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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

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

issueandRMAreturntransactionsandcreatesarecordforeachneworderlineinthecostingCOGSrecognitionmatchingtable.Thisprocessisnotmandatory.Ifyoudontrunthisprocess,thenthecostprocessorwillselectandcosttheuncostedsalesorderissuesandinsertthemintheCOGSmatchingtable.ThisprocesscanbeusedifyouneedtoprocesstheCOGSrecognitiontransactionsatshorterintervalsthanthecostprocessor.

Torecordordermanagementtransactions

1. NavigatetotheRecordOrderManagementTransactionswindow.TheParameterswindowappears.

2. SelectaLedgerfromthelistofvalues.

3. ClickSubmittoruntherequest.

CollectRevenueRecognitionInformation

TheCollectRevenueRecognitionInformationconcurrentprocesscallsanOracleReceivablesAPItoretrievethelatestrevenuerecognitionpercentageofallinvoicedsalesorderlinesinOraclereceivablesforaspecificledgerandwithactivitydateswithinauserspecifieddaterange.ThisprocessmustberunbeforetheGenerateCOGSrecognitionEventconcurrentprocess.

Tocollectrevenuerecognitioninformation

1. NavigatetotheCollectRevenueRecognitionInformationwindow.TheParameterswindowappears.

2. SelectaLedgertorestrictrevenuerecognitioneventswithinaspecificledger..

3. Thisconcurrentrequesthastwodateparametersthatallowyoutorestrictprocessingofrevenuerecognitioneventstoarangeofdates:

StartDate:Transactionspriortothisdatearenotselected.Thedefaultvalueisthedateofthelastsuccessfulrunoftheconcurrentrequest.

EndDate:Transactionsafterthisdatearenotselected.

4. ChooseOK.

5. ChooseSubmittoruntherequest.

GenerateCOGSRecognitionEvents

TheGenerateCOGSRecognitionEventsconcurrentrequestcomparestheCOGSrecognitionpercentageforeachsalesorderlineandaccountingperiodcombinationtothecurrentearnedrevenuepercentage.Whenthecomparedpercentagesaredifferent,theprocessraisesaCOGSrecognitioneventandcreatesaCOGSrecognitiontransactioninOracleInventorythatadjuststheratioofearnedanddeferredCOGStomatchthatofearnedanddeferredrevenue.YoumustrunthisprocessaftercompletionoftheCollectRevenueRecognitionInformationconcurrentprocess.

TogenerateCOGSrecognitionevents

1. NavigatetotheGenerateCOGSRecognitionEventswindow.TheParameterswindowappears.

2. SelectaLedgerfromthelistofvalues.

3. ClickSubmittoruntherequest.

PeriodCloseConsiderations

EnsurethatthereareopenGLperiodineachledgerfortheperiodsinwhichyouruntheconcurrentprocess.

Inperpetualcostingorganizations,youcancreatebackdatedCOGSrecognitioneventsandtransactionsinopenandclosedinventoryperiods.

Inperiodiccostingorganizations,onlyeventsandtransactionsthatarewithinthecurrentperiodicperiodsstartandenddateswillbeprocessed.

TheinventoryperiodcloseprocessmustbesynchronizedwithOracleReceivablesperiodclosetoensureproperrecognitionofrevenueandCOGSinanaccountingperiod.

Inperiodiccostingorganizations,youcannotclosetheaccountingperiodifOracleReceivableshasnotsoftcloseditsaccountingperiod.Attemptingtodosogeneratesanerrormessage.ThisconditionensuresthatallbackdatedrevenuerecognitiontransactionsinOracleReceivablesareprocessedincostingpriortoperiodclose.

Inperiodiccostingorganizations,runtheGenerateCOGSRecognitionEventsconcurrentprocessafterthecloseofaninventoryaccountingperiodtoensurethatallCOGSrecognitioneventshavebeenprocessedandcosted.RerunthePeriodicCostProcessorandPeriodicDistributionProcessor.CostingperformsavalidationtoensurethatallorganizationsinaPeriodicAverageCosting(PAC)costgrouphavenomismatchedrevenueandCOGSorderlines,andgeneratesanerrormessageifunmatchedlinesarefound.

SupportedBusinessScenariosRevenue/COGSmatchingissupportedforthefollowingsalesorderbusinessscenarios:

Salesorders:nocustomeracceptance

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

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

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

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.

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

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.

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.

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.

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

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

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

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.

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

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

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:

Account Debit Credit

Inventory 110

DeferredCOGS 100

StandardCostUpdateAdjustment 10

Note:TheCOGSaccountdefinedintheOrganizationParameterswindowwillbeusedfortheStandardCostUpdateAdjustmentaccount.

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