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The basic fundamental behind the enhancement is that the COGS is now directly matched to the Revenue. The same was not possible till now. Prior to this enhancement, the value of goods shipped from inventory were expensed to COGS upon ship confirm, despite the fact that revenue may not yet have been earned on that shipment. With this enhancement, the value of goods shipped from inventory will be put in a Deferred COGS account. As percentages of Revenue are recognized, a matching percentage of the value of goods shipped from inventory will be moved from the Deferred COGS account to the COGS account, thus synchronizing the recognition of revenue and COGS in accordance with the recommendations of generally accepted accounting principles. The Matching Principle is a fundamental accounting directive that mandates that revenue and its associated cost of goods sold must be recognized in the same accounting period. This enhancement will automate the matching of Cost of Goods Sold (COGS) for a sales order line to the revenue that is billed for that sales order line. The deferral of COGS applies to sales orders of both non-configurable and configurable items (Pick-To-Order and Assemble-To-Order). It applies to sales orders from the customer facing operating units in the case of drop shipments when the new accounting flow introduced in 11.5.10 is used. And finally, it also applies to RMAs that references a sales order whose COGS was deferred. Such RMAs will be accounted using the original sales order cost in such a way that it will maintain the latest known COGS recognition percentage.
To set the deferrred COGS account. Inventory -- Setup -- Organization -- Parameters -- Other Accounts A new account is added which is referred as the Deffered COGS accounts. NEW ACCOUNTING : Release 12 : When a Sales order is shipped the following accounting takes place: Inventory Valuation Account : Credit. Deferred COGS account : Debit Once the revenue is recognised, you would need to decide the percentage you wish
You can view the transactions as : Navigation: . This particular COGS recognition transaction actually correspond to a revenue recognition percentage change.Cost > View Transactions > Material Transactions > Distributions A new COGS Revenue Matching Report shows the revenue and COGS information of sales order that fall within the user specified date range by sales order line SIMPLER TERMS ( Table level details ) : Once the whole cycle is complete we will have 2 transactions lines in . 2.Cost > COGS Recognition > Collect Revenue Recognition Information .Cost > COGS Recognition > Generate COGS Recognition Events . This program will create the COGS recognition transaction for each sales order line where there is a mismatch between the latest revenue recognition percentage and the current COGS recognition percentage.to recognize the Revenue. The steps to generate such transactions are as follows: 1.Cost > View Transactions > Material Transactions The distribution for the COGS Recognition transaction associated with the Sales Order transaction now would be as follows: Deffered COGS : Debit y revenue percentage COGS : Credit (Actual revenue percentage ) Thus. Navigation to run the COGS recognition request : . This program will collect the change in revenue recognition percentage based on AR events within the user specified date range. A COGS recognition transaction will be created to reflect a change in the revenue recognition percentage for a sales order line. Note that users can choose how often they want to create the COGS Recognition Events. Run the Collect Revenue Recognition Information program. essentially the recognized COGS balance is to move the value from Deferred COGS to COGS. Run the Generate COGS Recognition Events.
mtl_material_transactions.Release: 12 to 12. In 11i a sales order issue will be costed hitting the COGS account directly hence there is no Cogs recognition process. Sales Order 2. the normal accounting template for Sales order issue (no . (item_cost) Deferred COGS account : Debit (item_cost) Transaction 2: Deffered COGS : Credit (Actual revenue percentage) COGS : Debit (Actual revenue percentage ) DCOGS AND COGS RECOGNITION ACCOUNTING USEFUL TIPS [ID 1060202.1. this functionality was introduced in R12 to be compliant with the Sarbanes-Oxley legislation.0 to 12. There is no Deferred COGS functionality in 11i. COGS Recognition transaction Accounting will be in mtl_transaction_accounts and the Subledger accounting tables as follows: Transaction 1: Inventory Valuation Account : Credit. 1. Cost Managemenft > SLA > Create Accounting Sales Order Issue -> COGS Recognition Purpose The purpose of this document is to explain how COGS Recognition works on Create Accounting engine. hence before R12 there is no Cogs Recognition process.1 Information in this document applies to any platform.3 .0.Version: 12.1] Modified 18-MAR-2011 PUBLISHED In this Document Purpose Questions and Answers Type FAQ Status Applies to: Oracle Cost Management .
Questions and Answers 1 .Why there is no accounting for COGS recognition? A.R12 Where To Define Inventory Cost Of Goods Sold Account Workflow Transfer Price Accounting in Oracle SCM. it is at the order line level that has been shipped.Customer has created RMA against this Sales Order Line. The net Deferred COGS is $60. If RMA happens before COGS Recognition then RMA debits inventory and credits DCOGS account.Why Inter company COGS account is not working after completing mandatory setup? A. Checking whether the COGS events are costed is easy. but the additional COGS recognition transaction will make the order line's recognized COGS to be matched with recognized revenue. If the expected COGS recognition percentage does not match Revenue percentage. There is no accounting for COGS recognition because it has zero quantity. After the credit memo and invoice have gone through. 5 . there could be a potential problem.1). Other references: Note 747638. 2 . .No COGS Recognized (COGS will never be recognized as there is no reference to the original invoice).When does an RMA debit inventory and credit DCOGS account? A. In default.How to diagnose missing COGS Recognition events? A. For internal order flows. so far so good. what matters at this point of time is how much net percentage of revenue is recognized from AR for this order line. RMA has created after COGS Recognition. what would be the percentage of revenue recognized from AR? Ej: The COGS recognition is not going to happen at the individual RMA level. Reason :. There is a difference between the internal order flow and drop shipment or global procurement flow. then you have credited the Deferred COGS for the RMA receipt at $40. the account is driven by the Inventory Cost of Goods Sold Account workflow. the workflow process uses the item COGS account. Checking whether COGS events are created is more functional and less simple. You can use the R12 Revenue COGS matching report to find out whether the result is expected.1 . The accounting of original shipment and RMA transactions would not change.intercompany) will be Debit Cogs and Credit the Inventory valuation from where the item is being issued from. 4 . Why? A. Suppose a 50% revenue recognized. So RMA debits inventory and credits COGS account. but the user can configure the process to use any other account.If you don't have an invoice yet but only a credit memo. Say you have debited the Deferred COGS for the original shipment at $100. Feb 2006 (Metalink Note: 360106. you just verify mmt. 3 . COGS recognition is designed to match with AR revenue recognition. The intercompany COGS account defined in the Inter-company Relations form is only used in drop shipment and global procurement flows. then a distinct COGS recognition transaction is going to be created that will credit deferred COGS at $30 and debit COGS at $30.costed_flag.
accounting does not follow the Revenue Accounting for the Receivable Invoices? A. The logical sales order issue transaction of OU1 will hit deferred COGS account.Is there a way for Cost Management SLA (Subledger Account) to utilize the same sources as the AR SLA? A. There is only deferred COGS. not the shipping network setup. "Average". you would get one physical transaction out of OU2. The logic can be mimicked inside the workflow. one logical transaction for OU2. If the customer is using PAC then the "Collect Revenue" and "AR period" needs to be closed prior PAC period close. the true COGS account is derived from Order Management COGS Account Workflow. it should use the intercompany accrual account defined in the inter-company relations form. There is no concept of deferred accrual. what prevents it? If so. there is no built-in cross reference of sources in SLA between Receivables and Cost Management. How can they get this to be a deferred accrual account? A. 9 . "Layer" then the inventory period can be closed prior COGS recognition process. and two logical txns for OU1. If you need help for that workflow. Right now.Inside SLA. Looking at gmf_xla_extract_headers. 8 . Please see Inventory documentation about transaction flow setup and Cost Management User's Guide on Revenue and COGS Matching for more details. you need to set up the transaction flow and inter-company relations with advanced accounting.Can we close the Inventory period without running the COGS recognition concurrent programs? If not.Trying to generate Deferred COGS but instead the Inventory Accrual account appears on the Inter-company AP invoice. 11 . If the customer is using perpetual Costing Method "Standard". The deferred COGS will be transformed into true COGS after you run the COGS recognition programs. b . COGS account in Oracle EBS is driven and derived from Order Management COGS account generator workflow. build a few custom sources for Cost Management Application that the customer is using for Receivables. To do the drop shipment right. As for the inter-company AP invoice.Why when generating Accounting--the COGS . the transaction_id on that row points to a row in mtl_material_transactions and the column source_line_id in that table points to the line_id in oe_order_lines_all. contact Order Management team.COGS account is going 100% into the account instead of getting deferred into 5 groups. When the setup is right. no such a thing called deferred accrual. Our .Even though the deferred COGS account is a fixed organization parameter.How to derive COGS Account Cost Center using Salesperson Value from Sales Order form in Order Management thru SLA? A. 10 . There are two options for the customer: a . for the OM issue from stores transaction. 7 . what are the entries that are created when the recognition is run the following month and the inventory period for the current month is closed? A.6 . That is well-known in 11i and the functionality remains in R12.
15 . you run the programs and you will have net 60% deferred COGS and 40% COGS.Deferred COGS There will be separate COGS Adjusting entries created for the COGS Adjustment based on the COGS Recognition percentage. there is no support at responsibility level.com/cgi-bin/cr/getfile.After the COGS generation program is run. if AR says now 40% revenue recognized.RMA Receipt transaction does not credit actual Cogs Account.COGS Cr.Inv Cr.How to use COGS Account Relationship to Advanced Pricing? A. we will move from deferred COGS to COGS accordingly. then you then programs and you will have 80% deferred COGS and 20% COGS. Why? A: For a given sales order shipment. both profile options INV:Inter-company Invoice for Internal Orders and CST: Transfer Pricing Option must be set to Yes at site level. The COGS account is wrong as the workflow was not updated. at period 1. May 2002 https://metalink. if AR says 20% revenue recognized. July 2005 (Note: 336129. Then after you run those programs for each period and assuming AR passes the right percentage of revenue recognition. For example.Transfer Price Accounting in Oracle SCM. And at period 2.Sales Orders are for a single customer.) -> COGS accounting and the Material Distributions is still going 100% into a single account.COGS This will result in balanced journal entries. Feb 2006 (Note: 360106./Cr. Dr. n order to get it working. How to change the cogs account after it is generated? A. COGS entry can be viewed from Material Transactions Distribution screen in Inventory. Cost manager is at global level.1:284025. linked to a single sales rep. Why? A. the best way is to manually adjust them inside GL and move forward with the correct accounting for new transactions.1) . There is no way to go back to re-cost or re-account for old transactions.oracle. This is intended behavior in R12.1) .Inter-company Invoicing and Advance Pricing Integration. Please study the following white papers: . I ran the 3 programs under Cost Management (Resp. The COGS entry is recorded in material distribution. 13 . Practically speaking. and can contain an item ./Dr.Inv Cr.revenue accounting rule splits the revenue into 5 deferred periods and we expect the COGS to do the same. instead of creating 5 records for 20% each in each period.DCOGS For RMA receipt Transaction without any reference to Sales Order document will create below accounting distribution: Dr. For RMA receipt Transaction with reference to original Sales Order document will create below accounting distribution: Dr. 12 . sub-ledger accounting (SLA) and general ledger. 14 .Overview of Inter-company Invoicing. it always goes to 100% deferred COGS at first.cgi?p_attid=72450.
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