Intercompany Transactions

An Oracle White Paper July 2005

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

Intercompany Transactions

ii

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

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

Intercompany Transactions

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.

Intercompany Transactions

Flow 1: External drop shipment from supplier to customer

Time T1 T2

Transaction Receipt in RC through Receiving Desktop Form Deliver into RC through Receiving Desktop Form

Description RT: Receive in RC RI 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)

OU1 Accounting (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 Cr I/C Revenue 15

OU2 Accounting

15

(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 I/C COGS 10 Cr Inventory RC 10

MMT: DC -> C1 (Accounting transaction)

(Cost Processor) Dr COGS DC

15
Intercompany Transactions 7

(Logical SO Issue)

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

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

OU2 Reconciliation 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

Intercompany Transactions

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

Time T1

Transaction RMA in RC

Description 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)

OU1 Accounting

OU2 Accounting

(Cost processor) Dr Inventory DC Cr COGS 15 (Cost processor) Dr Inventory RC Cr I/C COGS 12 12

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 (AR) Dr Revenue DC 20 Cr Receivable DC 20

(I/C Invoicing) (Credit Memo) Dr I/C Revenue 15 Cr I/C Receivable 15

T2 T3

AR Credit Memo Return to Receiving (Cost processor)

MMT: RC->RC RI

Intercompany Transactions

(Inventory) T4 Return to Vendor (Purchasing) RT: Return to S1 (RC RI-> S1)

Dr RI RC 10 Cr Inventory RC 10 (Receiving processor) Dr Accrual 10 Cr RI RC 10

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

12 15

OU2 Reconciliation 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 items 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)

Intercompany Transactions

10

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

Time T1 T1

Transaction Receipt in PC through Receiving Desktop Form Deliver into PC through Receiving Desktop Form

Description RT: Receive in PC 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)

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

OU2 Accounting

OU3 Accounting

15

(Cost Processor) Dr Inventory RC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15
Intercompany Transactions 11

10

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

(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

MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)

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

OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C Payable 15

OU3 Reconciliation 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

Intercompany Transactions

12

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

25$ Price list C1 DC SOB3/LE3/ OU3

20$ Transfer price

12$ 15$ Current cost Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1

10$ PO price S1

PO OU: OU1 Ship to: PC

Order OU: OU3 Ship from: PC Shipping Txn Flow: OU1->OU2->OU3 Procuring Txn Flow: None

Financial Flow Physical Flow

Time T1

Transaction RMA in PC

Description 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)

OU1 Accounting

OU2 Accounting

OU3 Accounting

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

20 20

15 15

(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

(I/C Invoicing) (Credit Memo) Dr I/C Revenue 20 Cr I/C Receivable 20 MMT: RC->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) (Cost processor) Dr Inventory PC Cr I/C COGS (I/C Invoicing) 12 12 (Cost processor) Dr I/C Accrual 15 Cr Inventory RC 15 (I/C Invoicing)

Intercompany Transactions

13

Dr I/C Revenue 15 Cr I/C Receivable 15 T2 T3 T4 AR Credit Memo Return to Receiving (Inventory) Return to Vendor (Purchasing) MMT: PC->PC RI RT: Return to S1 (PC RI->S1) (Cost processor) Dr RI PC 10 Cr Inventory PC 10 (Receiving processor) Dr Accrual 10 Cr RI PC 10 OU3 Reconciliation Dr I/C Payable 20 Dr Revenue 25 Cr COGS 20 Cr Receivable 25

Dr I/C Payable 15 Cr I/C Accrual 15 (AR) Dr Revenue DC 25 Cr Receivable DC 25

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

12 15

OU2 Reconciliation 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 items 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

Intercompany Transactions

14

25$ Price list C1

Asset Item Inv. dest DC SOB3/LE3/ OU3

20$ Transfer price

Asset Item 15$ Accrue rcpt Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1 Logical Receiptt

Asset Item Inv. dest

10$ PO price S1

PO OU: OU1 Ship to: RC

Order OU: OU3 Ship from: RC

Financial Flow Physical Flow

Time T1

Transaction Receipt in RC

Description RT: Receive in RC

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

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

OU3 Accounting

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

15 15 10 10

(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 Cost Processor Dr Inventory RC 15 Cr. OU2 Clearing 15

MMT: RC -> DC (Accounting transaction)

I/C Invoicing)
Intercompany Transactions 15

(Logical I/C Shipment) (Logical I/C Receipt)

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

MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)

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

OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C Payable 15

OU3 Reconciliation Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC Cr I/C Payable

25 20

Intercompany Transactions

16

Flow 1B: Return: External Drop shipment from supplier with shipment and procurement financial flow
Asset Item 15$ 20$ Current cost $12 Accrue rcpt Transfer Transfer price price DC RC PC SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ OU3 OU2 OU1 Asset Item Inv. dest 10$ PO price S1

25$ Price list C1

PO OU: OU1 Ship to: RC

Order OU: OU3 Ship from: RC

Financial Flow Physical Flow

Time T1

Transaction RMA in PC

Description 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)

OU1 Accounting

OU2 Accounting

OU3 Accounting

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

20 20

12 12

(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 (AR) Dr Revenue PC 25 Cr Receivable PC 25

(I/C Invoicing) (Credit Memo) Dr I/C Revenue 20 Cr I/C Receivable 20 T2 T3 AR Credit Memo Return to Receiving (Inventory) MMT: RC->RC RI (Cost processor) Dr RI RC

15
Intercompany Transactions 17

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

Cr Inventory RC 15 (Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 10 10 (I/C Invoicing) (Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15

MMT: PC->PC RI (Accounting transaction) (Logical RTV) RAE: Return PC RI to S1 (Accounting transaction) (Logical RTV)

(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 Cr OU1 clearing 10 10

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

OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 Cr Inventory Cr I/C COGS Cr I/C Receivable

3 12 20

OU3 Reconciliation Dr Revenue 25 Dr I/C Payable 20 Cr Receivable 25 Cr COGS 20

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

Intercompany Transactions

18

20$ Price list C1

Asset Item Inv. dest DC SOB2/LE2/ OU2

15$ Transfer price

Asset Item Accrue rcpt RC SOB1/LE1/ OU1

10$ PO price S1

PO OU: OU1 Ship to: DC

Order OU: OU2 Ship from: DC

Financial Flow Physical Flow

Shipping Txn Flow: None Procuring Txn Flow: OU1->OU2

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

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

OU2 Accounting (Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15

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

15 15 10 10

(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 Cr RI DC (Cost Processor) Dr COGS DC 15 15 15
Intercompany Transactions 19

T3

Ship from DC to C1

MMT: DC->C1 (Regular transaction)

Cr Inventory DC 15 (AR Invoice) Dr Receivable DC 20 Cr Revenue DC 20 OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15 OU2 Reconciliation 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.

Intercompany Transactions

20

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

20$ Price list C1

14$ Current cost DC SOB2/LE2/ OU2

15$ Transfer price

RC SOB1/LE1/ OU1

10$ PO price S1

PO OU: OU1 Ship to: DC

Order OU: OU2 Ship from: DC

Financial Flow Physical Flow

Shipping Txn Flow: None Procuring Txn Flow: OU1->OU2

Time T1 T2 T3 T4

Transaction RMA in DC AR Credit Memo Return to receiving (Inventory) Return to vendor (Purchasing)

Description MMT: RMA in DC (Regular transaction)

OU1 Accounting

MMT: DC->RI DC (Regular transaction) 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 Cr I/C COGS 10 (I/C Invoicing) (Credit memo) Dr I/C Revenue

OU2 Accounting (Cost Processor) Dr Inventory DC 14 Cr COGS DC 14 (AR) Dr Revenue DC 20 Cr Receivable DC 20 (Cost processor) Dr RI DC 15 Cr Inventory DC 15 (Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 10 (I/C Invoicing) (Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15
Intercompany Transactions 21

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 Cr OU1 clearing 10 10

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

10 15

OU2 Reconciliation 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 items 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

Intercompany Transactions

22

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

25$ Price list C1

Asset Item Inv. dest DC SOB3/LE3/ OU3

20$ Transfer price

Asset Item 15$ Accrue rcpt Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1

Asset Item Inv. dest

10$ PO price S1

PO OU: OU1 Ship to: DC

Order OU: OU3 Ship from: DC

Financial Flow Physical Flow

Shipping Txn Flow: None Procuring Txn Flow: OU1->OU2->OU3

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual (Cost processor) Dr Inventory PC Cr OU1 Clearing 10

10

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

OU3 Accounting (Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20

MMT: PO receipt in PC (Accounting transaction) (Logical PO Receipt)

10

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

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

15 15 10 10

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

Intercompany Transactions

23

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

T3

Ship from DC to C1

MMT: DC->C1 (Regular transaction)

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

OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C Payable 15

OU3 Reconciliation Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC 25 Cr I/C Payable 20

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

Intercompany Transactions

24

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

19$ C urrent cost 25$ P rice list C1 DC SO B3/LE 3/ O U3 20$ Transfer price RC S O B 2/LE2/ O U2

15$ Transfer price

10$ PO price PC S O B 1/LE 1/ O U1 S1

PO O U : O U1 S hip to: DC

O rder O U: O U3 Ship from : DC Shipping Txn Flow: N one P rocuring Txn Flow: O U 1->O U 2->O U 3

Financial Flow Physical Flow

Time T1 T2 T3 T3 > T1 T4 T4 > T3

Transaction RMA in DC AR Credit Memo Return to receiving (Inventory)

Description MMT: RMA in DC (Regular transaction)

OU1 Accounting

OU2 Accounting

MMT: DC->RI DC (Regular transaction)

OU3 Accounting (Cost Processor) Dr Inventory DC 19 Cr COGS DC 19 (AR) Dr Revenue DC 25 Cr Receivable DC 25 (Cost processor) Dr RI DC 20 Cr Inventory DC 20 (Receiving Processor) Dr I/C Accrual 20 Cr RI DC 20

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 Cr I/C COGS (I/C Invoicing) (Credit Memo) Dr I/C Revenue

15 15 20 (I/C Invoicing)
Intercompany Transactions 25

Cr I/C Receivable 20 MMT: RC->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) (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 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 MMT: PC->PC RI (Accounting transaction) (Logical RTV) RT: Return PC RI to S1 (Accounting transaction) (Logical RTV) OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr I/C Receivable OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 Cr I/C COGS Cr I/C Receivable (Cost processor) Dr OU1 clearing Cr Inventory PC (Receiving Processor) Dr Accrual Cr OU1 clearing

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

10 10 10

10

10 15

15 20

OU3 Reconciliation 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 items 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

Intercompany Transactions

26

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

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

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

10

OU2 Accounting (Receiving Processor) Dr OU2 Clearing 10 Cr I/C Accrual 10

OU3 Accounting (Receiving Processor) Dr RI DC 10 Cr I/C Accrual

10

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

10 (Cost Processor) Dr Inventory RC 10 Cr OU2 Clearing (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable

10 10 10

10

10

10 (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable 10

MMT: RC -> DC (Accounting transaction)

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

Intercompany Transactions

27

T2 T2 >= T1 T3

Deliver into DC

RT: Deliver in DC MMT: PO Receipt in DC (Regular transaction) Cost Processor) Dr Inventory DC Cr RI DC (Cost Processor) Dr COGS DC Cr Inventory DC (AR Invoice) Dr Receivable DC Cr Revenue DC 10 10

10 10

Ship from DC to C1

MMT: DC->C1 (Regular transaction)

25 25

OU1 Reconciliation Dr I/C Receivable Dr I/C COGS Cr Accrual Cr I/C Revenue NOTE: 10 10 10 10

OU2 Reconciliation Dr I/C Receivable Dr I/C COGS Cr I/C Revenue Cr I/C Payable 10 10 10 10

OU3 Reconciliation Dr COGS DC Dr Receivable DC Cr Revenue DC Cr I/C Payable 10 25 25 10

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

Intercompany Transactions

28

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

25$ Price list C1

Asset Item Inv. dest DC SOB3/LE3/ OU3

20$ Transfer price

Asset Item 15$ Accrue rcpt Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1

Asset Item Inv. dest

10$ PO price S1

PO OU: OU1 Ship to: RC

Order OU: OU3 Ship from: RC

Financial Flow Physical Flow

Shipping Txn Flow: OU2->OU3 Procuring Txn Flow: OU1->OU2

Time T1

Transaction Receipt in RC

Description RT: Receive in RC

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

10

OU2 Accounting (Receiving Processor) Dr RI RC 15 Cr I/C Accrual 15

OU3 Accounting

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

10 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

15 15 10 10

T2 T2 >= T1

Deliver into RC

RT: Deliver in RC MMT: PO Receipt in RC (Regular transaction) (Cost Processor) Dr Inventory RC 15

Intercompany Transactions 29

Cr RI RC T3 Ship from RC to C1 MMT: RC->C1 (No accounting) MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)

15

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

MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)

OU1 Reconciliation Dr I/C Receivable Dr I/C COGS Cr I/C Revenue Cr Accrual

15 10 15 10

OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Payable 15 Cr I/C Revenue 20

OU3 Reconciliation Dr Receivable 25 Dr COGS 20 Cr Revenue 25 Cr I/C Payable 20

Intercompany Transactions

30

Return in Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer
14$ 15$ Current cost 20$ 25$ Transfer Transfer Price list price price DC RC PC SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ OU3 OU2 OU1 19$ Current cost

10$ PO price S1

C1

PO OU: OU1 Ship to: RC

Order OU: OU3 Ship from: RC

Financial Flow Physical Flow

Shipping Txn Flow: OU2->OU3 Procuring Txn Flow: OU1->OU2

Time T1

Transaction RMA in RC

Description 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)

OU1 Accounting

OU2 Accounting

OU3 Accounting

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

20 20

14 14

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

20 20

20 20 25 25

T2 T3 T4

AR Credit Memo Return to receiving (Inventory) Return to vendor MMT: RC->RC RI (Regular transaction) RT: Return RC RI to S1 (Cost processor) Dr RI RC 15 Cr Inventory RC 15 (Receiving Processor)

Intercompany Transactions

31

(Purchasing)

(No accounting) MMT: RC RI ->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) (Cost processor) Dr Inventory PC Cr I/C COGS 10 (I/C Invoicing) (I/C Credit memo) Dr I/C Revenue Cr I/C Receivable (Cost processor) Dr OU1 clearing Cr Inventory PC (Receiving Processor) Dr Accrual Cr OU1 clearing OU3 Reconciliation Dr Revenue 25 Dr I/C Payable 20 Cr Receivable 25 Cr COGS 20 10

Dr I/C Accrual Cr RI RC

15 15

15 15 10 10 10 10

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

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

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

OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 Cr Inventory Cr I/C COGS Cr I/C Receivable

1 14 20

Intercompany Transactions

32

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

25$ Price list C1

Expense Item Inv. dest DC SOB3/LE3/ OU2

Asset Item 20$ Current cost $14 Transfer price RC SOB2/LE2/ OU1

Order OU: OU3 Ship to: RC Ship from: RC

Financial Flow Physical Flow

Shipping Txn Flow: OU2->OU3

Time T1

Transaction Ship from RC to C1

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

OU1 Accounting

OU2Accounting

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

MMT: DC -> C1 (Accounting transaction) (Logical SO Issue) No Accounting OU1 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 14 Cr Inventory 14 Cr I/C Revenue 20 OU2 Reconciliation Dr Expense DC 20 Dr Revenue DC 25 Cr Receivable DC 25

Cr I/C Payable

20

Intercompany Transactions

33

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

25$ Price list C1

Expense Item Inv. dest DC SOB3/LE3/ OU2

Asset Item 20$ Current cost $14 Transfer price RC SOB2/LE2/ OU1

Order OU: OU3 Ship to: RC Ship from: RC

Financial Flow Physical Flow

Shipping Txn Flow: OU2->OU3

Time T1

Transaction Ship from RC to C1

Description 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)

OU1 Accounting

OU2 Accounting

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

14 14

(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

20 20

Intercompany Transactions

34

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

14 20

OU2 Reconciliation 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
Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2 15$ Transfer price Asset Item Accrue rcpt RC SOB1/LE1/ OU1

10$ PO price S1

PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2

Financial Flow Physical Flow

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

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

OU2 Accounting (Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15

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

15 15

(I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

Intercompany Transactions

35

(Cost processor) Dr I/C COGS Cr Inventory RC T2 T2 >= T1 Deliver into DC RT: Deliver in DC

10 10 (Receiving Processor) Dr Charge Acct DC 15 Cr RI DC 15

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

OU2 Reconciliation Dr ChargeAcct DC 15 Cr I/C Payable 15

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

Intercompany Transactions

36

Return in Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt
Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2 15$ Transfer price Asset Item Accrue rcpt RC SOB1/LE1/ OU1

10$ PO price S1

PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2

Financial Flow Physical Flow

Time T1 T2

Transaction Return to receiving (Purchasing) Return to vendor (Purchasing)

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

OU1 Accounting

OU2 Accounting (Receiving processor) Dr RI DC 15 Cr Charge DC 15 (Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 10 (I/C Invoicing) (I/C Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15

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

(I/C Invoicing) (I/C Credit memo) Dr I/C Revenue 15 Cr I/C Receivable 15 MMT: RC->RC RI (Accounting transaction) (Logical RTV) RT: Return RC RI to S1 (Accounting transaction) (Cost processor) Dr OU1 clearing 10 Cr Inventory RC (Receiving Processor) Dr Accrual 10 Cr OU1 clearing

10

10

Intercompany Transactions

37

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

OU2 Reconciliation Dr I/C Payable 15 Cr Charge DC 15 10 15

Intercompany Transactions

38

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

Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2

15$ Transfer price

Expense Item Accrue rcpt RC SOB1/LE1/ OU1

10$ PO price S1

PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2

Financial Flow Physical Flow

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

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

OU2 Accounting (Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15

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

10 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15

15 15 10

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

T2 T2 >= T1

Deliver into DC

RT: Deliver in DC

Intercompany Transactions

39

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

OU2 Reconciliation 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
Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2 15$ Transfer price Expense Item Accrue rcpt RC SOB1/LE1/ OU1 10$ PO price S1

PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2

Financial Flow Physical Flow

Time T1 T2

Transaction Return to receiving (Purchasing) Return to vendor (Purchasing)

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

OU1 Accounting

OU2 Accounting (Receiving processor) Dr RI DC 15 Cr Charge DC 15 (Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 10 10 (I/C Invoicing) (I/C Credit memo)
Intercompany Transactions 40

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

Dr I/C Revenue 15 Cr I/C Receivable 15 MMT: RC->RC RI (Accounting transaction) (Logical RTV) RT: Return RC RI to S1 (Accounting transaction) (Logical RTV) (Cost processor) Dr OU1 clearing Cr Expense 10 10

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

(Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10

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

OU2 Reconciliation Dr I/C Payable 15 Cr Charge DC 15 10 15

Intercompany Transactions

41

Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt
Expense Item Expense dest. EXP DC RI SOB3/LE3/ OU3 Asset Item RC SOB2/LE2/ OU2 Expense Item 15$ 10$ Accrue rcpt Transfer PO price PC price SOB1/LE1/ OU1

20$ Transfer price

S1

PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2->OU3

Financial Flow Physical Flow

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual

10

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

OU3 Accounting (Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20

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 Expense PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable Cr I/C Revenue (Cost processor) Dr I/C COGS Cr Expense PC 15 15 10 10 (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 (I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20
Intercompany Transactions 42

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

(Cost processor) Dr I/C COGS 15 Cr Inventory RC 15 T2 T2 >= T1 OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15 OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue Cr I/C Payable OU3 Reconciliation Dr Charge DC 20 Cr I/C Payable Deliver into DC RT: Deliver in DC (Receiving Processor) Dr Charge DC 20 Cr RI DC 20

20 15

20

Return in Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt
Expense Item Expense dest. EXP DC RI SOB3/LE3/ OU3 Asset Item RC SOB2/LE2/ OU2 Expense Item 15$ 10$ Accrue rcpt Transfer PO price PC price SOB1/LE1/ OU1

20$ Transfer price

S1

PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2->OU3

Financial Flow Physical Flow

Time T1 T2

Transaction Return to receiving (Purchasing) Return to vendor (Purchasing)

Description DC->RI DC (Regular transaction) RT: Return DC RI to S1

OU1 Accounting

OU2 Accounting

OU3 Accounting (Receiving processor) Dr RI DC 20 Cr Charge DC 20 (Receiving Processor) Dr I/C Accrual 20 Cr RI DC 20

Intercompany Transactions 43

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

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

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

10

10

(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 Revenue Cr I/C Receivable MMT: PC->PC RI (Accounting transaction) (Logical RTV) RT: Return PC RI to S1 (Accounting transaction) (Logical RTV) OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr I/C Receivable OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 Cr I/C COGS Cr I/C Receivable (Cost processor) Dr OU1 clearing Cr Inventory PC (Receiving Processor) Dr Accrual Cr OU1 clearing

15 15 10 10

10 10

OU3 Reconciliation Dr I/C Payable 20 Cr Charge 20 15 20

10 15

Intercompany Transactions

44

Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue receipt RC SOB1/LE1/ OU1

20$ PO price

10 PO price S1

PO OU: OU1

Financial Flow Physical Flow

Procuring Txn Flow: OU1->OU2

Ship to: DC

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoicing) Dr I/C Receivable Cr I/C Revenue

10 10 10

OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr I/C Accrual Cr I/C Payable (Receiving Processor) Dr Charge Acct. DC Cr RI DC

20 20 20 20

RC DC (Accounting transaction)

10

20 20

T2 T3

Deliver into DC
Supplier Invoice for 11 British Pounds

RT: Deliver in DC

Match invoice to rcpt

Dr. Accrual Dr. IPV Cr. Liability

10 1

11

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

OU2 Reconciliation Dr. Charge 20 Cr. I/C Payable 20 10 11

Intercompany Transactions

45

Return in Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue receipt RC SOB1/LE1/ OU1

20$ PO price

10 PO price S1

Procuring Txn Flow: OU1->OU2

Financial Flow Physical Flow

Time T1 T2

Transaction Return to receiving (Inventory) Return to vendor (Purchasing)

Description DC RI DC (Regular transaction)

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

OU1 Accounting

OU2 Accounting (Receiving processor) Dr RI DC Cr Charge acct. DC

20 20

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

10

10

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

20

20

10 10 11 1 10

20 20

T3

Credit Memo

Supplier sends credit memo

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

OU2 Reconciliation Dr. I/C Payable 20 Cr. Charge 20 1 10 10

Intercompany Transactions

46

Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue per end RC SOB1/LE1/ OU1

20$ PO price

10 PO price S1

PO OU: OU1 Ship to: DC

Financial Flow Physical Flow

Procuring Txn Flow: OU1->OU2

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting No Accounting

OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual 10 10 (I/C Invoicing) Dr. I/C Accrual Cr. I/C Payables (Receiving Processor) Dr Charge Acct. DC Cr RI DC

20
20

RC DC (Accounting transaction) T2 T3 T4 T5 Deliver into DC Period End Accruals Reopen next period Supplier Invoice for 11 British Pounds Open Purchasing Period Match invoice to rcpt RT: Deliver in DC

(I/C Invoicing) Dr. I/C Receivables Cr. I/C Revenue

20 20
20 20

Dr. I/C Cost of Sales Cr. Accrual

10 10 10 11

Dr. Accrual 10 Cr. I/C Cost of Sales Dr. I/C Cost of Sales Cr. Liability 11

Intercompany Transactions

47

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

OU2 Reconciliation Dr. Charge 20 Cr. I/C Payable

20

NOTE: IPV is not adjusted on the I/C invoice

Intercompany Transactions

48

Return in Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue per end RC SOB1/LE1/ OU1

20$ PO price

10 PO price S1

Procuring Txn Flow: OU1->OU2

Financial Flow Physical Flow

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting No Accounting

OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual 10 10 (I/C Invoicing) Dr. I/C Accrual Cr. I/C Payables (Receiving Processor) Dr Charge Acct. DC Cr RI DC

20
20

RC DC (Accounting transaction) T2 Deliver into DC RT: Deliver in DC

(I/C Invoicing) Dr. I/C Receivables Cr. I/C Revenue

20 20
20 20

T3 T4

Return to RI DC Return from RI DC to S1

RT: Return to RI in DC RT: Return to Vendor DC RC (I/C Invoicing) Dr. I/C Revenue 10 Cr. I/C Receivable 10 No Accounting since net quantity received is 0

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

20 20 20

T4

Period End Accruals

Intercompany Transactions

49

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

Intercompany Transactions

50

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

OSP Item Shop Fl. dest. Shop Floor DC SOB2/LE2/ OU2

10$ PO price

any item type RC SOB1/LE1/ OU1

10$ PO price S1

PO OU: OU1 Ship to: DC

Financial Flow Physical Flow

Procuring Txn Flow: OU1->OU2

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoicing) Dr I/C Receivable Cr I/C Revenue

10 10 10 10

OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr I/C Accrual Cr I/C Payable (Cost Processor) Dr WIP Val OSP DC Cr RI DC

10 10 10 10

RC DC (Accounting transaction)

T2

Deliver into DC

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

10 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 Dr I/C Cost of Sales Dr. I/C Receivable Cr. I/C Revenue Cr. Accrual OU2 Reconciliation Dr WIP Val. OSP 20 Cr. I/C Payable 20 10 10
Intercompany Transactions 51

10 10

Return in Flow 8: Global Procurement with Shop Floor destination of OSP item OSP charges at PO price
OSP item Shop Floor DC SOB2/LE2/ OU2 10$ PO price any item type RC SOB1/LE1/ OU1

$10 PO price S1

Financial Flow Physical Flow

Time T1 T2

Transaction Return to receiving Return to vendor (Purchasing)

Description DC RI DC (Regular transaction)

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

OU1 Accounting

OU2 Accounting (Receiving processor) Dr RI DC Cr WIP Val OSP DC

10 10

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

10 10 10 10 11 1 10

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

10 10 10 10

T3

Credit Memo

Supplier sends credit memo

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

OU2 Reconciliation Dr. I/C Payable 10 Cr. WIP Val OSP 1 10 10

10

Intercompany Transactions

52

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

OSP Item Shop Fl. dest. Shop Floor DC SOB2/LE2/ OU2

any item type RC SOB1/LE1/ OU1

10$ PO price S1

PO OU: OU1

Financial Flow Physical Flow

Procuring Txn Flow: OU1->OU2

Ship to: DC

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoicing) Dr I/C Receivable Cr I/C Revenue

10 10 10 10

OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr I/C Accrual Cr I/C Payable (Cost Processor) Dr WIP Val OSP DC Cr RI DC Cr PPV

10 10 10 10

RC DC (Accounting transaction)

T2

Deliver into DC

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

20 10 10

NOTE: Any transfer price that is set up for this item is ignored. OU1 Reconciliation Dr. I/C Receivable 10 Dr. I/C Cost of Sales 10 Cr. I/C Revenue 10 Cr. Accrual 10 OU2 Reconciliation Dr. WIP Val. OSP 20 Cr. I/C Payable 10 Cr. PPV 10

Intercompany Transactions

53

Return in Flow 9: Global Procurement with Shop Floor destination of OSP item OSP charges at standard rate
OSP item Shop Floor DC SOB2/LE2/ OU2 10$ PO price any item type RC SOB1/LE1/ OU1 $10 PO price S1

Financial Flow Physical Flow

Time T1

Transaction Return to receiving

Description DC RI DC (Regular transaction)

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

OU1 Accounting

OU2 Accounting (Receiving processor) Dr RI DC 10 Dr PPV 10 Cr WIP Valuation DC

20

T2

Return to vendor (Purchasing)

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

10

10

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

10

10

10 10 11 1 10

10 10

T3

Credit Memo

Supplier sends credit memo

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

10 10 1

OU2 Reconciliation Dr. I/C Payable 10 Dr. PPV 10 Cr. WIP Val OSP

20

Intercompany Transactions

54

Flow 10: Global Procurement with Shop Floor destination of EAM direct item
Direct Item Shop Fl. dest. Shop Floor DC SOB2/LE2/ OU2 any item type RC SOB1/LE1/ OU1

10$ PO price

10$ PO price S1

PO OU: OU1

Financial Flow Physical Flow

Procuring Txn Flow: OU1->OU2

Ship to: DC

Time T1

Transaction Receipt in DC

Description RT: Receive in DC

OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoicing) Dr I/C Receivable Cr I/C Revenue

10 10 10 10

OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr I/C Accrual Cr I/C Payable

10 10 10 10

RC DC (Accounting transaction)

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

Intercompany Transactions

55

Return in Flow 10: Global Procurement with Shop Floor destination of EAM direct item
Direct item Shop Floor DC SOB2/LE2/ OU2 10$ PO price any item type RC SOB1/LE1/ OU1

$10 PO price S1

Financial Flow Physical Flow

Time T1 T2

Transaction Return to receiving Return to vendor (Purchasing)

Description DC RI DC (Regular transaction)

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

OU1 Accounting

OU2 Accounting (Receiving processor) Dr RI DC 20 Cr Work Order Material

20

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

10 10 10 10 11 1 10

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

20 20 20 20

T3

Credit Memo

Supplier sends credit memo

Intercompany Transactions

56

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.

Intercompany Transactions

57

Intercompany Transactions July 2005 Author: Karthik Gnanamurthy Contributing Authors: Krish Ratnam Koothan

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