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:

• The physical and financial flow of consigned inventory in a global purchase order.

• Transactions that flow from Oracle Inventory Management into Cost Accounting and Receipt Accounting.

• Transactions that flow from Oracle Supply Chain Financial Orchestration into Cost Accounting and Receipt Accounting.

• Accounting entries that Cost Accounting and Receipt Accounting generate for the forward flow.

• 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:

• Consignment Purchase Order (PO) #1000.

• Purchase Order price USD 100.

• Sold-to Legal Entity is LE1.

• Ship-to organization is M2-LA which is also the contingent owner. Contingent owner assumes ownership from the supplier when inventory is consumed.

• Receipt and put away transactions performed in M2-LA in consigned status.

• 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:

• Intercompany transfer price is USD 120.

• Intercompany invoicing is set to Yes.

• 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