Example of Consigned Inventory Accounting in a Simple Purchase Order

When an organization receives a shipment of goods under a consignment purchase order, the ownership of the goods remains with the supplier even after they are in the custody of the buyer. Ownership passes from the supplier to the buyer when the inventory is consumed.

When the inventory is consumed, two events occur: First there is a transfer of ownership to the buyer and the consigned goods become owned inventory for a brief period of time, then the owned inventory is depleted.

The following example illustrates:

• The physical and financial flow of consigned inventory under a consigned purchase order (PO).

• The transaction that flows from Oracle Inventory Management into Oracle Cost Accounting and Oracle 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

Supplier Advanced Network Devices (AND-Fresno) ships the goods under a consigned purchase order to inventory organization M1-Seattle.

The following diagram illustrates the flow of consigned inventory:

Transaction from Inventory Management

Cost Accounting and Receipt Accounting receive the following transaction from Inventory Management:

• Supplier Advanced Network Devices (AND-Fresno).

• Consignment Purchase Order #1000.

• Purchase Order price USD 100.

• Ship-to organization is M1-Seattle which is the contingent owner. Contingent owner assumes ownership from the supplier when inventory is consumed.

• Receipt and put away transactions performed in M1-Seattle inventory organization in consigned status.

• When the goods are consumed ownership changes from supplier AND-Fresno to inventory organization M1-Seattle.

Analysis

Receipt Accounting and Cost Accounting create accounting distributions for the forward and return shipment of goods.

Accounting Entries

The following diagram illustrates the accounting entries for the forward flow from supplier AND-Fresno to inventory organization M1-Seattle.

Receipt Accounting and Cost Accounting generate accounting entries under inventory organization M1-Seattle for the receipt of goods.

The following table describes those accounting entries:

Subledger	Event Type	Accounting Line Type	Transaction Type	Amount in Functional Currency	Functional Currency	Basis of Amount
Receipt Accounting	PO Receipt	Consigned Clearing	Debit	100	USD	PO Price
Receipt Accounting	PO Receipt	Consigned Accrual	Credit	100	USD	PO Price
Cost Accounting	PO Delivery	Consigned Inventory	Debit	100	USD	PO Price
Cost Accounting	PO Delivery	Consigned Clearing	Credit	100	USD	PO Price

Receipt Accounting and Cost Accounting generate accounting entries under inventory organization M1-Seattle for the change of ownership from supplier AND-Fresno to M1-Seattle.

The following table describes those accounting entries:

Subledger	Event Type	Accounting Line Type	Transaction Type	Amount in Functional Currency	Functional Currency	Cost Element	Basis of Amount
Cost Accounting	Transfer to Owned Issue	Consigned Inventory Offset	Debit	100	USD	Material	PO Price
Cost Accounting	Transfer to Owned Issue	Consigned Inventory	Credit	100	USD	Material	PO Price
Receipt Accounting	Consigned Receipt Consumption	Consigned Accrual	Debit	100	USD	Not applicable	PO Price
Receipt Accounting	Consigned Receipt Consumption	Consigned Clearing	Credit	100	USD	Not applicable	PO Price
Receipt Accounting	Trade Receipt Accrual	Trade Clearing	Debit	100	USD	Not applicable	PO Price
Receipt Accounting	Trade Receipt Accrual	Accrual	Credit	100	USD	Not applicable	PO Price
Cost Accounting	Trade In-Transit Receipt	Trade In-Transit	Debit	100	USD	Material	PO Price
Cost Accounting	Trade In-Transit Receipt	Trade Clearing	Credit	100	USD	Material	PO Price
Cost Accounting	Transfer to Owned (Receipt)	Inventory Valuation	Debit	100	USD	Material	PO Price
Cost Accounting	Transfer to Owned (Receipt)	Trade In-Transit	Credit	100	USD	Material	PO Price

Organization M1-Seattle returns goods to supplier AND-Fresno.

This figure illustrates the accounting entries for the return flow from M1-Seattle to AND-Fresno.

Receipt Accounting and Cost Accounting generate accounting entries under inventory organization M1-Seattle for the change of ownership from M1-Seattle to supplier AND-Fresno.

The following table describes the accounting entries for the change in ownership.

Subledger	Event Type	Accounting Line Type	Transaction Type	Amount in Functional Currency	Functional Currency	Cost Element	Basis of Amount
Cost Accounting	Transfer to Consigned (Receipt)	Consigned Inventory	Debit	100	USD	Material	PO Price
Cost Accounting	Transfer to Consigned (Receipt)	Consigned Inventory Offset	Credit	100	USD	Material	PO Price
Receipt Accounting	Consigned Receipt Consumption	Consigned Clearing	Debit	100	USD	Not applicable	PO Price
Receipt Accounting	Consigned Receipt Consumption	Consigned Accrual	Credit	100	USD	Not applicable	PO Price
Receipt Accounting	Trade Return Accrual	Accrual	Debit	100	USD	Not applicable	PO Price
Receipt Accounting	Trade Return Accrual	Trade Clearing	Credit	100	USD	Not applicable	PO Price
Receipt Accounting	Trade In-Transit Return	Trade Clearing	Debit	100	USD	Not applicable	PO Price
Receipt Accounting	Trade In-Transit Return	Trade In-Transit	Credit	100	USD	Not applicable	PO Price
Cost Accounting	Transfer to Consigned Issue	Trade In-Transit	Debit	100	USD	Material	PO Price
Cost Accounting	Transfer to Consigned Issue	Cost Variance*	Debit	5	USD	Not applicable	Inventory is received at the current cost, and the difference between transfer price and cost is booked as cost variance.
Cost Accounting	Transfer to Consigned Issue	Inventory Valuation	Credit	105	USD	Material	Current Cost

* Inventory is received at the current cost, and the difference between transfer price and cost is booked as cost variance.

Receipt Accounting generates accounting entries under inventory organization M1-Seattle for the return of consigned goods from M1-Seattle to AND-Fresno.

The following table describes those accounting entries:

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