Oracle Cost Management User's Guide
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Skip Headers Oracle Cost Management User's Guide Release 12.1 Part Number E1363505 Contents Previous Next Revenue and COGS Matching This chapter covers the following topics: Overview of Revenue / COGS Matching Revenue / COGS Recognition Methodology COGS Recognition and Concurrent Processes Supported Business Scenarios Overview of Revenue / COGS Matching Financial accounting has two important generally accepted accounting principles (GAAP) that guide the statement of financial earnings: Revenue recognition principle Cost matching principle The revenue recognition principle requires revenues to be recognized when a firm has performed all, or a substantial portion of services to be provided, and cash receipt is reasonably certain. The matching principle requires that cash outlays associated directly with revenues are expensed in the period in which the firm recognizes the revenue. The Oracle eBusiness Suite supports this matching principle by synchronizing the recognition of cost of goods sold (COGS) with the revenue recognized in Oracle Receivables for shipments made in Oracle Order Management, or other order fulfillment systems. With this feature, sales order revenue and the associated COGS are recognized in the same period. In addition, when sales order revenue is only partially recognized, the associated COGS is recognized in the same proportion. Revenue / COGS Recognition Process Flow When you ship confirm one or more order lines in Oracle Order Management and then run the applicable Cost Management cost and accounting processes, the cost of goods sold associated with the sales order line is immediately debited to a Deferred COGS account pending the invoicing and recognition of the sales order revenue in Oracle Receivables. When Oracle Receivables recognizes all or part of the sales revenue associated with a sales order line, you run a cost process that calculates the percentage of total billed revenue recognized. Oracle Inventory then creates a cost recognition transaction that adjusts the Deferred COGS and regular COGS amount for the order line. The proportion of total shipment cost that is recognized as COGS will always match the proportion of total billable quantity that is recognized as revenue. Related Topics Recognizing Revenue, Oracle Receivables User's Guide Revenue / COGS Recognition Methodology The following describes how Oracle Cost Management synchronizes the recognition of earned COGS to earned sales order revenue in a variety of business scenarios. 1. Revenue / COGS recognition main business flow At sales order shipment, order lines are costed and booked to a Deferred Cost of Goods Sold (COGS) account. This account is subsequently adjusted for any change in the percentage of earned or recognized revenue associated with the sales order lines. This is done to ensure that amount of
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Oracle Cost Management User's Guide
Transcript of Oracle Cost Management User's Guide
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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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