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Revenue and COGS Matching

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Oracle. 2007.Revenue and COGS Matching System References None Distribution R12 Oracle Cost Management Fundamentals Ed 1 Job Title* Ownership The Job Title [list@YourCompany.doc] is responsible for ensuring that this document is necessary and that it reflects actual practice. All rights reserved.doc Effective mm/dd/yy Page 2 of 18 Rev 1 . Copyright © 1996.com?Subject=45251895. Revenue and COGS Matching 45251895.

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2007. Revenue and COGS Matching 45251895. sales order revenue and the associated COGS are recognized in the same period. In addition. The Matching Principle requires that revenue and its associated cost of goods sold must be recognized in the same accounting period. Copyright © 1996. Oracle. The value of goods shipped from inventory go into a Deferred COGS account. With this feature. or a substantial portion of services to be provided. As percentages of revenue are recognized. and cash receipt is reasonably certain.doc Effective mm/dd/yy Page 6 of 18 Rev 1 . This synchronizes the recognition of revenue and COGS in accordance with the recommendations of generally accepted accounting principles (GAAP). when sales order revenue is only partially recognized. The Oracle e-Business Suite supports this matching principle by synchronizing the recognition of cost of goods sold (COGS) with the revenue recognized in Oracle Receivables for shipments made in Oracle Order Management or other order fulfillment systems. a matching percentage of the value of goods shipped from inventory is transferred from the Deferred COGS account to the COGS account. All rights reserved. the associated COGS is recognized in the same proportion.Overview Overview of Revenue / COGS Matching The revenue recognition principle requires revenues to be recognized when a firm has performed all.

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Enter the Deferred COGS Account. (N) Inventory > Setup > Organizations > Parameters (T) Other Accounts 2. Oracle. Revenue and COGS Matching 45251895.Setting Up Revenue / COGS Matching Setting Up Revenue / COGS Matching 1. 2007. All rights reserved. Copyright © 1996. Navigate to the Organization Parameters window and select the Other Accounts tab. Specify a Deferred COGS Account for each organization. There is no default for this account.doc Effective mm/dd/yy Page 8 of 18 Rev 1 .

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All rights reserved. These COGS recognition transactions adjust deferred and earned COGS in an amount that synchronizes the % of earned COGS to earned revenue on sales order shipment lines. . Revenue / COGS recognition main business flow • At sales order shipment. 2007. 1.Record Order Management Transactions: records new sales order transaction activity such as shipments and RMA returns in Oracle Order Management. This account is subsequently adjusted for any change in the percentage of earned or recognized revenue associated with the sales order lines.Revenue / COGS Recognition Methodology Revenue / COGS Recognition Methodology The following describes how Oracle Cost Management synchronizes the recognition of earned COGS to earned sales order revenue in a variety of business scenarios.Collect Revenue Recognition Information: determines the percentage of recognized or arned revenue related to invoiced sales order shipment lines in Oracle Receivables. Revenue and COGS Matching 45251895. • You run a set of concurrent processes to record sales order and revenue recognition transactions and to create and cost COGS recognition transactions. Oracle. . Copyright © 1996.doc Effective mm/dd/yy Page 10 of 18 Rev 1 . order lines are costed and booked to a Deferred Cost of Goods Sold (COGS) account. This is done to ensure that amount of earned COGS is recognized proportionately as the amount of earned revenue.

revenue and COGS matching does not occur. Copyright © 1996. If advanced accounting is not enabled. All rights reserved. 4. Order Management flags this as an uninvoiced line. Oracle. Costing only creates accounting when the rejected items are received and then either delivered to a regular or a scrap asset subinventory. When this occurs.doc Effective mm/dd/yy Page 11 of 18 Rev 1 . 3. Costing books the entire sales order shipment amount to COGS.Invoiceable and shippable order lines. • A rejected sales order line means all shipped quantities for that line will never be invoiced in A/R. • An RMA receipt will result in a credit to total COGS (split appropriately between deferred COGS and COGS if necessary) with a debit to inventory. 2. • COGS recognition events are created for: . When you close this order line.Configured items: invoiceable (parent) line if it has any shippable but not invoiceable children. . Revenue and COGS Matching 45251895. Customer acceptance only affects Costing indirectly. 2007. • A rejected acceptance-enabled sales order line will not interface with Oracle Receivables and Oracle Order Management. . Cost Management moves the balance of the sales order line from deferred COGS to COGS. in that: • It is a revenue recognition contingency for an order line. • A COGS recognition event generates a COGS recognition transaction whose date and time stamp is the end of day as specified in the inventory organization's legal entity time zone. revenue / COGS matching occurs only in the customer-facing organization. In customer drop ship scenarios with advanced accounting.Generate COGS Recognition Events: creates and costs COGS recognition events for new sales order shipments/returns and changes in revenue recognition and credits for invoiced sales order shipment lines.A shippable non-invoiceable line that has no invoiceable parent. . There is no accounting when a sales order line is rejected.

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2007. This process can be used if you need to process the COGS recognition transactions at shorter intervals than the cost processor. Revenue and COGS Matching 45251895. If you don't run this process. Copyright © 1996. This process is not mandatory. All rights reserved.doc Effective mm/dd/yy Page 13 of 18 Rev 1 . Oracle.COGS Recognition and Concurrent Processes COGS Recognition and Concurrent Processes The matching and synchronization of the earned and deferred components of sales order revenue and COGS is accomplished by running the following COGS recognition concurrent processes at user-defined intervals: • Record Order Management Transactions • Collect Revenue Recognition Information • Generate COGS Recognition Events (N) Cost > COGS Recognition Record Order Management Transactions The Record Order Management Transactions concurrent process picks up and costs all uncosted sales order issue and RMA return transactions and creates a record for each new order line in the costing COGS recognition matching table. then the cost processor will select and cost the uncosted sales order issues and insert them in the COGS matching table.

You must run this process after completion of the Collect Revenue Recognition Information concurrent process. Oracle. 2007. Note: This concurrent request has no parameters. Collect Revenue Recognition Information The Collect Revenue Recognition Information concurrent process calls an Oracle Receivables API to retrieve the latest revenue recognition percentage of all invoiced sales order lines in Oracle receivables whose activity date is within a user-specified date range. the process raises a COGS recognition event and creates a COGS recognition transaction in Oracle Inventory that adjusts the ratio of earned and deferred COGS to match that of earned and deferred revenue. Revenue and COGS Matching 45251895.doc Effective mm/dd/yy Page 14 of 18 Rev 1 . Generate COGS Recognition Events The Generate COGS Recognition Events concurrent request compares the COGS recognition percentage for each sales order line and accounting period combination to the current earned revenue percentage. This process must be run before the Generate COGS Recognition Event concurrent process. Note: This concurrent request has no parameters. When the compared percentages are different. Copyright © 1996. All rights reserved.

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and credit memo • Alternate revenue allocation in credit memo • Credit memo before RMA • RMA following full revenue recognition • Sales order. revenue recognition.Assemble To Order (ATO) / Pick To Order (PTO) Sales Orders: No Customer Acceptance The following scenarios represent Revenue / COGS matching for sales orders where customer acceptance is not in the business process flow. RMA. multiple RMA's. They apply when customer acceptance is not enabled in Oracle Order Management. All rights reserved. The underlying assumption in this set of scenarios is that ownership is transferred at the time of shipment.Supported Business Scenarios Supported Business Scenarios Revenue / COGS matching is supported for the following sales order business scenarios: • Sales orders: no customer acceptance • Sales orders: customer acceptance enabled • Sales orders: configured items . Oracle. credit memos Copyright © 1996.doc Effective mm/dd/yy Page 16 of 18 Rev 1 . 2007. Scenarios include: • Sales order/invoicing. Revenue and COGS Matching 45251895.

invoicing. All rights reserved.doc Effective mm/dd/yy Page 17 of 18 Rev 1 . acceptance. RMA no receipt with credit. Revenue/COGS synchronization for configured items is achieved by matching a shipped. then COGS for that line will be driven by the revenue recognition for the nearest invoiced line that it rolls up to. RMA receipt with credit. If the shipped line is not invoiced. The underlying assumption in this set of scenarios is that ownership is transferred at the time of shipment. If the shipped line is invoiced. RMA. costed line to the invoiceable line that it most closely relates to. • RMA not tied to sales order • Uninvoiced sales order Sales Orders: Customer Acceptance Enabled The following scenarios represent Revenue / COGS Matching for sales orders where customer acceptance is in the business process flow. invoicing. They apply when customer acceptance is not enabled in Oracle Order Management. 2007. Scenarios include: • Sales order. acceptance. invoicing. pre-invoicing acceptance • Sales order. rejection • Uninvoiced sales order Sales Orders: Configured Items – PTO / ATO Oracle Cost Management supports the allocation of item cost between earned and deferred COGS for Assemble to Order (ATO) and Pick to Order (PTO) items. Oracle. then the revenue recognition schedule for that line drives COGS recognition. credit memo • Sales order. post-invoicing acceptance • Sales order. rejection. revenue recognition. Revenue and COGS Matching 45251895. RMA replacement. You can synchronize revenue/COGS for the following types of configured items: • Kit (PTO without options) • ATO model • PTO model • PTO model with imbedded ATO model Copyright © 1996.

2007. All rights reserved.Summary Copyright © 1996.doc Effective mm/dd/yy Page 18 of 18 Rev 1 . Oracle. Revenue and COGS Matching 45251895.