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Transfer Price Accounting in Oracle SCM

Transfer Price Accounting in Oracle SCM

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Transfer Price Oracle SCM

An Oracle White Paper Feb 2006

Accounting

in

Transfer Price Accounting in Oracle SCM
Table of Contents 1) Executive Summary............................................................................. 3 2) Concepts ............................................................................................... 3 3) Intercompany Transaction Flow Configuration ............................. 7 4) Pricing Decision................................................................................... 9 5) Internal Order Cycle Accounting.................................................... 10 6) Profit In Inventory Accounting For Internal Orders................... 14 7) Currency Option in Intercompany Relations ................................ 15 8) Generic Accounting Rules for Drop Shipment and Global Procurement ................................................................................................ 16 9) Accounts Used in the Accounting Cycle........................................ 16 10) Business Flow Accounting Events Matrix ................................ 18 11) Accounting Entries for Drop Shipment and Global Procurement ................................................................................................ 21 12) Document Flows........................................................................... 23 13) Physical Flows................................................................................ 24 14) User Interfaces for Validation of Accounting .......................... 25 15) Screen Shots................................................................................... 26 16) Additional Reference Resources ................................................. 30

Transfer Price Accounting

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1) Executive Summary
The globalization phenomenon has lead to geographical proliferation of trade and business. The business models have seen a paradigm shift. Today we have large number of business conglomerates operating in multi country and multi location model having complex business relationship among the entities inside and outside the conglomerate. This has resulted in structuring of highly networked business partnerships. The manufacturing and trading activities are spread across the globe to leverage the competitive advantages of different geographies and also target wider range of markets. Implementation of these business partnerships involves policy making on pricing, costing, regulatory framework and other strategic business areas. All these would necessitate a robust and clean way of initiating, tracking and controlling the business transactions within the business’s strategic framework as well as ensuring compliance of international laws. This paper aims to provide insights about the Transfer Price Accounting Framework available in Oracle E-Business Suite (11i10) and how effectively it can be used to meet these complex business requirements.

2) Concepts
In a divisionalised Organization, the managers of different investment centres are encouraged to operate them as separate economic entities. This separation will only rarely be complete, however, as goods and services are often provided by one division to another, particularly in a focused manufacturing environment. A value

Transfer Price Accounting

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Transfer Price as a concept refers to the price at which one division sells goods/services to another division falling within same business group. Such pricing is required to measure more accurate profitability of the business divisions as well as meet the corporate and taxation laws of different countries.must obviously be placed on these intra-company transfers. the manufacturing division transfers goods to distribution divisions at a ‘Transfer Price’. It is price close to market price of the goods. It is the standard unit cost of production b) Market Based Pricing. The ‘Transfer Prices’ typically undergoes scrutiny by the tax regulators in each country to ensure that the prices are at arms length relationship and does not result in leakage of revenue to government. and is known as transfer price. Oracle E-Business Suite conceptualizes following business relationships: Internal Order Transfers of Goods and Services Across Business Divisions International Drop Shipment of Goods and Services o Internal Drop Shipment o External Drop Shipment Shared Services Procurement or Global Procurement of Goods and Services Transfer Price Accounting Page 4 . What should be the ‘Transfer Price’? Transfer price depends mainly on two factors viz. In such a scenario. a) The Business Policy on measurement of performance of selling division as well as buying division b) The transfer pricing laws in force in countries where they operate Ideally Transfer Price could be any of the following: a) Cost Based Pricing Marginal cost of production. It is the fully absorbed unit cost of production Standard Cost. It is cost of producing one additional unit Absorption Cost. This will ensure measurement of true profitability of the manufacturing division as well compute Return on Investment & other performance metrics of the division. Typically manufacturing of goods might happen in one country centrally and sold across the globe through country subsidiaries.

For example the manufacturing unit might distribute goods to selling/distribution units each operating in different country. This is the level at which fiscal reporting is required Operating Units represent a business division or a vertical. Internal Order Transfers of Goods and Services Across Operating Units This business transaction represents transfer of goods between two inventory organizations falling in different operating units. Accounts Payable operates at this level. Order Management.Before we get into these business transactions here is a brief overview of business model architecture in Oracle E-Business Suite Oracle E-Business Suite facilitates a flexible multi product. a trading unit or a storage/warehousing facility. Typically business functions like Purchasing. These transfers Transfer Price Accounting Page 5 . Following is the hierarchy of different Business Entities in Oracle E-Business Suite: Business Groups Set of Books Legal Entities Operating Units Inventory Organizations Business Groups represents the highest level at which the business operates. This business flow involves use of Internal Requisition and Internal Sales Order documents. BOM and Cost Management operates. It is the level at which financial and business policy making is configured. multi location business configuration. Inventory Organization represents the lowest level of business entity. It typically corresponds to a manufacturing facility or part there of. Accounts Receivable. Now let’s look into these business transactions in detail. WIP. This is the level at which products like Inventory. Set of Books represents the financial reporting framework within which the business transactions are performed Legal Entities represents the corporate identity of the business in a country.

wherein the distributor (oracle e-business customer) collects orders from customers and places a purchase order with supplier. Shared Services Procurement or Global Procurement of Goods and Services Shared services procurement involves procurement of goods and services through a Centralized Procurement Unit. The supplier directly delivers to distributor’s customers. pure trading business models like wholesale distribution. Note: Oracle EBS currently supports shipment from an Internal Organization (within oracle implementation) to external customer (not under oracle implementation). The Transfer Price is the selling price and the sending operating unit bills the receiving operating unit. For example manufacturing in one country and selling across the globe. Following are two variations of the Drop Shipment business transaction: o Internal Drop Shipment This involves supply of goods and services directly by the stocking operating unit (an entity within oracle implementation) to the customer. o External Drop Shipment This involves supply of goods and services directly by the external supplier to the external customer. This would involve picking up Transfer Price Accounting Page 6 . Both the selling operating unit as well as the procuring operating unit do not manufacture or stock the goods. The selling operating unit does not stock the goods. For example. The manufacturing unit ships to the customers directly. International Drop Shipment of Goods and Services Drop shipment transaction represents a trading business model wherein the selling unit does not stock goods and they are delivered directly from another stocking inventory organization or an External supplier.could be at cost to sending Organization or at a ‘Transfer Price’. Thus intercompany receivables and payables are created at transfer price by this transaction. Oracle EBS customers can use Internal Order Flow functionalityas a workaround. It doesn’t support dropshipment from one internal organization to another internal organization within same Oracle Implementation.

These transactions may involve routing of intercompany financial obligations through different group subsidiaries to take advantage of tax benefits as well as to implement different business strategies. Procurement and Drop shipment flows also requires creation of appropriate business documents for ensuring a smooth business process and physical movement of goods/services. To summarize Transfer Price accounting is supported for following business transactions: Internal Order Transfers across operating Units – Implemented using Shipping Network and Intercompany Relations Global/Shared Service Procurement . which defines the accounting flow and the pricing policy involved.requisitions from different inventory organizations in the business group by the central procurement unit and place a consolidated purchase order with the supplier. The functionality in Oracle E-Business Suite is based on the Intercompany transaction flow framework. Accordingly. The aim is to ensure supply of quality goods and services at best possible price and at right time.Implemented Using Procurement Transactions Flow Internal Drop shipment – Implemented Using Shipment Flow External Drop shipment – Implemented Using Shipment/Procurement Flow 3) Intercompany Transaction Flow Configuration Following is the set up requirements in Oracle E-Business Suite for implementing the described business transactions Transfer Price Accounting Page 7 . Transfer Price Accounting Both Procurement and Drop shipment transaction requires transparent accounting in all the business units (Operating units/Inventory Organizations) involved at appropriate prices (Transfer Price/PO Price). Purchase Order and Purchase Requisition documents have been linked to establish a document trail and pointers for physical flow of goods and services. the Sales Order.

Transfer Price/PO Price for Procurement Intercompany Transaction Flow Intercompany Relations Inter-company Relations Driven Inter Company Invoicing Old and New Accounting option for shipment flow Price List association in ‘Bill To’ relationship in Internal Customer defined in Intercompany Relations Transfer Price Accounting Page 8 .Implemented Using Shipment/Procurement Transactions Flow Financial Flow – Defined Using Transaction Flow Start OU is Supplier Facing End OU is Customer Facing/Receiving Org Intermediate OUs are Accounting Only OUs Type: Shipment/Procurement Pricing: Transfer Price for Shipment.Internal Order Transfers across operating Units – Implemented using Shipping Network and Intercompany Relations Shipping Network with Internal Order Enabled Define the shipping inventory organization and receiving inventory organization Shipping Network Profiles Set Up CST: Transfer Pricing Option: Yes (Price as Incoming/Price Not as Incoming) INV: Intercompany Invoicing for Internal Orders: Yes Intercompany Relations Definition Operating unit belonging to sending organization as ‘Shipping OU’ Operating unit belonging to receiving organization as ‘Selling OU’ Price List association in ‘Bill To’ relationship in Internal Customer defined in Intercompany Relations Intercompany Relations International Drop Shipment of Goods and Services .

Price not as Incoming Cost’ International Drop Shipment of Goods and Services a.Document Flow – Defined Using Transaction Flow and Document Transaction (PO and SO) Physical Flow – Defined Using Transaction Flow and Document Transaction (PO and SO) Global/Shared Service Procurement . At Transfer Price Profile CST: Transfer Pricing Option defined as ‘Yes. The Transfer Price Accounting Page 9 . These transactions are always at ‘Transfer Price’ because all drop ship transactions are driven by an underlying external sale transaction.Implemented Using Procurement Transactions Flow Financial Flow – Defined Using Transaction Flow Start OU is Supplier Facing End OU is Customer Facing/Receiving Org Intermediate OUs are Accounting Only OUs Type: Procurement Pricing: Transfer Price/PO Price Intercompany Transaction Flow Intercompany Relations Inter-company Relations Driven Inter Company Invoicing Price List association in ‘Bill To’ relationship in Internal Customer defined in Intercompany Relations Document Flow – Defined Using Transaction Flow and Document Transaction (PO and SO) Physical Flow – Defined Using Transaction Flow and Document Transaction (PO and SO) 4) Pricing Decision Internal Order Transfers across operating Units Pricing options available are a. Price as Incoming Cost’ Profile CST: Transfer Pricing Option defined as ‘Yes. At Cost to Sending Organization Profile CST: Transfer Pricing Option defined as ‘No’ b.

Transfer at Transfer Price – Inventory Valued at TP CST: Transfer Pricing Option: 'Yes. a. Please refer to white paper “Intercompany Invoicing and Advance Pricing Integration” detailing this functionality avaiable in Metalink. Static Price is the price defined in the price list associated in ‘Bill To’ relationship in Internal Customer defined in Intercompany Relations b. Price as incoming cost': INV: Intercompany Invoice for Internal Orders: Yes Represents valuation of the transfer @ transfer price in the receiving org Average Costing Transaction Internal Order Shipment (FOB Shipment) Internal Order Receipt (FOB Shipment) Sending Org Dr Cost of Goods Sold (COGS) @ Current Avg Cost Cr Inventory Receiving Org Dr Intransit Inventory @ Transfer Price Cr Accrual Dr Inventory @ Current Avg Cost Cr Intransit Inventory Transfer Price Accounting Page 10 .core purpose being sale. 5) Internal Order Cycle Accounting a. Typically ‘PO Price’ may be used if the underlying demand is to stock goods/use for further manufacture and ‘Transfer Price’ may be used if the underlying demand is driven by an underlying external sale Transfer Price Definition The ‘Transfer Price’ could either be a ‘Static’ Price or a ‘Formula’ based price. Customized APIs could also be used to derive the Price based on the ‘Cost’ in sending organization reflecting the cost based pricing discussed earlier in this paper. The applicability of the modifier is governed by profile ‘INV: Advanced Pricing Option’. These transactions could be at ‘PO Price’ or at ‘Transfer Price’ as they can be for an underlying demand to stock goods/use for further manufacture or could be driven by an underlying external sale. Global/Shared Service Procurement a. the intra-company transfers are also deemed as sale. ‘Formula’ Based price is application of a ‘Pricing Modifier’ on top of the ‘Static Price’. b. c.

Transaction Internal Order Shipment (FOB Receipt) Internal Order Receipt (FOB Receipt) Sending Org Dr Intransit @ Current Avg Cost Inventory Cr Inventory Dr Cost of Goods Sold (COGS) @ Current Avg Cost Cr Intransit Inventory Receiving Org Dr Inventory@ Transfer Price Cr Accrual Standard Costing Transaction Internal Order Shipment (FOB Shipment) Sending Org Dr Cost of Goods Sold (COGS) @ Std Cost Cr Inventory Receiving Org Dr Intransit Inventory @ Std Cost Receiving Org Cr Accrual @ Transfer Price Dr/Cr PPV Account Dr Inventory @Std Cost Receiving Org Cr Intransit Inventory Internal Order Receipt (FOB Shipment) Internal Order Shipment (FOB Receipt) Internal Order Receipt (FOB Receipt) Dr Intransit @ Std Cost Inventory Cr Inventory Dr Cost of Goods Sold (COGS) @ Std Cost Cr Intransit Inventory Dr Inventory @ Std Cost Receiving Org Cr Accrual @ Transfer Price Dr/Cr PPV Account Intercompany Invoicing Transaction Intercompany AR Invoice Intercompany AP Invoice Shipping Operating Unit Dt I/C Receivable @ Transfer Price Cr I/C Revenue Dr Accrual @ Transfer Price Cr I/C Payable Selling Operating Unit Transfer Price Accounting Page 11 .

b. Price not as incoming cost': INV: Intercompany Invoice for Internal Orders: Yes Represent valuation of the transfer @ cost of sending org in the receiving org and the difference between Transfer Price and Cost going into 'Profit in Inventory' Account defined in shipping network Average Costing Transaction Internal Order Shipment (FOB Shipment) Sending Org Dr Cost of Goods Sold (COGS) @ Current Avg Cost Cr Inventory Internal Order Receipt (FOB Shipment) Internal Order Shipment (FOB Receipt) Internal Order Receipt (FOB Receipt) Receiving Org Dr Intransit Inventory @cost to sending org Cr Accrual @ Transfer Price Dr/Cr Profit in Inventory (TP – Cost to sending org) Dr Inventory @ Current Avg Cost Cr Intransit Inventory Dr Intransit @ Current Avg Cost Inventory Cr Inventory Dr Cost of Goods Sold (COGS) @ Current Avg Cost Cr Intransit Inventory Dr Inventory@cost to sending org Cr Accrual @ Transfer Price Dr/Cr Profit in Inventory (TP – Cost) Transfer Price Accounting Page 12 . Transfer at Transfer Price – Inventory Valued at Cost CST: Transfer Pricing Option: 'Yes.

Standard Costing Transaction Internal Order Shipment (FOB Shipment) Sending Org Dr Cost of Goods Sold (COGS) @ Std Cost Cr Inventory Internal Order Receipt (FOB Shipment) Internal Order Shipment (FOB Receipt) Internal Order Receipt (FOB Receipt) Receiving Org Dr Intransit Inventory @Std Cost Receiving Org Cr Accrual @ Transfer Price Dr/Cr Profit in Inventory (TP – Std Cost in Sending Org) Dr/Cr PPV Account @ (Std Cost in Sending org – Std Cost in Receiving Org) Dr Inventory @Std Cost Receiving Org Cr Intransit Inventory Dr Intransit @ Std Cost Inventory Cr Inventory Dr Cost of Goods Sold (COGS) @ Std Cost Cr Intransit Inventory Dr Inventory@ Std Cost Receiving Org Cr Accrual @ Transfer Price Dr/Cr Profit in Inventory (TP – Std Cost in Sending Org) Dr/Cr PPV Account @ (Std Cost in Sending org – Std Cost in Receiving Org) Intercompany Invoicing Transaction Intercompany AR Invoice Intercompany AP Invoice Shipping Operating Unit Dt I/C Receivable @ Transfer Price Cr I/C Revenue Dr Accrual @ Transfer Price Cr I/C Payable Selling Operating Unit Transfer Price Accounting Page 13 .

Therefore PII accounting should ideally be opted if there is a need for consolidation of financial statements.deemed subsidiaries). However.For example say the Cost in sending org is USD80 Transfer Price is USD100 The Accounting Entry in Sending Org will be Dr Cost of Goods Sold USD 80 Cr InventoryUSD 80 Dr I/C Receivable USD 100 Cr I/C Revenue USD 100 The Accounting Entry in Receiving Org will be Dr Inventory: USD80 Dr Profit in Inventory USD 20 Cr Inter Org Accrual USD 100 Dr Inter Org Accrual USD 100 Cr I/C Payable: USD 100 6) Profit In Inventory Accounting For Internal Orders Lets elaborate on the implications of scenario CST: Transfer Pricing Option: Yes. This accounting is required only if there is a need to track the intercompany profits from accounting perspective. the consolidation process is simplified to a great extent as we just need to netout the PII account balance along with I/C sales and I/C COGS using Intercompany Segment. Such a need typically arises if the transactions are between group companies and requires consolidation of financial statements. But the downside is that the Inventory valuation in financial statements of Receiving Org/company is deflated.subsidiary relationship or an explicit law requiring consolidation of related entities' financial statements (though not a holding-subsidiary by way of equity stake example. Price Not as Incoming Cost Profit in Inventory (PII) account captures the difference between the Transfer Price (TP) and cost in sending org (COSO) and is accounted always in receiving organization. The need for consolidation arises only if there exists a holding. Transfer Price Accounting Page 14 .

Based on that perform following adjustments: Net out the intercompany receivables and Payables in the consolidated financial statements using intercompany segment Adjust the consolidated inventory to the extent of unsold stock using the Manual PII computation again based on sound business principles 7) Currency Option in Intercompany Relations ‘ Currency Code’ option in intercompany relations is given only if QP: Advanced Pricing profile set to Yes. But the Consolidation process would suffer. Price as Incoming Cost’ then inventory valuation is correct from receiving organization perspective.e CST: Transfer Pricing Option is set to ‘Yes. The business logic driving this Transfer Price Accounting Page 15 . would show margins based on original cost and not based on the TP. Intercompany COGS and PII account using Intercompany Balancing segment without touching the inventory. Write off the entire balance in PII account to P&L account of receiving company. the customer should adopt a manual process to build PII account balance using margin analysis report of sending org and other accounting information. If TP based margin analysis needs to be tracked. but would reflect true profits. Margin analysis in receiving org too would be correct. Alternatively if the PII accounting is not used i. This way we can leverage oracle consolidation engine. in which case the inventory valuation would still be deflated. Again. This will ensure more accurate profits and inventory valuation for receiving company Consolidated financial statements to net out Intercompany Revenue. Margin Analysis report for the Receving company tracking the resale. Since there is no explicit accounting. QP: Advanced Pricing profile set to ‘Yes’ works only for ‘Transfer Price’. PII accounting should not be opted. Going by conservative accounting principles. (OR) Acertain the ratio of COST OF GOODS SOLD (COGS) to CLOSING STOCK (for each intercompany relation) and apportion the PII account balance between these two. the lower inventory valuation may not reflect an unfair view of financial statements.Ultimately there will be two adjustments involved: Receiving organization adjusting its inventory by allocating the PII account balance on sound business principles based criteria. The amount allocated to COGS should be written off in P&L account and the amount allocated to Closing Stock should be added to Inventory through a cost update process.

In case of ‘PO Price’ option. This does not reflect a complete accounting cycle if Legal Entity/SOBs are crossed. It is not a recommended set up for cross LE/SOB flows. New Accounting – These are Logical Financial Events triggered by Physical/Logical Events. the payment obligation is fixed in the currency of PO. Accounting will happen as if goods have come in and gone out.treatment could be that transfer price is underlined a by sale transaction. This creates the liability towards the immediately facing sending org. This account is washed at the time of Inter Company Invoicing. Accounting is restricted to Receiving Operating Unit (OU). This account is defined in Inter Company Relations form under 'AP Invoicing for Receiving' Transfer Price Accounting Page 16 . 8) Generic Accounting Rules for Drop Shipment and Global Procurement Old Accounting – This is available Only for Shipment Flows. Hence logically currency option need not be supported for PO pricing as purchasing is back-to-back transfer of goods But for the combination transfer price option and QP price set to 'No'.This account is used for passing accrual entries in Receiving Org for Inventory Destination. So it is ideal to extend ‘Currency Code’ option to all ‘Transfer Pricing’ cases irrespective of QP: 4Advanced Pricing Profile. Since Transfer Price can be a static price (where QP profile is not used). The Logical Events are pure accounting only transactions and does not touch the inventory. The principle underlying the ‘Currency Code’ Option is use of ‘Transfer Price’ for valuing the obligations. So the parties to the transaction should be given an option to select the currency of payment obligation. still the parties to the transactions would like to have option of selecting the currency of payment obligation. 9) Accounts Used in the Accounting Cycle OU Clearing Account: This is the wash account used as a substitute to ‘Receiving Inventory’ Account to route all Logical Receive and Logical Deliver Entries. This creates the liability towards the immediately facing sending org. This account is washed at the time of Inter Company Invoicing.This account is used for passing accrual entries in Receiving Org for Expense Destination. This account is defined in Inter Company Relations form under 'AP Invoicing for Receiving' I/C Expense Accrual . I/C Inventory Accrual . the currency code option is not extended. This is defined in Receiving Options at Organization Level.

Inter Company Payable Account .This account is used for creating Inter AR Invoicing Entries. This Account is used for PO created under Global Procurement/Drop Ship irrespective of Destination type in receiving Org. This account is offset at the time of Financial Statements Preparation. Inter Company Receivable Account .This account is used for creating Inter Company AP Invoicing Entries.This account is used for passing accrual entries in supplier facing Org for Expense Destination. Inventory AP Accrual Account . Transfer Price Accounting Page 17 . This Account is however not used under Global Procurement and Drop ship Scenarios. This is due to the fact that accounting in Supplier facing org is Destination Neutral. This will override the COGS account defined at different levels.This account is used for passing accrual entries in supplier facing Org for Inventory Destination.This account is used for passing the logical shipment entry in Sending Org. Expense AP Accrual Account .Inter Company COGS .

10) Business Flow Accounting Events Matrix Following represents the Accounting Events involved in Drop Shipment and Global Procurement Business Flow of Asset Items Transfer Price Accounting Page 18 .

Transfer Price Accounting Page 19 . the events mentioned in ‘Global Procurement’ above are triggered. For Shipment Leg. the events mentioned in ‘Extenral Drop Shipment using Shipment Flow’ are triggered. Procurement and Shipment. For Procurement Leg.Business Flow External Drop shipment using Shipment Flow User Interface Event PO Receipt Start OU (Supplier Facing) Logical PO Receive Logical I/C Sales Order Issue Physical RMA Intermediate OU Logical I/C Shipment Receipt Logical I/C Sales Order Issue Logical I/C Sales Order Return Logical I/C Receipt Return End OU (Customer Facing) Logical I/C Shipment Receipt Logical Sales Order Issue Logical RMA Logical I/C Receipt Return RMA Receipt RTV Physical RTV External Drop shipment with Procurement Flow PO Receipt Logical PO Receive Logical I/C Sales Order Issue RMA Receipt RTV Logical RTV Logical I/C Procurement Receipt Logical I/C Sales Order Issue Logical I/C Sales Order Return Logical I/C Procurement Receipt Logical Sales Order Issue Physical RMA Physical RTV Global Flow Procurement PO Receipt RTV External Drop shipment using Shipment and Procurement Flow PO Receipt Logical I/C Procurement Return Logical PO Receive Logical I/C Physical PO Receipt Procurement Receipt Logical I/C Sales Logical I/C Sales Order Issue Order Issue Logical RTV Logical I/C Physical RTV Procurement Receipt Logical I/C Sales Order Issue There will be two legs of transaction flow viz.

Business Flow Internal Drop shipment using Shipment Flow – New Accounting User Interface Event Sales Order Shipment Start OU (Shipping OU) Logical I/C SO Issue Intermediate OU Logical I/C Shipment Receipt Logical I/C Sales Order Issue Logical I/C Sales Order Return Logical I/C Receipt Return End OU (Customer Facing) Logical I/C Shipment Receipt Logical Sales Order Issue Logical RMA Logical I/C Receipt Return RMA Receipt Physical RMA Internal Drop shipment using Shipment Flow – Old Accounting Internal Order Transfer Sales Shipment Order Internal Sales Order Issue Not Supported Internal Receipt Order Transfer Price Accounting Page 20 .

11) Accounting Entries for Drop Shipment and Global Procurement Following represents the Accounting Entries for all accounting events involved in Drop Shipment and Global Procurement Business Flow of Asset Items Transaction Flow Shipment/Procur ement User Interface Event PO Receipt Event Name/Transa ction Type Logical PO Receive Entry Value Dr OU Clearing Cr Supplier Accrual or I/C Accrual Dr Inventory Cr OU Clearing Dr Inventory Cr I/C Accrual Dr Inventory Cr OU Clearing Dr I/C COGS Cr Inventory Dr COGS Cr Inventory Cr OU Clearing Dr Supplier Accrual or I/C Accrual Cr Inventory Dr OU Clearing Dr Inventory Cr I/C COGS Dr I/C Accrual Cr Inventory Dr OU Clearing Cr Inventory Shipment PO Receipt/ SO Shipment Procurement Shipment/Procur ement Shipment Shipment/Procur ement Logical I/C Shipment Receipt PO Receipt Logical I/C Procurement Receipt PO Receipt/ Logical I/C SO Shipment Sales Order Issue PO Receipt/ Logical Sales SO Shipment Order Issue Return To Logical RTV Vendor PO Price for Supplier Facing OU and TP/PO Price for Receiving OU PO Price for Supplier Facing OU and TP/PO Price for Receiving OU Transfer Price Transfer Price/PO Price Shipment – TP Procurement – TP/PO Price Transfer Price PO Price PO Price Shipment – TP Procurement – TP/PO Price Transfer Price PO Price Shipment/Procur ement Shipment Procurement RMA Receipt RMA Receipt Return Vendor To Logical I/C Sales Order Return Logical I/C Receipt Return Logical I/C Procurement Return Transfer Price Accounting Page 21 .

Transaction Flow Procurement User Interface Event PO Receipt Event Name/Transa ction Type Physical PO Receipt Entry Value Shipment Shipment SO Shipment RMA Receipt Physical Shipment Physical RMA Shipment RMA Receipt Logical RMA Dr Receiving Inventory Cr Supplier Accrual or I/C Accrual Dr Inventory Cr Receiving Inventory Dr COGS Cr Inventory Dr Inventory Cr COGS or I/C COGS Dr Inventory Cr COGS Dr I/C Accrual Cr Inventory PO Price PO Price for Supplier Facing OU and TP/PO Price for Receiving OU Transfer Price PO Price of the Drop ship PO Transfer Price Transfer Price Shipment/Procur ement/Internal Order Shipment/Procur ement/Internal Order Shipment/Procur ement Shipment/Procur ement I/C AR Invoice Request and Auto Invoice Request I/C AP Invoice Request and Expense Report Import Auto Invoice Request Invoices I/C Invoice AR Dr I/C Receivable Cr I/C Revenue Shipment – TP Procurement – TP/PO Price Internal Order – TP/Cost Shipment – TP Procurement – TP/PO Price Internal Order – TP/Cost I/C AP Invoice Dr I/C Accrual Cr I/C Payable AR Invoicing AP Invoicing Dr Receivables Cr Revenue Dr Accrual Account Cr AP Payable Account SO Price PO Price Transfer Price Accounting Page 22 .

Ship To: End OU Org (in Procurement Flow) SO Document SO: End OU. Ship From: End OU Org Source Type: Internal SO: End OU. Ship To: Start OU Org PO: Start OU. Ship From: Start OU Org (in Shipment Flow) Source Type: External SO: End OU. Ship To: End OU Org PO: Start OU. Ship From: Start OU Org Source Type: Internal SO: End OU.12) Document Flows Business Flow External Drop shipment using Shipment Flow External Drop shipment with Procurement Flow External Drop shipment using Shipment and Procurement Flow Internal Drop shipment using Shipment Flow Internal Drop shipment using Global Procurement Flow Internal Drop shipment using Shipment and Procurement Flow Global Procurement PO Document PO: Start OU. Ship From: Start OU Org (in Shipment Flow) Source Type: Internal PO: Start OU. Ship From: End OU Org Source Type: External SO: End OU. Ship To: End OU Org PO: Start OU. Ship To: End OU Org Transfer Price Accounting Page 23 . Ship From: Start OU Org Source Type: External SO: End OU. Ship To: End OU Org (in Procurement Flow) PO: Start OU.

13) Physical Flows Business Flow External Drop shipment using Shipment Flow External Drop shipment with Procurement Flow Forward Supplier to Customer Return Customer to Supplier Facing OU Supplier Facing OU to Supplier Customer to ‘Shipe From’ org in Sales Order ‘Shipe From’ org in Sales Order to Supplier Customer to Intermediate Physical Receiving OU Intermediate Physical Receiving OU to Supplier Customer to Selling OU Selling OU to Supplier Customer to Sending OU Customer to Intermediate Physical Receiving OU Intermediate Physical Receiving OU to Supplier Receiving OU to Supplier Supplier to Customer External Drop shipment using Shipment and Procurement Flow Internal Drop shipment using Global Procurement Flow Internal Drop shipment using Shipment Flow Internal Drop shipment using Shipment and Procurement Flow Supplier to Customer Supplier to Selling OU Selling OU to Customer Sending OU to Customer Supplier to Intermediate Physical Receiving OU Intermediate Physical Receiving OU to Customer Supplier to Receiving OU Global Procurement Transfer Price Accounting Page 24 .

The Distributions viewed through Parent Transaction (Trigerring event) displays the accounting for all logical events created in the transaction flow To view the Supplier and Intercompany Accruals To track inter operating unit dropship sales margins Transfer Price Accounting Page 25 .14) User Interfaces for Validation of Accounting User Interface View Receiving Transactions Summary (PO OU) View Material Transaction (Procuring/Selling/Receiving/ OU) Receiving Account Distribution Report (PO OU) Margin Analysis Report To view the Supplier and Intercompany Accrual Accounting Events To View the Logical Inventory Events through Parent Transaction.

15) Screen Shots Shipping Network Transfer Price Accounting Page 26 .

Intercompany Transaction Flow – Shipment Transfer Price Accounting Page 27 .

Intercompany Transaction Flow – Procurement Transfer Price Accounting Page 28 .

Intercompany Relatioships – Shipment Transfer Price Accounting Page 29 .

Intercompany Relatioships – Procurement 16) Additional Reference Resources White Papers a) Overview of Inter Company Invoicing b) Intercompany Invoicing and Advance Pricing Integration User Guides – Release 11i10 a) Cost Management User Guide b) Inventory User Guide c) Purchasing User Guide Transfer Price Accounting Page 30 .

650.650. Various product and service names referenced herein may be trademarks of Oracle Corporation. Shyam Sundar Santhanam. All other product and service names mentioned may be trademarks of their respective owners. Project Leader.com Oracle is a registered trademark of Oracle Corporation.Transfer Price Accounting in Oracle SCM Feb 2006 Author: Oracle India Cybergateway Hyderabad.santhanam@oracle.7200 www. Cost Management Quality Assurance Special Thanks to Cost Management PM. .oracle.506.7000 Fax: +1. India Shyamsundar. Copyright © 2006Oracle Corporation All rights reserved. Development and QA for supporting my work on this paper.com Worldwide Inquiries: Phone: +1.506.

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