Example of Cost of Goods Sold Recognition
This example illustrates the method of revenue recognition in Oracle Receivables and Oracle Fusion Cloud Revenue Management and the corresponding impact to cost of goods sold.
Scenario
Let's consider these sales orders.
Sales Order # 520917
|
Item |
UOM |
Quantity |
Unit Selling Price |
Selling Amount |
|---|---|---|---|---|
|
Network Gateway Switch |
Each |
2 |
105.00 |
210.00 |
|
Total |
210.00 |
Sales Order # 520919
|
Item |
UOM |
Quantity |
Unit Selling Price |
Selling Amount |
|---|---|---|---|---|
|
Oracle Database Enterprise Edition |
Each |
10 |
165.00 |
1650.00 |
|
Extended Warranty 2 years |
Each |
10 |
45.00 |
450.00 |
|
Total |
2100.00 |
Also, these invoices are created in Receivables.
Receivables Invoice # 127017
|
Item |
UOM |
Quantity |
Unit Selling Price |
Bill Amount |
Revenue |
|---|---|---|---|---|---|
|
Network Gateway Switch |
Each |
2 |
105.00 |
210.00 |
210.00 |
|
Total |
210.00 |
Receivables Invoice # 127018
|
Item |
UOM |
Quantity |
Unit Selling Price |
Selling Amount |
Revenue |
|---|---|---|---|---|---|
|
Oracle Database Enterprise Edition |
Each |
10 |
165.00 |
1650.00 |
1650.00 |
|
Extended Warranty 2 years |
Each |
10 |
45.00 |
450.00 |
450.00 |
|
Total |
2100.00 |
In the case of Revenue Management, let's consider this contract is created.
Revenue Contract # 14011
|
Item |
UOM |
Quantity |
Unit Selling Price |
Selling Amount |
Unit Standalone Selling Price |
Extended Standalone Selling Price |
New Revenue |
|---|---|---|---|---|---|---|---|
|
Network Gateway Switch |
Each |
2 |
105.00 |
210.00 |
98.00 |
196.00 |
134.51 |
|
Oracle Database Enterprise Edition |
Each |
10 |
165.00 |
1650.00 |
123.00 |
1230.00 |
844.12 |
|
Extended Warranty 2 years |
Each |
10 |
45.00 |
450.00 |
97.00 |
970.00 |
1331.37 |
|
Total |
2310.00 |
Analysis
Let's start with the revenue and cost of goods sold recognition when using Oracle Receivables in our example.
After the shipping transaction is interfaced from Inventory to Costing, the Sales Order Issue transaction gets processed.
Sales Order Issue
|
Order # |
Shipment # |
Item |
Unit Cost |
Quantity |
Deferred Cost of Goods Sold |
Inventory |
|---|---|---|---|---|---|---|
|
520917 |
45027 |
Network Gateway Switch |
50.00 |
2 |
100.00 |
- 100.00 |
|
520919 |
45031 |
Oracle Database Enterprise Edition |
75.00 |
10 |
750.00 |
- 750.00 |
In this example, the entire 100% of the revenue is recognized in Oracle Receivables and the information is interfaced to costing, based on which the COGS Recognition transactions are costed and accounted.
Cost of Goods Sold Recognition
|
Order # |
Invoice # |
Item |
Unit Cost |
Quantity |
Cost of Goods Sold |
Deferred Cost of Goods Sold |
|---|---|---|---|---|---|---|
|
520917 |
127017 |
Network Gateway Switch |
50.00 |
2 |
100.00 |
- 100.00 |
|
520919 |
127018 |
Oracle Database Enterprise Edition |
75.00 |
10 |
750.00 |
- 750.00 |
The Analyze Product Gross Margin page uses this information to display the consolidated and order level gross margins.
|
Order # |
Invoice # |
Item |
Unit Cost |
Quantity |
Total |
Revenue |
Gross Margin |
Gross Margin % |
|---|---|---|---|---|---|---|---|---|
|
520917 |
127017 |
Network Gateway Switch |
50.00 |
2 |
100.00 |
210.00 |
110.00 |
52.38 |
|
520919 |
127018 |
Oracle Database Enterprise Edition |
75.00 |
10 |
750.00 |
1650.00 |
900.00 |
54.54 |
|
Total |
850.00 |
1860.00 |
1010.00 |
Cost of Goods Sold and Gross Margin Using Revenue Management
The Sales Order Issue and the Cost of Goods Sold Recognition gets created exactly as shown earlier, the only difference is the revenue information that's interfaced from Oracle Revenue Management. In this example, the entire 100% of the revenue is recognized in Oracle Revenue Management and the information is interfaced to Oracle Cost Accounting, based on which the gross margin is calculated.
|
Order # |
Contract # |
Item |
Unit Cost |
Quantity |
Total |
Revenue |
Gross Margin |
Gross Margin % |
|---|---|---|---|---|---|---|---|---|
|
520917 |
14011 |
Network Gateway Switch |
50.00 |
2 |
100.00 |
134.51 |
34.51 |
25.66 |
|
520919 |
14011 |
Oracle Database Enterprise Edition |
75.00 |
10 |
750.00 |
844.12 |
94.12 |
11.15 |
|
Total |
850.00 |
978.63 |
128.63 |