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Intercompany Transactions: An Oracle White Paper July 2005
Intercompany Transactions: An Oracle White Paper July 2005
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.
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 4
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
Intercompany Transactions 5
Flow 1: External drop shipment from supplier to customer
(AR Invoice)
Dr Receivable DC 20
Cr Revenue DC 20
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 8
Return in Flow 1: External drop shipment from supplier to customer
Intercompany Transactions 9
(Inventory) Dr RI RC 10
Cr Inventory RC
10
T4 Return to Vendor RT: Return to S1 (Receiving processor)
(Purchasing) (RC RI-> S1) Dr Accrual 10
Cr RI RC
10
NOTE:
• RMA receipts are always physical receipts, with transaction cost as the item’s 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
Intercompany Transactions 11
(Cost Processor)
Dr Inventory DC 20
MMT: RC -> DC (I/C Invoicing) Cr I/C Accrual
(Accounting Dr I/C Receivable 20 20
transaction) Cr I/C Revenue
(Logical I/C Shipment) 20 (I/C Invoicing)
(Logical I/C Receipt) Dr I/C Accrual 20
(Cost processor) Cr I/C Payable
Dr I/C COGS 15 20
Cr Inventory RC
15 (Cost Processor)
MMT: DC -> C1 Dr COGS DC 20
(Accounting Cr Inventory DC
transaction) 20
(Logical SO Issue)
(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25
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
20$ 12$
25$ 15$
Transfer Current cost 10$
Price list Transfer
price PO price
price
DC RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1
PO Order
Financial Flow
OU: OU1 OU: OU3
Physical Flow
Ship to: PC Ship from: PC
Shipping Txn Flow: OU1->OU2->OU3
Procuring Txn Flow: None
NOTE:
• RMA receipts are always physical receipts, with transaction cost as the item’s 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
Asset Item Asset Item Asset Item
15$
Inv. dest 20$ Inv. dest Accrue rcpt 10$
25$ Transfer
Transfer PO price
Price list price
DC price RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1
Logical
Receiptt
PO Order
(Cost processor)
Dr I/C COGS 10
Cr Inventory PC 10
T2 Deliver into RC
RT: Deliver in RC
T2 >= T1 Cost Processor
MMT: Logical PO Receipt in RC Dr Inventory RC 15
Cr. OU2 Clearing 15
MMT: RC -> DC
(Accounting transaction) I/C Invoicing)
Intercompany Transactions 15
(Logical I/C Shipment) Dr I/C Receivable 20 (Cost Processor)
(Logical I/C Receipt) Cr I/C Revenue 20 Dr Inventory DC 20
Cr I/C Accrual 20
(Cost processor)
Dr I/C COGS 15 (I/C Invoicing)
Cr Inventory RC 15 Dr I/C Accrual 20
MMT: DC -> C1 Cr I/C Payable 20
(Accounting transaction)
(Logical SO Issue)
(Cost Processor)
Dr COGS DC 20
Cr Inventory DC 20
(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25
Intercompany Transactions 16
Flow 1B: Return: External Drop shipment from supplier with shipment and procurement financial flow
PO Order
Intercompany Transactions 18
Asset Item Asset Item
15$
20$ Inv. dest Accrue rcpt 10$
Transfer
Price list DC RC PO price
price
C1 SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1
(Cost processor)
Dr I/C COGS 10
Cr Inventory RC 10
T2 Deliver into DC RT: Deliver in DC
Intercompany Transactions 19
Cr Inventory DC 15
(AR Invoice)
Dr Receivable DC 20
Cr Revenue DC 20
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)
14$
Current
cost 15$
20$ 10$
Transfer
Price list DC RC PO price
price
C1 SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1
Intercompany Transactions 21
15
MMT: RC->RC RI (Accounting transaction) Cr I/C Receivable
(Logical RTV) 15
(Cost processor)
Dr OU1 clearing 10
RT: Return RC RI to S1 Cr Inventory RC
(Accounting transaction) 10
(Logical RTV)
(Receiving Processor)
Dr Accrual 10
Cr OU1 clearing
10
NOTE:
• RMA receipt is a physical receipt at the item’s 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)
Intercompany Transactions 23
MMT: RC -> DC (I/C Invoicing)
(Accounting transaction) Dr I/C Receivable 20 (I/C Invoicing)
(Logical I/C Shipment) Cr I/C Revenue 20 Dr I/C Accrual 20
Cr I/C Payable 20
(Cost processor)
Dr I/C COGS 15
Cr Inventory RC 15
T2 Deliver into DC RT: Deliver in DC
(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25
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 24
Return in Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement with intermediate financial nodes)
19$
C urrent cost 15$
20$ 10$
25$ Transfer
Transfer PO price
P rice list DC RC price PC
price
C1 SO B3/LE 3/ S O B 2/LE2/ S O B 1/LE 1/ S1
O U3 O U2 O U1
PO O rder
Financial Flow
O U : O U1 O U: O U3
Physical Flow
S hip to: DC Ship from : DC
Shipping Txn Flow: N one
P rocuring Txn Flow: O U 1->O U 2->O U 3
Intercompany Transactions 25
Cr I/C Receivable 20 (Credit Memo)
Dr I/C Payable 20
(Cost Processor) Cr I/C Accrual 20
MMT: RC->PC (Cost processor) Dr OU2 clearing 15
(Accounting transaction) Dr Inventory PC 10 Cr Inventory RC 15
(Logical I/C Shipment) Cr I/C COGS 10 (I/C Invoicing)
(Logical I/C Receipt) (I/C Invoicing) Dr I/C Payable 15
Dr I/C Revenue 15 Cr I/C Accrual 15
Cr I/C Receivable 15
(Receiving Processor)
Dr. I/C Accrual 15
Cr. OU2 clearing 15
(Receiving Processor)
RT: Return PC RI to S1
Dr Accrual 10
(Accounting transaction)
Cr OU1 clearing 10
(Logical RTV)
NOTE:
• RMA receipt is a physical receipt at the item’s 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
(Cost processor)
Dr I/C COGS 10
Cr Inventory RC 10
Intercompany Transactions 27
T2 Deliver into DC RT: Deliver in DC
(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25
NOTE:
• 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
Financial Flow
PO Order
Physical Flow
OU: OU1 OU: OU3
(Cost processor)
Dr I/C COGS 10
Cr Inventory PC 10
T2 Deliver into RC RT: Deliver in RC
Intercompany Transactions 29
Cr RI RC 15
T3 Ship from RC to C1 MMT: RC->C1
(No accounting)
(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25
Intercompany Transactions 30
Return in Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer
19$ 14$
Current cost Current cost 15$
20$ 10$
25$ Transfer
Transfer PO price
Price list price
DC price RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1
PO Order
Financial Flow
OU: OU1 OU: OU3 Physical Flow
Ship to: RC Ship from: RC
Shipping Txn Flow: OU2->OU3
Procuring Txn Flow: OU1->OU2
Intercompany Transactions 31
(Purchasing) (No accounting) Dr I/C Accrual 15
Cr RI RC 15
MMT: RC RI ->PC (Cost processor)
(Accounting transaction) Dr Inventory PC 10
(Logical I/C Shipment) Cr I/C COGS
(Logical I/C Receipt) 10
(I/C Invoicing)
(I/C Invoicing) (I/C Credit memo)
(I/C Credit memo) Dr I/C Payable 15
Dr I/C Revenue 15 Cr I/C Accrual 15
Cr I/C Receivable 15
MMT: PC->PC RI (Accounting transaction)
(Logical RTV) (Cost processor)
Dr OU1 clearing 10
Cr Inventory PC 10
RT: Return PC RI to S1
(Accounting transaction)
(Receiving Processor)
(Logical RTV)
Dr Accrual 10
Cr OU1 clearing 10
Intercompany Transactions 32
Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)
Financial Flow
Order
Physical Flow
OU: OU3
Intercompany Transactions 33
Return Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)
Financial Flow
Order
Physical Flow
OU: OU3
MMT: RMA in DC
(Accounting transaction)
(Logical RMA)
(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25
Intercompany Transactions 34
OU1 Reconciliation OU2 Reconciliation
Dr Inventory 14 Dr I/C Payable 20
Dr I/C Revenue 20 Dr Receivable 25
Cr I/C COGS 14 Cr Revenue 25
Cr I/C Receivable 20 Cr Expense 20
Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt
PO
Intercompany Transactions 35
(Cost processor)
Dr I/C COGS 10
Cr Inventory RC 10
T2 Deliver into DC RT: Deliver in DC (Receiving Processor)
Dr Charge Acct DC 15
T2 >= T1 Cr RI DC 15
NOTE:
• 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
PO
Intercompany Transactions 37
OU1 Reconciliation OU2 Reconciliation
Dr I/C Revenue 15 Dr I/C Payable 15
Dr Accrual 10 Cr Charge DC 15
Cr I/C COGS 10
Cr I/C Receivable 15
Intercompany Transactions 38
low 4A: Global Procurement of Expense item in Expense destination with Accrue on Receipt
PO
(Cost processor)
Dr I/C COGS 10
Cr Expense 10
T2 Deliver into DC RT: Deliver in DC (Receiving Processor)
Dr Charge Acct DC 15
T2 >= T1 Cr RI DC 15
Intercompany Transactions 39
OU1 Reconciliation OU2 Reconciliation
Dr I/C Receivable 15 Dr ChargeAcct DC 15
Dr I/C COGS 10 Cr I/C Payable 15
Cr Accrual 10
Cr I/C Revenue 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
PO
Intercompany Transactions 40
Dr I/C Revenue 15 Dr I/C Payable 15
Cr I/C Receivable 15 Cr I/C Accrual 15
RT: Return RC RI to S1
(Accounting transaction) (Receiving Processor)
(Logical RTV) Dr Accrual 10
Cr OU1 clearing 10
Intercompany Transactions 41
Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt
PO
Intercompany Transactions 42
(Cost processor)
Dr I/C COGS 15
Cr Inventory RC 15
T2 Deliver into DC RT: Deliver in DC (Receiving Processor)
Dr Charge DC 20
T2 >= T1 Cr RI DC 20
Return in Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt
PO
Intercompany Transactions 43
MMT: DC RI ->RC (Cost processor)
(Accounting transaction) Dr Inventory RC 15
(Logical I/C Shipment) Cr I/C COGS 15
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(I/C Credit memo) (I/C Credit memo)
Dr I/C Revenue 20 Dr I/C Payable 20
Cr I/C Receivable 20 Cr I/C Accrual 20
(I/C Invoicing)
(I/C Invoicing)
(I/C Credit memo)
(I/C Credit memo)
Dr I/C Payable 15
Dr I/C Revenue 15
Cr I/C Accrual 15
Cr I/C Receivable 15
Intercompany Transactions 44
Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt
PO Financial Flow
Physical Flow
OU: OU1
Procuring Txn Flow: OU1->OU2
Ship to: DC
Intercompany Transactions 45
Return in Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt
Financial Flow
Procuring Txn Flow: OU1->OU2
Physical Flow
Intercompany Transactions 46
Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End
PO Financial Flow
Physical Flow
OU: OU1
T5 Supplier Invoice for 11 British Pounds Match invoice to rcpt Dr. I/C Cost of Sales 11
Cr. Liability 11
Intercompany Transactions 47
OU1 Reconciliation OU2 Reconciliation
Dr I/C Receivable 10 Dr. Charge 20
Dr. I/C Cost of Sales 11 Cr. I/C Payable 20
Cr. I/C Revenue 10
Cr. Liability 1
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
Financial Flow
Procuring Txn Flow: OU1->OU2
Physical Flow
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
any item type
Shop Fl. dest. 10$ 10$
DC PO price RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1
PO Financial Flow
Physical Flow
OU: OU1
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
Intercompany Transactions 51
Return in Flow 8: Global Procurement with Shop Floor destination of OSP item – OSP charges at PO price
Financial Flow
Physical Flow
Intercompany Transactions 52
Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate
OSP Item
any item type
Shop Fl. dest. 10$
DC RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1
PO Financial Flow
Physical Flow
OU: OU1
Procuring Txn Flow: OU1->OU2
Ship to: DC
NOTE:
• Any transfer price that is set up for this item is ignored.
Intercompany Transactions 53
Return in Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate
Financial Flow
Physical Flow
Intercompany Transactions 54
Flow 10: Global Procurement with Shop Floor destination of EAM direct item
Direct Item
any item type
Shop Fl. dest. 10$ 10$
DC PO price RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1
PO Financial Flow
Physical Flow
OU: OU1
Procuring Txn Flow: OU1->OU2
Ship to: DC
Intercompany Transactions 55
Return in Flow 10: Global Procurement with Shop Floor destination of EAM direct item
Financial Flow
Physical Flow
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
Oracle Corporation
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