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Intercompany Transactions An Oracle White Paper July 2005

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Page 1: Intercompany Transactions

Intercompany Transactions

An Oracle White Paper July 2005

Page 2: Intercompany Transactions

Intercompany Transactions ii

Intercompany Transactions

EXECUTIVE SUMMARY............................................................................................................................................................ 3 INTRODUCTION ......................................................................................................................................................................... 3

INTERCOMPANY TRANSACTIONS..................................................................................................................................... 4 Flow 1: External drop shipment from supplier to customer.................................................................................................... 7 Return in Flow 1: External drop shipment from supplier to customer.................................................................................. 9 Flow 1A: External drop shipment from supplier to customer with intermediate financial nodes................................... 11 Return in Flow 1A: External drop shipment from supplier to customer with intermediate financial nodes................. 13 Flow 1B: External Drop shipment from supplier with shipment and procurement financial flow ................................ 14 Flow 1B: Return: External Drop shipment from supplier with shipment and procurement financial flow.................. 17 Flow 2: Internal drop shipment from supplier (Global Procurement) ................................................................................. 18 Return in Flow 2: Internal drop shipment from supplier (Global Procurement) ............................................................... 21 Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement with intermediate financial nodes)........................................................................................................................................................ 23 Return in Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement with intermediate financial nodes)............................................................................................................................................... 25 Flow 2B: Internal drop shipment from supplier with intermediate financial nodes, using PO pricing option ............. 27 Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer ........ 29 Return in Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer ..........................................................................................................................................................................................31 Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization) .................................. 33 Return Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)..................... 34 Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt .......................................... 35 Return in Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt ........................ 37 Return in Flow 4A: Global Procurement of Expense item in Expense destination with Accrue on Receipt ............... 40 Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt .................................... 42 Return in Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt .................. 43 Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt .................................... 45 Return in Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt .................. 46 Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End .............................. 47 Return in Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End ............ 49 Flow 8: Global Procurement with Shop Floor destination of OSP item – OSP charges at PO price ............................ 51 Return in Flow 8: Global Procurement with Shop Floor destination of OSP item – OSP charges at PO price.........52 Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate ..................... 53 Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate ..................... 53 Return in Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate ... 54 Flow 10: Global Procurement with Shop Floor destination of EAM direct item .............................................................. 55 Return in Flow 10: Global Procurement with Shop Floor destination of EAM direct item ............................................ 56 CONCLUSION ............................................................................................................................................................................. 57 ADDITIONAL RESOURCES................................................................................................................................................... 57

Page 3: Intercompany Transactions

Intercompany Invoicing

EXECUTIVE SUMMARY More and more companies are doing business globally, and taking advantage of the operations and tax benefits that can be achieved by running operations throughout the world. These companies have multiple operating units and organizations around the world. When goods are shipped or received, the financial ownership through these organizations does not necessarily follow the physical movement of goods. Oracle Applications support three main logistics needs of global organizations – Central Distribution, Central Procurement and Drop Ship. This whitepaper details the intercompany transactions from an accounting perspective in Oracle Applications as in 11.5.10.

INTRODUCTION A corporation manages its global operations in various countries through a network of subsidiaries, separate legal entities, licensees and several associated label franchisee. This complex network of operations is necessitated to take care of local legal and fiscal environment, which prevail in each of those countries. Following are few examples:

• In tele-communications industry, most of the countries stipulate mandatory domestic company partnership.

• Most of the steel and aluminum companies in Asia sell their entire output to another marketing company.

• Automobile industries are increasingly centralizing their sourcing activities globally to leverage their combined volumes for a better price from their suppliers.

• Trading companies are setup in tax haven nations to take advantage of bilateral and multi-lateral trade agreements to minimize the tax.

Consider the following two examples:

Example 1

Vision Operations (V1) is based in USA. It has a 100 % owned subsidiary company called Vision Asia (VA). VA in turn has two subsidiaries – Vision Japan (VJ) and Vision China (VC). VJ has manufacturing facilities in Osaka (O1) and distribution center at Tokyo (T1). Due to tax advantages, V1 sources all the goods from china through VJ. Though the financial transactions between V1 and VC are routed through VJ, logistic movement of goods takes place directly between V1 and VC.

Example 2

Continuing the above example, Vision Operations (V1) has another subsidiary company called Vision Singapore (VS), 100 % that it owns. Individual plants procure components from their own suppliers. VS centralizes all the commodity (like steel, Aluminum etc.,) procurement needs of Vision Operations across

Page 4: Intercompany Transactions

Intercompany Transactions 4

world and procures the material on behalf of all VJ and its subsidiary plants and places purchase orders on its suppliers. However, material is directly shipped from the suppliers to all the manufacturing plants.

Figure 1 - Organization Hierarchy Model

A key requirement for the global implementation of Oracle applications in such a complex business environment is the ability to process "intercompany transactions," where one business unit invoices another for transfer of goods and services. Often these intercompany transactions involve transactions related to general expenses, funds transfer, salary transfers, asset transfers, royalty payments and product transfers. This paper discusses only those intercompany transactions that are related to product transfers such as sales of goods and internal procurement.

This paper provides setup steps, implementation tips, and guidance for coordinating the many departments, which become involved with intercompany invoicing. We would be discussing implementation of intercompany invoicing for the fictitious organization as depicted in Figure 1.

INTERCOMPANY TRANSACTIONS This section briefly states the remaining business flows and their corresponding accounting transactions that are possible in 11.5.10.

For each business flow,

1. The physical movement of goods and the corresponding financial flow is shown.

2. The accounting entries are then tabulated as below:

Time Transaction Description OU1 Accounting OU2 Accounting

Time indicates the sequence of events happening. Transaction indicates the physical event. Logical transactions are in italics. Description gives the underlying transactions - physical/logical that are created. These drive accounting entries. The next columns indicate the accounting entries for each operating unit. The process that would do the accounting entries is also indicated – Cost processor, Inter-Company Invoicing, Receiving processor.

Box indicates that Transaction gets cost collected if organization is PJM enabled

Page 5: Intercompany Transactions

Intercompany Transactions 5

Flows 1, 1A, 2, 2A and 3 are for asset items. Hence inventory accounts are used. Instead if they are expense items, expense account will be used.

3. The reconciliation of accounting entries in previous table are tabulated as below:

OU1 Reconciliation OU2 Reconciliation

4. A return flow is done repeating steps 1, 2 and 3.

Page 6: Intercompany Transactions
Page 7: Intercompany Transactions

Intercompany Transactions 7

Flow 1: External drop shipment from supplier to customer

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in RC through

Receiving Desktop FormRT: Receive in RC RI (Receiving Processor)

Dr OU1 Clearing 10 Cr Accrual 10

T2 Deliver into RC through Receiving Desktop Form

RT: Deliver in RC MMT: PO receipt in RC (Accounting transaction) (Logical PO receipt) MMT: RC -> DC (Accounting transaction) (Logical I/C shipment) (Logical I/C receipt) MMT: DC -> C1 (Accounting transaction)

(Cost processor) Dr Inventory RC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Inventory RC 10

(Cost Processor) Dr Inventory DC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15 (Cost Processor) Dr COGS DC 15

Page 8: Intercompany Transactions

Intercompany Transactions 8

(Logical SO Issue) Cr Inventory DC 15 (AR Invoice) Dr Receivable DC 20 Cr Revenue DC 20

OU1 Reconciliation OU2 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr COGS DC 15 Dr Receivable DC 20 Cr Revenue DC 20 Cr I/C Payable 15

NOTE: • If logical receipt is made in DC then the same accounting entries/transactions as in Flow 2 (in pages to come) will be generated. • There is no cost re-average or PPV at the time of deliver or I/C transfer. This is because there was no physical receipt of goods

Page 9: Intercompany Transactions

Intercompany Transactions 9

Return in Flow 1: External drop shipment from supplier to customer

Time Transaction Description OU1 Accounting OU2 Accounting T1 RMA in RC MMT: RMA in RC

(No accounting) MMT: RMA in DC (Accounting transaction) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory RC 12 Cr I/C COGS 12 (I/C Invoicing) (Credit Memo) Dr I/C Revenue 15 Cr I/C Receivable 15

(Cost processor) Dr Inventory DC 15 Cr COGS 15 (Cost processor) Dr I/C Accrual 15 Cr Inventory DC 15 (I/C Invoicing) (Credit Memo) Dr I/C Payable 15 Cr I/C Accrual 15

T2 AR Credit Memo

(AR) Dr Revenue DC 20 Cr Receivable DC 20

T3 Return to Receiving MMT: RC->RC RI (Cost processor)

Page 10: Intercompany Transactions

Intercompany Transactions 10

(Inventory) Dr RI RC 10 Cr Inventory RC 10

T4 Return to Vendor (Purchasing)

RT: Return to S1 (RC RI-> S1)

(Receiving processor) Dr Accrual 10 Cr RI RC 10

OU1 Reconciliation OU2 Reconciliation Dr Inventory 2 Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 12 Cr I/C Receivable 15

Dr I/C Payable 15 Dr Revenue 20 Cr COGS 15 Cr Receivable 20

NOTE: • RMA receipts are always physical receipts, with transaction cost as the item’s current cost • There is no re-average or PPV at the time of RMA receipt • Since current cost might have changed, the I/C COGS reversal may not completely nullify the expense that was originally incurred. This

however, is a limitation in the current architecture for Sales Order Shipments and will not be addressed in the context of this project • However, to help customers, a cost hook will be provided for the RMA receipt transaction (NICE TO HAVE)

Page 11: Intercompany Transactions

Intercompany Transactions 11

Flow 1A: External drop shipment from supplier to customer with intermediate financial nodes

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 Receipt in PC through

Receiving Desktop Form RT: Receive in PC (Receiving Processor)

Dr OU1 Clearing 10 Cr Accrual 10

T1 Deliver into PC through Receiving Desktop Form

RT: Deliver in PC MMT: PO receipt in PC (Accounting transaction) (Logical PO receipt) MMT: PC -> RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Inventory PC 10

(Cost Processor) Dr Inventory RC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

Page 12: Intercompany Transactions

Intercompany Transactions 12

MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)

(I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C COGS 15 Cr Inventory RC 15

(Cost Processor) Dr Inventory DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20 (Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (AR Invoice) Dr Receivable DC 25 Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C Payable 15

Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC 25 Cr I/C Payable 20

NOTE:

• There is no cost re-average or PPV at the time of deliver or I/C transfer. This is because there was no physical receipt of goods

Page 13: Intercompany Transactions

Intercompany Transactions 13

Return in Flow 1A: External drop shipment from supplier to customer with intermediate financial nodes

DCSOB3/LE3/

OU3

RCSOB2/LE2/

OU2C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Transfer

pricePC

SOB1/LE1/OU1

25$Price list

PO

OU: OU1

Ship to: PC

Order

OU: OU3

Ship from: PC

12$Current cost

Shipping Txn Flow: OU1->OU2->OU3

Procuring Txn Flow: None

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 RMA in PC MMT: RMA in PC

(No accounting) MMT: RMA in DC (Accounting transaction) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: RC->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory PC 12 Cr I/C COGS 12 (I/C Invoicing)

(Cost processor) Dr Inventory RC 15 Cr I/C COGS 15 (I/C Invoicing) (Credit Memo) Dr I/C Revenue 20 Cr I/C Receivable 20 (Cost processor) Dr I/C Accrual 15 Cr Inventory RC 15 (I/C Invoicing)

(Cost processor) Dr Inventory DC 20 Cr COGS 20 (Cost processor) Dr I/C Accrual 20 Cr Inventory DC 20 (I/C Invoicing) (Credit Memo) Dr I/C Payable 20 Cr I/C Accrual 20

Page 14: Intercompany Transactions

Intercompany Transactions 14

Dr I/C Revenue 15 Cr I/C Receivable 15

Dr I/C Payable 15 Cr I/C Accrual 15

T2 AR Credit Memo

(AR) Dr Revenue DC 25 Cr Receivable DC 25

T3 Return to Receiving (Inventory)

MMT: PC->PC RI (Cost processor) Dr RI PC 10 Cr Inventory PC 10

T4 Return to Vendor (Purchasing)

RT: Return to S1 (PC RI->S1)

(Receiving processor) Dr Accrual 10 Cr RI PC 10

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr Inventory 2 Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 12 Cr I/C Receivable 15

Dr I/C Payable 15 Dr Revenue 20 Cr COGS 15 Cr Receivable 20

Dr I/C Payable 20 Dr Revenue 25 Cr COGS 20 Cr Receivable 25

NOTE:

• RMA receipts are always physical receipts, with transaction cost as the item’s current cost • There is no re-average or PPV at the time of RMA receipt • Since current cost might have changed, the I/C COGS reversal may not completely nullify the expense that was originally incurred. This however, is a

limitation in the current architecture for Sales Order Shipments and will not be addressed in the context of this project • However, to help customers, a cost hook will be provided for the RMA receipt transaction (NICE TO HAVE)

Flow 1B: External Drop shipment from supplier with shipment and procurement financial flow

Page 15: Intercompany Transactions

Intercompany Transactions 15

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 Receipt in RC RT: Receive in RC

MMT: PO receipt in PC (Accounting transaction) (Logical PO receipt) MMT: PC -> RC RI (Accounting transaction) (Logical I/C Shipment)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Inventory PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Inventory PC 10

(Receiving Processor) Dr OU2 Clearing 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

T2 T2 >= T1

Deliver into RC RT: Deliver in RC MMT: Logical PO Receipt in RC MMT: RC -> DC (Accounting transaction)

Cost Processor Dr Inventory RC 15 Cr. OU2 Clearing 15 I/C Invoicing)

DCSOB3/LE3/

OU3

RCSOB2/LE2/

OU2C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Transfer

price PCSOB1/LE1/

OU1

25$Price list

PO

OU: OU1

Ship to: RC

Order

OU: OU3

Ship from: RC

Asset ItemInv. dest

Asset ItemInv. dest

Asset ItemAccrue rcpt

LogicalReceiptt

Page 16: Intercompany Transactions

Intercompany Transactions 16

(Logical I/C Shipment) (Logical I/C Receipt) MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)

Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C COGS 15 Cr Inventory RC 15

(Cost Processor) Dr Inventory DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20 (Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (AR Invoice) Dr Receivable DC 25 Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C Payable 15

Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC 25 Cr I/C Payable 20

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Intercompany Transactions 17

Flow 1B: Return: External Drop shipment from supplier with shipment and procurement financial flow

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 RMA in PC MMT: RMA in RC

(No accounting) MMT: RMA in DC (Accounting transaction) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory RC 12 Cr I/C COGS 12 (I/C Invoicing) (Credit Memo) Dr I/C Revenue 20 Cr I/C Receivable 20

(Cost processor) Dr Inventory PC 20 Cr COGS 20 (Cost processor) Dr I/C Accrual 20 Cr Inventory PC 20 (I/C Invoicing) (Credit Memo) Dr I/C Payable 20 Cr I/C Accrual 20

T2 AR Credit Memo

(AR) Dr Revenue PC 25 Cr Receivable PC 25

T3 Return to Receiving (Inventory)

MMT: RC->RC RI (Cost processor) Dr RI RC 15

DCSOB3/LE3/

OU3

RCSOB2/LE2/

OU2C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Transfer

price PCSOB1/LE1/

OU1

25$Price list

PO

OU: OU1

Ship to: RC

Order

OU: OU3

Ship from: RC

Current cost $12Asset ItemInv. dest

Asset ItemAccrue rcpt

Page 18: Intercompany Transactions

Intercompany Transactions 18

Cr Inventory RC 15 T4 Return to Vendor

(Purchasing) RT: Return RC RI to S1 MMT: RC RI ->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: PC->PC RI (Accounting transaction) (Logical RTV) RAE: Return PC RI to S1 (Accounting transaction) (Logical RTV)

(Cost processor) Dr Inventory PC 10 Cr I/C COGS 10 (I/C Invoicing) (Credit memo) Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost processor) Dr OU1 clearing 10 Cr Inventory PC 10 (Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10

(Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 (I/C Invoicing) (Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receivable 15

Dr I/C Revenue 20 Dr I/C Payable 15 Cr Inventory 3 Cr I/C COGS 12 Cr I/C Receivable 20

Dr Revenue 25 Dr I/C Payable 20 Cr Receivable 25 Cr COGS 20

Flow 2: Internal drop shipment from supplier (Global Procurement)

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Intercompany Transactions 19

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Price list

PO

OU: OU1

Ship to: DC

Order

OU: OU2

Ship from: DC

Asset ItemInv. dest

Asset ItemAccrue rcpt

Shipping Txn Flow: None

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

MMT: PO receipt in RC (Accounting transaction) (Logical PO receipt) MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Inventory RC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Inventory RC 10

(Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

T2 T2 >= T1

Deliver into DC RT: Deliver in DC MMT: PO Receipt in DC (Regular transaction)

(Cost Processor) Dr Inventory DC 15 Cr RI DC 15

T3 Ship from DC to C1 MMT: DC->C1 (Regular transaction)

(Cost Processor) Dr COGS DC 15

Page 20: Intercompany Transactions

Intercompany Transactions 20

Cr Inventory DC 15 (AR Invoice) Dr Receivable DC 20 Cr Revenue DC 20

OU1 Reconciliation OU2 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr COGS DC 15 Dr Receivable DC 20 Cr Revenue DC 20 Cr I/C Payable 15

NOTE: • The physical PO receipt transaction in DC will be used to re-average the inventory cost, or reflect PPV, as appropriate • The PO receipt maybe at the Purchase Order price or the Transfer Price, based on the pricing option setup in the transaction flow. • This transaction however, is not accounted for, or cost collected. The transaction is costed, when the associated accounting transactions have

distributions.

Page 21: Intercompany Transactions

Intercompany Transactions 21

Return in Flow 2: Internal drop shipment from supplier (Global Procurement)

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Price list

PO

OU: OU1

Ship to: DC

Order

OU: OU2

Ship from: DC

14$Current

cost

Shipping Txn Flow: None

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting T1 RMA in DC MMT: RMA in DC

(Regular transaction) (Cost Processor)

Dr Inventory DC 14 Cr COGS DC 14

T2 AR Credit Memo

(AR) Dr Revenue DC 20 Cr Receivable DC 20

T3 Return to receiving (Inventory)

MMT: DC->RI DC (Regular transaction)

(Cost processor) Dr RI DC 15 Cr Inventory DC 15

T4 Return to vendor (Purchasing)

RT: Return DC RI to S1 MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory RC 10 Cr I/C COGS

10 (I/C Invoicing) (Credit memo) Dr I/C Revenue

(Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 (I/C Invoicing) (Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15

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Intercompany Transactions 22

MMT: RC->RC RI (Accounting transaction) (Logical RTV) RT: Return RC RI to S1 (Accounting transaction) (Logical RTV)

15 Cr I/C Receivable

15 (Cost processor) Dr OU1 clearing 10 Cr Inventory RC

10 (Receiving Processor) Dr Accrual 10 Cr OU1 clearing

10

OU1 Reconciliation OU2 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receivable 15

Dr I/C Payable 15 Dr Revenue 20 Cr COGS 14 Cr Receivable 20 Cr Inventory 1

NOTE:

• RMA receipt is a physical receipt at the item’s current cost. Hence I/C COGS may not be completely reversed • The RTV transaction will reverse accruals at the PO price. However, I/C accounting may not be completely reversed, since transfer price

could have changed in the interim • The user will need to post manual journal entries as appropriate to remove I/C profits while consolidating at the enterprise level

Page 23: Intercompany Transactions

Intercompany Transactions 23

Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement with intermediate financial nodes)

DCSOB3/LE3/

OU3

RCSOB2/LE2/

OU2C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Transfer

price PCSOB1/LE1/

OU1

25$Price list

PO

OU: OU1

Ship to: DC

Order

OU: OU3

Ship from: DC

Asset ItemInv. dest

Asset ItemInv. dest

Asset ItemAccrue rcpt

Shipping Txn Flow: None

Procuring Txn Flow: OU1->OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 Receipt in DC RT: Receive in DC

MMT: PO receipt in PC (Accounting transaction) (Logical PO Receipt) MMT: PC -> RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Inventory PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Inventory RC 10

(Receiving Processor) Dr OU2 Clearing 15 Cr I/C Accrual 15 (Cost Processor) Dr Inventory RC 15 Cr OU2 Clearing 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

(Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20

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Intercompany Transactions 24

MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment)

(I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C COGS 15 Cr Inventory RC 15

(I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20

T2 T2 >= T1

Deliver into DC RT: Deliver in DC MMT: PO Receipt in DC (Regular transaction)

Cost Processor) Dr Inventory DC 20 Cr RI DC 20

T3 Ship from DC to C1 MMT: DC->C1 (Regular transaction)

(Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (AR Invoice) Dr Receivable DC 25 Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C Payable 15

Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC 25 Cr I/C Payable 20

NOTE:

• The physical PO receipt transaction in DC will be used to re-average the inventory cost, or reflect PPV, as appropriate • The PO receipt maybe at the Purchase Order price or the Transfer Price, based on the pricing option setup in the transaction flow. • This transaction however, is not accounted for, or cost collected. The transaction is costed, when the associated accounting transactions have

distributions

Page 25: Intercompany Transactions

Intercompany Transactions 25

Return in Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement with intermediate financial nodes)

DCSOB3/LE3/

OU3

RCSOB2/LE2/

OU2C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Transfer

price PCSOB1/LE1/

OU1

25$Price list

PO

OU: OU1

Ship to: DC

Order

OU: OU3

Ship from: DC

19$Current cost

Shipping Txn Flow: None

Procuring Txn Flow: OU1->OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 RMA in DC MMT: RMA in DC

(Regular transaction) (Cost Processor)

Dr Inventory DC 19 Cr COGS DC 19

T2 AR Credit Memo

(AR) Dr Revenue DC 25 Cr Receivable DC 25

T3 T3 > T1

Return to receiving (Inventory)

MMT: DC->RI DC (Regular transaction)

(Cost processor) Dr RI DC 20 Cr Inventory DC 20

T4 T4 > T3

Return to vendor (Purchasing)

RT: Return DC RI to S1 MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory RC 15 Cr I/C COGS 15 (I/C Invoicing) (Credit Memo) Dr I/C Revenue 20

(Receiving Processor) Dr I/C Accrual 20 Cr RI DC 20 (I/C Invoicing)

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MMT: RC->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: PC->PC RI (Accounting transaction) (Logical RTV) RT: Return PC RI to S1 (Accounting transaction) (Logical RTV)

(Cost processor) Dr Inventory PC 10 Cr I/C COGS 10 (I/C Invoicing) Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost processor) Dr OU1 clearing 10 Cr Inventory PC 10 (Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10

Cr I/C Receivable 20 (Cost Processor) Dr OU2 clearing 15 Cr Inventory RC 15 (I/C Invoicing) Dr I/C Payable 15 Cr I/C Accrual 15 (Receiving Processor) Dr. I/C Accrual 15 Cr. OU2 clearing 15

(Credit Memo) Dr I/C Payable 20 Cr I/C Accrual 20

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receivable 15

Dr I/C Revenue 20 Dr I/C Payable 15 Cr I/C COGS 15 Cr I/C Receivable 20

Dr I/C Payable 20 Dr Revenue 25 Cr COGS 19 Cr Receivable 25 Cr Inventory 1

NOTE:

• RMA receipt is a physical receipt at the item’s current cost. Hence I/C COGS may not be completely reversed • The RTV transaction will reverse accruals at the PO price. However, I/C accounting may not be completely reversed, since transfer price

could have changed in the interim • The user will need to post manual journal entries as appropriate to remove I/C profits while consolidating at the enterprise level

Page 27: Intercompany Transactions

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Flow 2B: Internal drop shipment from supplier with intermediate financial nodes, using PO pricing option

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 Receipt in DC RT: Receive in DC

MMT: PO receipt in PC (Accounting transaction) MMT: PC -> RC (Accounting transaction) MMT: RC -> DC (Accounting transaction)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Inventory PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 10 Cr I/C Revenue 10 (Cost processor) Dr I/C COGS 10 Cr Inventory RC 10

(Receiving Processor) Dr OU2 Clearing 10 Cr I/C Accrual 10 (Cost Processor) Dr Inventory RC 10 Cr OU2 Clearing 10 (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable 10 (I/C Invoicing) Dr I/C Receivable 10 Cr I/C Revenue 10 (Cost processor) Dr I/C COGS 10 Cr Inventory RC 10

(Receiving Processor) Dr RI DC 10 Cr I/C Accrual 10 (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable 10

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T2 T2 >= T1

Deliver into DC RT: Deliver in DC MMT: PO Receipt in DC (Regular transaction)

Cost Processor) Dr Inventory DC 10 Cr RI DC 10

T3 Ship from DC to C1 MMT: DC->C1 (Regular transaction)

(Cost Processor) Dr COGS DC 10 Cr Inventory DC 10 (AR Invoice) Dr Receivable DC 25 Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Receivable 10 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 10

Dr I/C Receivable 10 Dr I/C COGS 10 Cr I/C Revenue 10 Cr I/C Payable 10

Dr COGS DC 10 Dr Receivable DC 25 Cr Revenue DC 25 Cr I/C Payable 10

NOTE:

• When the transaction flow is set-up to use PO price, the financial transaction accounting ignores any transfer price that might be available for the item.

• Return in Flow 2B is similar to that in Flow 2A. • Cost collection for Flow 2B is similar to that in Flow 2A

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Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer

DCSOB3/LE3/

OU3

RCSOB2/LE2/

OU2C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Transfer

price PCSOB1/LE1/

OU1

25$Price list

PO

OU: OU1

Ship to: RC

Order

OU: OU3

Ship from: RC

Asset ItemInv. dest

Asset ItemInv. dest

Asset ItemAccrue rcpt

Shipping Txn Flow: OU2->OU3Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 Receipt in RC RT: Receive in RC

MMT: PO receipt in PC (Accounting transaction) (Logical PO receipt) MMT: PC -> RC RI (Accounting transaction) (Logical I/C Shipment)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Inventory PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Inventory PC 10

(Receiving Processor) Dr RI RC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

T2 T2 >= T1

Deliver into RC RT: Deliver in RC MMT: PO Receipt in RC (Regular transaction)

(Cost Processor) Dr Inventory RC 15

Page 30: Intercompany Transactions

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Cr RI RC 15 T3 Ship from RC to C1 MMT: RC->C1

(No accounting) MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)

I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C COGS 15 Cr Inventory RC 15

(Cost Processor) Dr Inventory DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20 (Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (AR Invoice) Dr Receivable DC 25 Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr I/C Revenue 15 Cr Accrual 10

Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Payable 15 Cr I/C Revenue 20

Dr Receivable 25 Dr COGS 20 Cr Revenue 25 Cr I/C Payable 20

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Return in Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer

DCSOB3/LE3/

OU3

RCSOB2/LE2/

OU2C1 S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

20$Transfer

price PCSOB1/LE1/

OU1

25$Price list

PO

OU: OU1

Ship to: RC

Order

OU: OU3

Ship from: RC

19$Current cost

14$Current cost

Shipping Txn Flow: OU2->OU3

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 RMA in RC MMT: RMA in RC

(No transaction) MMT: RMA in DC (Accounting transaction) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory RC 14 Cr I/C COGS 14 (I/C Invoicing) (Credit memo) Dr I/C Revenue 20 Cr I/C Receivable 20

(Cost processor) Dr Inventory DC 20 Cr COGS 20 (Cost processor) Dr I/C Accrual 20 Cr Inventory DC 20 (I/C Invoicing) (Credit memo) Dr I/C Payable 20 Cr I/C Accrual 20

T2 AR Credit Memo

(AR) Dr Revenue DC 25 Cr Receivable DC 25

T3 Return to receiving (Inventory)

MMT: RC->RC RI (Regular transaction)

(Cost processor) Dr RI RC 15 Cr Inventory RC 15

T4 Return to vendor RT: Return RC RI to S1 (Receiving Processor)

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(Purchasing) (No accounting) MMT: RC RI ->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: PC->PC RI (Accounting transaction) (Logical RTV) RT: Return PC RI to S1 (Accounting transaction) (Logical RTV)

(Cost processor) Dr Inventory PC 10 Cr I/C COGS 10 (I/C Invoicing) (I/C Credit memo) Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost processor) Dr OU1 clearing 10 Cr Inventory PC 10 (Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10

Dr I/C Accrual 15 Cr RI RC 15 (I/C Invoicing) (I/C Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receivable 15

Dr I/C Revenue 20 Dr I/C Payable 15 Cr Inventory 1 Cr I/C COGS 14 Cr I/C Receivable 20

Dr Revenue 25 Dr I/C Payable 20 Cr Receivable 25 Cr COGS 20

Page 33: Intercompany Transactions

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Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)

DCSOB3/LE3/

OU2

RCSOB2/LE2/

OU1C1

Financial FlowPhysical Flow

20$Transfer

price

25$Price list

Ship to: RC

Order

OU: OU3

Ship from: RC

Asset ItemCurrent cost $14

Expense ItemInv. dest

Shipping Txn Flow: OU2->OU3

Time Transaction Description OU1 Accounting OU2Accounting T1 Ship from RC to C1 MMT: RC->C1

(No accounting) MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: DC -> C1 (Accounting transaction) (Logical SO Issue) No Accounting

I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C COGS 14 Cr Inventory RC 14

(Cost Processor) Dr Expense DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20 (AR) Dr Revenue DC 25 Cr Receivable DC 25

OU1 Reconciliation OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 14 Cr Inventory 14 Cr I/C Revenue 20

Dr Expense DC 20 Dr Revenue DC 25 Cr Receivable DC 25 Cr I/C Payable 20

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Return Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)

DCSOB3/LE3/

OU2

RCSOB2/LE2/

OU1C1

Financial FlowPhysical Flow

20$Transfer

price

25$Price list

Ship to: RC

Order

OU: OU3

Ship from: RC

Asset ItemCurrent cost $14

Expense ItemInv. dest

Shipping Txn Flow: OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting T1 Ship from RC to C1 MMT: RMA in RC

(No accounting) MMT: RMA in DC (Accounting transaction) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Inventory RC 14 Cr I/C COGS 14 (I/C Invoicing) (Credit memo) Dr I/C Revenue 20 Cr I/C Receivable 20

(Cost Processor) Dr I/C Accrual 20 Cr Expense 20 (I/C Invoicing) (Credit memo) Dr I/C Payable 20 Cr I/C Accrual 20 (AR Invoice) Dr Receivable DC 25 Cr Revenue DC 25

Page 35: Intercompany Transactions

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OU1 Reconciliation OU2 Reconciliation Dr Inventory 14 Dr I/C Revenue 20 Cr I/C COGS 14 Cr I/C Receivable 20

Dr I/C Payable 20 Dr Receivable 25 Cr Revenue 25 Cr Expense 20

Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

MMT: PO receipt in RC (Accounting transaction) (Logical PO Receipt) MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Inventory RC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15

(Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

DC RISOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

PO

OU: OU1

Ship to: DC

EXP

Asset ItemAccrue rcpt

Expense ItemExpense dest.

Procuring Txn Flow: OU1->OU2

Page 36: Intercompany Transactions

Intercompany Transactions 36

(Cost processor) Dr I/C COGS 10 Cr Inventory RC 10

T2 T2 >= T1

Deliver into DC RT: Deliver in DC

(Receiving Processor) Dr Charge Acct DC 15 Cr RI DC 15

OU1 Reconciliation OU2 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr ChargeAcct DC 15 Cr I/C Payable 15

NOTE:

• The destination type on the purchase order should not impact the accrual methodology in the procurement operating unit. • Consequently, global procurement of inventory items, will be routed through the inventory account of the procurement organization • Therefore, the supplier accrual on the procurement operating unit will always be accrue at receipt • If the PO distribution for the destination organization, has a project tied to it, the accounting will default to PO price

Page 37: Intercompany Transactions

Intercompany Transactions 37

Return in Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt

Time Transaction Description OU1 Accounting OU2 Accounting T1 Return to receiving

(Purchasing) DC->RI DC (Regular transaction)

(Receiving processor) Dr RI DC 15 Cr Charge DC 15

T2 Return to vendor (Purchasing)

RT: Return DC RI to S1 MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: RC->RC RI (Accounting transaction) (Logical RTV) RT: Return RC RI to S1 (Accounting transaction)

(Cost processor) Dr Inventory RC 10 Cr I/C COGS 10 (I/C Invoicing) (I/C Credit memo) Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost processor) Dr OU1 clearing 10 Cr Inventory RC 10 (Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10

(Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 (I/C Invoicing) (I/C Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15

DC RISOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

PO

OU: OU1

Ship to: DC

EXP

Asset ItemAccrue rcpt

Expense ItemExpense dest.

Procuring Txn Flow: OU1->OU2

Page 38: Intercompany Transactions

Intercompany Transactions 38

OU1 Reconciliation OU2 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receivable 15

Dr I/C Payable 15 Cr Charge DC 15

Page 39: Intercompany Transactions

Intercompany Transactions 39

low 4A: Global Procurement of Expense item in Expense destination with Accrue on Receipt

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

MMT: PO receipt in RC (Accounting transaction) (Logical PO Receipt) MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Expense 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Expense 10

(Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

T2 T2 >= T1

Deliver into DC RT: Deliver in DC

(Receiving Processor) Dr Charge Acct DC 15 Cr RI DC 15

DC RISOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

PO

OU: OU1

Ship to: DC

EXP

Expense ItemAccrue rcpt

Expense ItemExpense dest.

Procuring Txn Flow: OU1->OU2

Page 40: Intercompany Transactions

Intercompany Transactions 40

OU1 Reconciliation OU2 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr ChargeAcct DC 15 Cr I/C Payable 15

NOTE:

• Since item is expense, it will be routed through the item/organization expense account in the procurement organization • If the PO distribution for the destination organization, has a project tied to it, the accounting will default to PO price

Return in Flow 4A: Global Procurement of Expense item in Expense destination with Accrue on Receipt

Time Transaction Description OU1 Accounting OU2 Accounting T1 Return to receiving

(Purchasing) DC->RI DC (Regular transaction)

(Receiving processor) Dr RI DC 15 Cr Charge DC 15

T2 Return to vendor (Purchasing)

RT: Return DC RI to S1 (No accounting) MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

(Cost processor) Dr Expense 10 Cr I/C COGS 10 (I/C Invoicing) (I/C Credit memo)

(Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 (I/C Invoicing) (I/C Credit memo)

DC RISOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

PO

OU: OU1

Ship to: DC

EXP

Expense ItemAccrue rcpt

Expense ItemExpense dest.

Procuring Txn Flow: OU1->OU2

Page 41: Intercompany Transactions

Intercompany Transactions 41

MMT: RC->RC RI (Accounting transaction) (Logical RTV) RT: Return RC RI to S1 (Accounting transaction) (Logical RTV)

Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost processor) Dr OU1 clearing 10 Cr Expense 10 (Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10

Dr I/C Payable 15 Cr I/C Accrual 15

OU1 Reconciliation OU2 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receivable 15

Dr I/C Payable 15 Cr Charge DC 15

Page 42: Intercompany Transactions

Intercompany Transactions 42

Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt

DC RISOB3/LE3/

OU3

PCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

PO

OU: OU1

Ship to: DC

EXP

Expense ItemAccrue rcpt

Expense ItemExpense dest.

RCSOB2/LE2/

OU2

20$Transfer

price

Asset Item

Procuring Txn Flow: OU1->OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1 Receipt in DC RT: Receive in DC

MMT: PO receipt in PC (Accounting transaction) (Logical PO Receipt) MMT: PC -> RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment)

(Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost processor) Dr Expense PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable 15 Cr I/C Revenue 15 (Cost processor) Dr I/C COGS 10 Cr Expense PC 10

(Receiving Processor) Dr OU2 Clearing 15 Cr I/C Accrual 15

(Cost Processor) Dr Inventory RC 15 Cr OU2 Clearing 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15 (I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20

(Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20

Page 43: Intercompany Transactions

Intercompany Transactions 43

(Cost processor) Dr I/C COGS 15 Cr Inventory RC 15

T2 T2 >= T1

Deliver into DC RT: Deliver in DC

(Receiving Processor) Dr Charge DC 20 Cr RI DC 20

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15

Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C Payable 15

Dr Charge DC 20 Cr I/C Payable 20

Return in Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting T1

Return to receiving (Purchasing)

DC->RI DC (Regular transaction)

(Receiving processor) Dr RI DC 20 Cr Charge DC 20

T2

Return to vendor (Purchasing)

RT: Return DC RI to S1

(Receiving Processor) Dr I/C Accrual 20 Cr RI DC 20

DC RISOB3/LE3/

OU3

PCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

15$Transfer

price

PO

OU: OU1

Ship to: DC

EXP

Expense ItemAccrue rcpt

Expense ItemExpense dest.

RCSOB2/LE2/

OU2

20$Transfer

price

Asset Item

Procuring Txn Flow: OU1->OU2->OU3

Page 44: Intercompany Transactions

Intercompany Transactions 44

MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: RC->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) MMT: PC->PC RI (Accounting transaction) (Logical RTV) RT: Return PC RI to S1 (Accounting transaction) (Logical RTV)

(Cost processor) Dr Inventory PC 10 Cr I/C COGS 10 (I/C Invoicing) (I/C Credit memo) Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost processor) Dr OU1 clearing 10 Cr Inventory PC 10 (Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10

(Cost processor) Dr Inventory RC 15 Cr I/C COGS 15 (I/C Invoicing) (I/C Credit memo) Dr I/C Revenue 20 Cr I/C Receivable 20 (Cost Processor) Dr OU2 clearing 15 Cr Inventory RC 15 Receiving Processor Dr. I/C Accrual 15 Cr. OU2 clearing 15 (I/C Invoicing) (I/C Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15

(I/C Invoicing) (I/C Credit memo) Dr I/C Payable 20 Cr I/C Accrual 20

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receivable 15

Dr I/C Revenue 20 Dr I/C Payable 15 Cr I/C COGS 15 Cr I/C Receivable 20

Dr I/C Payable 20 Cr Charge 20

Page 45: Intercompany Transactions

Intercompany Transactions 45

Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

RC DC (Accounting transaction)

(Receiving Processor) Dr I/C Cost of Sales 10 Cr Accrual 10 (I/C Invoicing) Dr I/C Receivable 10 Cr I/C Revenue 10

(Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20

T2 Deliver into DC RT: Deliver in DC (Receiving Processor) Dr Charge Acct. DC 20 Cr RI DC 20

T3 Supplier Invoice for 11 British Pounds Match invoice to rcpt Dr. Accrual 10 Dr. IPV 1 Cr. Liability 11

OU1 Reconciliation OU2 Reconciliation

Dr I/C Cost of Sale 10 Dr. I/C Receivable 10 Dr. IPV 1 Cr. I/C Revenue 10 Cr. Liability 11

Dr. Charge 20 Cr. I/C Payable 20

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10£PO price

20$PO price

PO

OU: OU1

Ship to: DC

One time ItemExpense dest.

One time itemaccrue receipt

EXP

Procuring Txn Flow: OU1->OU2

Page 46: Intercompany Transactions

Intercompany Transactions 46

Return in Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt

Time Transaction Description OU1 Accounting OU2 Accounting T1 Return to receiving

(Inventory) DC RI DC (Regular transaction)

(Receiving processor) Dr RI DC 20 Cr Charge acct. DC 20

T2

Return to vendor (Purchasing)

RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)

(Receiving Processor) Dr Accrual 10 Cr I/C Cost of Sales 10 (I/C Invoicing) Dr I/C Revenue 10 Cr I/C Receivable 10

(Receiving Processor) Dr I/C Accrual 20 Cr RI DC 20 (I/C Invoicing) Dr I/C Payable 20 Cr I/C Accrual 20

T3 Credit Memo Supplier sends credit memo Dr Liability 11 Cr IPV 1 Cr Accrual 10

OU1 Reconciliation OU2 Reconciliation

Dr Liability 11 Dr. I/C Revenue 10 Cr. IPV 1 Cr. I/C Receivable 10 Cr. I/C Cost of Sales 10

Dr. I/C Payable 20 Cr. Charge 20

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10£PO price

20$PO price

One time ItemExpense dest.

One time itemaccrue receipt

EXP

Procuring Txn Flow: OU1->OU2

Page 47: Intercompany Transactions

Intercompany Transactions 47

Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

RC DC (Accounting transaction)

No Accounting (I/C Invoicing) Dr. I/C Receivables 10 Cr. I/C Revenue 10

(Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr. I/C Accrual 20 Cr. I/C Payables 20

T2 Deliver into DC RT: Deliver in DC (Receiving Processor) Dr Charge Acct. DC 20 Cr RI DC 20

T3 Period End Accruals Dr. I/C Cost of Sales 10 Cr. Accrual 10

T4 Reopen next period Open Purchasing Period Dr. Accrual 10 Cr. I/C Cost of Sales 10

T5 Supplier Invoice for 11 British Pounds Match invoice to rcpt Dr. I/C Cost of Sales 11 Cr. Liability 11

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10£PO price

20$PO price

PO

OU: OU1

Ship to: DC

One time ItemExpense dest.

One time itemaccrue per end

EXP

Procuring Txn Flow: OU1->OU2

Page 48: Intercompany Transactions

Intercompany Transactions 48

OU1 Reconciliation OU2 Reconciliation

Dr I/C Receivable 10 Dr. I/C Cost of Sales 11 Cr. I/C Revenue 10 Cr. Liability 1

Dr. Charge 20 Cr. I/C Payable 20

NOTE:

• IPV is not adjusted on the I/C invoice

Page 49: Intercompany Transactions

Intercompany Transactions 49

Return in Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

RC DC (Accounting transaction)

No Accounting (I/C Invoicing) Dr. I/C Receivables 10 Cr. I/C Revenue 10

(Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr. I/C Accrual 20 Cr. I/C Payables 20

T2 Deliver into DC RT: Deliver in DC (Receiving Processor) Dr Charge Acct. DC 20 Cr RI DC 20

T3 Return to RI DC RT: Return to RI in DC (Receiving Processor Dr. RI DC 20 Cr. Charge Acct DC 20

T4 Return from RI DC to S1 RT: Return to Vendor DC RC

(I/C Invoicing) Dr. I/C Revenue 10 Cr. I/C Receivable 10

(Receiving Processor) Dr. I/C Accrual 20 Cr. RI DC 20 (I/C Invoicing) Dr. I/C Payables 20 Cr. I/C Accrual 20

T4 Period End Accruals No Accounting since net quantity received is 0

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10£PO price

20$PO price

One time ItemExpense dest.

One time itemaccrue per end

EXP

Procuring Txn Flow: OU1->OU2

Page 50: Intercompany Transactions

Intercompany Transactions 50

T5 Reopen next period Open Purchasing Period No Accounting

NOTE:

• Net Accounting is nil, since the net quantity received is zero • In case of 2 way match, it is not essential to have a receipt at the time of invoicing. The receipt may never occur as well • At the time of invoice, an inter-company event will be generated in the receiving accounting events table, so that inter-company accounting can take

place. A reverse event needs to be created when a credit memo is received against the invoice • I/C accounting will be a pure charge back for one-time items. The I/C cost of sales at PO price will be offset by the I/C Revenue, also at PO price,

thereby ensuring that there is no recognition of I/C profit

Page 51: Intercompany Transactions

Intercompany Transactions 51

Flow 8: Global Procurement with Shop Floor destination of OSP item – OSP charges at PO price

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

10$PO price

PO

OU: OU1

Ship to: DC

OSP ItemShop Fl. dest. any item type

ShopFloor

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

RC DC (Accounting transaction)

(Receiving Processor) Dr I/C Cost of Sales 10 Cr Accrual 10 (I/C Invoicing) Dr I/C Receivable 10 Cr I/C Revenue 10

(Receiving Processor) Dr RI DC 10 Cr I/C Accrual 10 (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable 10

T2 Deliver into DC RT: Deliver in DC (WCTI transaction) WT: Outside Processing

(Cost Processor) Dr WIP Val OSP DC 10 Cr RI DC 10

NOTE:

• For phase 1, I/C accounting for OSP items will not use transfer price. I/C invoices will be a pure charge back. The I/C cost of sales at PO price will be offset by the I/C Revenue, also at PO price, thereby ensuring that there is no recognition of I/C profit

OU1 Reconciliation OU2 Reconciliation Dr I/C Cost of Sales 10 Dr. I/C Receivable 10 Cr. I/C Revenue 10 Cr. Accrual 10

Dr WIP Val. OSP 20 Cr. I/C Payable 20

Page 52: Intercompany Transactions

Intercompany Transactions 52

Return in Flow 8: Global Procurement with Shop Floor destination of OSP item – OSP charges at PO price

Time Transaction Description OU1 Accounting OU2 Accounting T1 Return to receiving

DC RI DC (Regular transaction)

(Receiving processor) Dr RI DC 10 Cr WIP Val OSP DC 10

T2

Return to vendor (Purchasing)

RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)

(Receiving Processor) Dr Accrual 10 Cr I/C Cost of Sales 10 (I/C Invoicing) Dr I/C Revenue 10 Cr I/C Receivable 10

(Receiving Processor) Dr I/C Accrual 10 Cr RI DC 10 (I/C Invoicing) Dr I/C Payable 10 Cr I/C Accrual 10

T3 Credit Memo Supplier sends credit memo Dr Liability 11 Cr IPV 1 Cr Accrual 10

OU1 Reconciliation OU2 Reconciliation

Dr. I/C Revenue 10 Dr. Liability 11 Cr. IPV 1 Cr. I/C Cost of Sales 10 Cr. I/C Receivable 10

Dr. I/C Payable 10 Cr. WIP Val OSP 10

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

$10PO price

10$PO price

ShopFloor

any item typeOSP item

Page 53: Intercompany Transactions

Intercompany Transactions 53

Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

RC DC (Accounting transaction)

(Receiving Processor) Dr I/C Cost of Sales 10 Cr Accrual 10 (I/C Invoicing) Dr I/C Receivable 10 Cr I/C Revenue 10

(Receiving Processor) Dr RI DC 10 Cr I/C Accrual 10 (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable 10

T2 Deliver into DC RT: Deliver in DC (WCTI transaction) WT: Outside Processing

(Cost Processor) Dr WIP Val OSP DC 20 Cr RI DC 10 Cr PPV 10

NOTE:

• Any transfer price that is set up for this item is ignored.

OU1 Reconciliation OU2 Reconciliation Dr. I/C Receivable 10 Dr. I/C Cost of Sales 10 Cr. I/C Revenue 10 Cr. Accrual 10

Dr. WIP Val. OSP 20 Cr. I/C Payable 10 Cr. PPV 10

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

PO

OU: OU1

Ship to: DC

OSP ItemShop Fl. dest. any item type

ShopFloor

Procuring Txn Flow: OU1->OU2

Page 54: Intercompany Transactions

Intercompany Transactions 54

Return in Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate

Time Transaction Description OU1 Accounting OU2 Accounting T1 Return to receiving

DC RI DC (Regular transaction)

(Receiving processor) Dr RI DC 10 Dr PPV 10 Cr WIP Valuation DC 20

T2

Return to vendor (Purchasing)

RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)

(Receiving Processor) Dr Accrual 10 Cr I/C Cost of Sales 10 (I/C Invoicing) Dr I/C Revenue 10 Cr I/C Receivable 10

(Receiving Processor) Dr I/C Accrual 10 Cr RI DC 10 (I/C Invoicing) Dr I/C Payable 10 Cr I/C Accrual 10

T3 Credit Memo Supplier sends credit memo Dr Liability 11 Cr IPV 1 Cr Accrual 10

OU1 Reconciliation OU2 Reconciliation Dr. I/C Revenue 10 Dr. Liability 11 Cr. I/C Receivable 10 Cr. I/C Cost of Sales 10 Cr. IPV 1

Dr. I/C Payable 10 Dr. PPV 10 Cr. WIP Val OSP 20

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

$10PO price

10$PO price

ShopFloor

any item typeOSP item

Page 55: Intercompany Transactions

Intercompany Transactions 55

Flow 10: Global Procurement with Shop Floor destination of EAM direct item

Time Transaction Description OU1 Accounting OU2 Accounting T1 Receipt in DC RT: Receive in DC

RC DC (Accounting transaction)

(Receiving Processor) Dr I/C Cost of Sales 10 Cr Accrual 10 (I/C Invoicing) Dr I/C Receivable 10 Cr I/C Revenue 10

(Receiving Processor) Dr RI DC 10 Cr I/C Accrual 10 (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable 10

T2 Deliver into DC RT: Deliver in DC (WCTI transaction) WT: Direct Shopfloor Delivery

(Cost Processor) Dr Work Order Material 10 Cr RI DC 10

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

10$PO price

10$PO price

PO

OU: OU1

Ship to: DC

Direct ItemShop Fl. dest. any item type

ShopFloor

Procuring Txn Flow: OU1->OU2

Page 56: Intercompany Transactions

Intercompany Transactions 56

Return in Flow 10: Global Procurement with Shop Floor destination of EAM direct item

Time Transaction Description OU1 Accounting OU2 Accounting T1 Return to receiving

DC RI DC (Regular transaction)

(Receiving processor) Dr RI DC 20 Cr Work Order Material 20

T2

Return to vendor (Purchasing)

RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)

(Receiving Processor) Dr Accrual 10 Cr I/C Cost of Sales 10 (I/C Invoicing) Dr I/C Revenue 10 Cr I/C Receivable 10

(Receiving Processor) Dr I/C Accrual 20 Cr RI DC 20 (I/C Invoicing) Dr I/C Payable 20 Cr I/C Accrual 20

T3 Credit Memo Supplier sends credit memo Dr Liability 11 Cr IPV 1 Cr Accrual 10

DCSOB2/LE2/

OU2

RCSOB1/LE1/

OU1S1

Financial FlowPhysical Flow

$10PO price

10$PO price

ShopFloor

any item typeDirect item

Page 57: Intercompany Transactions

Intercompany Transactions 57

CONCLUSION This paper describes the intercompany business flows and their corresponding accounting entries. This paper should give sufficient information to help understand the underlying accounting for the intercompany transactions involving two or more operating units.

ADDITIONAL RESOURCES • Intercompany Invoicing: How to Set Up and Use this Feature within Oracle Applications, Oracle White

Paper, May 2000.

• Intercompany Invoicing and Advanced Pricing Integration, Oracle White Paper, May 2002.

• Overview of Intercompany Invoicing, Oracle White Paper, July 2005.

• Oracle Inventory Users Guide, 11.5.10.

• Oracle Order Management Users Guide, 11.5.10.

• Oracle Accounts Receivable Users Guide, 11.5.10.

• Oracle Accounts Payable Users Guide, 11.5.10.

• Oracle Purchasing Users Guide, 11.5.10.

Page 58: Intercompany Transactions

Intercompany Transactions July 2005 Author: Karthik Gnanamurthy Contributing Authors: Krish Ratnam Koothan Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA 94065 U.S.A. Worldwide Inquiries: Phone: +1.650.506.7000 Fax: +1.650.506.7200 www.oracle.com Oracle Corporation provides the software that powers the Internet. Oracle is a registered trademark of Oracle Corporation. Various product and service names referenced herein may be trademarks of Oracle Corporation. All other product and service names mentioned may be trademarks of their respective owners. Copyright © 2005 Oracle Corporation All rights reserved.