-Transit Return |
Trade In-Transit |
-100 |
USD |
Material |
PO Price |
Cost Accounting |
Trade In-Transit Return |
Trade In-Transit |
-20 |
USD |
Profit in Inventory |
Internal Markup |
Cost Accounting |
Consigned Receipt Consumption |
Consigned Clearing |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Consigned Receipt Consumption |
Consigned Accrual |
-100 |
USD |
Material |
PO Price |
Cost Accounting |
Transfer to Consigned Issue |
Inventory Valuation |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Transfer to Consigned Issue |
Inventory Valuation |
20 |
USD |
Profit in Inventory |
Internal Markup |
Cost Accounting |
Transfer to Consigned Issue |
Inventory Valuation |
10 |
USD |
Overhead |
Not applicable |
Cost Accounting |
Transfer to Consigned Issue |
Trade In-Transit |
-100 |
USD |
Material |
PO Price |
Cost Accounting |
Transfer to Consigned Issue |
Trade In-Transit |
-20 |
USD |
Profit in Inventory |
Internal Markup |
Cost Accounting |
Transfer to Consigned Issue |
Cost Variance* |
-10 |
USD |
Material |
Not applicable |
*Inventory is depleted at the current cost, and the difference between transfer price and cost is booked as cost variance.
Receipt Accounting and Cost Accounting generate distributions under inventory organization M1-LA for the change of ownership from M1-LA to supplier AND-Fresno:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Cost Element |
Basis of Amount |
---|---|---|---|---|---|---|
Receipt Accounting |
Trade Return Accrual |
Accrual |
100 |
USD |
Not applicable |
PO Price |
Receipt Accounting |
Trade Return Accrual |
Trade Clearing |
-100 |
USD |
Not applicable |
PO Price |
Cost Accounting |
Trade In-Transit Return |
Trade Clearing |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Trade In-Transit Return |
Trade In-Transit |
-100 |
USD |
Material |
PO Price |
Cost Accounting |
Trade In-Transit Return Receipt |
Trade In-Transit |
100 |
USD |
Material |
PO Price |
Cost Accounting |
Trade In-Transit Return Receipt |
Intercompany Cost of Goods Sold |
-100 |
USD |
Material |
PO Price |
Receipt Accounting generates distributions under inventory organization M2-LA for the return shipment from M2-LA to supplier AND-Fresno:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Basis of Amount |
---|---|---|---|---|---|
Receipt Accounting |
PO Return to Supplier |
Consigned Accrual |
100 |
USD |
PO Price |
Receipt Accounting |
PO Return to Supplier |
Consigned Clearing |
-100 |
USD |
PO Price |
Receipt Accounting |
PO Return to Receiving |
Consigned Clearing |
100 |
USD |
PO Price |
Receipt Accounting |
PO Return to Receiving |
Consigned Inventory |
-100 |
USD |
PO Price |