revenue and cogs matching

Revenue and COGS Matching

Overview

Copyright © 1996, 2007, Oracle. All rights reserved.

Revenue and COGS Matching document.docEffective mm/dd/yy of 18 Rev 1


System References

None

Distribution

R12 Oracle Cost Management Fundamentals Ed 1

Job Title*

Ownership

The Job Title [[email protected]?Subject= document.doc ] is responsible for ensuring that this document is necessary and that it reflects actual practice.



Objectives



Agenda



Overview

Overview of Revenue / COGS Matching

The revenue recognition principle requires revenues to be recognized when a firm has performed all, or a substantial portion of services to be provided, and cash receipt is reasonably certain. The Matching Principle requires that revenue and its associated cost of goods sold must be recognized in the same accounting period.

The value of goods shipped from inventory go into a Deferred COGS account. As percentages of revenue are recognized, a matching percentage of the value of goods shipped from inventory is transferred from the Deferred COGS account to the COGS account. This synchronizes the recognition of revenue and COGS in accordance with the recommendations of generally accepted accounting principles (GAAP).

The Oracle e-Business Suite supports this matching principle by synchronizing the recognition of cost of goods sold (COGS) with the revenue recognized in Oracle Receivables for shipments made in Oracle Order Management or other order fulfillment systems. With this feature, sales order revenue and the associated COGS are recognized in the same period. In addition, when sales order revenue is only partially recognized, the associated COGS is recognized in the same proportion.



Agenda



Setting Up Revenue / COGS Matching

Setting Up Revenue / COGS Matching

1. Navigate to the Organization Parameters window and select the Other Accounts tab.

(N) Inventory > Setup > Organizations > Parameters (T) Other Accounts

2. Enter the Deferred COGS Account. There is no default for this account.

Specify a Deferred COGS Account for each organization.



Agenda



Revenue / COGS Recognition Methodology

Revenue / COGS Recognition Methodology

The following describes how Oracle Cost Management synchronizes the recognition of earned COGS to earned sales order revenue in a variety of business scenarios.

1. Revenue / COGS recognition main business flow

• At sales order shipment, order lines are costed and booked to a Deferred Cost of Goods Sold (COGS) account. This account is subsequently adjusted for any change in the percentage of earned or recognized revenue associated with the sales order lines. This is done to ensure that amount of earned COGS is recognized proportionately as the amount of earned revenue.

• You run a set of concurrent processes to record sales order and revenue recognition transactions and to create and cost COGS recognition transactions. These COGS recognition transactions adjust deferred and earned COGS in an amount that synchronizes the % of earned COGS to earned revenue on sales order shipment lines.

- Record Order Management Transactions: records new sales order transaction activity such as shipments and RMA returns in Oracle Order Management.

- Collect Revenue Recognition Information: determines the percentage of recognized or arned revenue related to invoiced sales order shipment lines in Oracle Receivables.



- Generate COGS Recognition Events: creates and costs COGS recognition events for new sales order shipments/returns and changes in revenue recognition and credits for invoiced sales order shipment lines.

• COGS recognition events are created for:

- Invoiceable and shippable order lines.

- Configured items: invoiceable (parent) line if it has any shippable but not invoiceable children.

- A shippable non-invoiceable line that has no invoiceable parent.

• A COGS recognition event generates a COGS recognition transaction whose date and time stamp is the end of day as specified in the inventory organization's legal entity time zone.

• A rejected acceptance-enabled sales order line will not interface with Oracle Receivables and Oracle Order Management.

• An RMA receipt will result in a credit to total COGS (split appropriately between deferred COGS and COGS if necessary) with a debit to inventory.

2. Customer acceptance only affects Costing indirectly, in that:

• It is a revenue recognition contingency for an order line.

• A rejected sales order line means all shipped quantities for that line will never be invoiced in A/R. When you close this order line, Order Management flags this as an uninvoiced line. When this occurs, Cost Management moves the balance of the sales order line from deferred COGS to COGS.

3. There is no accounting when a sales order line is rejected. Costing only creates accounting when the rejected items are received and then either delivered to a regular or a scrap asset subinventory.

4. In customer drop ship scenarios with advanced accounting, revenue / COGS matching occurs only in the customer-facing organization. If advanced accounting is not enabled, revenue and COGS matching does not occur. Costing books the entire sales order

shipment amount to COGS.



Agenda



COGS Recognition and Concurrent Processes

COGS Recognition and Concurrent Processes

The matching and synchronization of the earned and deferred components of sales order revenue and COGS is accomplished by running the following COGS recognition concurrent processes at user-defined intervals:

• Record Order Management Transactions

• Collect Revenue Recognition Information

• Generate COGS Recognition Events

(N) Cost > COGS Recognition

Record Order Management Transactions

The Record Order Management Transactions concurrent process picks up and costs all uncosted sales order issue and RMA return transactions and creates a record for each new order line in the costing COGS recognition matching table. This process is not mandatory. If you don't run this process, then the cost processor will select and cost the uncosted sales order issues and insert them in the COGS matching table. This process can be used if you need to process the COGS recognition transactions at shorter intervals than the cost processor.



Note: This concurrent request has no parameters.

Collect Revenue Recognition Information

The Collect Revenue Recognition Information concurrent process calls an Oracle Receivables API to retrieve the latest revenue recognition percentage of all invoiced sales order lines in Oracle receivables whose activity date is within a user-specified date range. This process must be run before the Generate COGS Recognition Event concurrent process.

Generate COGS Recognition Events

The Generate COGS Recognition Events concurrent request compares the COGS recognition percentage for each sales order line and accounting period combination to the current earned revenue percentage. When the compared percentages are different, the process raises a COGS recognition event and creates a COGS recognition transaction in Oracle Inventory that adjusts the ratio of earned and deferred COGS to match that of earned and deferred revenue. You must run this process after completion of the Collect Revenue Recognition Information concurrent process.

Note: This concurrent request has no parameters.



Agenda



Supported Business Scenarios

Supported Business Scenarios

Revenue / COGS matching is supported for the following sales order business scenarios:

• Sales orders: no customer acceptance

• Sales orders: customer acceptance enabled

• Sales orders: configured items - Assemble To Order (ATO) / Pick To Order (PTO)

Sales Orders: No Customer Acceptance

The following scenarios represent Revenue / COGS matching for sales orders where customer acceptance is not in the business process flow. The underlying assumption in this set of scenarios is that ownership is transferred at the time of shipment. They apply when customer acceptance is not enabled in Oracle Order Management. Scenarios include:

• Sales order/invoicing, RMA, and credit memo

• Alternate revenue allocation in credit memo

• Credit memo before RMA

• RMA following full revenue recognition

• Sales order, multiple RMA's, revenue recognition, credit memos



• RMA not tied to sales order

• Uninvoiced sales order

Sales Orders: Customer Acceptance Enabled

The following scenarios represent Revenue / COGS Matching for sales orders where customer acceptance is in the business process flow. The underlying assumption in this set of scenarios is that ownership is transferred at the time of shipment. They apply when customer acceptance is not enabled in Oracle Order Management. Scenarios include:

• Sales order, acceptance, invoicing, revenue recognition, RMA, credit memo

• Sales order, RMA replacement, acceptance, invoicing, pre-invoicing acceptance

• Sales order, invoicing, RMA receipt with credit, rejection, RMA no receipt with credit, post-invoicing acceptance

• Sales order, rejection

• Uninvoiced sales order

Sales Orders: Configured Items – PTO / ATO

Oracle Cost Management supports the allocation of item cost between earned and deferred COGS for Assemble to Order (ATO) and Pick to Order (PTO) items. Revenue/COGS synchronization for configured items is achieved by matching a shipped, costed line to the invoiceable line that it most closely relates to. If the shipped line is invoiced, then the revenue recognition schedule for that line drives COGS recognition. If the shipped line is not invoiced, then COGS for that line will be driven by the revenue recognition for the nearest invoiced line that it rolls up to.

You can synchronize revenue/COGS for the following types of configured items:

• Kit (PTO without options)

• ATO model

• PTO model

• PTO model with imbedded ATO model



Summary



revenue and cogs matching

Documents