Example of Accounting of Interorganization Transfers

This example illustrates:

• Material moment transactions that are captured in Oracle Inventory Management and interfaced to Oracle Receipt Accounting and Oracle Cost Accounting.

• Supply chain financial 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 transfer of goods across profit center business units.

Scenario

A transfer order is issued from an asset or expense inventory to an expense destination, where the sending organization and receiving organization are in different profit center business units. A trade agreement setup in Supply Chain Financial Orchestration to create the financial ownership trade events. Let's consider the sending organization is M1 and the receiving organization is M2. The quantity of goods transferred is 10 units and the transfer price is $15.00 per unit, where $12.00 is the cost and $3.00 is the internal markup.

These parameters defined on the agreement drive how the accounting for these trade events is recorded in cost accounting and receipt accounting.

• Intercompany Invoicing: If intercompany invoicing is set to Yes, then for the Trade In Transit Issue event, Inter Company Cost of Goods Sold is created at cost, else Cost Accounting will book Interorganization Receivable at the transfer price.

• Profit Tracking: If profit tracking is set to Yes, then the internal markup is tracked separately in the destination node as a separate cost element Profit in Inventory. If set to No, then the markup is included in the material cost.

In this example, Intercompany Invoicing and Profit Tracking are set to Yes.

Accounting Events

For this transfer to expense destination, the corresponding events along with the transaction creating system and subledger are summarized in this table.

Event	Transaction Creating System	Subledger
Transfer Order Issue	Inventory	Cost Accounting
Trade in Transit Issue	Financial Orchestration/ Cost Accounting	Cost Accounting
Trade Receipt Accrual	Financial Orchestration/ Cost Accounting	Receipt Accounting
Trade in Transit Receipt	Financial Orchestration/ Cost Accounting	Cost Accounting
Transfer Order Receipt	Receiving	Receipt Accounting
Transfer Order Deliver to Expense	Receiving	Receipt Accounting

In the case where the transfer is without a manual receipt at destination, the events Transfer Order Logical Receipt and Transfer Order Logical Deliver to Expense will replace Transfer Order Receipt and Transfer Order Deliver to Expense respectively.

Note: In this example, the transfer is across different profit center business units. Therefore, the Trade in Transit Issue, Trade Receipt Accrual, and Trade in Transit Receipt events are generated by Financial Orchestration. In the case of a transfer within a profit center business unit, these events are generated by Cost Accounting.

Analysis

Receipt Accounting and Cost Accounting create accounting entries for the transfer of goods.

Accounting Entries

This table describes the receipt and cost accounting entries for the transfer order with manual receipt at expense destination.

Subledger	Event	Inventory Org/VU	Accounting Line	Cost Element	Amount in USD (+Dr/-Cr)	Basis of Amount
Cost Accounting	Transfer Order Issue	M1	Trade in Transit	Material	+ 120.00	Current Item Cost
Cost Accounting	Transfer Order Issue	M1	Inventory	Material	- 120.00	Current Item Cost
Cost Accounting	Trade in Transit	M1	Intercompany Cost of Goods Sold	Material	+ 120.00	Transfer Order Issue Cost
Cost Accounting	Trade in Transit	M1	Trade in Transit	Material	- 120.00	Transfer Order Issue Cost
Receipt Accounting	Trade Receipt Accrual	M2	Trade Clearing		+ 150.00	Transfer Price
Receipt Accounting	Trade Receipt Accrual	M2	Intercompany Accrual		- 150.00	Transfer Price
Cost Accounting	Trade in Transit Receipt	M2	Trade in Transit	Material	+ 120.00	Cost of Shipment
Cost Accounting	Trade in Transit Receipt	M2	Trade in Clearing	Material	- 120.00	Cost of Shipment
Cost Accounting	Trade in Transit Receipt	M2	Trade in Transit	Profit in Inventory	+ 30.00	Transfer Price - Cost
Cost Accounting	Trade in Transit Receipt	M2	Trade in Clearing	Profit in Inventory	- 30.00	Transfer Price - Cost
Receipt Accounting	Transfer Order Receipt	M2	Receiving Inspection		+ 150.00	Transfer Price
Receipt Accounting	Transfer Order Receipt	M2	Trade in Transit		- 150.00	Transfer Price
Receipt Accounting	Transfer Order Deliver to Expense	M2	Expense		+ 150.00	Transfer Price
Receipt Accounting	Transfer Order Deliver to Expense	M2	Receiving Inspection		- 150.00	Transfer Price

Note: In the case of a transfer within a profit center business unit, the Transfer Price and Cost of Shipment will be same as the Current Item Cost as there won't be any markup on the cost. Therefore, the accounting lines corresponding to the Profit in Inventory cost element won't be included in the accounting entries in such cases.