4Cost Accounting

This chapter contains the following:

The Manage Cost Accounting business process is used by cost accountants to calculate inventory transaction costs, maintain inventory valuation, generate accounting distributions for inventory transactions, analyze product costs, analyze usage of working capital for inventory, and analyze gross margins.

The following image lists the Cost Accounting tasks.

Cost Accounting tasks
  • Manage Period End. Manage the timing of transaction processing, and perform validations in preparation for accounting period close.

  • Manage Inventory Valuation. Adjust the cost of items to address inventory obsolescence, price changes, and other variances.

  • Record, Audit, and Review Cost Accounting. Create cost accounting distributions for transaction data that is received from external sources, view and address any processing exceptions, and review results.

  • Analyze Product Costs: View the perpetual average cost, actual cost, and standard cost details of an item, chart its cost trend, compare costs across items, analyze usage of working capital and gross margins.

Scheduled Processes for Cost Accounting

You can use the Scheduled Processes Overview page in the Tools work area to run the scheduled processes that you have access to. You can schedule these processes to run automatically at predefined frequencies, or to run on request. This table describes the scheduled processes for Cost Accounting.

Task Description

Transfer transactions from Inventory

Transfers transaction data from Inventory to Cost Accounting.

Transfer work order transactions from Manufacturing

Transfers work order transaction data from Manufacturing to Cost Accounting. This process can also be launched from the Manufacturing application: Manufacturing Execution > Tasks > Transfer Transactions from Production to Costing.

Transfer Transactions from Maintenance to Costing

Transfers Maintenance Work Order transaction data from Enterprise Asset Management to Cost Management.

Export Standard Costs

Exports standard costs for a Cost Planning Scenario in the XML format to the Cost Management directory on the Oracle Universal Content Management server. The Cost Management UCM output directory is scm/standardCost/export.

Create Cost Accounting Distributions

Costs and creates distributions for the transactions interfaced from other applications.

Roll up Costs

Calculates the costs of output items with active work definitions, based on the cost allocation defined on the work definition operations.

Process Period End Validations

Performs validations to ensure that the transactions are successfully interfaced to costing and have been processed successfully.

Oracle Fusion Cost Accounting creates distributions for transactions related to the physical movement of goods or services through the supply chain and tracks the corresponding financial changes in ownership.

The transaction data for physical shipments is interfaced to Cost Accounting from Oracle Fusion Inventory Management, and the trade events are interfaced from Oracle Fusion Supply Chain Financial Orchestration.

This figure illustrates the flow of transaction data through the cost processors.

Diagram of cost accounting process flow

Create Cost Accounting Distributions

In the Cost Accounting work area, access the Create Cost Accounting Distributions page to process imported transaction data. On this page define the run controls by specifying the cost organization books and cost processors that you want to execute.

The main cost processors are:

  • Preprocessor prepares all interfaced data for cost processing:

    • Checks for invalid or missing data.

    • Propagates the information to cost organization books and deriving their associated units of measure, currencies, valuation units, and cost profiles. Note that the preprocessor runs for all cost books in the cost organization.

    • Maps incoming cost components to cost elements, based on user-defined mappings.

  • Cost Accounting Processor processes:

    • Physical inventory transactions

      • Calculates costs for pre-processed transactions using the perpetual average cost method, actual cost method, or standard cost method.

      • Processes user-entered cost adjustments and applies overhead costs based on user-defined overhead rules.

      • Calculates the variance of standard costs from actual transaction costs.

      • Calls the Acquisition Cost Processor to calculate inventory valuation including the tax component where applicable.

    • Trade transactions

      • Uses the Trade Accounting Processor to process all in-transit transactions.

  • Cost of Goods Sold Processor calculates the cost of goods sold and maintains consistency with the revenue recognized in accounts receivable.

  • Cost Distribution Processor uses the Intercompany Trade Accounting processor, Cost Accounting Processor, and Cost of Goods Sold Processor results to create distributions for transaction costs.

  • Cost Reports Processor: Generates inventory valuation data and is the source of truth for reports generated by Oracle Fusion Transactional Business Intelligence and Business Intelligence Publisher. This process builds the data required to report inventory valuation at two levels:

    • Valuation unit level

    • Receipt layer level

Review Processing Results and Messages

After running the cost processors, check processing results in the Cost Accounting work area:

  • View warning and error messages on the Review Cost Accounting Processes page.

  • See additional warning and error messages specific to each transaction on the Transaction Errors tab of the Review Cost Accounting Distributions page.

Review Cost Accounting Distributions

A single inventory transaction can generate multiple cost transactions, for which Cost Accounting creates accounting data.

In the Cost Accounting work area use the Review Cost Accounting Distributions page to see cost information and distributions related to each transaction, as well as receipt layers for receipt transactions, and depletion layers for issue transactions.

Cost Accounting Periods

Cost accounting periods enable you to monitor the timing of transaction processing, and to perform validations in preparation for period close.

Cost periods are associated with combinations of cost organizations and cost books. When you associate a cost organization with a cost book, you also define the cost accounting period calendar and other attributes.

Cost Period Calendar and Attributes

The cost period calendar is based on the ledger that is attached to the cost organization and cost book combination. For cost books that do not have an associated ledger, you can set the calendar and cost periods manually on the Manage Cost Organization Relationships page, Cost Books tab. On this page you also define the following cost period attributes:

  • First opened period. Establishes the period when transaction accounting begins. Any transactions that precede the first opened period, are accounted in the first opened period.

  • Maximum open periods. Specifies the maximum number of concurrent periods that can be open. If the number of periods is maximized, then no additional period can be opened until one of the open periods changes to Closed, Permanently Closed, or Pending Close status.

The run control parameters that you define for the cost processors include the cost cutoff date option and the cutoff date for the cost organization books that you're processing. The cost cutoff date sets the last transaction date that will be processed for an accounting period. This enables you to continue normal business operations with no interruptions from one period to the next, using the cost cutoff date to define accounting period boundaries for these transactions.

The following discusses the cost cutoff date option, backdated transactions, and the costing date of transactions.

Cost Cutoff Date Option

In the Cost Accounting work area, access the Create Cost Accounting Distributions page to set the cutoff date option to User-Defined or Auto. The User-Defined option requires you to specify the cutoff date, while the Auto option saves you the effort of redefining the cutoff date which is automatically moved forward by the cost processor.

When you select the Auto option, the cost processor moves the cutoff date forward to the last date of the earliest open cost period and then it stops, until the costing period is closed. After the period is closed, the cost processor advances the cutoff date into the next open period, and so on. However, for a transaction, if preprocess is successful after the cutoff date, then the cutoff date for that cost organization book moves forward to the date of the last transaction for which the preprocess was successful. This could happen, for example, if you originally set the cutoff date option to User-Defined and subsequently changed it to Auto.

Backdated Transactions

One of the purposes of the cost cutoff date is to allow backdating of transactions in an orderly fashion. For example, if you set the cost cutoff date to October 31, you can still process October transactions that were entered in November but meant for the period ending October 31 by backdating them to October 31 or earlier. However, when the cost cutoff date advances forward to a date past October 31 and other transactions are processed beyond October 31, then the backdated transactions can no longer be processed as October transactions.

If you set a cost cutoff date at October 31, the cost processor will queue up but not process any transactions with a date after October 31. If you subsequently need to backdate transactions to a date before October 31, you can still process those backdated transactions as long as you don't process any transactions beyond October 31. You can also backdate transactions to any date after October 31, with the assurance that these transactions will be processed in the correct order when the cost cutoff date moves forward.

Costing Date of Transactions

The costing date of transactions is normally the same as the transaction date, or the cost adjustment date, except for backdated transactions.

The cost date for backdated transactions inherits the greater of the backdated transaction date and the date of the last processed transaction.

Note: The cost cutoff date affects the costed date of the transaction and the inventory value that's reported as of a given accounting date. It doesn't affect the inventory transaction date.

You can use the Manage Cost Accounting Periods task in the Cost Accounting work area to perform validations to ensure that all transactions are complete and accounted for on an ongoing basis and before closing the accounting period.

You can execute the validations one at a time, or all at once. Correct any resulting transaction errors, and rerun validations as needed.

Validations

Perform cost accounting validations for periods that are in status Open, Pending Closed, or Closed. The validations check for the following:

  • Pending interface. Transactions that are yet to be interfaced to Cost Management.

  • Unprocessed transactions. Transactions that have been transferred to Cost Management and that are pending cost processing.

  • Unprocessed distributions. Costing transactions that have no distributions.

  • Unprocessed journals. Subledger transactions that have no accounting entries.

  • Pending deferred cost of goods sold (DCOGS) transactions. Confirm that the deferred cost of goods sold processor has run and transactions are transferred.

  • Completed work orders not closed. Work orders that have completed but that have not yet closed.

Cost period statuses enable you to manage the timing for processing and accounting of transactions.

The following describes rules that apply under each cost period status, and how transactions are slotted into cost accounting periods.

Cost Accounting Period Statuses

The cost period statuses are as follows:

  • Never Opened. Default status for new periods assigned to a cost organization and cost book. This status does not allow creation of distributions for transactions. You can change the status to Open, but you cannot change it to Closed, or Permanently Closed.

  • Open. A period status can be changed to Open only if the corresponding general ledger accounting period is open. You can open several periods at a time, so long as they are contiguous. You cannot change the current period to Open if the prior period status is Never Opened. When a period status is Open, inventory transactions can be accounted in that period; when the period is not open, inventory transactions cannot be accounted in that period, but they will be accounted in the next open period. Both costing and general ledger periods must be open for a transaction to be accounted; if the costing period is open but the corresponding general ledger period is closed, the transaction cannot be accounted and is held pending further user action. You can change an Open period status to Closed or Pending Close.

  • Pending Close. Use to stop transactions from being accounted in this period. Any new transactions entered with a transaction date that falls in a period that is in Pending Close status will be held pending further user action. You can set the Pending Close status back to Open status and then process the transactions, so that those which fall into the period will be staged for accounting in that period; or you can set the status of the period to Permanently Close and set the next period to Open, in which case the transactions will be accounted in the next open period.

  • Closed. You can change this status to Permanently Closed or you can revert it to Open. When you set a period status to Closed, you have the option of configuring the processor to allow closing even if all validations do not pass; this enables you to decide when discrepancies are not material enough to delay period close. You can also configure the processor to prevent closing a period until all selected validations pass. You set your preferences for period close validations when you associate cost books with cost organizations, on the Manage Cost Organization Relationships page, Cost Books tab.

  • Permanently Closed. Closes the period for all types of transactions irreversibly. You cannot change the period status to Permanently Closed without first changing the prior period status to Closed.

Transaction Accounting Dates

The costing application is designed to set the proper accounting date for inventory transactions, even when they are not entered into the application promptly or in the correct order. It does this by enabling backdating of transactions that are entered on a date later than the physical transaction date. For example, suppose the physical transaction date is November 30, and the transaction is entered into the costing application on December 2. In this case, you can backdate the transaction and, under certain conditions, the application will post that transaction into the prior period.

The application orders your transactions by setting the cost date. To preserve the integrity of previous calculations and to ensure that inventory balances tie with general ledger balances, the cost date cannot be set to a date prior to transactions that are already processed. The cost processor parameters that you define include a cost cutoff date, which lets you control the transactions that you want to process, including backdated transactions. In this example, as long as you have not processed any transactions after November 30, the processor will set the cost date to November 30 for transactions entered after November 30 with a backdated transaction date that is in November.

Once the cost date is established, the processor performs cost accounting calculations for the transaction, creates accounting distributions, and sets the accounting date based on the following logic:

  • If the cost date falls in a Never Opened period, the accounting date becomes the same as the cost date when that period status is Open. In the rare case where the transaction date is in a period that precedes the first period used in the application, the accounting date is set to a date in the first subsequent period that is Open.

  • If the cost date falls in a Pending Close or Closed period, you are alerted by an error message. You can reopen the period and the processor will attempt to set the accounting date to a date in that period; or you can permanently close the period to let the transaction accounting date move into the next Open period.

  • If the cost date falls in a period that is Permanently Closed and the next period is not Open, an error message warns you that the transaction will remain unaccounted until a subsequent period is opened. Once the subsequent period is Open, the accounting date of the transaction will move into that Open period.

When accounting distributions are staged within the costing subledger, the accounting distribution accounting date in the costing subledger becomes the proposed accounting date for posting into the general ledger through the subledger. If the general ledger application accepts the proposed accounting date, the transaction is posted with that date. If the proposed accounting date is not accepted (for example if the general ledger period has already closed), then the general ledger application returns an error and the cost processor sets the proposed accounting date to a date in the next open general ledger period.

Cost Processing

The actual cost method tracks the cost of each receipt into inventory. When depleting inventory, the processor logically identifies the receipts that are consumed to satisfy the depletion, and assigns the associated receipt costs to the depletion.

The actual cost method uses receipt layers for transaction costing and inventory depletion.

Receipt Layers

A receipt layer is created for each put away or delivery of an item into a cost organization. The item is assigned a cost profile that specifies the valuation structure of the item, and the valuation structure, in turn, specifies the valuation unit of the item. The receipt layer falls within the valuation unit. Under the actual cost method, the cost processor identifies the receipt that is used to satisfy the depletion, and applies the quantity depletion method that is defined in the cost profile. The accounting application currently uses the first in, first out (FIFO) depletion method.

The FIFO accounting method assumes that the goods received first are consumed first. This logic does not require that the inventory be physically moved in FIFO order. In reality, the inventory may be moving out in an unknown or random fashion, especially when the goods are fungible.

Inventory controls the physical flow of inventory, and the actual cost method can be configured to conform to the level of physical tracking maintained for inventory. For example, if the inventory is tracking at the lot level, the costs can also be tracked at that level. If there is more than one receipt for a given lot, the FIFO accounting method assumes that the receipts in the lot are consumed in FIFO order.

Receipt layers can be identified by combinations of any of the following: cost organization, inventory organization, subinventory, locator, lot, serial and grade.

The following table illustrates the process of creating receipt layers for an item within a valuation unit.

Transaction Date Transaction Type Quantity Unit Cost Receipt Layer Created

01-Jan-2011

PO Receipt

100

120 USD

Receipt #1

02-Jan-2011

PO Receipt

80

100 USD

Receipt #2

03-Jan-2011

Miscellaneous Receipt

20

105 USD

Receipt #3

Inventory Depletion

This table illustrates the process of depleting the item inventory based on the created receipt layers using FIFO logic:

Transaction Date Transaction Type Quantity Unit Cost Receipt Layer Created Receipt Layer Used for Depletion

01-Jan-2011

PO Receipt

100

120 USD

Receipt #1

Not applicable

02-Jan-2011

PO Receipt

80

100 USD

Receipt #2

Not applicable

03-Jan-2011

Miscellaneous Receipt

20

105 USD

Receipt #3

Not applicable

04-Jan-2011

Miscellaneous Issue

-40

120 USD

Not applicable

Receipt #1

05-Jan-2011

Miscellaneous Issue

-60

120 USD

Not applicable

Receipt #1

06-Jan-2011

Miscellaneous Issue

-15

100 USD

Not applicable

Receipt #2

Use standard costs for inventory valuation to simplify your transaction accounting. For items that use other cost methods for transaction accounting (such as the perpetual average cost method), you can still use standard costs for simulation and planning purposes.

This topic includes the following:

  • Configuring item attributes to enable costing

  • Setting up and updating standard costs

  • Inventory value adjustments based on standard costs

Configuring Item Attributes to Enable Costing

The following Costing prerequisite settings should be configured on the Manage Items page of the Product Information Management work area:

  • Costing Enabled. Set this attribute to Yes to report, value, and account for item costs.

  • Include in Rollup. Set this attribute to Yes to include an item in the cost rollup.

For more information on configuring Product Information Management settings for Cost Planning, see the guide Using Product Master Data Management.

Setting Up and Updating Standard Costs

Define the standard cost for a new item based on purchase information such as quotes from vendors, purchase contracts, or bill of material. Periodically review the variance between actual transaction costs and the standard cost of an item, and update the standard cost to ensure that it is close to actual costs.

Inventory Value Adjustments Based on Standard Cost

When you implement a new standard cost for an item, the standard cost processor automatically creates accounting adjustments to update inventory value. The adjustment is based on the revaluation of on-hand inventory as of the effective start date for the current standard cost. The adjustment amount is calculated as follows:

Cost Adjustment = (New Standard Cost minus Current Standard Cost) multiplied by Quantity on Hand

You can create standard costs by:

  • Importing them from external sources and legacy applications

  • Defining them manually in the costing application

Importing Standard Costs

To import standard cost data from external sources, you must load it into the Standard Cost Interface Table using the application interface or spreadsheet. Once loaded, view the data in the Cost Accounting work area, on the Manage Standard Cost Import Exceptions page, and validate the data by running the Import Standard Costs process. On this page you can also view any errors resulting from the validation process, fix the errors, and rerun the Import Standard Costs process. After validation is complete, the data are loaded into the Standard Costs Interface Table.

Defining Standard Costs

In the Cost Accounting work area, use the Manage Standard Cost Definitions page to view imported standard costs that have been validated, and standard costs that are published from standard cost planning, and also to create new standard costs..

On the Review Item Costs page view the perpetual average cost, actual cost, or standard cost details of items, chart cost trends, and compare cost records.

The options available for analyzing item costs are:

  • Cost details

  • Transaction costs

  • Cost comparisons

Cost Details

View the perpetual average cost, actual cost, or standard cost of an item for combinations of a cost organization, cost book, and valuation unit. View these costs for a current date or any date in the past.

The Cost Details page displays additional information on:

  • Cost breakdown: the item cost details for a receipt record. The breakdown is available by cost element, cost element type, and analysis group.

  • Cost history: the cost trend of an item over a period of time.

  • Depletions: the layer consumption for issues out of a receipt record.

  • Cost information: the cost details from the source transaction for a receipt record.

Transaction Costs

Select a time frame to view the perpetual average cost, actual cost, or standard cost history of an item, or specify the number of days for the moving average cost calculation.

For each transaction contributing to the item cost history, you can view the cost elements, transaction source, document number, quantity on hand prior to the transaction, transaction date, and transaction quantity.

Cost Comparisons

Compare the cost details for up to six records of:

  • Several items

  • One item across several cost organizations or cost books

  • One item over a period of time

Adjust the cost of items to manage obsolescence, or to mark down inventory to address "lower of cost or market requirements", price changes, and variances. You can make adjustments to the perpetual average cost of items, purchase order and miscellaneous receipt costs, and layer inventory cost.

This figure illustrates the process for making cost adjustments, processing them, and viewing results.

Cost adjustments and cost distributions

The costing application enables you to adjust costs, process them, and create the corresponding cost accounting distributions.

Entering Cost Adjustments

Adjust the cost of items on the Create Cost Adjustments page. You can make three kinds of adjustments for combinations of a cost organization, cost book, valuation unit, and cost element.

If you want to track the adjustment through the supply chain, use a cost element of type Adjustment:

  • Perpetual average item cost. Enter the new average unit cost. The processor will automatically adjust the overall average cost for the quantity on hand.

  • Receipt cost. The receipt cost is adjusted by an update from purchasing or accounts payable, or you can manually enter new receipt costs, PO receipts, interorganization receipts, miscellaneous receipts, or RMA receipts. The processor will automatically adjust the cost of the remaining receipt quantity.

  • Layer inventory cost. You can adjust the unit cost of items that use the actual cost method. The processor will automatically adjust the value of the on-hand receipt layer quantity.

You can bundle multiple records, such as multiple receipts or valuation units, into a single adjustment transaction, and when submitted, they are assigned an adjustment number. Optionally, you can also specify a reason code.

Save the adjustment and review the impact to inventory valuations based on the quantity on hand at the time of adjustment. Do this prior to final submission for cost processing, so that you can revise as necessary. After final review and submission, you can still void the adjustment, provided it is not yet processed by the cost processor. However, the adjustment cannot be reversed once processed. Accordingly, the adjustment status code is automatically set to: S for submitted, C for voided, or P for pending processing.

Processing Adjustments

When you review and submit a cost adjustment, the cost processor creates a new adjustment transaction:

  • For a perpetual average item cost adjustment, the processor updates the perpetual average cost of the item in that combination of cost organization, cost book, item, and valuation unit. The processor then applies the perpetual average item cost adjustment against inventory valuation at the rate of quantity on hand times the change in cost.

  • For a receipt cost adjustment, the processor updates the receipt cost for the portion of the receipt that is part of the current on-hand balance. The portion of the adjustment attributable to what is no longer part of the on-hand balance will be accounted for with a write off distribution. However, if the cost profile of the item has cost propagation enabled, the processor revalues the issue transactions that were consumed out of the receipt.

  • For a layer inventory cost adjustment, the processor updates the unit cost of the item in that combination of cost organization, cost book and valuation unit. The processor then updates inventory valuation at the rate of quantity on hand times the change in cost.

Example 1: Assume a receipt of 8 units, all of which are currently on hand. The valuation unit has a total of 10 units on hand. You adjust the cost of the receipt from $10 to $11 per unit. The processor adjusts the average cost by $0.80 (that is, 8/ (Division symbol) 10 * (Multiplication symbol) $1).

Example 2: Assume a receipt of 8 units, of which 6 units are currently on hand, and 2 units have been depleted. The valuation unit has a total of 10 units on hand. You manually adjust the cost of the receipt from $10 to $11 per unit. The processor adjusts the receipt cost by $6 (that is, 6 *(Multiplication symbol) $1), and creates a write off accounting distribution of $2 (that is, 2 * (Multiplication symbol) $1).

Example 3: Assume a valuation unit has a total of 7 units on hand, valued at $10 per unit. You manually adjust the unit cost to $12 per unit. The processor adjusts inventory value by $14 (that is, 7 * (Multiplication symbol) $2).

Reviewing Cost Adjustment Results

After running the cost processors, check processing results, including warning and error messages, on the Review Cost Accounting Processes page.

Review the accounting entries resulting from the cost adjustments on the Review Cost Distributions page.

Review the updated perpetual average cost or actual cost of items on the Review Item Costs page.

You may need to adjust the cost of a processed receipt for reasons such as invoice price variances, retroactive purchase order price changes, or prior adjustments. If you're using the actual cost method for transaction costing, you can propagate such adjustments to downstream inventory consumption transactions; and in the case of an interorganization transfer, you can propagate the receipt cost adjustment to the destination inventory organization.

The following discusses:

  • Receipt cost adjustments

  • Propagation of receipt cost adjustments

Receipt Cost Adjustments

Enter receipt cost adjustments on the Create Cost Adjustments page. Because these adjustments could distort the view of costs and margins downstream in the supply chain, you have the option of tracking them separately by using cost elements of type Adjustment.

If you're not tracking cost adjustments separately, you can use cost elements of type Material, Overhead, or Profit in Inventory.

Propagation of Receipt Cost Adjustments

You can propagate cost adjustments through the supply chain only if you're using the actual cost method for transaction costing. To do this you must enable propagation in the cost profile setup on the Create Cost Profile page.

When propagation is enabled, the cost processor:

  • Propagates receipt cost adjustments to downstream transactions by revaluing the transactions to the extent of quantity consumed.

  • Revalues any remaining inventory.

For interorganization transfers, the cost processor adjusts receipt costs in the destination organization and all organizations in between, provided that propagation is enabled in all of them. On the other hand, propagation stops if an inventory organization is associated with a cost profile that doesn't use the actual cost method, or doesn't have propagation enabled.

The processor always propagates cost adjustments through in-transit inventory organizations, regardless of propagation enablement.

If propagation isn't enabled, then the receipt cost adjustment is written off as an expense for all inventory that's consumed.

Acquisition Cost Adjustment

Oracle Cost Management Cloud provides an ability to value your inventory at the true acquisition costs. During receipt into inventory, inventory is valued at either purchase order price, including tax and any landed cost charges, or standard. Any differences between the standard cost and the purchase order price are expensed as a purchase price variance.

Subsequently, any additional costs that are imported from Payables, such as invoice price variance, exchange rate variance and tax rate variance, are used to true up the inventory cost by applying them as acquisition cost adjustments. The true up of inventory cost is carried out based on the cost method.

  • Actual cost (FIFO): acquisition cost adjustments apply to on-hand inventory as well as any consumption transactions such as sales order issues, work order issues, and transfers.

  • Average cost: acquisition cost adjustments apply only to the extent of on-hand inventory and any adjustments pertaining to inventory that's consumed are expensed out into cost variance.

  • Standard Cost: acquisition cost adjustments are always expensed out as a purchase price variance up to the extent of quantity delivered.

The amount being applied as an acquisition cost adjustment depends on proration to receipt quantity. As a result, the receiving inspection account will contain the balance arising from the differences between receipt quantity and Invoice quantity. In the case of standard costing, the remaining amount in the receiving inspection account reflects in the balance sheet instead of an income statement account.

Ignore Invoice Variances for Inventory Destination Purchase Orders

You can now exclude payables invoice cost variances from inventory valuation for inventory and work order destination purchase orders. You can use this for all cost methods when you don't intend to apply invoice cost variances as acquisition cost adjustments to item cost and inventory value.

Enable the exclude invoice cost variances feature by using the costing profile options. The profile option code for this feature is ORA_CMR_IGNORE_AP_INV_VAR_ALL. The corresponding profile name is 'Ignore Invoice Variances for Inventory Destination Purchase Orders'. This profile option must be set at the Site level.

When you set the profile value to Yes, unprocessed invoices in costing for both uninvoiced and partially invoiced PO distributions aren't used for creating additional receipt accounting distributions. The invoice variance amounts, if any, aren't considered for true up of inventory valuation or Purchase price variance.

When you change the profile value to No, unprocessed invoices in costing for both uninvoiced and partially invoiced PO distributions are used for creating additional receipt and cost accounting distributions for acquisition cost adjustment based on existing logic.

Costing Subinventory Material Staged for Production

This topic covers the costing of material moved from the warehouse or a common stock subinventory to a shop floor supply subinventory for work orders that are scheduled for production in the near future. This supply subinventory is commonly marked as not available-to-promise to prevent the production material from being used for other purposes, while enabling cost accountants to report on the value of the material that's staged for production but not yet issued to work orders.

Prerequisites

The following tasks must be completed in order to enable the costing of subinventory material staged for production:

  • Enable the following Subledger Accounting Journal Entry Rule Set: Work in Process Pick

  • Run the following process: Transfer Transactions from Inventory to Costing

Accounting Distributions

The following accounting distributions are created on the Review Cost Accounting Distributions page for the subinventory material issue:

Accounting Line Type Transaction Type

Offset

Debit

Inventory Valuation

Credit

The following accounting distributions are created on the Review Cost Accounting Distributions page for the receipt:

Accounting Line Type Transaction Type

Inventory Valuation

Debit

Offset

Credit

Cost Accounting for Outside Processing

Cost Accounting provides costing and accounting features for manufacturing outside processing, where one or more work order operations are outsourced to a supplier who provides specialized manufacturing services.

Costing of Outside Processing Work Orders

An outside processing work order is costed and processed as follows.

  • The outside processing service is modeled as an Item in cost planning, and is attached to a supplier operation.

  • You can define a standard cost and overheads for the outside processing item.

  • The outside processing item cost is included in the finished product's rolled up cost.

Transaction Processing for Outside Processing

Cost Accounting supports the Purchase Order Receipt into Manufacturing transaction type for the costing of outside processing items delivered to Manufacturing. The transaction processing depends on the cost method, as follows.

  • Actual or Average cost method. The purchase price multiplied by the number of items received is added to the work in process valuation.

  • Standard cost method. The standard cost multiplied by the number of items received is added to the work in process valuation. The difference between the purchase price and the purchase order is accounted as a purchase price variance.

Accounting Distributions Created for Outside Processing

You can review the distributions created for outside processing in the Cost Accounting work area on the Review Cost Accounting Distributions page. Cost Accounting creates the following distributions for the delivery of the outside processing service item to Manufacturing.

Accounting Line Type Transaction Type

Work In Process Valuation

Debit

Receiving Inspection

Credit

Cost Accounting for Manual Procurement of Items for Work Orders

Cost Accounting provides costing and accounting features for items that are directly procured from a work order and are received against that work order and operation.

Costing of Manual Procurement of Items for Work Orders

Cost Accounting supports the Direct Delivery to Work Order transaction type for the costing of items delivered to Manufacturing.

The transaction processing depends on the cost method:

  • Actual or Average cost method - The purchase price multiplied by the number of items received is added to the work in process valuation. This is also applicable for description-based and amount-based items.

  • Standard cost method - The standard cost multiplied by the number of items received is added to the work in process valuation. The difference between the purchase price and the purchase order is accounted as a purchase price variance.

Accounting Distributions for Manual Procurement of Items for Work Orders

You can review the distributions created for the Direct Delivery to Work Order transactions in the Cost Accounting work area on the Review Cost Accounting Distributions page.

This table lists the accounting distributions for manufacturing work orders.

Accounting Line Type Transaction Type

Work In Process Valuation

Debit

Receiving Inspection

Credit

This table lists the accounting distributions for maintenance work orders.

Accounting Line Type Transaction Type

Expense

Debit

Receiving Inspection

Credit

Cost Accounting for Rework and Transformation Work Orders

Cost Accounting provides costing and accounting functionality for the following manufacturing work order types:

  • Rework Work Orders. A work order of type Rework is created for finished products with defects that need to be repaired and reworked. For example, a product may need to have a defective component removed and replaced with a new component.

  • Transform Work Orders. A work order of type Transform is created when you want to refurbish a product and transform it into a different product, for example, by upgrading one of the product components.

Transactions Types for Rework and Transform Work Orders

The following transaction types have been added for rework and transform work orders:

  • Material Negative Issue. If the quantity is negative and the transaction type is Issue, then a Material Negative Issue transaction is used.

  • Material Negative Return. If the quantity is negative and the transaction type is Return, then a Material Negative Return transaction is used.

Cost Accounting for Manufacturing Work Orders

Cost Accounting provides costing and accounting functionality for these manufacturing work order types:

  • Process and discrete manufacturing work orders

  • Standard and non-standard work orders

  • Orderless manufacturing

After a work order is released in manufacturing execution, it can be interfaced to cost accounting. These transactions reported for the work orders get interfaced to costing and are processed by costing:

  • Component issues and returns

  • Resource charging and reversals

  • Product completions and returns

  • Scrap transactions

  • Work order close

Component Issues and Returns

The component transactions are costed based on the cost method of the component.

Cost Method Component Cost

Standard Cost

Uses current standard cost of the component.

Perpetual Average

Uses current perpetual average cost of the component.

Actual Cost

Uses the cost of the specific layer from which the component was issued by the cost processor.

Resource Charging and Reversals

Resource transactions are costed based on the resource cost set up in the Manage Resource Costs and published to cost accounting.

Product Completions and Returns

All product completions are costed with an estimated cost as provisional completions and their actual cost is calculated when the work order is closed. The estimated cost used for the product completion is based on the cost method and the corresponding provisional completions option set in the item cost profile of the product.

Cost Method Provisional Completions Options

Standard Cost

Value at standard cost

Perpetual Average

  • Value at last actual cost

  • Value at perpetual average cost

  • Value at standard cost

  • Value at work order close

Actual Cost

  • Value at last actual cost

  • Value at standard cost

  • Value at work order close

Note:
  • You can create a standard cost for any item, irrespective of the cost method.

  • If you set value at work order close, product completions are costed with the actual cost incurred for the work order when the work order close is processed. The product completion transactions won't be processed until work order is closed and will remain uncosted.

Scrap Transactions

The cost of scrap reported against a work order is calculated based on the actual cost incurred till the operation where the scrap has been reported. The scrap accounting is based on these parameters that are setup in the item cost profile.

  • The operation scrap valuation option is used to decide when the scrap transactions are processed.

    • Value at work order close: Bunches all the scrap transactions together and processes them at work order close.

    • Value immediately and at work order close: The scrap transaction is processed as soon as the cost processor encounters it and then corrects the value at work order close, if necessary. This option leads to more transactions than the previous option.

    • Value at cost cutoff date and at work order close: This option is used for long running batches. The scrap transaction is processed on the cost cutoff date, which is usually the month end, and is corrected at work order close, if necessary.

  • The operation scrap accounting option indicates how to account for the scrap transactions.

    • Include in inventory: The cost of the scrap is included in the inventory value. In essence, the cost of the scrap is spread over the good products produced in the work order. The scrap transaction is ignored by the cost processor and the distribution processor and is marked accordingly.

    • Expense: The cost of the scrap is expensed out from the work order.

Work Order Close

When the work order is closed, costing ensures that all the transactions reported for the work order are successfully costed. After successfully processing all transactions, these events are created in costing.

  • If the product is costed using actual cost or perpetual average, product cost adjustment transactions are created. After the work order is closed, cost processor calculates the actual cost for the product based on all the material and resource transactions reported for the work order. If there is a difference between this actual cost and the estimated cost used for the provisional completions, product cost adjustments are created.

  • The scrap costs are recalculated and necessary adjustments are created if the costs are different from the ones that were considered earlier.

  • If the product is costed using standard cost, then the cost processor compares the components and resources used for the work order with the work definition used to roll up the product and creates these variances.

    Variance Description

    Material Rate Variance

    The difference in cost when the rate used for the component during cost rollup is different from the rate used while costing the component issue transaction.

    Material Substitution Variance

    The difference in cost when an item in the work definition isn't used in the work order or when an item that isn't in the work definition is used in the work order.

    Material Usage Variance

    The difference in cost when the quantity used in the work order is different from the quantity specified in the work definition.

    Resource Rate Variance

    The difference in cost when the rate used for the resource during cost rollup is different from the rate used while costing the resource charging transaction.

    Resource Substitution Variance

    The difference in cost when a resource specified in the work definition isn't used in the work order or when a resource that isn't in the work definition is used in the work order.

    Resource Efficiency Variance

    The difference in cost when the actual usage of resource is different from the one that's specified in the work definition.

    Batch Size Variance

    The difference in cost for items and resources that have a usage basis of "fixed" and the quantity used in the work order is different.

    Job Close Variance

    This is used to accommodate any variances that the cost processor can't identify as one of those defined earlier. Also, if the standard cost of the product is manually setup and not through the cost rollup process, then the entire cost of components and resources is marked as job close variance.

Note: If a closed work order is reopened and closed again in manufacturing execution, these transactions will be recreated to identify if any new resource or material transaction is reported since the last time the work order was reopened.

You can review work order costs for process manufacturing and discrete manufacturing on the Review Work Order Costs page. The accounting transactions for work in process balances are displayed, including costs of inputs, outputs, scrap, and standard cost variances.

To review work order costs, perform the following steps.

  1. From the Navigator menu, select Cost Accounting.

  2. From the Tasks panel, select Review Work Order Costs.

  3. Search for the work order records by Cost Organization. You can also filter by Cost Book, Plant, Output Item, Work Order Number, and Work Order Status. The fields are described in the following table.

Field Description

WIP Balance

The work in process balance is equal to the sum of input and resource costs, minus completions and scrap costs.

Variance Percentage

The difference between actual and standard cost as a percentage of output cost.

Scrap Percentage

The scrap cost as a percentage of total work order cost. The processing of scrap valuation and scrap accounting is determined by the Cost Profile settings for your organization. For more information, see the guide Implementing Manufacturing and Supply Chain Materials Management.

The scrap costs are calculated using the following formula:

Scrap costs = (The total costs accumulated through this operation) multiplied by the (Scrap Quantity divided by the Batch Quantity)

Amount in Cost Book Currency

The value of input and resources at operation and cost element levels.

Operation Completion Quantity

The total quantity of completions and returns.

Cost Allocation Factor

The product costs for process manufacturing transactions are calculated based on the cost allocation factor defined in the work definition for the primary product, co-products, and by-products. All product completions processed before a work order is closed use an estimated cost based on the Provisional Completion setting defined for the item's Cost Profile. Once a work order is closed, the cost allocation factor is used to calculate the actual product costs. The cost allocation factor settings are as follows:

  • Fixed. The standard cost of the item is used to cost the provisional completions. You must create a standard cost for the output item when you set the cost allocation factor to Fixed.

  • Percentage. The following formula is used for products that have the cost allocation factor set to Percentage:

    Percentage = (The total costs accumulated through this operation minus Scrap Reported in this operation) multiplied by the Cost Allocation Factor), divided by the Quantity Produced.

You can view the variance details on the Variance Amounts tab. Information is displayed for the following variance types:

  • Material rate variance

  • Yield variance

  • Job close variance

  • Batch size variance

  • Usage variance

  • Efficiency variance

Yield Variance is used for process manufacturing work orders. The formula for calculating the yield variance is as follows:

Yield Variance = (The actual reported quantity minus the planned scaled quantity) multiplied by the standard cost of the product

Reviewing maintenance work orders enable you to track the costs incurred for the materials and resources used for maintenance activities. These activities include preventive maintenance, break down maintenance, and so on, which can be either in-house or performed outside by a supplier as outsourced jobs.

Prerequisites

The two prerequisites are:

  1. The following table lists the processes to be run. These processes must be run in the same sequence. They can be either scheduled or manually run.

    Process Run By Navigation

    Transfer Transactions from Maintenance to Costing

    Manufacturing Supervisor

    Tasks panel of Maintenance Management > Transfer Transactions from Maintenance to Costing.

    Transfer Transactions from Inventory to Costing

    Cost Accountant

    Scheduled Processes work area > Schedule New Process > Transfer Transactions from Inventory to Costing.

    Create Cost Accounting Distributions

    Cost Accountant

    Cost Accounting Work area > Create Cost Accounting Distributions.

    Create Accounting to create Accounting in SLA

    Cost Accountant

    Cost Accounting Work area > Create Accounting.

  2. The maintenance work order is in any status other than the unreleased status. That is, the work order is in any of the following statuses.

    • Released

    • On Hold

    • Canceled

    • Completed

    • Closed

Viewing Costs of a Maintenance Work Order

You can review the material and resource costs incurred for a maintenance work order on the Maintenance Work Order Costs page. You can review the cost details and their distributions, separately.

  • Details: View the summary of cost details, that is, the total cost, material costs, and the resource costs.

    You can further drill down and view detailed information about the material and resource costs incurred for each operation and work center in that work order.

  • Distributions: View the summary of costs distribution.

    Distributions provide accounting information for all the transactions reported against the maintenance work order that is being analyzed. The summary page shows the processing status of the transactions, that is, Not Processed, Partially Costed, and so on.

To review maintenance work order costs, do the following:

  1. Click Navigator > Cost Accounting.

  2. From the Tasks panel, under Cost Processing, select Review Maintenance Work Order Costs.

  3. Search for the work order records using the search filers: Cost Organization, Cost Book, Plant, Output Item, Work Order Number, and Work Order Status.

  4. Select the required work order from the search results and click View Costs.

    Note: You can also navigate to this page by clicking View Costs on the Edit Maintenance Work Orders page.

Reviewing Distributions of a Maintenance Work Order

Review distributions for all transactions reported against a maintenance work order or for a specific transaction. The transaction and costing details give you the accounting information of all the resources and materials used for each item.

To review distribution of maintenance work order costs, on the Maintenance Work Order Costs page:

  1. Select the required work order.

  2. Click Review Distributions.

The cost processor uses FIFO logic to cost purchase order (PO) returns. For sales returns that reference an RMA, the cost processor uses the original sales order cost; for sales returns that don't reference an RMA, it uses either the first or last receipt layer cost.

The following discusses costing details for purchase order returns and sales order returns.

Purchase Order Returns

For PO returns, the cost processor uses the FIFO receipt layer cost to deplete inventory, while it offsets receiving inspection at the acquisition PO price. The difference between the PO price and the FIFO receipt layer cost is booked as cost variance.

This table illustrates several receipts and issues of an item in an inventory organization, followed by a PO return for the same item:

Reference Transaction Date Transaction Type Quantity Unit Cost Receipt Layer Reference

Receipt #1

01-Jan-2011

PO Receipt

100

$120

Not applicable

Receipt #2

02-Jan-2011

PO Receipt

80

$100

Not applicable

Receipt #3

03-Jan-2011

Miscellaneous Receipt

20

$105

Not applicable

Issue #1

04-Jan-2011

Miscellaneous Issue

-40

$120

Receipt #1

Issue #2

05-Jan-2011

Miscellaneous Issue

-60

$120

Receipt #1

Issue #2

05-Jan-2011

Miscellaneous Issue

-15

$100

Receipt #2

Receipt #1

06-Jan-2011

PO Return

-10

$100

Receipt #2

The cost distribution processor creates the following accounting entries for the PO return:

  • Dr Receiving Inspection $100*10 / Cr Inventory $100*10

  • Dr Receiving Inspection $20*10 / Cr Cost Variance $20*10

Sales Returns

When you define the cost profile for an item, you can select one of three options for the costing of a sales return:

  • Referenced RMA: the cost processor costs the return using the original sales order issue cost.

  • Un-referenced RMA: the cost processor costs the return using:

    • First available receipt layer; or

    • Last available receipt layer.

This table illustrates several receipts and issues of an item in an inventory organization, followed by a referenced RMA sales return, and an un-referenced RMA sales return for the same item:

Reference Transaction Date Transaction Type Quantity Unit Cost Receipt Layer Reference

Receipt #1

01-Jan-2011

PO Receipt

100

$120

Not applicable

Receipt #2

02-Jan-2011

PO Receipt

80

$100

Not applicable

Receipt #3

03-Jan-2011

Miscellaneous Receipt

20

$105

Not applicable

Issue #1

04-Jan-2011

Miscellaneous Issue

-40

$120

Receipt #1

Issue #2

05-Jan-2011

Miscellaneous Issue

-60

$120

Receipt #1

Issue #2

05-Jan-2011

Miscellaneous Issue

-15

$100

Receipt #2

Referenced RMA of Issue #1

06-Jan-2011

RMA Receipt

25

$120

Not applicable

Un-referenced RMA

07-Jan-2011

RMA Receipt

5

$100 or $105

Not applicable

The processor costs the un-referenced RMA return using:

  • $100 per unit if you specify the first available receipt layer; or

  • $105 per unit if you specify the last available receipt layer.

Cost Accounting for Drop Shipments

Global drop shipment is an order fulfillment strategy where the seller does not keep products in the inventory. The seller relies on suppliers or contract manufacturers to build, store, and ship orders to the customers. When a customer places an order for a drop shipped product, the seller issues a purchase order for the item. The seller also provides instructions to the suppliers to ship directly to the customer. The supply chain financial orchestration process routes the orchestration flow of drop shipments through one or more business units within the corporation. These business units can belong to the same legal entity or may occur across legal entities.

The financial flow starts when the supplier sends the advanced shipment notice, or when the supplier matches the invoice with the purchase order for the drop shipment. The flow creates cost accounting distributions and intercompany invoices for the ownership transfers that occur between parties, including supplier, one or more organizations, and the customer. Supply Chain Financial Orchestration sends a request to the receiving system to create a drop ship receipt on the supplier invoice that references the purchase order. Receiving creates a logical receipt, and then notifies Order Management to start customer billing. This automation helps to reduce billing cycle time.

Cost Accounting Distributions for Drop Shipments

You can review the cost accounting distributions for drop shipments on the Review Cost Accounting Distributions page. The following accounting line types are created for drop shipment events.

Event Application Source Accounting Line Type Transaction Type

Drop Ship Delivery

Receiving/Inventory

Drop Ship Inventory

Debit

Drop Ship Delivery

Receiving/Inventory

Receiving Inspection

Credit

Trade Sale Issue

Supply Chain Financial Orchestration

DCOGS

Debit

Trade Sale Issue

Supply Chain Financial Orchestration

Drop Ship Delivery

Credit

Cost Management for Inclusive Taxes

To comply with country-specific regulatory requirements, you can capture item prices and all calculated exclusive and inclusive taxes in your purchases, with receipt costs adjusted to account for amounts of inclusive taxes that were incorporated in the item purchase price. The amounts of inclusive taxes are booked to a tax liability or recovery account.

Procurement flows for both delivery and non-delivery inclusive taxes are supported, as follows.

  • Tax Point Basis Set to Receipt. In the case of delivery based taxes, where the Tax Point Basis is set to Receipt, the tax call is made during the receipt transaction, and inclusive taxes are calculated. Based on the recoverable percentage defined, inclusive tax can have recoverable and nonrecoverable amounts. On the purchase order line, the total amount calculation incorporates the receipt quantity. During invoicing, the receipt values are copied to the invoice, therefore cost variance is not applicable.

  • Tax Point Basis Set to Invoice. In the case of non-delivery based taxes, where the Tax Point Basis is set to Invoice, recoverable and nonrecoverable inclusive taxes on the purchase order are copied during the receipt transaction. Any difference between the amounts on the receipt and the invoice are considered as variances, and are applied to the item cost.

Cost Management supports the following cost adjustments and accounting events for inclusive taxes:

Cost Adjustments and Accounting Events Description

Adjust Receipt and Inventory Cost for Inclusive Taxes on Purchase Orders.

Segregate and account for recoverable and nonrecoverable inclusive tax. When the item price on a purchase order line includes taxes, Receipt Accounting separates the item price into basic item price, inclusive recoverable tax, and inclusive nonrecoverable tax. This lets you account for nonrecoverable tax in the item cost when the price on the purchase order line contains inclusive tax.

Adjust Receipt and Inventory Cost for Inclusive Taxes on Global Procurement Purchase Orders.

Segregate and account for recoverable and nonrecoverable inclusive tax. When the item price on a global procurement purchase order line includes taxes, Receipt Accounting separates the item price into basic item price, inclusive recoverable tax, and inclusive nonrecoverable tax. Inclusive tax adjustments are now performed on logical transactions in the supplier-facing inventory organization when you physically receive the items in an inventory organization that is associated with a different business unit.

Adjust Receipt and Inventory Cost for Inclusive Taxes on Consignment Purchase Orders

Segregate and account for recoverable and nonrecoverable inclusive tax. When the item price on a consignment purchase order line includes taxes, Receipt Accounting separates the item price into basic item price, inclusive recoverable tax, and inclusive nonrecoverable tax. This lets you account for nonrecoverable tax in the consigned item cost when the price on a purchase order line contains inclusive tax.

Internal Material Transfers

Cost Management for Internal Material Transfers

Cost Management supports receipt accounting and cost accounting for requisition based internal transfers for items going to either an expense or an inventory destination, with or without a receipt at the destination.

Self-Service Procurement, Supply Chain Financial Orchestration, and Cost Management have been integrated to provide an estimated transfer price based on the internal cost of the items on the requisition. A transfer price is required on the internal material transfer requisition line for approval, budgetary control, and encumbrance accounting.

Cost Management supports requisition-sourced transfer orders going to expense destinations with multiple distributions and different expense accounts. Based on the account defined at the distribution level, Cost Management will book the expense for the appropriate account. In the case of transfers to expense destinations where a receipt is not required, new logical receipt and delivery transactions are created in Cost Management, similar to the physical events created with receipt expense destination transfers when a receipt is required. Budgetary control and encumbrance accounting are supported for expense destination internal transfer orders.

Budgetary Control

You can ensure that budget funds are available before a requisition for an internal transfer is submitted for approval. Depending on your budgetary control configuration, the funds will be reserved either at the time the requisition is submitted for approval, or when the requisition is approved. Insufficient funds override rules and approvers can be configured as part of budgetary control setup. Cost Management liquidates the commitment and books an expenditure at the time of delivery when a receipt is required, or at the time of shipment by creating a virtual receipt when the receipt is not required. The Requisition for Internal Material Transfer transaction subtype has been added to enable budgetary control of requisitions for internal material transfers.

Encumbrance Accounting

Encumbrance accounting entries are created for transactions subject to budgetary control and encumbrance accounting when the Create Accounting process is run. Cost Management liquidates the reserve for the encumbrance account and creates journal entries for the actual expense value.

Example of Accounting of Interorganization Transfers

This example illustrates:

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

  • Supply chain financial transactions that are captured in Oracle Fusion 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.

Example of Accounting of Interorganization Transfers with Cost Propagation

This example illustrates:

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

  • Supply chain financial transactions that are captured in Oracle Fusion 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 organizations.

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 is set up 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 cost per unit is $12.00. The transfer price is $15.00. M1 then makes a cost adjustment of $4.50 per unit.

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

Miscellaneous

Inventory

Cost Accounting

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

Receipt Cost Adjustment

Cost Accounting

Cost 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.

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

Miscellaneous Receipt

M1

Inventory

Material

+ 120.00

Transaction Cost

Cost Accounting

Miscellaneous Receipt

M1

Offset

Material

- 120.00

Transaction Cost

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 Issue

M1

Interorganization Receivable

Material

+ 150.00

Transfer Price

Cost Accounting

Trade in Transit Issue

M1

Trade in Transit

Material

- 120.00

Transfer Order Issue Cost

Cost Accounting

Trade in Transit Issue

M1

Interorganization Gain/Loss

Material

- 30.00

Transfer Price - Cost

Receipt Accounting

Trade Receipt Accrual

M2

Trade Clearing

+ 150.00

Transfer Price

Receipt Accounting

Trade Receipt Accrual

M2

Interorganization Payable

- 150.00

Transfer Price

Cost Accounting

Trade in Transit Receipt

M2

Trade in Transit

Material

+ 150.00

Transfer Price

Cost Accounting

Trade in Transit Receipt

M2

Trade in Clearing

Material

- 150.00

Transfer Price

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

Cost Accounting

Receipt Cost Adjustment

M1

Inventory

Material

+ 45.00

Cost Adjustment

Cost Accounting

Receipt Cost Adjustment

M1

Offset

Material

- 45.00

Cost Adjustment

Cost Accounting

Transfer Order Issue

M1

Trade in Transit

Material

+ 45.00

Propagated Cost Adjustment

Cost Accounting

Transfer Order Issue

M1

Inventory

Material

- 45.00

Propagated Cost Adjustment

Cost Accounting

Trade in Transit

M1

Interorganization Receivable

Material

+ 45.00

Propagated Cost Absorbed to Gain/Loss

Cost Accounting

Trade in Transit

M1

Trade in Transit

Material

- 45.00

Propagated Cost Absorbed to Gain/Loss

Cost Accounting

Trade in Transit

M1

Interorganization Gain/Loss

Material

+ 45.00

Propagated Cost Absorbed to Gain/Loss

Cost Accounting

Trade in Transit

M1

Interorganization Receivable

Material

- 45.00

Propagated Cost Absorbed to Gain/Loss

Transfer price once established doesn't get updated. Therefore, the propagated cost adjustment gets recorded against the interorganization gain/loss.

Transfer Price Cost of Shipment Interorganization Gain/Loss

Before Cost Propagation

150.00

120.00

30.00

After Cost Propagation

150.00

165.00 (120.00 + 45.00)

- 15.00 (30.00 - 45.00)

Example of Accounting of Intraorganization Transfers with Cost Propagation

This example illustrates:

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

  • Accounting entries that Receipt Accounting and Cost Accounting generate for the transfer of goods within an organization.

Scenario

A transfer order is issued from an inventory to an expense destination within an organization. The quantity of goods transferred is 10 units and the cost per unit is $12.00. There's a subsequent cost adjustment of $3.00 per unit. The Actual cost method is used and Cost Propagation is enabled in the cost profile.

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

Miscellaneous Receipt

Inventory

Cost Accounting

Transfer Order Issue

Inventory

Cost Accounting

Transfer Order Receipt

Receiving

Receipt Accounting

Transfer Order Deliver to Expense

Receiving

Receipt Accounting

Receipt Cost Adjustment

Cost Accounting

Cost Accounting

Transfer Order Expense Adjustment

Cost Accounting

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.

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

Miscellaneous Receipt

Subinventory 1

Inventory

Material

+ 120.00

Transaction Cost

Cost Accounting

Miscellaneous Receipt

Subinventory 1

Offset

Material

- 120.00

Transaction Cost

Cost Accounting

Transfer Order Issue

Subinventory 1

Trade in Transit

Material

+ 120.00

Current Item Cost

Cost Accounting

Transfer Order Issue

Subinventory 1

Inventory

Material

- 120.00

Current Item Cost

Receipt Accounting

Transfer Order Receipt

Expense Destination

Receiving Inspection

+ 120.00

Transfer Price

Receipt Accounting

Transfer Order Receipt

Expense Destination

Trade in Transit

- 120.00

Transfer Price

Receipt Accounting

Transfer Order Deliver to Expense

Expense Destination

Expense

+ 120.00

Transfer Price

Receipt Accounting

Transfer Order Deliver to Expense

Expense Destination

Receiving Inspection

- 120.00

Transfer Price

Cost Accounting

Receipt Cost Adjustment

Subinventory 1

Inventory

Material

+ 30.00

Cost Adjustment

Cost Accounting

Receipt Cost Adjustment

Subinventory 1

Offset

Material

- 30.00

Cost Adjustment

Cost Accounting

Transfer Order Issue

Subinventory 1

Trade in Transit

Material

+ 30.00

Propagated Cost Adjustment

Cost Accounting

Transfer Order Issue

Subinventory 1

Inventory

Material

- 30.00

Propagated Cost Adjustment

Receipt Accounting

Transfer Order Expense Adjustment

Expense Destination

Expense

+ 30.00

Propagated Cost Adjustment

Receipt Accounting

Transfer Order Expense Adjustment

Expense Destination

Trade in Transit

- 30.00

Propagated Cost Adjustment

Note: If Cost Propagation is disabled in the cost profile or the Average cost method is used, then the Receipt Cost Adjustment event books the change in the cost to Inventory Write Off/Cost Variance because the inventory is no longer on-hand.

Cost of Goods Sold and Gross Margin

Sales Order Issue

A sales order issue transaction is created in inventory when a shipment confirmation occurs and gets interfaced to costing through the Transfer Transactions from Inventory to Costing process. The cost processor assigns a cost to this transaction based on the cost profile of the item.

To ensure that the transaction is costed and distributions are created in Cost Accounting you must run these processes.

  • Transfer Transactions from Inventory to Costing

  • Create Cost Accounting Distributions

Note: When running the Create Cost Accounting Distributions process, ensure that you select the Cost of Goods Sold processor and also set the cost cut-off date.

Cost of Goods Sold Recognition

The cost of goods sold recognition transaction helps you to recognize associated cost of goods sold in proportion to the revenue recognized in Oracle Fusion Receivables or Oracle Fusion Revenue Management. The Analyze Product Gross Margins page in Cost Accounting shows the recognized and unrecognized revenue and cost of goods sold information.

To interface the revenue recognition information from Receivables, you must perform these steps.

  • Run the Import Revenue Lines process for the business unit.

    This picks up the Final Accounted revenue lines from Receivables and copies it to Cost Accounting. Ensure that you select the number of workers. Also, you can select an import as-of date. Revenue lines with an accounting date that's equal to or earlier than the import as-of-date get interfaced to Costing. If you don't set this date, it will default to the system date when the process runs.

  • Run the Create Cost Accounting Distributions process with the Cost of Goods Sold processor checked.

The Cost of Goods Sold processor matches the revenue lines to the shipment lines and identifies the revenue recognition percentage. It then uses this percentage value to recognize the Cost of Goods Sold for the same proportion.

Revenue Recognition % = Recognized Revenue / Total Revenue

The transaction date of the cost of goods sold recognition will be the accounting date of the revenue line. The accounting date will be the greater of the transaction date and the cost date of the original sales order issue.

To avoid accounting date discrepancies between revenue and cost of goods recognition, it's recommended that you first close the Receivables period, then the costing period, and lastly the General Ledger period. However, if the transaction date of the cost of goods sold recognition falls in a period that was already closed, it will automatically be posted in the next open period.

Depending on the type of sales order, how the costs of goods sold recognition happens differs. This table summarizes the costs of goods sold recognition for the different sales order types.

Sales Order Type Cost of Goods Sold Recognition

Ship-only sales orders

Ship-only sales orders aren't invoiced. Therefore, the cost of goods sold recognition automatically happens at 100%.

Ship and bill sales orders

Cost of goods sold recognition happens for item or items that are shipped. The percentage of recognition is derived from the invoice revenue lines that are matched to the shipment lines.

Bill-only sales orders

In this case, there are no shipments but the Analyze Product Gross Margin page displays the revenue information.

Internal drop ship

Cost of goods sold recognition is created for the Trade Sales Issue in the customer-facing business unit.

Oracle Fusion Revenue Management Integration

The integration with Oracle Fusion Revenue Management enables you to identify revenue contracts as sales order documents are submitted. In compliance with IFRS 15 and ASC 606, Revenue Management automatically identifies accounting contracts, performance obligations, and their valuations at inception, thereby providing you with insight into the expected consideration from the sale of goods and services to customers as soon as the orders are booked. This integration enables Oracle Revenue Management to process fulfillment data from Order Management and recognize revenue when performance obligations are satisfied.

When a revenue satisfaction event has been accounted in Revenue Management, the integration with Cost Management enables the associated cost of goods sold to be accurately recognized in the same period and the same proportion to the revenue recognized in Revenue Management. The revenue and the cost of goods sold information is available for you to perform detailed gross margin analysis.

When you set up integration with Revenue Management, Oracle Fusion Receivables isn't used as the revenue source and, therefore, running the Import Revenue Lines process isn't necessary.

These steps help recognize the cost of goods sold if Revenue Management is used for the purposes of revenue recognition.

  • After sales orders are interfaced from Oracle Order Management to Oracle Revenue Management, contracts are created, and revenue satisfaction events are accounted by the Revenue Management Create Accounting process. The process then automatically interfaces the revenue accounting events to Oracle Cost Management.

  • Run the Create Cost Accounting Distributions process with the Cost of Goods Sold processor checked.

The Cost of Goods Sold processor matches the revenue lines to the shipment lines and creates the distributions to recognize the cost of goods sold to the extent of revenue recognition.

Depending on the type of sales order, how the costs of goods sold recognition happens differs. This table summarizes the costs of goods sold recognition for the different sales order types.

Sales Order Type Cost of Goods Sold Recognition

Ship-only sales orders

Revenue Management creates the revenue lines as per the ASC606 standard and the cost of goods sold recognition will happen based on the revenue recognition.

Ship and bill sales orders

Cost of goods sold recognition happens for item or items that are shipped. The percentage of recognition is derived from the invoice revenue lines that are matched to the shipment lines.

Bill-only sales orders

In this case, there are no shipments but the Analyze Product Gross Margin page displays the revenue information.

Note: The revenue recognition information for the internal inter-business unit transfer transactions will continue to be interfaced from Oracle Receivables.

Sales Returns

If a sales return is referenced to a sales order, then the cost at which the shipment happened is used to offset the recognized cost of goods sold. In the case of a sales return without reference to the original sales order, the current cost of the item is used to offset the cost of goods sold.

Adjustment Propagation

If you're using the Actual cost method, then there's an option to propagate adjustments, such as price changes, through the supply chain.

For example, an acquisition cost adjustment transaction created for Invoice Price Variance can trigger the reopening of a closed work order, if the corresponding receipt was used in a work order. After the cost of the work order is recalculated, the cost processor identifies whether that material is available in stock or if it's already shipped. If the item is available in stock, then the Inventory Valuation is adjusted. If the item has been shipped, then the cost of goods sold is adjusted.

Note: The propagation of cost adjustment is applicable only if the item is costed using the Actual cost method. Also, the Propagate Cost Adjustment option must be selected in the cost profile associated with the item.

Example of Cost of Goods Sold Recognition

This example illustrates the method of revenue recognition in Oracle Fusion Receivables and Oracle Fusion 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 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 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 Revenue Management. In this example, the entire 100% of the revenue is recognized in Revenue Management and the information is interfaced to Costing, 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

Example of Return Material Authorization Recognition for Sales Returns

This example illustrates the accounting of sales returns and the corresponding return material authorization (RMA) recognition.

Scenario

Let's assume that there's a return of the item from the previous example. Out of the two network gateway switches shipped, the customer wants to return one of them. Order Management orchestrates the return information to Oracle Fusion Receivables or Oracle Fusion Revenue Management, depending on which application is being used, and the information is interfaced to Costing through the same process that's followed for forward flows. After the revenue reversal information is available, the cost of goods sold processor creates the distribution for the RMA recognition event based on the revenue reversal information.

Analysis

Similar to the forward flow, two transactions are created for sales returns. The Return Material Authorization sales order is first created and the goods are returned through a Return Material Authorization in Receiving. Once the transaction is interfaced to costing, these distributions are created.

RMA Receipt

RMA Order # Receipt # Item Unit Cost Quantity Deferred RMA Gain/Loss Inventory

520951

34578

Network Gateway Switch

50.00

1

- 50.00

50.00

In this example, the entire 100% of the revenue is recognized in Receivables and the information is interfaced to costing, based on which the cost of goods sold recognition transactions are costed and accounted.

RMA Recognition

RMA Order # Invoice # Item Unit Cost Quantity Deferred RMA Gain/Loss RMA Gain/Loss

520951

127074

Network Gateway Switch

50.00

1

50.00

- 50.00

Global Procurement

Overview of Global Procurement Trade Accounting

Companies often design their legal structure for financial efficiency as well as efficiency in the physical flow of goods through the supply chain. Typically, the most optimal financial movement of goods is different from the most optimal physical movement of goods. For example, the purchase requisitions from a group of subsidiary companies could be routed through a single international purchasing company who deals with the suppliers. As a result, the legal owners of the purchasing organizations will be different from the legal owners of the receiving organizations. This form of purchasing is known as global procurement.

The following discusses:

  • Global procurement trade flows

  • Trade agreements and accounting rule sets

  • Agreements converted to purchase orders

  • Commonly used terms

Global Procurement Trade Flows

This figure illustrates a typical global procurement trade flow, in this case between a US corporation and its China supplier. The US corporation has a central procurement business unit which creates trade agreements and purchase orders on behalf of its subsidiaries.

Global procurement overview

The China supplier drop ships the goods directly to the US receiving inventory organization M1. However for legal and accounting purposes, the trade flows from the China supplier through the China sold-to legal entity (China Ltd), to the US receiving legal entity (US Inc). For management and profit tracking purposes, the trade flows from the China sold-to profit center business unit CN BU to the US receiving profit center business unit US West.

Financial Trade Agreements and Accounting Rule Sets

A trade agreement defines the parties in the trade relationship. In this example the trade agreement is between the US corporation and the China supplier, and it defines the buying, selling, sold-to, and receiving legal entities, profit center business units, inventory organizations, and trade organizations.

The accounting rule sets define source documents and accounting that is required in the legal and financial flow, also known as the ownership change event flow. A rule set is associated with a financial route, and financial routes can have different accounting rule sets.

The following illustrates a trade agreement setup for the US corporation:

  • Agreement #: GP001

  • Type: Procurement

  • Supplier Ownership Change: ASN (Advance Shipment Notice)

  • Primary Trade Relationship #: PTR1

  • Sold-to Legal Entity: China Ltd.

  • Sold-to Business Unit: CN BU

  • Deliver-to Legal Entity: US Inc.

  • Deliver-to Business Unit: US West

  • Financial Trade Relationship #: FTR1

  • From Legal Entity: China Ltd.

  • From Business Unit: CN BU

  • From Organization: CN INV ORG

  • To Legal Entity: US Inc.

  • To Business Unit: US West

  • To Organization: M1

  • Profit Tracking: Yes

  • Invoicing: Yes

  • Obligation Currency: CNY

  • Rate Type: Corporate

  • Transfer Pricing: Purchase Order - 10%

  • Purchase Order/Sales Order: No

Trade Agreement Converted to Purchase Orders

The trade agreement is used to create purchase orders. The following illustrates a purchase order created under the US Corporation trade agreement # GP001:

  • Document Type: Purchase Order

  • Document #: PO-GP001

  • Document Line #: 1

  • Document Line Detail: 1.1

  • Document Line Distribution #: 1.1.1

  • Item: SFO-CST_ASSET

  • Quantity: 100

  • UOM: Each

  • Currency: CNY

  • Price: 650

  • Sold-to Legal Entity: China Ltd.

  • Trade Organization: CN INV ORG

  • Deliver-to Organization: M1

  • Primary Trade Relationship #: PTR1

Global Procurement Common Terms

The following table describes the terms commonly used in global procurement trading:

Terms Definitions and Rules

buy-sell relationship

Relationship between two business units where one acts as a buyer and the other as a seller of goods or services. The seller records the revenue, cost of sale, and receivables. The buyer records the payables and inventory or expense. A buy-sell trade between internal business units is settled through the transfer price.

asset item

Inventory item where the cost of acquisition is valued as an asset on the balance sheet. The inventory cost is expensed when it is consumed or sold.

expense item

Inventory item whose cost of acquisition is booked as an expense.

transfer price

The unit price that one business unit charges another for goods or services traded within the enterprise. The transfer price is typically based on the price list, cost plus or minus, or purchase price plus or minus.

financial route

Designates how financial transactions are settled, can be different from the physical route, and may involve one or more intermediary nodes. The intermediary nodes are internal business units that are not part of the physical supply chain transaction but are part of the financial route.

Incoterms

A series of sales terms in international trade, used to define the rights and obligations of the trade partners with respect to the delivery of goods sold. Incoterms are used to divide transaction costs and responsibilities between buyer and seller, and to reflect transportation practices.

intercompany profit and loss

The internal profit or loss arising out of trade among business units in the enterprise. These internal profits and losses are used for internal management but are typically eliminated when producing the enterprise consolidated financial statements for external stakeholders.

intercompany trade

The trade of goods and services between organizations belonging to different legal entities within a conglomerate.

intracompany trade

The trade of goods or services between two internal organizations within a legal entity.

ownership change event

The transfer of title of goods and services from one party to another. This results in accounting and the creation of financial documents such as Accounts Receivable and Accounts Payable invoices.

price list

Contains the basic list information and pricing attributes for items or product groups.

pricing option

A method to compute the transfer price based on cost, source document price, or price list.

profit center

A business unit that operates with its own income statement and reports to the legal entity.

purchasing trade organization

The inventory organization reporting to the sold-to legal entity identified in the purchase order. This organization is used for cost accounting the transactions in the sold-to legal entity.

qualifiers

Business attributes of a supply chain document or transaction that determine the applicability of the trade agreement.

supply chain financial orchestration agreement

An agreement between the legal entities, business units, and trade organizations of a corporate group. The agreement defines the parties in the trade relationship and the financial settlement process.

trade distributions

Subledger entries created by Oracle Fusion Receipt Accounting and Oracle Fusion Cost Accounting for Oracle Fusion Supply Chain Financial Orchestration trade transactions.

procurement business unit

Has central responsibility for the creation of trade agreements and purchase orders on behalf of legal entities and business units under the holding company.

Oracle Fusion Receipt Accounting and Oracle Fusion Cost Accounting create accounting distributions for trade transactions in the supply chain. These accounting distributions are associated with two kinds of business units: profit center business units and bill-to business units.

The following explains the different business units associated with trade transactions and the assumptions used to derive them.

Profit Center Business Unit

A profit center business unit reports to a single legal entity and is responsible for measuring the profitability of inventory organizations under that legal entity. All trade transactions are associated with a profit center business unit which, in turn, is derived from the inventory organization that owns the trade transaction. Cost Accounting uses the profit center business unit to process all inventory transactions.

Bill-to Business Unit

A bill-to business unit is used to process receipt accruals in a trade transaction, and is the same business unit that processes the invoice in Accounts Payable. For supplier accruals, the bill-to business unit is derived from the purchase order. For intercompany accruals, the bill-to business unit is derived from the profit center business unit.

Example of Accounting of Global Procurement Trade Transactions into Inventory

Most large enterprises use a global procurement approach to their purchasing needs, wherein a central buying organization buys goods from suppliers on behalf of the internal organizations. Oracle Fusion Receipt Accounting and Oracle Fusion Cost Accounting process transactions for these global procurement trade events and generate subledger journal entries.

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

  • Transactions that are captured in Oracle Fusion 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 a shipment 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. through the intermediary distributor, China Ltd.

Transactions from Oracle Fusion 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.

  • China Ltd books a profit of USD 40 (USD 100 transfer price - USD 50 PO price - USD 10 overhead).

Analysis

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

Accounting Entries

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

Accounting entries for the forward flow of global
procurement inventory

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 distributions.

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

Expense

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

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 distributions.

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

50

USD

Material

Sending Organization Cost

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

40

USD

Profit in Inventory

Internal Markup

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

Cost Accounting

PO Delivery

Inventory Valuation

50

USD

Material

Sending Organization Cost

Cost Accounting

PO Delivery

Inventory Valuation

10

USD

Overhead

Sending Organization Cost

Cost Accounting

PO Delivery

Inventory Valuation

40

USD

Profit in Inventory

Internal Markup

Cost Accounting

PO Delivery

Receiving Inspection

-100

USD

Not Applicable

Transfer Price

US Inc returns goods directly to China Supplier.

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

Accounting entries of global procurement return
flow

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 distributions.

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

-50

USD

Material

Sending Organization Cost

Cost Accounting

Trade In-Transit Return

Trade In-Transit

-10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade In-Transit Return

Trade In-Transit

-40

USD

Profit in Inventory

Internal Markup

Cost Accounting

Return to Receiving

Receiving Inspection

100

USD

Material, Overhead, and Profit in Inventory

Transfer Price

Cost Accounting

Return to Receiving

Inventory Valuation

-50

USD

Material

Sending Organization Cost

Cost Accounting

Return to Receiving

Inventory Valuation

-10

USD

Overhead

Sending Organization Cost

Cost Accounting

Return to Receiving

Inventory Valuation

-40

USD

Profit in Inventory

Internal Markup

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

Receipt Accounting

Intercompany AP Invoice

Intercompany Liability

100

USD

Not Applicable

Transfer Price

Receipt Accounting

Intercompany AP 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 distributions.

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

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

Not Applicable

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

Cost Accounting

Trade In-Transit Return

Trade In-Transit

-50

USD

Material

PO Price

Cost Accounting

Trade In-Transit Return

Trade In-Transit

-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 COGS

-50

USD

Material

PO Price

Cost Accounting

Trade In-Transit Return Receipt

Intercompany COGS

-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 Receivable

-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.

Example of Accounting of Global Procurement Trade Transactions into Expense

Oracle Fusion Receipt Accounting and Oracle Fusion 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 Fusion 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 Oracle Fusion 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).

Accounting entries for the forward flow

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 .

Return flow accounting entries

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 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.

Receipt Accounting and Cost Accounting process and create accounting distributions for trade transactions in the supply chain.

The following explains how to review the results of global procurement trade transactions processed by Receipt Accounting and Cost Accounting.

Receipt Accounting Results

In the Receipt Accounting work area, access the Review Receipt Accounting Distributions page. On this page you can view accounting details by Source Document Number and Source Document Line Number. Source documents are purchase order schedules, transfer orders, and sales orders.

Cost Accounting Results

In the Cost Accounting work area:

  • Access the Review Item Costs page. On this page you can view a breakdown of the cost of items, cost comparisons of items across organizations, and cost trends over time.

  • Access the Review Cost Accounting Distributions page. On this page you can view accounting details of trade transactions by Reference Document Number.

Cost Accounting Examples

Example of Using the Actual Cost Method

This example illustrates how the cost processor uses the actual cost method to cost: inventory receipts, cost of goods sold, and the value of beginning and ending inventory.

Scenario

A restaurant business receives two shipments of raw material for a total of 25 units, and a sales order of 12 units. The unit is defined as a sandwich, and the raw material is defined as sandwich food ingredients.

Transaction Details

The business needs to calculate:

  • Overhead absorption on the two receipts.

  • The value of beginning and ending inventory, including raw materials and overhead absorption.

  • Cost of good sold.

Analysis

Following are the details for two receipts of raw materials:

Receipt ID Inventory Value

Receipt #1

10 * $10 = $100

Receipt #2

15 * $12 = $180

The cost processor calculates overhead absorption for the two receipts as follows:

Receipt ID Overhead Absorption

Receipt #1

Labor: $5

Facility: $3

Receipt #2

Labor: $8

Facility: $7

Resulting Accounting Distributions

The distribution processor generates the following accounting entries:

Event Accounting Entry

Receipt #1: 10 units raw material

Dr Inventory-Raw Material $100

Cr Receiving $100

Receipt #1: overhead

Dr Inventory-Labor $5

Dr Inventory-Facility $3

Cr Overhead Absorption $8

Receipt #2: 15 units raw material

Dr Inventory-Raw Material $180

Cr Receiving $180

Receipt #2: overhead

Dr Inventory-Labor $8

Dr Inventory-Facility $7

Dr Overhead Absorption $15

COGS for 12 units (10 * $108/10) + (2 * $195/15)

Dr COGS $134

Cr Inventory $134

The beginning inventory is 25 units valued at: 10 * $10.8 + 15 * $13 = $303.

The ending inventory is 13 units valued at: 13 * $13 = $169.

Adjust the cost of an item to reflect fluctuating market costs, or to reflect other changes, such as increased overhead costs.

The following are examples of cost adjustments.

Adjustment at Item Cost Level

Assume the average cost of an item increases from $5 to $6, and the quantity on hand is 100 each. The distribution processor creates the following accounting entry to adjust the item cost.

Accounting Line Type Debit Credit

Inventory Valuation

$100

Not applicable

Offset

Not applicable

$100

Adjustment at Cost Element Level

Assume that an item has the following cost structure.

Cost Element Amount

Material

$4.00

Freight

$1.00

Tax

$0.50

Utilities

$0.50

If the quantity on hand is 100 each, and you want to increase utilities cost from $0.50 to $1.00, the distribution processor creates the following accounting entry to adjust the item cost.

Accounting Line Type Debit Credit

Inventory Valuation - Utilities

$50

Not applicable

Offset

Not applicable

$50

Layer Inventory Cost Adjustment

Assume that you adjust the cost of an item from $9 to $11, and the remaining receipt layer quantity is 60 units. The distribution processor creates the following accounting entry to update inventory valuation.

Accounting Line Type Debit Credit

Inventory Valuation

$120

Not applicable

Offset

Not applicable

$120

This example illustrates the accounting entries resulting from a receipt cost adjustment for an invoice price variance, the revaluation of inventory, and propagation of the cost adjustment to interorganization transfers and sales issues.

Scenario

Organization A has a purchase order receipt, for which it subsequently processes an invoice price variance adjustment. Organization A fills a sales order, and transfers some of its inventory to Organization B, who fills another sales order.

Transaction Details

Organization A has a PO receipt of 100 units at $100 per unit, of which it sells 30 units, and transfers 20 units to Organization B at a transfer price of $125. Organization B in turn sells 6 units. The IPV for the initial PO receipt is $20 per unit.

Analysis

Run the cost processor to cost the initial PO receipt, the interorganization transfer, and the sales issues from Organization A and Organization B. After entering the receipt cost adjustment for the IPV of $20 per unit, rerun the cost processor to update the value of remaining inventory, and to propagate the IPV adjustment to the interorganization transfer, and the sales issues from Organization A and Organization B.

Resulting Accounting Entries

The cost distribution processor creates accounting entries for the PO receipt, interorganization transfer to Organization B, and sales issues from Organization A and Organization B. The following table describes those accounting entries:

Event Accounting Entries

Organization A PO receipt: 100 units at $100

Dr Inventory (Material) $100*100

Cr Receiving Inspection $100*100

Sales issue from Organization A: 30 units at $100 per unit

Dr DCOGS $100*30

Cr Inventory $100*30

100 percent COGS recognition for sales issue

Dr COGS $100*30

Cr DCOGS $100*30

Transfer from Organization A to Organization B: 20 units at $125 per unit

Dr Interorganization Receivable $125*20

Cr Inventory (Material) $100*20

Cr Interorganization (Gain/Loss) $25*20

Interorganization receipt by Organization B from Organization A: 20 units at $125

Dr Inventory (Material) $100*20

Dr Inventory (Profit in Inventory) $25*20

Cr Interorganization Payable $125*20

Sales issue from Organization B: 6 units at $125 per unit

Dr DCOGS (Material) $100*6

Dr DCOGS (Profit in Inventory) $25*6

Cr Inventory (Material) $100*6

Cr Inventory (Profit in Inventory) $25*6

100 percent COGS recognition for sales issue

Dr COGS (Material) $100*6

Cr DCOGS (Material) $100*6

Dr COGS (Profit in Inventory) $25*6

Cr DCOGS (Profit in Inventory) $25*6

The cost distribution processor creates accounting entries for the IPV adjustment to inventory value, and to propagate the IPV adjustment to the interorganization transfer, and to the sales issues from Organization A and Organization B. The following table describes those accounting entries :

Event Accounting Entries

Organization A Inventory cost adjustment: 100 at $20

Dr Inventory (Material) $20*100

Cr Receiving Inspection $20*100

Propagate adjustment to interorganization transfer from Organization A to Organization B: 20 units at $20

Because the transfer price remains the same, we revalue the interorganization gain/loss.

Dr Interorganization Gain/Loss $20*20

Cr Inventory (Material) $20*20

Propagate adjustment to interorganization receipt by Organization B from Organization A: 20 units at $20

Dr Inventory (Material) $20*20

Cr Offset Account $20*20

Dr Offset Account $20*20

Cr Inventory (Profit in Inventory) $20*20

Propagate adjustment to sales issue from Organization A: 30 units at $20

Dr COGS $20*30

Cr Inventory (Material) $20*30

Propagate adjustment to sales issue from Organization A: 30 units at $20

Dr DCOGS (Material) $20*30

Cr Inventory (Material) $20*30

Propagate adjustment to COGS recognition

Dr COGS (Material) $20*30

Dr DCOGS (Material) $20*30

Propagate adjustment to sales issue from Organization B: 6 units at $20

Dr DCOGS (Material) $20*6

Cr Inventory (Material) $20*6

Dr Inventory (Profit in Inventory) $20*6

Cr DCOGS (Profit in Inventory) $20*6

Propagate adjustment to COGS recognition

Cr COGS (Profit in Inventory) $20*6

Dr DCOGS (Profit in Inventory) $20*6

Dr COGS (Material) $20*6

Cr DCCOGS (Material) $20*6

Example of Acquisition Cost Adjustment for Partial Receipts

This example illustrates the accounting entries for an acquisition cost adjustment and the corresponding entries when the ignore invoice variances for inventory destination purchase orders feature is enabled.

Scenario

An organization has a purchase order receipt, for which it subsequently processes an invoice price variance adjustment.

Transaction Details

The details of the transactional data are listed in this table.

Transaction Type Cost Component Quantity Price Comments

PO

10

$10.00

 

Receipt Accrual

PO Price

8

$10.00

Deliver to Inventory

Standard Cost

8

$8.00

Invoice (Match to PO)

Invoice Price

8

$12.00

Invoice Price Variance: $2.00

Analysis

Run the cost processor to cost the initial PO receipt. After entering the receipt cost adjustment for the invoice price variance of $2 per unit, rerun the cost processor.

Resulting Accounting Distributions

The cost distribution processor creates these accounting entries.

Application Transaction Type Accounting Event Item Line Type Cost Element Dr. Cr.

Receipt Accounting

Receipt

PO Receipt

AS54888

Receiving Inspection

N/A

$80.00

Receipt Accounting

Receipt

PO Receipt

AS54888

Accrual

N/A

$80.00

Receipt Accounting

Invoice Cost Adjustment

Invoice Cost Adjustment

AS54888

Receiving Inspection

N/A

$16.00

Receipt Accounting

Invoice Cost Adjustment

Invoice Cost Adjustment

AS54888

Invoice Price Variance

N/A

$16.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Inventory

Material

$64.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Purchase Price Variance

Purchase Price Variance

$16.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Receiving Inspection

Material

$64.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Receiving Inspection

Purchase Price Variance

$16.00

Cost Accounting

Acquisition Cost Adjustment

Acquisition Cost Adjustment

AS54888

Inventory

Material

$12.80

Cost Accounting

Acquisition Cost Adjustment

Acquisition Cost Adjustment

AS54888

Receiving Inspection

Material

$12.80

However, when the ignore invoice variances for inventory destination purchase orders feature is enabled by setting the value of the ORA_CMR_IGNORE_AP_INV_VAR_ALL profile option to Yes, you will notice that some of the additional distributions aren't created in receipt accounting or cost accounting. These are created only when this option is set to No, which is the default behavior. This table shows the accounting distributions when the option is set to Yes.

Application Transaction Type Accounting Event Item Line Type Cost Element Dr. Cr.

Receipt Accounting

Receipt

PO Receipt

AS54888

Receiving Inspection

N/A

$80.00

Receipt Accounting

Receipt

PO Receipt

AS54888

Accrual

N/A

$80.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Inventory

Material

$64.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Purchase Price Variance

Purchase Price Variance

$16.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Receiving Inspection

Material

$64.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Receiving Inspection

Purchase Price Variance

$16.00

Example of Acquisition Cost Adjustment with Accrual Clearing

This example illustrates the accounting entries for an acquisition cost adjustment with accrual clearing.

Scenario

An organization has a purchase order receipt, for which it subsequently processes an invoice price variance adjustment.

Transaction Details

The details of the transactional data are listed in this table.

Transaction Type Cost Component Quantity Price Comments

PO

10

$10.00

 

Receipt Accrual

PO Price

8

$10.00

Deliver to Inventory

Standard Cost

8

$8.00

Invoice (Match to PO)

Invoice Price

6

$12.00

Invoice Price Variance: $2.00

Accrual Clearing

PO Price

2

$10.00

Analysis

Run the cost processor to cost the initial PO receipt. After entering the receipt cost adjustment for the invoice price variance of $2 per unit, rerun the cost processor.

Resulting Accounting Distributions

The cost distribution processor creates these accounting entries.

Application Transaction Type Accounting Event Item Line Type Cost Element Dr. Cr.

Receipt Accounting

Receipt

PO Receipt

AS54888

Receiving Inspection

N/A

$80.00

Receipt Accounting

Receipt

PO Receipt

AS54888

Accrual

N/A

$80.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Inventory

Material

$64.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Purchase Price Variance

Material

$16.00

Cost Accounting

Delivery

Deliver to Inventory

AS54888

Receiving Inspection

Material

$80.00

Accounts Payable

Invoice

Invoice

AS54888

Accrual

$60.00

Accounts Payable

Invoice

Invoice

AS54888

Invoice Price Variance

$12.00

Accounts Payable

Invoice

Invoice

AS54888

Liability

$72.00

Receipt Accounting

Accrual Clearing

Accrual Clearing

AS54888

Accrual

$20.00

Receipt Accounting

Accrual Clearing

Accrual Clearing

AS54888

Receiving Inspection

$20.00

Cost Accounting

Acquisition Cost Adjustment

Acquisition Cost Adjustment

AS54888

Receiving Inspection

$20.00

Cost Accounting

Acquisition Cost Adjustment

Acquisition Cost Adjustment

AS54888

Purchase Price Variance

$20.00

By setting the cost cutoff date for a cost accounting period, you can manage which transactions are processed in that period, including backdated transactions. The following examples illustrate how the cost processor sets the accounted date for backdated transactions.

Scenario

Assume that the current date is November 2, and the cost cutoff date is October 31.

The following costed and uncosted transactions are in process.

backdated transactions

Example 1

Transactions are backdated to a point before the latest costed transaction.

In the following figure, the inventory transaction is backdated to position A. The transaction is costed with accounting date B before transactions 2 and 3 are processed. The transaction created on November 2 and backdated to October 30 is costed with the effective date of October 31.

backdated to before the latest costed transaction

Example 2

Transactions are backdated to a point between the latest costed transaction and the cost cutoff date.

In the following figure, the inventory transaction is backdated to position C. The transaction is costed with accounting date C after transactions 2 and 3 are processed. The transaction created on November 2 and backdated to October 31 is costed with the effective date of October 31.

backdated to between the latest costed transaction and
the cost cutoff date

Example 3

Transactions are backdated to a point after the cost cutoff date.

In the following figure, the inventory transaction is backdated to position D. The transaction is costed with accounting date D after the cost cutoff is moved past October 31. The transaction created on November 2 and backdated to November 1 is costed with the effective date of November 1.

backdated to after the cost cutoff date

Example of Accounting of Trade Transactions in Internal Drop Shipments

An internal drop shipment is a trade transaction involving the movement of goods from an inventory organization directly to a customer, yet the business unit that sells the goods to the customer is different from the business unit to which the inventory organization belongs. From the financial standpoint, the business unit to which the inventory organization belongs sells the goods to the other business unit who, in turn, sells the goods to the customer.

The following is an example of accounting performed by Oracle Fusion Cost Accounting and Oracle Fusion Receipt Accounting for an internal drop shipment. It illustrates:

  • Transactions that are captured in Oracle Fusion Supply Chain Financial Orchestration and interfaced to Receipt Accounting and Cost Accounting.

  • Accounting entries that Receipt Accounting and Cost Accounting generate for the drop shipment flow from the selling organization to the customer of the buying organization.

  • Accounting entries that Receipt Accounting and Cost Accounting generate for the return flow from the customer to the seller.

Scenario

China Ltd. drop ships the goods to the customer of US Inc.

Transactions from Oracle Fusion Supply Chain Financial Orchestration

The trade agreement, accounting rule sets, and associated purchase orders are set up in Oracle Fusion Supply Chain Financial Orchestration, and the transactions flow into Receipt Accounting and Cost Accounting based on this setup:

  • China Ltd. acquires goods locally at the cost of USD 50, plus USD 10 overhead on the receipt of goods.

  • Intercompany transfer price from China Ltd. to US Inc. is USD 100.

  • Intercompany invoicing is set to Yes.

  • Overhead rule is configured in Cost Accounting for transaction type Trade in-Transit Receipt in Cost Organization CO1.

  • US Inc. books a profit of USD 40 (USD 100 transfer price - USD 50 PO price - USD 10 overhead).

Analysis

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

Accounting Entries

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

Accounting entries in internal drop shipment

Cost Accounting generates distributions under cost organization CO1 and inventory organization M1.

The following table describes the cost accounting entries.

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Cost Accounting

Sales Order Issue

Trade In-Transit

50

USD

Material

Current Cost

Cost Accounting

Sales Order Issue

Trade In-Transit

10

USD

Overhead

Current Cost

Cost Accounting

Sales Order Issue

Inventory

-50

USD

Material

Current Cost

Cost Accounting

Sales Order Issue

Inventory

-10

USD

Overhead

Current Cost

Cost Accounting

Trade In-Transit Issue

Intercompany Cost of Goods Sold

50

USD

Material

Current Cost

Cost Accounting

Trade In-Transit Issue

Intercompany Cost of Goods Sold

10

USD

Overhead

Current Cost

Cost Accounting

Trade In-Transit Issue

Trade In-Transit

-50

USD

Material

Current Cost

Cost Accounting

Trade In-Transit Issue

Trade In-Transit

-10

USD

Overhead

Current Cost

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 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 the 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

50

USD

Material

Sending Organization Cost

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

40

USD

Profit in Inventory

Internal Markup

Cost Accounting

Trade In-Transit Receipt

Trade Clearing

-100

USD

Material, Overhead, and Profit in Inventory

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

Cost Accounting

Trade Sales Issue

Deferred Cost of Goods Sold

50

USD

Material

Sending Organization Cost

Cost Accounting

Trade Sales Issue

Deferred Cost of Goods Sold

10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade Sales Issue

Deferred Cost of Goods Sold

40

USD

Profit in Inventory

Internal Markup

Cost Accounting

Trade Sales Issue

Trade In-Transit

-50

USD

Material

Sending Organization Cost

Cost Accounting

Trade Sales Issue

Trade In-Transit

-10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade Sales Issue

Trade In-Transit

-40

USD

Profit in Inventory

Internal Markup

The customer returns goods directly to China Ltd.

The following figure illustrates accounting entries for the return flow from US Inc (Sold-to Legal Entity) to China Ltd (Legal Entity).

Accounting entries for the return flow of internal
drop shipment

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 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

Split into three lines (Material, Overhead, and Profit in Inventory)

Transfer Price

Cost Accounting

Trade In-Transit Return

Trade In-Transit

-50

USD

Material

Sending Organization Cost

Cost Accounting

Trade In-Transit Return

Trade In-Transit

-10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade In-Transit Return

Trade In-Transit

-40

USD

Profit in Inventory

Internal Markup

Accounts Payable

Intercompany Accounts Payable Debit Memo

Intercompany Liability

100

USD

Not Applicable

Transfer Price

Accounts Payable

Intercompany Accounts Payable Debit Memo

Intercompany Accrual

-100

USD

Not Applicable

Transfer Price

Cost Accounting

Trade Sales Return Receipt

Trade In-Transit

50

USD

Material

Sending Organization Cost

Cost Accounting

Trade Sales Return Receipt

Trade In-Transit

10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade Sales Return Receipt

Trade In-Transit

40

USD

Profit in Inventory

Internal Markup

Cost Accounting

Trade Sales Return Receipt

Deferred RMA Gain/Loss

-50

USD

Material

Sending Organization Cost

Cost Accounting

Trade Sales Return Receipt

Deferred RMA Gain/Loss

-10

USD

Overhead

Sending Organization Cost

Cost Accounting

Trade Sales Return Receipt

Deferred RMA Gain/Loss

-40

USD

Profit in Inventory

Internal Markup

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 accounting entries.

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Cost Accounting

RMA Receipt

Inventory*

50

USD

Material

Current Cost

Cost Accounting

RMA Receipt

Inventory

10

USD

Overhead

Current Cost

Cost Accounting

RMA Receipt

Trade In-Transit

-50

USD

Material

Current Cost

Cost Accounting

RMA Receipt

Trade In-Transit

-10

USD

Overhead

Current Cost

Cost Accounting

Trade In-Transit Return Receipt

Trade In-Transit

50

USD

Material

Current Cost

Cost Accounting

Trade In-Transit Return Receipt

Trade In-Transit

10

USD

Overhead

Current Cost

Cost Accounting

Trade In-Transit Return Receipt

Intercompany Cost of Goods Sold

-50

USD

Material

Current Cost

Cost Accounting

Trade In-Transit Return Receipt

Intercompany Cost of Goods Sold

-10

USD

Overhead

Current Cost

Accounts Receivable

Intercompany Accounts Receivable Credit Memo

Intercompany Revenue

100

USD

Not Applicable

Transfer Price

Accounts Receivable

Intercompany Accounts Receivable Credit Memo

Intercompany Receivable

-100

USD

Not Applicable

Transfer Price

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

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 Fusion Inventory Management into Oracle Fusion Cost Accounting and Oracle Fusion 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:

The diagram describes the consigned inventory flow
for a simple purchase order. The process flow is fully described in
the surrounding text.

Transaction from Oracle Fusion Inventory Management

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

  • 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.

Forward flow accounting entries

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.

Accounting entries for the return flow of consigned
inventory

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

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 Fusion Receipt Accounting and Oracle Fusion 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 Fusion Inventory into Cost Accounting and Receipt Accounting.

  • Transactions that flow from Oracle Fusion 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.

Diagram of consigned inventory flow in a global
purchase order

Interfaced Transactions

Cost Accounting and Receipt Accounting receive the following transaction from Oracle Fusion Inventory:

  • 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.

Diagram of accounting entries for the forward flow
in a consigned global purchase order

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.

Diagram of accounting entries for return flow in
consigned global purchase order

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

Example of Consigned Inventory Accounting of an Interorganization Transfer Across Business Units

An interorganization transfer is a trade transaction involving the movement of goods or services between organizations in the supply chain. The following is an example of accounting performed by Oracle Fusion Cost Accounting and Oracle Fusion Receipt Accounting in a simple purchase order with an interorganization transfer of goods across profit center business units. The goods remain in consigned status until ownership changes in the receiving organization.

This example illustrates:

  • Transactions captured in Oracle Fusion Inventory and interfaced to Cost Accounting and Receipt Accounting.

  • Transactions captured in Oracle Fusion Supply Chain Financial Orchestration and interfaced to 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

Supplier Advanced Network Devices (AND-Fresno) ships the goods in consigned status to inventory organization M1-Seattle, who in turn transfers the consigned goods to inventory organization M2-LA. Inventory organizations, M1-Seattle and M2-LA, are in different business units.

Image of consigned inventory interorganization
transfer across business units

Interfaced Transactions

Oracle Fusion Inventory sends the following transactions to Receipt Accounting and Cost Accounting:

  • 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.

  • Goods transferred in consigned status from inventory organization M1-Seattle to M2-LA.

  • When the goods are consumed ownership changes from supplier AND-Fresno to inventory organization M2-LA through M1-Seattle.

Oracle Fusion Supply Chain Financial Orchestration sets up the trade agreement, accounting rule sets, and associated purchase orders, and the information flows into Receipt Accounting and Cost Accounting. The transfer from M1-Seattle to M2-LA is based on trade agreement SFO #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.

Diagram of accounting entries for the forward flow
of consigned inventory in interorganization transfer across business
units

Receipt Accounting generates distributions under inventory organization M1-Seattle for the shipment from supplier AND-Fresno to M1-Seattle.

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

Cost Accounting generates distributions under inventory organization M1-Seattle for the interorganization transfer from M1-Seattle to M2-LA.

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Basis of Amount

Cost Accounting

In-Transit Shipment

Consigned In-Transit

100

USD

PO Price

Cost Accounting

In-Transit Shipment

Consigned Inventory

-100

USD

PO Price

Cost Accounting

Consigned Trade In-Transit Issue

Consigned Receivable

100

USD

PO Price

Cost Accounting

Consigned Trade In-Transit Issue

Consigned In-Transit

-100

USD

PO Price

Receipt Accounting and Cost Accounting generate distributions under inventory organization M2-LA for the interorganization transfer from M1-Seattle to M2-LA.

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Basis of Amount

Receipt Accounting

Consigned Trade Receipt Accrual

Trade Clearing

100

USD

PO Price

Receipt Accounting

Consigned Trade Receipt Accrual

Consigned In-Transit

-100

USD

PO Price

Receipt Accounting

Consigned Trade In-Transit Receipt

Consigned Clearing

100

USD

PO Price

Receipt Accounting

Consigned Receipt Consumption

Trade Clearing

-100

USD

PO Price

Cost Accounting

In-Transit Receipt

Consigned Inspection

100

USD

PO Price

Cost Accounting

In-Transit Receipt

Consigned In-Transit

-100

USD

PO Price

Cost Accounting

In-Transit Delivery

Consigned Inventory

100

USD

PO Price

Cost Accounting

In-Transit Delivery

Consigned Inspection

-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

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

100

USD

Material

PO Price

Cost Accounting

Trade In-Transit Receipt

Trade Clearing

-100

USD

Material

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 M1-Seattle 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

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

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

100

USD

Material

PO Price

Cost Accounting

Trade In-Transit Receipt

Trade Clearing

-100

USD

Material

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

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

Inventory organization M2-LA returns the goods to supplier AND-Fresno. The return of the consignment is executed in two parts:

  • An interorganization transfer from M2-LA to M1-Seattle. The accounting is the same as simple purchase order return transactions.

  • A consignment return from M1-Seattle to the supplier. The accounting is the same as regular return to supplier transactions.

Example of Consigned Inventory Accounting of an Interorganization Transfer Within the Same Business Unit

An intraorganization transfer is a trade transaction involving the movement of goods or services between organizations in the supply chain. The following is an example of accounting performed by Oracle Fusion Cost Accounting and Oracle Fusion Receipt Accounting for an interorganization transfer of goods within the same profit center business unit.

This example illustrates:

  • Transactions captured in Oracle Fusion Inventory and interfaced to 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

Supplier Advanced Network Devices (AND-Fresno) ships the goods in consigned status to inventory organization M3-NY, who in turn transfers the goods to inventory organization M4-NJ. Inventory organizations, M3-NY and M4-NJ, are within the same business unit.

Diagram of interorganization transfer of goods
within the same business unit

Interfaced Transactions

Cost Accounting and Receipt Accounting receive the following transaction from Oracle Fusion Inventory:

  • Consignment Purchase Order (PO) #1000.

  • Purchase Order price USD 100.

  • Ship-to organization is M3-NY which is also the contingent owner. Contingent owner assumes ownership from the supplier when inventory is consumed.

  • Receipt and put away transactions are performed in M3-NY in consigned status.

  • Goods are transferred in consigned status from M3-NY to M4-NJ.

  • Ownership changes from supplier to M4-NJ through M3-NY when the goods are consumed.

Cost Accounting generates transactions for:

  • Ownership changes from supplier AND-Fresno to inventory organization M3-NY and from M3-NY to M4-NJ.

  • Transfer of goods from M3-NY to M4-NJ. The transfer is at cost because the organizations are within the same profit center business unit.

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.

The following diagram lists the accounting entries for the forward flow.

Diagram of accounting entries for forward flow
interorganization transfer within same business unit

The following table lists the distributions that Receipt Accounting generates under inventory organization M3-NY for the shipment from supplier AND-Fresno to M3-NY.

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

The following table lists the distributions generated by Cost Accounting under inventory organization M3-NY for the interorganization transfer from M3-NY to organization M4-NJ.

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Basis of Amount

Cost Accounting

In-Transit Shipment

Consigned In-Transit

100

USD

PO Price

Cost Accounting

In-Transit Shipment

Consigned Inventory

-100

USD

PO Price

Cost Accounting

Consigned Trade In-Transit Issue

Consigned Receivable

100

USD

PO Price

Cost Accounting

Consigned Trade In-Transit Issue

Consigned In-Transit

-100

USD

PO Price

Cost Accounting generates distributions under inventory organization M4-NJ for the interorganization transfer from M3-NY to M4-NJ.

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Basis of Amount

Cost Accounting

Consigned Trade Receipt Accrual

Consigned Clearing

100

USD

PO Price

Cost Accounting

Consigned Trade Receipt Accrual

Consigned Payable

-100

USD

PO Price

Cost Accounting

Consigned Trade In-Transit Receipt

Consigned In-Transit

100

USD

PO Price

Cost Accounting

Consigned Trade In-Transit Receipt

Consigned Clearing

-100

USD

PO Price

Cost Accounting

In-Transit Receipt

Consigned Inspection

100

USD

PO Price

Cost Accounting

In-Transit Receipt

Consigned In-Transit

-100

USD

PO Price

Cost Accounting

In-Transit Delivery

Consigned Inventory

100

USD

PO Price

Cost Accounting

In-Transit Delivery

Consigned Inspection

-100

USD

PO Price

Receipt Accounting and Cost Accounting generate distributions under inventory organization M3-NY for the change of ownership from supplier AND-Fresno to M3-NY.

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

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

100

USD

Material

PO Price

Cost Accounting

Trade In-Transit Receipt

Trade Clearing

-100

USD

Material

PO Price

Cost Accounting

Trade In-Transit Issue

Interorganization Receivable

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 M4-NJ for the change of ownership from M3-NY to M4-NJ.

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

Trade Receipt Accrual

Trade Clearing

100

USD

Not applicable

Transfer Price

Receipt Accounting

Trade Receipt Accrual

Interorganization Payable

-100

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 Clearing

-100

USD

Material

PO Price

Cost Accounting

Transfer to Owned (Receipt)

Inventory Valuation

100

USD

Material

PO Price

Cost Accounting

Transfer to Owned (Receipt)

Trade In-Transit

-100

USD

Material

PO Price

Inventory organization M4-NJ returns goods to supplier AND-Fresno. The return of the consignment is executed in two parts:

  • An interorganization transfer from M4-NJ to M3-NY. The accounting is the same as simple purchase order return transactions.

  • A consignment return from M3-NY to the supplier. The accounting is the same as regular return to supplier transactions.

To comply with tax regulations, calculate taxes and generate tax distributions for all receipt transactions. You can capture item prices, inclusive and exclusive taxes on your purchases. Receipt costs are adjusted to account inclusive taxes that were included in the item purchase price. Inclusive taxes are booked to a tax liability or recovery account.

You configure the tax point basis and tax point date in Oracle Fusion Financials. Based on this configuration, taxes are calculated either on delivery or invoice generation. For more information about configuring and calculating taxes, see the Oracle Financials Cloud Using Tax guide available on the Oracle Help Center.

Prerequisites

Configure the following to automatically calculate and account taxes. You must have the Application Implementation Consultant role to do these tasks.

  • In the Offerings work area, enable the Tax Calculation on Receipt Accounting Distributions feature at the Financials offering level.

  • Enable delivery-based tax calculation for invoices:

    1. In the Setup and Maintenance work area, go to the following:

      • Offering: Financials

      • Functional Area: Transaction Tax

      • Task: Manage Configuration Owner Tax

    2. From the Configuration Owner drop-down list, select the relevant business unit.

    3. From the Application Name drop-down list, select Payables.

    4. From the Event Class drop-down list, select Standard Invoices.

    5. From the Tax Point Basis drop-down list, select Invoice.

    6. From the Tax Point Date drop-down list, select Receipt Date.

      For more information about configuring and calculating taxes, see the Oracle Financials Cloud Using Tax guide available on the Oracle Help Center.

  • Configure the application to automatically calculate taxes for trade receipt accrual:

    1. In the Setup and Maintenance work area, go to the following:

      • Offering: Manufacturing and Supply Chain Materials Management

      • Functional Area: Supply Chain Financial Flows

      • Task: Manage Supply Chain Financial Orchestration System Options

    2. Select Calculate tax for trade receipt accrual.

  • Configure the application to automatically calculate and account nonrecoverable taxes on intercompany invoices:

    1. Navigate to the Financial Orchestration work area.

    2. In the Tasks pane, click Manage Documentation and Accounting Rules.

    3. Click the required documentation and accounting rule.

    4. Under Required Tasks, select Intercompany Invoices.

How Taxes are Calculated and Accounted

Here's how taxes are calculated and accounted for different combinations of tax point basis and tax point dates:

Tax Point Basis Tax Point Date Tax Calculation Tax Accounting Variance Calculation and Accounting

Delivery

Receipt Date

Taxes are calculated on goods receipt

Recoverable and nonrecoverable taxes are accounted on goods receipt

Not Applicable

Invoice

Receipt Date

Taxes are calculated on goods receipt

  • Nonrecoverable taxes are accounted on goods receipt

  • Recoverable taxes are accounted on invoice generation

Not Applicable

Invoice

Invoice Date

Taxes are calculated on invoice generation

Recoverable and nonrecoverable taxes are accounted on invoice generation

Tax variance is calculated and accounted for difference in the taxes estimated on purchase order and final tax calculated on invoice

Receipt Accounting receives transactions and related tax determinants from outside sources such as Oracle Fusion Receiving, Inventory, and Accounts Payable. The following discusses:

  • Import of tax determinants into Receipt Accounting

  • Tax distributions created by Receipt Accounting

  • Tax distributions by Cost Accounting

  • Review of tax distributions

Diagram of tax accounting for receipt transactions
process

Import Tax Determinants

Here's how you can import transactions and related tax determinants from outside sources on the Scheduled Processes page in the Scheduled Processes work area.

  • Select the Transfer Transactions from Receiving to Receipt Accounting process to import receipt transactions into Receipt Accounting.

  • Select the Transfer Costs to Cost Management process to import accounts payable transactions into Receipt Accounting and Cost Accounting.

Tax Distributions by Receipt Accounting

The Receipt Accounting Processor calls the Tax Application Programming Interface to calculate transaction taxes based on imported tax determinants. The processor also generates tax distributions for receipt transactions.

Run the Receipt Accounting Processor on the Create Receipt Accounting Distributions page in the Receipt Accounting work area.

Tax Distributions by Cost Accounting

The Cost Accounting Processor uses tax results generated by Receipt Accounting to calculate inventory acquisition costs including nonrecoverable taxes.

Run the Cost Accounting Processor on the Create Cost Accounting Distributions page in the Cost Accounting work area.

Review Tax Distributions

On the Review Receipt Accounting Distributions page in the Receipt Accounting work area view results of the Receipt Accounting Processor:

  • Distributions and journal entries for receipt transactions

  • Tax determinants accessed by clicking the links in the Tax Determinants column

  • Transaction taxes accessed by clicking the Transaction Unit Cost links in the Cost Information tab

On the Review Cost Accounting Distributions page in the Cost Accounting work area view results of the Cost Accounting Processor:

  • Distributions and journal entries for inventory transactions

  • Inventory unit costs including taxes in the Cost Information tab

Example of Tax Accounting for a Simple Procurement Transaction

This example illustrates tax accounting performed by Oracle Fusion Receipt Accounting and Oracle Fusion Cost Accounting for a simple procurement transaction that uses a tax point basis of delivery, that is, taxes are accounted at receipt of the goods.

Scenario

The supplier makes a shipment to the inventory organization based on a purchase order (PO) for USD 1,000, with the following tax details:

  • Tax A delivery basis = 10%. Recoverable and nonrecoverable portions are both 50%

  • Tax B invoice basis = 20%. Recoverable and nonrecoverable portions are both 50%

Tax Details at Receipt and Invoice

Tax details at the time of receipt of goods are:

  • Tax A delivery basis = 15%, which is changed from 10% estimated at the time of purchase order. Recoverable and nonrecoverable portions are both 50%, which is equal to USD 75 (that is, USD 1,000 * 15% * 50%).

  • Tax B invoice basis = 25%, which is changed from 20% estimated at the time of PO. Recoverable and nonrecoverable portions are both 50%, which is equal to USD 125 (that is, USD 1,000 * 25% * 50%).

Tax details at the time of invoice are:

  • Tax A delivery basis = 20%, which is changed from 15% reported and accounted on receipt. Recoverable and nonrecoverable portions are both 50%, however taxes are not recalculated because this transaction uses a tax point basis of delivery.

  • Tax B invoice basis = 30%, which is changed from 25% estimated on receipt. Recoverable and nonrecoverable portions are both 50%, which is equal to USD 150.

Analysis

Receipt Accounting and Cost Accounting create accounting distributions when the goods are received and when the invoice is accounted.

Tax Accounting Entries

Receipt Accounting and Cost Accounting generate the following accounting entries at the time of receipt:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Receipt Accounting

PO Receipt

Receiving Inspection

1,000

USD

Material

PO Price

Receipt Accounting

PO Receipt

Receiving Inspection

75

USD

Tax

Tax A Delivery-Based Nonrecoverable: USD 1,000 * 15% * 50%

Receipt Accounting

PO Receipt

Tax Recoverable

75

USD

Tax

Tax A Delivery-Based Recoverable: USD 1,000 * 15% * 50%

Receipt Accounting

PO Receipt

Receiving Inspection

125

USD

Tax

Tax B Invoice-Based Nonrecoverable: USD 1,000 * 25% * 50%

Receipt Accounting

PO Receipt

Supplier Accrual

-1,275

USD

Not applicable

Not applicable

Cost Accounting

PO Delivery

Inventory Valuation

1,200*

USD

Not applicable

Not applicable

Cost Accounting

PO Delivery

Receiving Inspection

-1,200*

USD

Not applicable

Not applicable

*PO price plus nonrecoverable taxes A and B.

Accounts Payable generates the following accounting entries for the supplier when invoice is created:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Accounts Payable

Invoice

Supplier Accrual

1,275

USD

Not applicable

Not applicable

Accounts Payable

Invoice

Tax Recoverable

150

USD

Tax

Tax B Invoice-Based Recoverable: USD 1,000 * 30% * 50%

Accounts Payable

Invoice

Tax B Rate Variance*

25

USD

Not applicable

Difference between tax estimated at 25% and actual calculated at 30%

Accounts Payable

Invoice

Supplier Liability

-1,450

USD

Not applicable

Not applicable

*Tax variance due to the difference between rates at time of delivery versus invoice.

Receipt Accounting and Cost Accounting generate the following accounting entries when invoice is accounted:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency

Receipt Accounting

Invoice Price

Receiving Inspection

25

USD

Receipt Accounting

Invoice Price Adjustment

Tax B Rate Variance*

-25

USD

Cost Accounting

Acquisition Cost Adjustment

Inventory Valuation**

25

USD

Cost Accounting

Acquisition Cost Adjustment

Receiving Inspection

-25

USD

*Tax variance due to the difference between tax rates at time of delivery versus invoice.

**Inventory acquisition cost adjustment for nonrecoverable tax B.

Example of Tax Accounting for a Consigned Inventory Transaction

This example illustrates tax accounting performed by Oracle Fusion Receipt Accounting and Oracle Fusion Cost Accounting for a consigned inventory transaction in the supply chain. This transaction uses a tax point basis of delivery, that is, taxes are accounted at receipt of the goods.

Scenario

The supplier makes a consigned shipment to the inventory organization based on a consigned purchase order (PO) for USD 1,000 with the following tax details:

  • Tax A delivery basis = 10%. Recoverable and nonrecoverable portions are both 50%

  • Tax B invoice basis = 20%. Recoverable and nonrecoverable portions are both 50%

Tax Details at Receipt and Invoice

Tax details at the consigned receipt of goods are:

  • Item value = USD 1,000

  • Tax A delivery basis = 15%, which is changed from 10% estimated at the time of PO. Recoverable and nonrecoverable portions are both 50%, or USD 75, that is, USD 1,000 * 15% * 50%.

  • Tax B invoice basis = 25%, which is changed from 20% estimated at the time of PO. Recoverable and nonrecoverable portions are both 50%, or USD 125, that is, USD 1,000 * 25% * 50%.

Tax details at the time of invoice are:

  • Item value = USD 1,000

  • Tax A delivery basis = 20%. Recoverable and nonrecoverable portions are both both 50%, however taxes are not recalculated because this transaction uses a tax point basis of delivery.

  • Tax B invoice basis = 30%, which is changed from 25% estimated at the time of receipt. Recoverable and nonrecoverable portions are both 50%, or USD 150.

Analysis

Receipt Accounting and Cost Accounting create accounting distributions when the consigned good are received, when the status changes from consigned to owned, and when the invoice is accounted.

Tax Accounting Entries

Receipt Accounting and Cost Accounting generate the following accounting entries at the time of receipt of consigned goods:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Receipt Accounting

Consigned PO Receipt

Consigned Clearing

1,000

USD

Material

PO Price

Receipt Accounting

Consigned PO Receipt

Consigned Clearing

75

USD

Tax

Tax A Delivery-Based Nonrecoverable: USD 1,000 * 15% * 50%

Receipt Accounting

Consigned PO Receipt

Consigned Clearing

125

USD

Tax

Tax B Invoice-Based Nonrecoverable: USD 1,000 * 25% * 50%

Receipt Accounting

Consigned PO Receipt

Consigned Accrual

-1,200

USD

Not applicable

Not applicable

Cost Accounting

Consigned PO Delivery

Consigned Inventory*

1,200

USD

Not applicable

Not applicable

Receipt Accounting

Consigned PO Delivery

Consigned Clearing

-1,200

USD

Not applicable

Not applicable

*PO price plus nonrecoverable taxes A and B.

Receipt Accounting and Cost Accounting generate the following accounting entries at the time of change of status from consigned to owned stock:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Receipt Accounting

Consigned Receipt Consumption

Consigned Accrual

1,000

USD

Material

PO Price

Receipt Accounting

Consigned Receipt Consumption

Consigned Accrual

75

USD

Not applicable

Tax A Delivery-Based Nonrecoverable: USD 1,000 * 15% * 50%

Receipt Accounting

Consigned Receipt Consumption

Consigned Accrual

125

USD

Not applicable

Tax B Invoice-Based Nonrecoverable: USD 1,000 * 15% * 50%

Receipt Accounting

Consigned Receipt Consumption

Consigned Clearing

-1,200

USD

Not applicable

Not applicable

Cost Accounting

Transfer to Owned Issue

Consigned Inventory Offset

1,000

USD

Material

PO Price

Cost Accounting

Transfer to Owned Issue

Consigned Inventory Offset

75

USD

Nonrecoverable Tax

Tax A Delivery-Based Nonrecoverable

Cost Accounting

Transfer to Owned Issue

Consigned Inventory Offset

125

USD

Nonrecoverable Tax

Tax B Invoice-Based Nonrecoverable

Cost Accounting

Transfer to Owned Issue

Consigned Inventory

-1,200

USD

Not applicable

PO Price

Receipt Accounting

Trade Receipt Accrual

Trade Clearing

1,000

USD

Not applicable

PO Price

Receipt Accounting

Trade Receipt Accrual

Trade Clearing

75

USD

Not applicable

Tax A Delivery-Based Nonrecoverable

Receipt Accounting

Trade Receipt Accrual

Trade Clearing

125

USD

Not applicable

Tax B Invoice-Based Nonrecoverable

Receipt Accounting

Trade Receipt Accrual

Tax Recoverable*

75

USD

Not applicable

Tax A Delivery-Based Recoverable

Receipt Accounting

Trade Receipt Accrual

Supplier Accrual

-1,275

USD

Not applicable

Not applicable

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

1,000

USD

Not applicable

PO Price

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

75

USD

Not applicable

Tax A Delivery-Based Nonrecoverable

Cost Accounting

Trade In-Transit Receipt

Trade In-Transit

125

USD

Not applicable

Tax B Invoice-Based Nonrecoverable

Cost Accounting

Trade In-Transit Receipt

Trade Clearing

-1,200

USD

Not applicable

Not applicable

Cost Accounting

Transfer to Owned (Receipt)

Inventory Valuation

1,000

USD

Material

PO Price

Cost Accounting

Transfer to Owned (Receipt)

Inventory Valuation

75

USD

Nonrecoverable Tax

Tax A Delivery-Based Nonrecoverable

Cost Accounting

Transfer to Owned (Receipt)

Inventory Valuation

125

USD

Nonrecoverable Tax

Tax B Invoice-Based Nonrecoverable

Cost Accounting

Transfer to Owned (Receipt)

Trade In-Transit

-1,200

USD

Not applicable

Not applicable

*Delivery-based recoverable tax A is calculated on consigned receipt but will be accounted after ownership change event.

Accounts Payable generates the following accounting entries when the invoice is created:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Basis of Amount

Accounts Payable

Invoice

Supplier Accrual

1,275

USD

Not applicable

Accounts Payable

Invoice

Tax B Recovery

150

USD

Tax B Invoice-Based Recoverable

Accounts Payable

Invoice

Tax B Rate Variance*

25

USD

Not applicable

Accounts payable

Invoice

Supplier Liability

-1,450

USD

Not applicable

*Tax variance due to the difference between tax rates at time of delivery versus invoice.

Receipt Accounting and Cost Accounting generate the following accounting entries when invoice is accounted:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency

Receipt Accounting

Invoice Price Adjustment

Trade Clearing

25

USD

Receipt Accounting

Invoice Price Adjustment

Tax B Rate Variance*

-25

USD

Cost Accounting

Acquisition Cost Adjustment

Inventory Valuation**

25

USD

Cost Accounting

Acquisition Cost Adjustment

Trade Clearing

-25

USD

*Tax variance due to the difference between tax rates at time of delivery versus invoice.

**Inventory acquisition cost adjustment for nonrecoverable tax B.

Example of Tax Accounting for a Purchase Order Retroactive Price Change

This example illustrates tax accounting performed by Oracle Fusion Receipt Accounting and Oracle Fusion Cost Accounting for a retroactive price change on a purchase order (PO) receipt that is partially invoiced.

Scenario

The supplier makes a shipment to the inventory organization based on a purchase order for 10 units, at a per unit price of USD 100. After receipt of the goods, a partial invoice is created for 2 units at USD 100 per unit.

The purchase order price changes retroactively from USD 100 to USD 120. The remaining balance of 8 units is invoiced at USD 120 per unit.

Tax Details

This transaction uses a tax point basis of delivery, that is, taxes are accounted at the time of receipt of goods.

Taxes details are the same after the retroactive price change on the PO:

  • Tax A delivery basis = 20%. Recoverable and nonrecoverable portions are both 50%.

  • Tax B invoice basis = 30%. Recoverable and nonrecoverable portions are both 50%.

Analysis

Receipt Accounting and Cost Accounting create accounting distributions at the time of receipt of goods, after the retroactive purchase order price change, and for the differential invoice.

Tax Accounting Entries

Receipt Accounting and Cost Accounting generate the following accounting entries at the time of receipt of goods:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Receipt Accounting

PO Receipt

Receiving Inspection

1,000

USD

Material

PO Price

Receipt Accounting

PO Receipt

Receiving Inspection

100

USD

Tax

Tax A Delivery-Based Nonrecoverable: USD 1,000 * 20% * 50%

Receipt Accounting

PO Receipt

Tax Recoverable (Tax A)

100

USD

Tax

Tax A Delivery-Based Recoverable: USD 1,000 * 20% * 50%

Receipt Accounting

PO Receipt

Receiving Inspection

150

USD

Tax

Tax B Invoice-Based Nonrecoverable: USD 1,000 * 30% * 50%

Receipt Accounting

PO Receipt

Supplier Accrual

-1,350

USD

Material

Not applicable

Cost Accounting

PO Delivery

Inventory Valuation

1,250*

USD

Not applicable

Not applicable

Cost Accounting

PO Delivery

Receiving Inspection

-1,250*

USD

Not applicable

Not applicable

*PO price plus nonrecoverable taxes A and B.

Accounts Payable generates the following accounting entries for the supplier when partial invoice is accounted:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Accounts Payable

Invoice

Supplier Accrual

270*

USD

Not applicable

Item Price plus Nonrecoverable Taxes A and B for 2 units = USD 1,350/10 * 2

Accounts Payable

Invoice

Tax Recoverable

30

USD

Tax

Tax B Invoice-Based Recoverable: USD 200 * 30% * 50%

Accounts Payable

Invoice

Supplier Liability

-300

USD

Not applicable

Not applicable

*Accrual is debited to the extent quantity is invoiced, which is 2 units.

Receipt Accounting and Cost Accounting generate the following accounting entries after the retroactive purchase order price change:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Cost Element Basis of Amount

Receipt Accounting

Retroactive Price Adjustment

Receiving Inspection

160*

USD

Material

USD 120 - USD 100 * uninvoiced quantity of 8 units

Receipt Accounting

Retroactive Price Adjustment

Receiving Inspection

16

USD

Tax

Tax A Delivery-Based Nonrecoverable: USD 160 * 20% * 50%

Receipt Accounting

Retroactive Price Adjustment

Tax Recoverable (Tax A)

16

USD

Tax

Tax A Delivery-Based Recoverable: USD 160 * 20% * 50%

Receipt Accounting

Retroactive Price Adjustment

Receiving Inspection

24

USD

Tax

Tax B Invoice-Based Nonrecoverable: USD 160 * 20% * 50%

Receipt Accounting

Retroactive Price Adjustment

Supplier Accrual

-216

USD

Material

Not applicable

Cost Accounting

Acquisition Cost Adjustment

Inventory Valuation

200**

USD

Not applicable

Not applicable

Cost Accounting

Acquisition Cost Adjustment

Receiving Inspection

-200

USD

Not applicable

Not applicable

*Retroactive price adjustment accounted only for the uninvoiced quantity, that is, 10 units received minus 2 units invoiced = 8 units uninvoiced.

** Retroactive PO price change plus nonrecoverable taxes A and B.

Accounts Payable generates the following accounting entries for the balance of 8 units:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Basis of Amount

Accounts Payable

Invoice

Supplier Accrual

960

USD

Item Price USD 120 * 8

Accounts Payable

Invoice

Supplier Accrual

96

USD

Tax A Delivery-Based Nonrecoverable: USD 120 * 8 * 20% * 50%

Accounts Payable

Invoice

Supplier Accrual

96

USD

Tax A Delivery-Based Recoverable: USD 120 * 8 * 20% * 50%

Accounts Payable

Invoice

Supplier Accrual

144

USD

Tax B Invoice-Based Nonrecoverable: USD 120 * 8 * 30% * 50%

Accounts Payable

Invoice

Recoverable Tax B

144

USD

Tax B Invoice-Based Recoverable: USD 120 * 8 * 30% * 50%

Accounts Payable

Invoice

Supplier Liability

-1,440

USD

Not applicable

Accounts Payable generates the following accounting entries for the original invoice quantity of 2 units at the revised PO price:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency Basis of Amount

Accounts Payable

Invoice

Invoice Price Variance

40

USD

Difference in PO Item Price USD 20 * 2

Accounts Payable

Invoice

Tax Invoice Price Variance Tax A

4

USD

Tax A Delivery-Based Nonrecoverable

Accounts Payable

Invoice

Tax Invoice Price Variance Tax B

6

USD

Tax B Invoice-Based Nonrecoverable

Accounts Payable

Invoice

Recoverable Tax A

4

USD

Tax A Delivery-Based Recoverable

Accounts Payable

Invoice

Recoverable Tax B

6

USD

Tax B Invoice-Based Recoverable

Accounts Payable

Invoice

Supplier Liability

-60

USD

Not applicable

Cost Accounting and Receipt Accounting generate the following accounting entries for the differential invoice:

Subledger Event Type Accounting Line Type Amount in Functional Currency +Dr/-Cr Functional Currency

Receipt Accounting

Invoice Price Adjustment

Receiving Inspection

50

USD

Receipt Accounting

Invoice Price Adjustment

Invoice Price Adjustment

-40

USD

Receipt Accounting

Invoice Price Adjustment

Tax Invoice Price Adjustment

-10*

USD

Cost Accounting

Acquisition Cost Adjustment

Inventory Valuation

50**

USD

Cost Accounting

Acquisition Cost Adjustment

Receiving Inspection

-50

USD

*Nonrecoverable taxes A and B on the differential invoice price.

**Difference between invoice price and nonrecoverable taxes A and B.

Cost Management for Project Driven Supply Chain

Overview of Project-Driven Supply Chain Management

Project-Driven Supply Chain is an end-to-end, integrated solution across the Oracle Supply Chain and Project Management Cloud applications. This solution is designed to support various business processes of manufacturing and asset-intensive companies.

You can use the Project-Driven Supply Chain solution to manage your supply chain processes in the context of projects without creating separate organizations for each project. You can also capture supply chain costs as project expenditures.

The integrated supply chain and project management cloud solution enables you to:

  • Plan project-specific supply

  • Segregate and manage project-specific inventory

  • Receive project-specific supply

  • Pick project-specific inventory

  • Ship project-specific inventory

  • Transfer project-specific inventory

  • Purchase project-specific inventory

  • Execute project-specific manufacturing

  • Perform project-specific maintenance

  • Execute project-striped supply chain without Oracle Project Financials

Project-Driven Supply Chain for Manufacturing Companies

Manufacturing companies use project-driven processes to provide turn-key solutions, or bundle sale of products with an on-going service, or execute contract manufacturing services on multiple contracts from one plant. In turn-key and service-based supply chain, one or more services such as product design and development, installation, and ongoing service are bundled with the sale of a product.

Here is an illustration that explains the project-driven supply chain process for manufacturing companies.

Illustration explaining the project-driven supply
chain process for manufacturing companies

Project-Driven Supply Chain for Asset-Intensive Companies

Asset-intensive companies build assets for internal use. These assets are typically capitalized when put in service.

Projects to build assets usually start with a corporate plan that outlines what assets will be built, their location and schedule, and a budget. The corporate plan is converted into an engineering and construction plan that contains a bill of materials. Based on these plans, project tasks and their budgets are defined. Materials and services are procured and the asset is constructed. Upon construction, the asset is capitalized for financial management and also interfaced with the installed base for maintenance.

Here is an illustration that explains the project-driven supply chain process for asset-intensive companies, such as utilities and communications.

 Illustration explaining the project-driven supply
chain process for asset-intensive companies

Project Costs in Supply Chain Flows

The Project-Driven Supply Chain solution integrates several products of Oracle Supply Chain and Oracle Project Management.

Here is an illustration that explains how the project-driven supply chain solution works.

Illustration to show how the project-driven supply
chain solution works.

Project-Driven Supply Chain begins with the creation of a project in Oracle Project Management. The integration of Oracle Project Management and Oracle Supply Chain enables supply chain produ