Cost Accounting for Drop Shipments

Global drop shipment is an order fulfillment strategy where the seller does not keep products in the inventory. The seller relies on suppliers or contract manufacturers to build, store, and ship orders to the customers.

When a customer places an order for a drop shipped product, the seller issues a purchase order for the item. The seller also provides instructions to the suppliers to ship directly to the customer.

The supply chain financial orchestration process routes the orchestration flow of drop shipments through one or more business units within the corporation. These business units can belong to the same legal entity or may occur across legal entities.

The financial flow starts when the supplier sends the advanced shipment notice, or when the supplier matches the invoice with the purchase order for the drop shipment. The flow creates cost accounting distributions and intercompany invoices for the ownership transfers that occur between parties, including supplier, one or more organizations, and the customer. Oracle Supply Chain Financial Orchestration sends a request to the receiving system to create a drop ship receipt on the supplier invoice that references the purchase order. Oracle Receiving creates a logical receipt, and then notifies Oracle Order Management to start customer billing. This automation helps to reduce billing cycle time.

Cost Accounting Distributions for Drop Shipments

You can review the cost accounting distributions for drop shipments on the Review Cost Accounting Distributions page. The following accounting line types are created for single busnisess unit drop shipment events.

Event	Transaction	Subledger	Accounting Line	Dr/Cr
Invoice Validation	Supplier Invoice	Accounts Payable	Accrual	Debit
Invoice Validation	Supplier Invoice	Accounts Payable	Liability	Credit
Drop Ship Delivery	Putaway	Cost Accounting	Drop Ship Inventory	Debit
Drop Ship Delivery	Putaway	Cost Accounting	Receiving Inspection	Credit
Trade Sale Issue	Logical Sale Issue	Cost Accounting	Deferred Cost of Goods Sold	Debit
Trade Sale Issue	Logical Sale Issue	Cost Accounting	Drop Ship Inventory	Credit

For the corresponding receipt accounting distribution, see Receipt Accounting for Drop Shipments.

Cost Accounting Distributions for Drop Shipment Invoice Cancellation or Correction

For customer drop ship with payables invoice as the ownership change event, sometimes you may need to cancel the supplier invoice. For example, when an incorrect purchase order is matched to the invoice or when the supplier has sent an incorrect invoice. When the invoice is cancelled, the Oracle Supply Chain Financial Orchestration sends trade sales return as a reversal to the trade sale issue created on invoice matching.

Oracle Cost Management creates cost accounting distributions for receipt corrections and trade sales returns. This reverses the accounting recorded on the invoice approval and ensuring that no balance is accumulated in the receiving inspection account. The automatic reconciliation of the receiving inspection account avoids manual adjustments and provides accurate accounting for the drop ship correction flow, when ownership change event is invoice.

You can review the cost accounting distributions for invoice cancellation or correction on the Review Cost Accounting Distributions page. The following accounting line types are created:

Event	Transaction	Subledger	Accounting Line	Dr/Cr
Invoice Cancellation	Supplier Invoice	Accounts Payable	Liability	Debit
Invoice Cancellation	Supplier Invoice	Accounts Payable	Accrual	Credit
Drop Ship Receipt Adjustment	Putaway Correction	Cost Accounting	Receiving Inspection	Debit
Drop Ship Receipt Adjustment	Putaway Correction	Cost Accounting	Drop Ship Inventory	Credit
Trade Sale Return	Logical Sale Issue Reversal	Cost Accounting	Drop Ship Inventory	Debit
Trade Sale Return	Logical Sale Issue Reversal	Cost Accounting	Deferred Cost of Goods Sold	Credit

For the corresponding receipt accounting distribution, see Receipt Accounting for Drop Shipments.

Note:

• Drop ship correction events are processed for single BU customer drop ship flow.

• If AP invoice is cancelled avoid creation of AR invoice and cost of goods recognition (COGS) for the initial events. The correction events on cancellation won't reverse the cost of goods till AR invoice revenue recognition is reversed and order line is reopened. The balance in COGS account can be manually adjusted.

• Review the accounting setup for mapping sets and account rules for the Drop Ship Delivery Adjustment, Trade Sales Return events to ensure it reverses the accounts booked on Drop Ship Delivery and Trade Sale Issue.