Example of Accounting of Global Procurement Trade Transactions into Expense

Oracle Receipt Accounting and Oracle Cost Accounting process transactions and create distributions for global procurement purchases that are received into expense destinations rather than inventory, and for services that are expensed.

The following is an example of accounting performed by Cost Accounting and Receipt Accounting for a global procurement flow into expense. It illustrates:

Transactions that are captured in Oracle Supply Chain Financial Orchestration and interfaced to Receipt Accounting and Cost Accounting.
Accounting entries that Receipt Accounting and Cost Accounting generate for the forward flow of goods or services from the supplier, through the intermediary distributor, to the final receiving organization.
Accounting entries that Receipt Accounting and Cost Accounting generate for the return flow from the receiving organization to the supplier.

Scenario

China Supplier ships the goods to US Inc. and the goods flow through an intermediary distributor, China Ltd.

Transactions from Supply Chain Financial Orchestration

The global procurement 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 based on this setup:

Purchase Order (PO) price from China Supplier to China Ltd is USD 50.
Intercompany transfer price from China Ltd to US Inc is USD 100.
Intercompany invoicing is set to Yes.
Profit tracking is set to Yes.
Overhead rule is configured in Cost Accounting for transaction type Trade in-Transit Receipt in cost organization CO1.

Analysis

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

Accounting Entries

The following figure illustrates the accounting entries for the forward flow from China Ltd (sold-to legal entity) to US Inc (receiving legal entity).

Receipt Accounting generates distributions under business unit CN and inventory organization M1. Cost Accounting generates distributions under cost organization CO1 and inventory organization M1.

The following table describes those receipt and cost accounting entries.

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	50	USD	Not Applicable	PO Price
Receipt Accounting	Trade Receipt Accrual	Accrual	-50	USD	Not Applicable	PO Price
Cost Accounting	Trade In-Transit Receipt	Trade In-Transit	50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Receipt	Trade Clearing	-50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Receipt	Trade In-Transit	10	USD	Overhead	Overhead Rate
Cost Accounting	Trade In-Transit Receipt	Overhead Absorption	-10	USD	Overhead	Overhead Rate
Cost Accounting	Trade In-Transit Issue	Intercompany COGS	50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Issue	Trade In-Transit	-50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Issue	Intercompany COGS	10	USD	Overhead	Overhead Rate
Cost Accounting	Trade In-Transit Issue	Trade In-Transit	-10	USD	Overhead	Overhead Rate
Accounts Receivable	Intercompany Accounts Receivable Invoice	Intercompany Receivable	100	USD	Not Applicable	Transfer Price
Accounts Receivable	Intercompany Accounts Receivable Invoice	Intercompany Revenue	-100	USD	Not Applicable	Transfer Price
Receipt Accounting	Supplier Invoice	Accrual	50	USD	Not Applicable	PO Price
Receipt Accounting	Supplier Invoice	Liability	-50	USD	Not Applicable	PO Price

Receipt Accounting generates distributions under business unit US West and inventory organization M2. Cost Accounting generates distributions under cost organization CO2 and inventory organization M2.

The following table describes those receipt and cost accounting entries.

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	Transfer Price
Receipt Accounting	Trade Receipt Accrual	Intercompany Accrual	-100	USD	Not Applicable	Transfer Price
Cost Accounting	Trade In-Transit Receipt	Trade In-Transit	100	USD	Material	Transfer Price
Cost Accounting	Trade In-Transit Receipt	Trade Clearing	-100	USD	Material	Transfer Price
Accounts Payable	Intercompany Accounts Payable Invoice	Intercompany Accrual	100	USD	Not Applicable	Transfer Price
Accounts Payable	Intercompany Accounts Payable Invoice	Intercompany Liability	-100	USD	Not Applicable	Transfer Price
Receipt Accounting	PO Receipt	Receiving Inspection	100	USD	Not Applicable	Transfer Price
Receipt Accounting	PO Receipt	Trade In-Transit	-100	USD	Not Applicable	Transfer Price
Receipt Accounting	PO Delivery	Expense	100	USD	Not Applicable	Transfer Price
Receipt Accounting	PO Delivery	Receiving Inspection	-100	USD	Not Applicable	Transfer Price

US Inc. returns goods directly to China Supplier.

The following figure illustrates the accounting entries for the return flow from legal entity US Inc. to legal entity China Ltd .

The following table describes those receipt and cost accounting entries.

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency	Cost Element	Basis of Amount
Receipt Accounting	Trade Return Accrual	Intercompany Accrual	100	USD	Not Applicable	Transfer Price
Receipt Accounting	Trade Return Accrual	Trade Clearing	-100	USD	Not Applicable	Transfer Price
Cost Accounting	Trade In-Transit Return	Trade Clearing	100	USD	Material	Transfer Price
Cost Accounting	Trade In-Transit Return	Trade In-Transit	-100	USD	Material	Transfer Price
Receipt Accounting	Return to Receiving	Receiving Inspection	100	USD	Not Applicable	Transfer Price
Receipt Accounting	Return to Receiving	Expense	-100	USD	Not Applicable	Transfer Price
Receipt Accounting	Return to Supplier	Trade In-Transit	100	USD	Not Applicable	Transfer Price
Receipt Accounting	Return to Supplier	Receiving Inspection	-100	USD	Not Applicable	Transfer Price
Accounts Payable	Intercompany Accounts Payable Invoice	Intercompany Liability	100	USD	Not Applicable	Transfer Price
Accounts Payable	Intercompany Accounts Payable Invoice	Intercompany Accrual	-100	USD	Not Applicable	Transfer Price

Receipt Accounting generates distributions under business unit CN and inventory organization M1. Cost Accounting generates distributions under cost organization CO1 and inventory organization M1.

The following table describes those receipt and cost accounting entries.

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency	Cost Element	Basis of Amount
Receipt Accounting	Trade Return Accrual	Intercompany Accrual	50	USD	Not Applicable	PO Price
Receipt Accounting	Trade Return Accrual	Trade Clearing	-50	USD	Not Applicable	PO Price
Cost Accounting	Trade In-Transit Return	Trade Clearing	50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Return	Cost Variance*	10	USD	Overhead	Overhead Rate
Cost Accounting	Trade In-Transit Return	Trade In-Transit	-50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Return	Trade Clearing	-10	USD	Overhead	Overhead Rate
Cost Accounting	Trade In-Transit Return Receipt	Trade In-Transit	50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Return Receipt	Trade In-Transit	10	USD	Overhead	Overhead Rate
Cost Accounting	Trade In-Transit Return Receipt	Intercompany Cost of Goods Sold	-50	USD	Material	PO Price
Cost Accounting	Trade In-Transit Return Receipt	Intercompany Cost of Goods Sold	-10	USD	Overhead	Overhead Rate
Accounts Receivable	Intercompany Accounts Receivable Invoice	Intercompany Revenue	100	USD	Not Applicable	Transfer Price
Accounts Receivable	Intercompany Accounts Receivable Invoice	Intercompany Receivables	-100	USD	Not Applicable	Transfer Price
Receipt Accounting	Supplier Invoice	Liability	50	USD	Not Applicable	PO Price
Receipt Accounting	Supplier Invoice	Accrual	-50	USD	Not Applicable	PO Price

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