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OracleCostManagementUser'sGuideRelease12.1PartNumberE1363505 Contents Previous Next
RevenueandCOGSMatchingThischaptercoversthefollowingtopics:
OverviewofRevenue/COGSMatchingRevenue/COGSRecognitionMethodologyCOGSRecognitionandConcurrentProcessesSupportedBusinessScenarios
OverviewofRevenue/COGSMatchingFinancialaccountinghastwoimportantgenerallyacceptedaccountingprinciples(GAAP)thatguidethestatementoffinancialearnings:
Revenuerecognitionprinciple
Costmatchingprinciple
Therevenuerecognitionprinciplerequiresrevenuestoberecognizedwhenafirmhasperformedall,orasubstantialportionofservicestobeprovided,andcashreceiptisreasonablycertain.Thematchingprinciplerequiresthatcashoutlaysassociateddirectlywithrevenuesareexpensedintheperiodinwhichthefirmrecognizestherevenue.
TheOracleeBusinessSuitesupportsthismatchingprinciplebysynchronizingtherecognitionofcostofgoodssold(COGS)withtherevenuerecognizedinOracleReceivablesforshipmentsmadeinOracleOrderManagement,orotherorderfulfillmentsystems.Withthisfeature,salesorderrevenueandtheassociatedCOGSarerecognizedinthesameperiod.Inaddition,whensalesorderrevenueisonlypartiallyrecognized,theassociatedCOGSisrecognizedinthesameproportion.
Revenue/COGSRecognitionProcessFlow
WhenyoushipconfirmoneormoreorderlinesinOracleOrderManagementandthenruntheapplicableCostManagementcostandaccountingprocesses,thecostofgoodssoldassociatedwiththesalesorderlineisimmediatelydebitedtoaDeferredCOGSaccountpendingtheinvoicingandrecognitionofthesalesorderrevenueinOracleReceivables.WhenOracleReceivablesrecognizesallorpartofthesalesrevenueassociatedwithasalesorderline,yourunacostprocessthatcalculatesthepercentageoftotalbilledrevenuerecognized.OracleInventorythencreatesacostrecognitiontransactionthatadjuststheDeferredCOGSandregularCOGSamountfortheorderline.TheproportionoftotalshipmentcostthatisrecognizedasCOGSwillalwaysmatchtheproportionoftotalbillablequantitythatisrecognizedasrevenue.
RelatedTopics
RecognizingRevenue,OracleReceivablesUser'sGuide
Revenue/COGSRecognitionMethodologyThefollowingdescribeshowOracleCostManagementsynchronizestherecognitionofearnedCOGStoearnedsalesorderrevenueinavarietyofbusinessscenarios.
1. Revenue/COGSrecognitionmainbusinessflow
Atsalesordershipment,orderlinesarecostedandbookedtoaDeferredCostofGoodsSold(COGS)account.Thisaccountissubsequentlyadjustedforanychangeinthepercentageofearnedorrecognizedrevenueassociatedwiththesalesorderlines.Thisisdonetoensurethatamountof
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earnedCOGSisrecognizedproportionatelyastheamountofearnedrevenue.
YourunasetofconcurrentprocessestorecordsalesorderandrevenuerecognitiontransactionsandtocreateandcostCOGSrecognitiontransactions.TheseCOGSrecognitiontransactionsadjustdeferredandearnedCOGSinanamountthatsynchronizesthe%ofearnedCOGStoearnedrevenueonsalesordershipmentlines.
a. RecordOrderManagementTransactions:recordsnewsalesordertransactionactivitysuchasshipmentsandRMAreturnsinOracleOrderManagement.
b. CollectRevenueRecognitionInformation:determinesthepercentageofrecognizedorearnedrevenuerelatedtoinvoicedsalesordershipmentlinesinOracleReceivables.
c. GenerateCOGSRecognitionEvents:createsandcostsCOGSrecognitioneventsfornewsalesordershipments/returnsandchangesinrevenuerecognitionandcreditsforinvoicedsalesordershipmentlines.
COGSrecognitioneventsarecreatedfor:
a. Invoiceableandshippableorderlines
b. Configureditems:invoiceable(parent)lineifithasanyshippablebutnotinvoiceablechildren.
c. Ashippablenoninvoiceablelinethathasnoinvoiceableparent.
ACOGSrecognitioneventgeneratesaCOGSrecognitiontransactionwhosedateandtimestampistheendofdayasspecifiedintheinventoryorganizationslegalentitytimezone.
ArejectedacceptanceenabledsalesorderlinewillnotinterfacewithOracleReceivablesandOracleOrderManagement.
AnRMAreceiptwillresultinacredittototalCOGS(splitappropriatelybetweendeferredCOGSandCOGSifnecessary)withadebittoinventory.
2. CustomeracceptanceonlyaffectsCostingindirectly,inthat:
Itisarevenuerecognitioncontingencyforanorderline.
ArejectedsalesorderlinemeansallshippedquantitiesforthatlinewillneverbeinvoicedinA/R.Whenyouclosethisorderline,OrderManagementflagsthisasanuninvoicedline.Whenthisoccurs,CostManagementmovesthebalanceofthesalesorderlinefromdeferredCOGStoCOGS.
3. Thereisnoaccountingwhenasalesorderlineisrejected.Costingonlycreatesaccountingwhentherejecteditemsarereceivedandtheneitherdeliveredtoaregularorascrapassetsubinventory.
4. Incustomerdropshipscenarioswithadvancedaccounting,revenue/COGSmatchingoccursonlyinthecustomerfacingorganization.Ifadvancedaccountingisnotenabled,revenueandCOGSmatchingdoesnotoccur.CostingbookstheentiresalesordershipmentamounttoCOGS.
COGSRecognitionandConcurrentProcessesThematchingandsynchronizationoftheearnedanddeferredcomponentsofsalesorderrevenueandCOGSisaccomplishedbyrunningthefollowingCOGSrecognitionconcurrentprocessesatuserdefinedintervals:
RecordOrderManagementTransactions
CollectRevenueRecognitionInformation
GenerateCOGSRecognitionEvents
RecordOrderManagementTransactions
TheRecordOrderManagementTransactionsconcurrentprocesspicksupandcostsalluncostedsalesorder
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issueandRMAreturntransactionsandcreatesarecordforeachneworderlineinthecostingCOGSrecognitionmatchingtable.Thisprocessisnotmandatory.Ifyoudontrunthisprocess,thenthecostprocessorwillselectandcosttheuncostedsalesorderissuesandinsertthemintheCOGSmatchingtable.ThisprocesscanbeusedifyouneedtoprocesstheCOGSrecognitiontransactionsatshorterintervalsthanthecostprocessor.
Torecordordermanagementtransactions
1. NavigatetotheRecordOrderManagementTransactionswindow.TheParameterswindowappears.
2. SelectaLedgerfromthelistofvalues.
3. ClickSubmittoruntherequest.
CollectRevenueRecognitionInformation
TheCollectRevenueRecognitionInformationconcurrentprocesscallsanOracleReceivablesAPItoretrievethelatestrevenuerecognitionpercentageofallinvoicedsalesorderlinesinOraclereceivablesforaspecificledgerandwithactivitydateswithinauserspecifieddaterange.ThisprocessmustberunbeforetheGenerateCOGSrecognitionEventconcurrentprocess.
Tocollectrevenuerecognitioninformation
1. NavigatetotheCollectRevenueRecognitionInformationwindow.TheParameterswindowappears.
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2. SelectaLedgertorestrictrevenuerecognitioneventswithinaspecificledger..
3. Thisconcurrentrequesthastwodateparametersthatallowyoutorestrictprocessingofrevenuerecognitioneventstoarangeofdates:
StartDate:Transactionspriortothisdatearenotselected.Thedefaultvalueisthedateofthelastsuccessfulrunoftheconcurrentrequest.
EndDate:Transactionsafterthisdatearenotselected.
4. ChooseOK.
5. ChooseSubmittoruntherequest.
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GenerateCOGSRecognitionEvents
TheGenerateCOGSRecognitionEventsconcurrentrequestcomparestheCOGSrecognitionpercentageforeachsalesorderlineandaccountingperiodcombinationtothecurrentearnedrevenuepercentage.Whenthecomparedpercentagesaredifferent,theprocessraisesaCOGSrecognitioneventandcreatesaCOGSrecognitiontransactioninOracleInventorythatadjuststheratioofearnedanddeferredCOGStomatchthatofearnedanddeferredrevenue.YoumustrunthisprocessaftercompletionoftheCollectRevenueRecognitionInformationconcurrentprocess.
TogenerateCOGSrecognitionevents
1. NavigatetotheGenerateCOGSRecognitionEventswindow.TheParameterswindowappears.
2. SelectaLedgerfromthelistofvalues.
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3. ClickSubmittoruntherequest.
PeriodCloseConsiderations
EnsurethatthereareopenGLperiodineachledgerfortheperiodsinwhichyouruntheconcurrentprocess.
Inperpetualcostingorganizations,youcancreatebackdatedCOGSrecognitioneventsandtransactionsinopenandclosedinventoryperiods.
Inperiodiccostingorganizations,onlyeventsandtransactionsthatarewithinthecurrentperiodicperiodsstartandenddateswillbeprocessed.
TheinventoryperiodcloseprocessmustbesynchronizedwithOracleReceivablesperiodclosetoensureproperrecognitionofrevenueandCOGSinanaccountingperiod.
Inperiodiccostingorganizations,youcannotclosetheaccountingperiodifOracleReceivableshasnotsoftcloseditsaccountingperiod.Attemptingtodosogeneratesanerrormessage.ThisconditionensuresthatallbackdatedrevenuerecognitiontransactionsinOracleReceivablesareprocessedincostingpriortoperiodclose.
Inperiodiccostingorganizations,runtheGenerateCOGSRecognitionEventsconcurrentprocessafterthecloseofaninventoryaccountingperiodtoensurethatallCOGSrecognitioneventshavebeenprocessedandcosted.RerunthePeriodicCostProcessorandPeriodicDistributionProcessor.CostingperformsavalidationtoensurethatallorganizationsinaPeriodicAverageCosting(PAC)costgrouphavenomismatchedrevenueandCOGSorderlines,andgeneratesanerrormessageifunmatchedlinesarefound.
SupportedBusinessScenariosRevenue/COGSmatchingissupportedforthefollowingsalesorderbusinessscenarios:
Salesorders:nocustomeracceptance
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Salesorders:customeracceptanceenabled
Salesorders:configureditemsATO/PTO
SalesOrders:NoCustomerAcceptance
ThefollowingscenariosillustrateRevenue/COGSmatchingforsalesorderswherecustomeracceptanceisnotinthebusinessprocessflow.Theunderlyingassumptioninthissetofscenariosisthatownershipistransferredatthetimeofshipment.TheyapplywhencustomeracceptanceisnotenabledinOracleOrderManagement.Scenariosinclude:
1. Scenario1:Salesorder/invoicing,RMA,andcreditmemo
2. Scenario2:Alternaterevenueallocationincreditmemo
3. Scenario3:CreditmemobeforeRMA
4. Scenario4:RMAfollowingfullrevenuerecognition
5. Scenario5:Salesorder,multipleRMA's,revenuerecognition,creditmemos
6. Scenario6:RMAnottiedtosalesorder
7. Scenario7:Uninvoicedsalesorder
Scenario1:Salesorder/invoicing,RMA,andcreditmemo
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
Account Debit Credit
DeferredCOGS 500
Inventory 500
COGS
DeferredRevenue 1000
Receivables 1000
Revenue
Time2Revenuerecognizedat50%inA/R
Account Debit Credit
DeferredRevenue 500
Revenue 500
COGSaccountingdistributionsareadjustedbasedonthetotalshippedquantity.A/Rflagsthat50percentoftherevenueforthe10invoicedunitshasbeenrecognized.CostingappliesthesamepercentagetotheregularanddeferredCOGSaccounts.
COGS=500*.50=$250
Account Debit Credit
COGS 250
DeferredCOGS 250
Time3RMAfor2unitsreceivedintoinventory
TheA/Rearnedrevenuepercentageremainsat50percent.WhenaccountingfortheRMAreceipt,costing
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reducesthetotalCOGSbalancesothattheproportionofdeferredtoearnedismaintained.ThevalueoftheRMAis2x$50=$100.CostingadjuststheearnedanddeferredCOGSaccountsasfollows:
Account Debit Credit
Inventory 100
COGS 50
DeferredCOGS 50
Atthispointintime,theCOGSaccountbalanceis(500100)x.50or$200,andtheDeferredCOGSaccountbalanceis(500100)x.50or$200
Time4CreditmemocreatedinARrelatedtotheRMAfor2units
A/Relectstodebittheentireamountofthecreditmemointhedeferredrevenueaccountandnothingintheearnedrevenueaccount.Thiscanoccurwhenthereisanoutstandingcontingencyonthereturnedunitsanditsassumedthattherevenueonthereturnedunitshadpreviouslynotbeenrecognized.
Account Debit Credit
DeferredRevenue 200
Receivables 200
Afterthistransaction,totalexpectedrevenueisreducedfrom$1000to$800.Theearned/unearnedrevenueproportionhaschangedandcostingneedstocreateaCOGSrecognitioneventtokeeptheratioofearned/deferredCOGSthesameastheratioofearned/unearnedrevenue.
Newearnedrevenuepercentage:$500/($500+$300)=62.5percent
Requiredearned/deferredCOGSpercentages:62.5percent/37.5percent
TotalexpectedCOGSbalancebeforeRMA/creditmemo:$400
Allocatedasfollows:$400x.50=$200earned,$400x.50=$200deferred
TotalexpectedCOGSbalanceafterRMA/creditmemo:$400
Allocatedasfollows:400x.625=$250earned,400x.375=$150deferred
COGSrecognitiontransaction:$50adjustmentfromdeferredtoearnedCOGS
Account Debit Credit
COGS 50
DeferredCOGS 50
AsthecreditmemoaccountingdistributioninA/Ralteredtheratioofearnedtodeferredrevenue,costingwillgenerateaCOGSrecognitionadjustmenttransactionthatkeepstheassociatedearned/deferredCOGSratiothesameastherevenueratio.
Scenario2AlternateRevenueAllocationinCreditMemo
Note:Time1toTime3transactionsarethesameasthoseinscenario1.
Time4CreditmemocreatedinA/RrelatedtotheRMAforthese2units
Insteadofapplyingtheentirecreditmemoamounttodeferredrevenue,A/Relectstoapplyitequallytotheearnedanddeferredrevenueaccounts.
Account Debit Credit
DeferredRevenue 100
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Revenue 100
Receivables 200
Afterthecreditmemoisapplied,costingwillnotcreateaCOGSrecognitiontransactionastheproportionofearned/deferredCOGSisstillequaltotheproportionofearned/deferredrevenue.
Newearnedrevenuepercentage:$400/($400+$400)=50.0percent
Requiredearned/deferredCOGSpercentages:50.0percent/50.0percent
Previousearned/deferredCOGSpercentages:50.0percent/50.0percent
TotalexpectedCOGSbalancebeforeRMA/creditmemo:$400
Allocatedasfollows:$400x.50=$200earned,$400x.50=$200deferred
TotalexpectedCOGSbalanceRMA/aftercreditmemo:$400
Allocatedasfollows:400x.50=$200earned,400x.50=$200deferred
COGSrecognitiontransaction:none
Scenario3:CreditMemoBeforeRMA
Note:Time1totime2transactionsarethesameasthoseinscenario1.
Time3CreditmemopeggedtooriginatingsalesordercreatedinA/Rfor$200
Account Debit Credit
DeferredRevenue 100
Revenue 100
Receivables 200
CostingwillnotneedtocreateaCOGSrecognitionadjustmenttransactionasthecreditmemoaccountingdistributiondoesnotchangetheratioofearned/deferredrevenue.
Scenario4:RMAAfterFullRevenueRecognition
Time1Salesorderissue,fullrevenuerecognition:Qty=10,Cost=$50,Price=$100
Whentheitemsareshipped,thefullvalueoftheshipmentisbookedtothedeferredCOGSaccount.
Account Debit Credit
DeferredCOGS 500
Inventory 500
InA/R,thesalesorderlineisbilledandalloftherevenueisrecognized.
Account Debit Credit
Receivables 1000
Revenue 1000
CostingcreatesaCOGSadjustmenteventtorecognizethefullamountofCOGSasearned.
Account Debit Credit
COGS 500
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DeferredCOGS 500
Time2RMAfor2unitsreceivedintoinventory
Sincethecurrentratioofearnedtounearnedrevenueis1/0(earned/unearned),costingappliestheentireamountoftheRMAtotheearnedCOGSaccount.
Account Debit Credit
Inventory 100
COGS 100
ThisRMAcouldhavebeencreatedtoreplaceadefectiveproduct.Asaresult,nocreditmemoisexpectedandreplacementunitsareexpectedtobeshippedatalaterdate.TheexpectedCOGSistemporarilyreducedto$400pendingtheshipmentofthereplacements.
Scenario5:SalesOrder,MultipleRMAs,RevenueRecognition,CreditMemos
Time1Salesorderissue,fullrevenuerecognition:Qty=10,Cost=$50,Price=$100
Whentheitemsareshipped,thefullvalueoftheshipmentisbookedtothedeferredCOGSaccount.
Account Debit Credit
DeferredCOGS 500
Inventory 500
InA/R,thesalesorderlineisinvoicedandalloftherevenueisdeferred.
Account Debit Credit
Receivables 1000
DeferredRevenue 1000
Time2RMAreceiptfor2unitsandcreditmemo
AnRMAfor2unitspeggedtotheoriginatingsalesorderisreceivedintoinventoryandcostingbooksthefullamountoftheRMAintodeferredCOGS.
Account Debit Credit
Inventory 100
DeferredCOGS 100
Time3CreditmemoforRMAcreatedinA/R
A/Rcreatesacreditmemotoreducetheexpectedrevenueandcustomerreceivableduetothereturnedunits.
Account Debit Credit
DeferredRevenue 200
Receivables 200
Asthecreditmemodoesnotchangetheratioofearned/unearnedrevenue,noCOGSrecognitionadjustmenttransactionisneededasaresultofthecreditmemo.
Time4RMAnoreceiptfor3unitsandcreditmemo
AnRMAwithnoassociatedreceiptdoesnotgenerateanyaccounting.
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AftertheRMAnoreceiptiscreated,A/Rcreatesacreditmemo.Asnorevenueontheassociatedsalesorderhasyetbeenrecognizedinthisscenario,thefullamountofthecreditmemoisadebittothedeferredrevenueaccount.
Note:ThenonreceiptofRMAitemsmayresultintheunderstatementofCOGS.Forfurtherinformation,seetheSpecialCasesectionneartheendofthischapter.
Account Debit Credit
DeferredRevenue 300
Receivables 300
Time5Revenuerecognitionat40percentonremaining5units
Theoriginalsalesordershipped10unitstothecustomer,anRMAwithreceiptandcreditreturned2unitsintoinventory,andanRMAnoreceiptbutwithcreditfor3units(presumablyscrapped)yieldsanexpectedrevenue/receivableononly5units.A/Rrecognizes40percentoftheexpectedrevenueonthese5units,therefore$500x.40or$200ofearnedrevenuemustbebooked.
Account Debit Credit
DeferredRevenue 200
Revenue 200
AssumingthescraptransactionalternativeinTime4isnotperformed,thetotalexpectedCOGSforthese5unitsis$400($500minus$100fortheRMAwithreceipt).CostingcreatesaCOGSrecognitiontransactiontorecognize40percentofthecostontheseunits,whichis$400x.40,or$160.
Account Debit Credit
COGS 160
DeferredCOGS 160
TorevisitthetopicintroducedatTime5,COGSmaybeunderstatedifyouexpectedtheRMAinstepTime5tobeascrapevent.However,asexplained,youshouldcreateanexplicitscrapbyreceivingtheRMAintoascrapsubinventory.
Time6RMAnoreceiptfor1unitandcreditmemo
AnRMAwithnoassociatedreceiptintoinventorydoesnotgenerateanyaccounting.
AnadditionalRMAnoreceiptwithcreditmemoiscreated.AftertheRMAnoreceiptiscreated,A/Rcreatesacreditmemoandallocatestheamountentirelytotheunearned(Deferred)revenueaccounts.
Note:ThenonreceiptofRMAitemsmayresultintheunderstatementofCOGS.Forfurtherinformation,seetheSpecialCasesectionneartheendofthischapter.
Account Debit Credit
DeferredRevenue 100
Receivables 100
AnadditionalRMAnoreceiptwithcreditmemoiscreated.A/RcreatesacreditmemofortheRMAandallocatestheamountequallybetweentheearnedandunearnedrevenueaccounts.
Atthispointintime,totalexpectedrevenueis$400($1000less$600forthreeRMAs)ofwhich$200or50percenthasbeenearnedandrecognized.Asthecreditmemochangestheratioofearned/deferredrevenue,costingcreatesaCOGSrecognitiontransactiontoalignearned/deferredCOGSandrevenue.
Currentearnedrevenuepercentage:$200/($200+$200)=50.0percent.
Requiredearned/deferredCOGSpercentages:50percent/50percent
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TotalexpectedCOGSbalancebeforecreditmemo:$400
TotalexpectedCOGSbalanceaftercreditmemo:$400
COGSrecognitiontransaction:$40adjustmentfromdeferredtoearnedCOGS
Account Debit Credit
COGS 40
DeferredCOGS 40
Asthisscenariodemonstrates,whenyoucreateanRMAwithcreditanddonoreceivetheRMAunitsintoinventory,thenearnedCOGSwillbeunderstated(anddeferredCOGSoverstated)bytheamountoftheunreceivedRMAunits.Thisunder/overstatementappliesfromthetimetheRMAcreditisprocessedtothetimerevenueandCOGSarefullyrecognizedandearned.
Forexample,inTime4,thecreditmemoreducesthetotalexpectedrevenueby$300from$800to$500withtheentireamountindeferredrevenue.Hadthe3RMAunitsbeenreceivedintoinventory,totalCOGSwouldhavebeenreducedby$150from$400to$250withtheentireamountindeferredCOGS.However,theRMAunitswerenotreceivedintoinventoryandwerepresumablyscrappedbythecustomer.AsaresultthedeferredCOGSaccountisoverstatedby$150atTime4.
Forfurtherdetails,seetheSpecialCasesectionneartheendofthischapter.
Scenario6:RMANotTiedtoSalesOrder
WhenyouprocessanRMAthatisnottiedorpeggedtoanoriginatingsalesorder,A/Rcannotassociatethereturneditemstoanyparticularshipmentorcustomerinvoice.Asaresult,previouslyearnedordeferredrevenueonthereturneditemsisnotchanged.Inthisscenario,costingassumesthatalloftherevenueassociatedwiththereturnwaspreviouslyrecognizedandcreditstheentireamountoftheRMAintheearnedCOGSaccount.
Account Debit Credit
Inventory 500
COGS 500
Scenario7:UninvoicedSalesOrder
Time1Newsalesorderiscreatedtoship10units,noinvoicingcreated
Whencustomersreturngoods,itiscommonpracticetoexchangereturnedunitswithnewoneswithnocreditmemoforthereturnedunits,andnocustomerinvoiceforthereplacementunits.Whenthereplacementunitsareshippedtothecustomer,asalesorderiscreated.However,noinvoicewillbecreatedforit.Whenthereplacementsalesorderships,costingdoesnotknowthattheorderwillnotbebilledandaccountsforthetransactionasaregularthatistobeinvoicedasasalesordershipment.
Account Debit Credit
DeferredCOGS 500
Inventory 500
Time2Orderisclosed
Noinvoicewillbecreatedfortheshipment,andtheaccountedamountwillremaininthedeferredCOGSaccountuntilthesalesorderlineisclosedinOracleOrderManagement.Theclosingofasalesorderlinewithuninvoiceditemscreatesanassumptionthatrevenuehasbeenrecognizedoutsideofthenormalprocess,orthatrevenuewillneverberecognized.Ineithercase,costingmovestheuninvoicedamountfromtheDeferredCOGSaccounttoCOGS.
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Account Debit Credit
COGS 500
DeferredCOGS 500
SalesOrders:CustomerAcceptanceEnabled
ThefollowingscenariosillustrateRevenue/COGSMatchingforsalesorderswherecustomeracceptanceisinthebusinessprocessflow.Theunderlyingassumptioninthissetofscenariosisthatownershipistransferredatthetimeofshipment.TheyapplywhencustomeracceptanceisnotenabledinOracleOrderManagement.Scenariosinclude:
Scenario1Salesorder,acceptance,invoicing,revenuerecognition,RMA,creditmemo
Scenario2Salesorder,RMAreplacement,acceptance,invoicing,preinvoicingacceptance
Scenario3Salesorder,invoicing,RMAreceiptwithcredit,rejection,RMAnoreceiptwithcredit,postinvoicingacceptance
Scenario4Salesorder,rejection
Scenario5Uninvoicedsalesorder
Scenario1SalesOrder,Acceptance,Invoicing,RevenueRecognition,RMA,CreditMemo
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
WhencustomeracceptanceisenabledforasalesorderinOracleOrderManagement,revenuerecognitionmustbedeferreduntiltheacceptanceisreceivedandrecorded.
Account Debit Credit
DeferredCOGS 500
Inventory 500
Time2Customeracceptstheentireshipment
Noaccounting
Time3Customerbilledfortheentirequantity
Oncecustomeracceptanceisreceivedandrecorded,A/Rcreatesacustomerinvoiceandthependingreceivable.
Account Debit Credit
Receivables 1000
DeferredRevenue 1000
Time4Revenuerecognitionof50percent
Revenueonthecustomeracceptancesalesorderis50percentrecognized.Thiscanoccurwhencontractcontingenciesorotherrevenuerecognitionrulesrequirepartialrecognition.
Account Debit Credit
DeferredRevenue 500
Revenue 500
Withthe50percentrecognitionofsalesorderrevenue,costingcreatesaCOGSrecognitiontransactionthatmoves50percentofthesalesordershipmentcostfromthedeferredtoearnedCOGSaccount.
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Account Debit Credit
COGS 250
DeferredCOGS 250
Time5RMAfor2unitsreceivedintoInventory
Thecustomerreturns2unitsthatarereceivedintoinventory.TheRMAreferencestheoriginatingsalesorderlinesonwhich50percentoftherevenuehasbeenrecognized.CostingallocatestheRMAamountequallybetweenthedeferredandearnedCOGSaccounts.
Account Debit Credit
Inventory 100
DeferredCOGS 50
COGS 50
Time6CreditmemocreatedforRMAfor2units
A/RelectstodebittheentireRMAamountinthedeferredrevenueaccount.ContractcontingenciesorotherrevenuerecognitionrulesdeterminewhetherRMA/creditmemosforshipmentswhoserevenuehasnotbeenfullyrecognizedwillreduceearnedordeferredrevenue.
Account Debit Credit
DeferredRevenue 200
Receivables 200
Theallocationofthecreditmemoamounttothedeferredrevenueaccountchangesthepriorratioofearned/deferredrevenue.Asaresult,costingcreatesaCOGSrecognitiontransactiontorealigntheearned/deferredportionsofCOGSandrevenue.
Newearnedrevenuepercentage:$500/($500+$300)=62.5percent
Requiredearned/deferredCOGSpercentages:62.5percent/37.5percent
Previousearned/deferredCOGSpercentages:50.0percent/50.0percent
TotalexpectedCOGSbalancebeforeRMA/creditmemo:$500
Allocatedasfollows:$500x.50=$250earned,$500x.50=$250deferred
TotalexpectedCOGSbalanceafterRMA/creditmemo:$400
Allocatedasfollows:400x.50=$200earned,400x.500=$200deferred
COGSallocationrequired:400x.625=$250earned,400x.375=$150deferred
COGSrecognitiontransaction:$50adjustmentfromdeferredtoearnedCOGS
Account Debit Credit
COGS 50
DeferredCOGS 50
Scenario2SalesOrder,RMAReplacement,Acceptance,Invoicing,PreinvoicingAcceptance
Time1SalesorderissueOrder#1:Qty=10,Cost=$50,Price=$100
SalesOrder1isshippedtoacustomersubjecttocustomeracceptance.
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Account Debit Credit
DeferredCOGS 500
Inventory 500
Time2RMAfor4unitsonSalesOrder1
Customerreturns4unitsofsalesorderandthesearereceivedintoinventory.
Account Debit Credit
Inventory 200
DeferredCOGS 200
Time3SalesordershipmentofreplacementsunitsonSalesOrder2
SalesOrder2iscreatedandreplacementitemsareshippedtocustomer.
Account Debit Credit
DeferredCOGS 200
Inventory 200
Time4SalesOrder2isclosed
Thissalesorderwascreatedtoshipreplacementitemstothecustomer.Salesorderlineswillnotbeinvoicedasreplacementsareprovidedtothecustomeratnocostasagestureofgoodwill.Whenthesalesorderisclosed,costingmovesthecostoftheshippeditemsfromthedeferredtoearnedCOGSaccount.
Account Debit Credit
COGS 200
DeferredCOGS 200
Time5Acceptanceandinvoicingof10unitsonSalesOrder1
Thecustomersendsacustomeracceptancenotificationforthe10unitsinsalesorder1,andA/Rinvoicesthecustomerfortheseunits.
Account Debit Credit
Receivables 1000
DeferredRevenue 1000
Atthispointintime,theproportionofearned/deferredinrevenueandCOGSarenolongerthesame.Thetransactionflowgenerated$1000indeferredrevenueandonly$300indeferredCOGS.TheclosingofSalesOrder2inthepreviousstepreducedthedeferredaccountby$200andbookedthisamounttoearnedCOGS.
Note:InordertokeeptheCOGSaccountsproperlysynchronizedwiththerevenueaccountswhenthetransactionsspanmultipleaccountingperiods,amanualjournalentrymaybeneededthatreversestheaccountinggeneratedbythereplacementorder(SalesOrder2).ThisadjustmentincreasestheDeferredCOGSaccountbalanceto$500andreducestheearnedCOGSaccountbalancetozerowhichexactlysynchronizeswiththerevenueaccounts.
Account Debit Credit
DeferredCOGS 200
COGS 200
Time6Revenuerecognitionof50percentSalesOrder1
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A/Rrecognizes50percentofthe$1000revenueforSalesOrder1.
Account Debit Credit
DeferredRevenue 500
Revenue 500
Withthe50percentrecognitionofsalesorderrevenue,costingcreatesaCOGSrecognitiontransactionthatmoves50percentofthe$300costofSalesOrder1fromthedeferredtotheearnedCOGSaccount.
Account Debit Credit
COGS 150
DeferredCOGS 150
Atthispointintime,theproportionofearned/deferredinrevenueandCOGSisnolongerthesame.Thetransactionflowgenerated$500/$500or50percentinearned/deferredrevenue,andtheearned/deferredCOGSaccountbalancesforthecombinedordersare$150/$350
Important:InordertokeeptheCOGSaccountsproperlysynchronizedwiththerevenueaccountswhenthetransactionsspanmultipleaccountingperiods,amanualGLjournalentryisneededtoincreasetheearnedCOGSforthecombinedordersto$250.
Account Debit Credit
COGS 100
DeferredCOGS 100
Thisadjustmentresultsinearned/deferredCOGSaccountbalancesof$100/$100or50percentforSalesOrder2to$100,and$250/$250or50percentforthecombinedorders.
Thisprocedureisrequiredifyouwanttosynchronizerevenue/COGSmatchingacrossanoriginatingsalesorderwithanRMA,andanassociatedunbilledreplacementsalesorderwhosecostisrecognizedwhentheorderisclosed.
Iftheaccountingimpactisnotmaterialorthetransactionflowdoesnotcrossaccountingperiods,analternativeaccountingapproachistoforegothemanualGLjournalentries.ThiswillresultintheearlyrecognitionofCOGSforunbilledreplacementordersandareducedrecognitionofCOGSinsubsequentperiodsontheoriginatingsalesorder.
Scenario3:SalesOrder,Invoicing,RMAReceiptWithCredit,Rejection,RMAnoReceiptWithCredit
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
Asalesorderisshippedtocustomersubjecttocustomeracceptance.
Account Debit Credit
DeferredCOGS 500
Inventory 500
Time2Customerbilledfortheentirequantity
A/Rcreatesaninvoicethatbillsthecustomerforthesalesordershipment.
Account Debit Credit
Receivables 1000
DeferredRevenue 1000
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Time3Revenuerecognitionof50percent
WhencustomeracceptanceisenabledforasalesorderinOracleOrderManagement,revenuerecognitionmustbedeferreduntiltheacceptanceisreceivedandrecorded.Theattempttorecognizerevenuefails.
Time4RMAreceiptwithcreditfor2units,receivedintoinventory
Thecustomerreturns2unitsforcreditthatarereceivedintoinventory.
Account Debit Credit
Inventory 100
DeferredCOGS 100
Time5CreditmemocreatedforRMAfor2units
A/Rcreatesacreditmemoandtheentireamountisallocatedtodeferredrevenuebecausenorevenuehasbeenrecognized.
Account Debit Credit
DeferredRevenue 200
Receivables 200
Note:NoCOGSrecognitiontransactionisneededbecausethereisnochangeinproportionofearned/deferredrevenue.
Time6Salesordershipmentisrejectedbycustomer
Noaccounting.
Time7RMAfor4unitsintoscrapsubinventory
AnRMAfor4unitsisreceivedintoascrapassetsubinventoryforinspectionandsubsequentdisposal.
Account Debit Credit
ExpenseSubinventory 200
DeferredCOGS 200
Note:YoumustsetupascrapassetsubinventorysothataspecifiedscrapexpenseaccountischargeduponRMAreceipt.
Scenario4:SalesOrderRejection
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
Asalesorderisshippedtothecustomerandissubjecttocustomeracceptance.
Account Debit Credit
DeferredCOGS 500
Inventory 500
Time2Customerrejectsthesalesordershipment
Thecustomerrejectsthesalesordershipmentanddoesnotreturntherejecteditemsbecausethesewillbescrappedatthecustomersite.ThesalesorderlineisclosedandcostingcreatesaCOGSrecognitiontransactiontorecordtheearnedcost.
Account Debit Credit
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COGS 500
DeferredCOGS 500
Scenario5:UninvoicedSalesOrder
Onorderswherecustomeracceptancehasbeenenabled,youcannotcloseasalesorderlineuntilthelineisaccepted.Oncethesalesorderlineisaccepted,thetransactionflowandaccountingisthesameassalesorderswherecustomeracceptancehasnotbeenenabled.See:UninvoicedSalesOrder.
SalesOrders:ConfiguredItemsPTO/ATO
OracleCostManagementsupportstheallocationofitemcostbetweenearnedanddeferredCOGSforAssembletoOrder(ATO)andPicktoOrder(PTO)items.Revenue/COGSsynchronizationforconfigureditemsisachievedbymatchingashipped,costedlinetotheinvoiceablelinethatitmostcloselyrelatesto.Iftheshippedlineisinvoiced,thentherevenuerecognitionscheduleforthatlinedrivesCOGSrecognition.Iftheshippedlineisnotinvoiced,thenCOGSforthatlinewillbedrivenbytherevenuerecognitionforthenearestinvoicedlinethatitrollsupto.
Youcansynchronizerevenue/COGSforthefollowingtypesofconfigureditems:
Kit(PTOwithoutoptions)
ATOmodel
PTOmodel
PTOmodelwithimbeddedATOmodel
Scenario1:Kit(PickToOrderItemWithoutOptions)
Akitisagroupedsetofitemsthataresoldtogetherasaunitandinwhichtherearenooptionalitems.ABOMisusedtodefinethekitscomponents.IntheOracleeBusinessSuite,salesorders,pricelists,andinvoicesarecreatedandmanagedatthekitlevel.However,ordershipmentsandshipmentcostsaremanagedattheincludeditemlevel.ThefollowingexampleillustrateshowrevenueandCOGSaresynchronizedaftertheshipmentofakit.
KititemK1iscomposedoftwoincludeditems,AandB.ItemsAandBareshippedbutonlyK1isinvoiceable.
ShipModelComplete
Whenakitisshippedwithallofitsincludeditems,adeferredCOGStransactioniscreatedforeachoftheshippable,costeditems.Inthisexample,theseareitemsAandB.WhenA/RinvoicesandrecognizesrevenueforkitK1,costingfirstperformsachecktodeterminewhetherallofthekitsitemshavebeenshipped.Inthisexample,ifthekitisshipmodelcomplete,costingcreatesaCOGStransactionforitemAanditemBwhichresultsintherecognitionofearnedCOGSforAandBthatisproportionaltotheearnedrevenueforkitK1.
NonshipModelComplete
Nonshipmodelcompleteoccurswhenyouinvoicethekit,butshiponlypartoftheincludeditemsthatmakeupthekit.Forexample,itemAisshippedandthemodelisinvoicedbeforeBisshipped.Whenrevenueisrecognized,costingonlycreatesaCOGSrecognitiontransactionfortheshipmentlinewithitemA.OnlywhenitemBissubsequentlyshippedwillcostingapplytheearnedrevenuepercentageit.
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Scenario2:AssembleToOrder(ATO)Model
AnAssembletoOrder(ATO)modelisaconfigurationthatismanufacturedorassembledinresponsetoacustomerorderthatincludesbothmandatoryandoptionalitems.TheATOmodeliscreatedusingamodelbillofmaterialwithincludedandoptionalitemsandoptionselectionrules.Itisconfiguredduringtheentryofacustomerorderandmaybeshippedtothecustomercompleteorinstagedshipments.
IntheOracleeBusinessSuite,itstheATOmodelanditsoptionalitemsthatareordered,priced,andinvoiced.However,itstheconfigureditem(staritem)thatgetsshippedandcosted.
ThefollowingdiagramillustratesanATOmodelthatisdefinedbyabillofmaterialandroutingthatproducesamodelwitharolledupcost,andoptionalitemsO1andO2.Duringsalesorderconfiguration,theATOmodelisamandatoryorderlineselectionwhileoneorbothoftheoptionalitems(O1andO2)canbeselected.TheconfigureditemATO*isshipped.However,itstheATOmodel(anditsincludeditems)O1andO2thatareinvoiced.
Scenario3:PickToOrder(PTO)Model
APicktoOrder(PTO)modelisaconfigurationthatisfulfilledinthewarehouseinresponsetoacustomerorderthatincludesbothmandatoryandoptionalitems.ThePTOmodeliscreatedusingamodelbillofmaterialwithincludedandoptionalitems,andoptionselectionrules.Itisconfiguredduringtheentryofacustomerorder,pickedandfulfilledinthewarehouse,andmaybeshippedtothecustomercompleteorinstagedshipments.
IntheOracleeBusinessSuite,itsthePTOmodelanditsoptionalitemsthatareordered,priced,andinvoiced.However,anycombinationofthemodelline,includeditems,andoptionalitemscanbeshippedandcosted.
ThefollowingdiagramillustratesaPTOmodelitemthatiscomposedofincludeditemsAandB,optionalitemO1,andoptionclassOCwithincludeditemCandoptionalitemO2.PTOmodelscanbeshippedcompleteorinstageswithmultipleshipments,dependingontheavailabilityofthemodelsspecifieditems.
Forexample,allofthemodelsitems(PTOModel,A,B,O1,andO2)areshipped(optionclassesarenotshippableorcostingenabled).WhenA/Rinvoicesthecustomerfortheconfiguredmodel,onlythreeoftheitemsareinvoiced(PTOModel,O1andO2).ItemsAandBareincludeditemsinthemodelandarenotpricedorinvoicedseparately.ModeloptionChasnopriceandisnotinvoiceable.AllitemsexceptoptionclassOCarecosted.
Whenthesixsalesorderlinesareshipconfirmed,costingraisesaCOGSrecognitioneventforeachshipmentlineandbookstheitemcostintoadeferredCOGSaccount.WhenA/RinvoicesandrecognizesrevenueforPTOModelandoptionsO1andO2,costingappliestherevenuerecognitionpercentagetothecosteditemsandrecordsearnedCOGSforthoseitems.Incaseswhereamodelitemisnotinvoiceable,therevenuerecognition
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percentageofthenearestparentitemisused.
Scenario4:PTOModelWithEmbeddedATOModel
APTOmodelmayhaveoneormoreATOmodelsdefinedinitsBillofMaterial.Forexample,PTOModel2iscomposedofincludeditemsAandBandoptionalitemsATO2andC2.Inthisexample,PTO2,A,B,ATO2*andC2areshipped,butPTO2,ATO2anditsoptionsandC2areinvoiced.
Thisisnodifferentthanthepreviousexample.TheATOisjustanothershippablelinethatmusthavethepercentageappliedwhenitispassedfromARforthetopmodel.
DropShipmentsandIntercompanyAccounting
Forinternaldropshipmentstocustomers,CostManagementonlysynchronizesrevenueandCOGSinthecustomerfacingOperatingUnit(OU)whenadvancedaccountingisenabled.Revenue/COGSsynchronizationisnotperformedinthenoncustomerfacingoperatingunits.
Forasalesorderissueoutoftheshippingoperatingunitandotherintermediateoperatingunits,theintercompanyCOGSisnotdeferred.TheapplicationappliestheentirecostoftheshipmentinallofthenonbookingoperatingunitstoIntercompanyCOGSandintercompanyrevenue.
Time1SalesorderissueinBookingOUfromShipOU:Qty=10,Cost=$50,Price=$75
AninternalorderiscreatedinthebookingOU(customerfacingOU)andshippeddirectlytothecustomerfromtheshippingOU.Anintermediateoperatingunitispartofthetransactionflow.Theinternaltransferpriceis$75inalloperatingunits.
Account Debit Credit
IntercompanyCOGS(ShippingOU) 500
Inventory(ShippingOU) 500
DeferredCOGS(BookingOU) 750
Inventory(BookingOU) 750
ExternalDropShipment(fromSuppliertoCustomer)
Inexternaldropshipmentscenarioswhereshipmentsaremadedirectlyfromthesuppliertothecustomer,intercompanyrevenueandCOGSarefullyrecognized.TherevenueandCOGSdeferralstakeplaceonlyinthe
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customerfacingbookingoperatingunit.
ASpecialCaseRMAwithnoReceipt
IfyouneedtoimmediatelyrecognizethescrappingofphysicallynonreceivedRMAitems,OraclerecommendsthatyoucreateanRMAwithreceipt,andthenperformavirtualreceiptoftheunreceivedintoanassetsubinventorydesignatedasascrapinventory.ThevaluationaccountforthissubinventorycanbesetuptopointtoascrapvaluationorexpenseaccountsotheRMAreceiptisimmediatelyrecognizedaseitheranimpairedassetorarealizedscrapexpense.
IfyourbusinessneedsmandatethatyouprocesstheunreceivedRMAitemsasanRMAnoreceipt,thenthedeferredCOGSassociatedwiththeoriginatingsalesordershipmentwillbeoverstatedandthescrappingordisposalofreturnedunitswillnotbebookedtoascraporotherdesignatedexpenseaccount.Oncerevenue/COGSarefullyrecognized,theearnedCOGSaccountforthesalesordershipmentwillincludethecostoftherejected,unreceivedRMAunits.
Ifthiscostneedstobereclassifiedasascrap/loss/disposalexpense,thenyoucancreateamanualGLjournalentrytotransferRMAnoreceiptamountsfromdeferredCOGStoadesignatedexpenseaccount.
OtherSpecialCases
CashandCarry
Thephysicalflowforcashandcarrysalesorderstypicallyincludespicking,staging,andshipmentactivities.Goodscanbepickedupinawarehouseorshowroombythecustomer,andpaidincash.However,thesalesorderlinesareshipconfirmedandasalesorderissuetransactioniscreatedinthesamewayasanoncashsalesorder.CashandcarrysalesordersareinterfacedwithOracleReceivablesthatinvoicesthesalesorderandrecognizesrevenueasearned.
Whenthesalesorderissuetransactioniscreated,theaccountingflowisthesameasthatofregularnoncashsalesorders.ThesalesorderissueamountischargedtothedeferredCOGSaccountandtransferredtoearnedCOGSwhenarevenuerecognitioneventisreceivedfromOracleReceivables.
RMAReceiptafterStandardCostUpdate
WhenyouperformanRMAreceiptforanitemwhichreferencestheoriginatingsalesorder,OracleCostManagementlooksupthecostoftheitematthetimeofshipmentandcreditstheCOGSaccountforthatamount.Iftheorderisshippedfromastandardcostingmethodorganizationandyouhaveperformedastandardcostupdateontheitemaftertheitemshipped,butpriortotheRMAreceipt,thenthedifferencebetweenshippedandupdatedcostiscreditedtothedeferredCOGSaccountdebitedatshipment.
Forexample,anitemisshippedatacostof$100,astandardcostupdatechangesthecostto$110,andanRMAreceiptisperformed.Revenueonthisitemhasnotbeenrecognized.Inthisscenario,theaccountingentriesareasfollows:
Accountingwhentheitemships:
Account Debit Credit
DeferredCOGS 100
Inventory 100
ThenanRMAreceiptisperformed:
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Account Debit Credit
Inventory 110
DeferredCOGS 100
StandardCostUpdateAdjustment 10
Note:TheCOGSaccountdefinedintheOrganizationParameterswindowwillbeusedfortheStandardCostUpdateAdjustmentaccount.
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