In this Document

APPLIES TO:

PURPOSE

The purpose of this document is to explain how COGS Recognition works on Create Accounting engine.

There is no Deferred COGS functionality in 11i, this functionality was introduced in R12 to be compliant with the Sarbanes-Oxley legislation, hence before R12 there is no Cogs Recognition process. In 11i a sales order issue will be costed hitting the COGS account directly hence there is no Cogs recognition process, the normal accounting template for Sales order issue (no intercompany) will be Debit Cogs and Credit the Inventory valuation from where the item is being issued from.

QUESTIONS AND ANSWERS

1 - When does an RMA debit  inventory and credit  DCOGS Account?
Answer: RMA has created after COGS Recognition. So RMA debits inventory and credits COGS account. If RMA happens before COGS Recognition then RMA debits inventory and credits DCOGS account.

2 - Why there is no accounting for COGS Recognition?
Answer: There is no accounting for COGS recognition because it has zero quantity.
Reason: Customer has created RMA against this Sales Order Line.

3 - No COGS Recognized (COGS will never be recognized as there is no reference to the original invoice). Why?
Answer: COGS Recognition is designed to match with AR revenue recognition.If you don't have an invoice yet but only a credit memo, what would be the percentage of revenue recognized from AR?

Ej:The COGS recognition is not going to happen at the individual RMA level, it is at the order line level that has been shipped.
Say you have debited the Deferred COGS for the original shipment at $100, then you have credited the Deferred COGS for the RMA receipt at $40. The net Deferred COGS is $60, so far so good. After the credit memo and invoice have gone through, what matters at this point of time is how much net percentage of revenue is recognized from AR for this order line. Suppose a 50% revenue recognized, then a distinct COGS recognition transaction is going to be created that will credit deferred COGS at $30 and debit COGS at $30. The accounting of original shipment and RMA transactions would not change, but the additional COGS recognition transaction will make the order line's recognized COGS to be matched with recognized revenue.

4 - Why Inter company COGS account is not working after completing mandatory setup?
Answer: There is a difference between the internal order flow and drop shipment or global procurement flow. The intercompany COGS account defined in the Inter-company Relations form is only used in drop shipment and global procurement flows. For internal order flows, the account is driven by the Order Management Cost of Goods Sold Account workflow. In default, the workflow process uses the item COGS account, but the user can configure the process to use any other account.

Other references:
<Note 747638.1> - R12 Where To Define Inventory Cost Of Goods Sold Account Workflow
Transfer Price Accounting in Oracle SCM, Feb 2006 (Note 360106.1).

5 - How to diagnose missing COGS Recognition events?
Answer: Checking whether the COGS events are costed is easy, you just verify mmt.costed_flag. 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. If the expected COGS recognition percentage does not match Revenue percentage, there could be a potential problem.

6 - Can we close the Inventory period without running the COGS recognition concurrent programs? If not, what prevents it? If so, 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? 
Answer: If the customer is using perpetual Costing Method "Standard", "Average", "Layer" then the inventory period can be closed prior COGS recognition process. If the customer is using PAC then the "Collect Revenue" and "AR period" needs to be closed prior PAC period close.

7 - How to derive COGS Account Cost Center using Salesperson Value from Sales Order form in Order Management thru SLA?
Answer: Looking at gmf_xla_extract_headers, for the OM issue from stores transaction, 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.

8 - Why when generating  Accounting--the COGS , accounting does not follow the Revenue Accounting for the Receivable Invoices?
Answer: COGS account in Oracle EBS is driven and derived from Order Management COGS account generator workflow. If you need help for that workflow, contact Order Management team.

9 - Is there a way for Cost Management SLA (Subledger Account) to utilize the same sources as the AR SLA?
Answer: Right now, there is no built-in cross reference of sources in SLA between Receivables and Cost Management. There are two options for the customer:
a - Inside SLA, build a few custom sources for Cost Management Application that the customer is using for Receivables.
b - Even though the deferred COGS account is a fixed organization parameter, the true COGS account is derived from Order Management COGS Account Workflow. That is well-known in 11i and the functionality remains in R12. The logic can be mimicked inside the workflow.

10 - Trying to generate Deferred COGS but instead the Inventory Accrual account appears on the Inter-company AP invoice. How can they get this to be a Deferred Accrual Account? 
Answer: There is only deferred COGS, no such a thing called deferred accrual. To do the drop shipment right, you need to set up the transaction flow and inter-company relations with advanced accounting, not the shipping network setup.

When the setup is right, you would get one physical transaction out of OU2, one logical transaction for OU2, and two logical txns for OU1. The logical sales order issue transaction of OU1 will hit deferred COGS account. The deferred COGS will be transformed into true COGS after you run the COGS recognition programs. As for the inter-company AP invoice, it should use the intercompany accrual account defined in the inter-company relations form. There is no concept of deferred accrual.

Please see  Inventory documentation about transaction flow setup and Cost Management User's Guide on Revenue and COGS Matching for more details.

11 - COGS account is going 100% into the account instead of getting deferred into 5 groups. Our revenue accounting rule splits the revenue into 5 deferred periods and we expect the COGS to do the same. I ran the 3 programs under Cost Management (Resp.) -> COGS accounting and the Material Distributions is still going 100% into a single account, instead of creating 5 records for 20% each in each period.  Why?
Answer: For a given sales order shipment, it always goes to 100% deferred COGS at first. Then after you run those programs for each period and assuming AR passes the right percentage of revenue recognition, we will move from deferred COGS to COGS accordingly. For example, at period 1, if AR says 20% revenue recognized, then you then programs and you will have 80% deferred COGS and 20% COGS. And at period 2, if AR says now 40% revenue recognized, you run the programs and you will have net 60% deferred COGS and 40% COGS.

12 - After the COGS generation program is run, COGS entry can be viewed from Material Transactions Distribution screen in Inventory. The COGS account is wrong as the workflow was not updated.  How to change the cogs account after it is generated? 
Answer: The COGS entry is recorded in material distribution, sub-ledger accounting (SLA) and general ledger. There is no way to go back to re-cost or re-account for old transactions. Practically speaking, the best way is to manually adjust them inside GL and move forward with the correct accounting for new transactions.

13 - How to use COGS Account Relationship to Advanced Pricing?
Answer: In order to get it working, both profile options INV:Inter-company Invoice for Internal Orders and CST: Transfer Pricing Option must be set to Yes at site level. Cost manager is at global level, there is no support at responsibility level. Please study the following white papers:

- Transfer Price Accounting in Oracle SCM, Feb 2006 (Note 360106.1)
- Overview of Inter-company Invoicing, July 2005 (Note  336129.1)
- Inter-company Invoicing and Advance Pricing Integration, May 2002  (Note 733873.1)

14 - RMA Receipt transaction does not credit actual Cogs Account. Why?
Answer: This is intended behavior in R12.

For RMA receipt Transaction with reference to original Sales Order document will create below accounting distribution:
Dr.Inv
      Cr.Deferred COGS
There will be separate COGS Adjusting entries created for the COGS Adjustment based on the COGS Recognition percentage.
Dr./Cr.COGS
     Cr./Dr.DCOGS

For RMA receipt Transaction without any reference to Sales Order document will create below accounting distribution:
Dr.Inv
    Cr.COGS
This will result in balanced journal entries.

15 - Sales Orders are for a single customer, linked to a single sales rep, and can contain an item A which, depending on the usage at sales order lines level, has to be linked to two distinct business lines. Thus the same item used in the same order and in 2 sales order lines has to generate revenue account and cogs accounts linked to 2 distinct business lines. How this can be achieved ? Can we use the order line type for this ? Impacts on the AR and COGS auto-accounting ? 
Answer: COGS and revenue accounts are not built the same way.

For revenue account, the auto-accounting allows to default your business line segment from the bill to site, the transaction type (AR one, not the OM one), the sales rep or the product. If the product is not the single driver for your business line segment value, does one of these other values could be used ? If not, it means the value will have to be corrected manually in the invoice, or a custom to be built depending on customer rules. For the COGS, it's generated by the account generator workflow, this can be customized to default the value expected by the customer.

17 - Can we "Turn Off" DCOGS in Release 12. ?
Answer: Deferred COGS and Revenue-COGS matching are mandatory new features in R12 to help customers be legal-compliant. There is no standard way to support disabling this best-practice feature set.

18 - Why is COGS charged to the incorrect GL account?
Answer: COGS account is stamped as MMT's (MTL_MATERIAL_TRANSACTIONS table) distribution account, and it is driven by the Order Management Cost of Goods Sold Account workflow. Customers can configure the workflow process to achieve their business needs based on item types.

19 - In 11.5.10.x  mtl_material_transactions table and locator_id field was used to get information on inventory charged to projects. In R12 locator_id field is blank, how to find?
Answer: In EBS release 12.x.x COGS is a logical transaction --not a material transaction as 11.5.10.x. 
     COGS transactions will not have project and locator information.

20 - Can COGS Recognition transactions created in a closed inventory period?
Answer: Refer Oracle Cost Management User Guide ->Revenue and COGS Matching ->Period Close Considerations Here its clearly mentioned that COGS Recognition transactions can be created in Closed Inventory Period. If the GL period is closed then COGs Recognition events/transactions will be created in next open GL period.

21 - COGS Recognition transactions are not showing material distributions for items with zero costs.  What is the logic behind this?

Answer: This is the intended functionality.
When the transaction value is zero no accounting will be created. COGS recognition is like redistributing expense across DCOGS and COGS. If there is no expense to be distributed at all (zero cost), creating zero dummy accounting entries among two expense accounts would be a waste and hurting performance unnecessarily as well.

22 - How to find a COGS transaction on Material Transactions Form ( Inventory > Material Transactions)?

Answer: Be sure The "Include Logical Transactions" checkbox is selected in the Find Material Transactions form when querying these transactions.  
COGS recognition is a logical transaction.  In order to see it, select the check box "include logical transaction".

23 - How to improve performance on COGS processes?
Answer: When data change very often, it is a good practice to gather statistics as part of preventive tasks.

- Please do the following:
 Go to Sysadmin: Request: Run
     Gather Schema Statistics:
        Schema Name = BOM, Estimate Percentage = 30, accept all other parameters
           Also perform step 3 for INV, PO, WIP, and XLA schemas.

Note: Be sure you have the latest patches applied according to your EBS version.

Main files are: CSTMRGLS.pls, CSTMRGLB.pls, CSTRCMGS.pls, CSTRCMGB.pls 1, CSTRCMVS.pls, CSTRCMVB.pls

24 - Is there a correct order to run COGS processes?

Answer: It is recommended to run COGS processes to be run in the following order:

Run these AR steps first:
Run autoinvoice and generate the invoice transaction.
Run Revenue Recognition Master Program and generate the AR revenue recognition

Then the remaining steps:

Record Order Management Transactions
Collect Revenue Recognition Information
Generate COGS Recognition Events

25 - Why do not SLA seeded sources have inventory item COGS account for Cost Management? 
Answer: SLA does not seed it as there is no need and it is not the source of truth for COGS account.  The flow of COGS account is as follows:
- It is generated by the OM: Cost of Goods Sold Account workflow. In default, the item COGS will be used in this workflow.
- After a sales transaction is created, the COGS account from OM workflow will be stamped in MMT.distribution_account_id.
- If you have not used any client extension, after the sales transaction is costed, the COGS account will appear in MTA.reference_account.

Therefore, the sources of truth for COGS account should be MMT.distribution_account_id and MTA.reference_account.

26 - When a Sales Order  would be COGS recognized? (sales Order that have been shipped in one period and invoiced in the following period and the cogs recognition is occurring in the period that the sales order was invoiced and not in the period that the sales order was shipped)?

 Answer: Per the Oracle Cost User's Guide, it states "The matching principle requires that cash outlays associated directly with revenues are  expended in the period in which the firm recognizes the revenue."
              Per the documentation the current functionality is that a Sales Order would be COGS recognized in the period that it is invoiced and recognized.

27 - How can we generate the COGS entry if we only enter a zero dollar invoice?

Answer: This is an ER. zero dollar invoice is not supported for generating COGS. See ER Bug 19490789

28 - Is it possible COGS Break Down into Cost Elements?

Answer: There is no Out-of-the-Box Functionality to do COGS Accounting by Cost Elements. This is not possible through Oracle standard functionality. The fundamental feature of EBS Costing is to do COGS Accounting at Cost Element Level (only one COGS Account for each Material Transaction based on the COGS Account Generator Workflow). We do not do accounting at sub-elemental level. It may possible if you design and implement major SLA customization with your own accounting template and account derivation rules, but for that you will need to engage Oracle Consulting, customizations are out of Support scope.

29 - Is it possible to get  serial number for logical transaction like COGS?

Answer: It is not possible to get the serial number for logical transaction like 'COGS Recognition' and the matching COGS and Revenue can only be done globally by item and not serial number.

30 - When does a RMA receipt hit cogs account?

Answer: The RMA receipt debit INV account and credit DCOGS account AFTER COGS recognition. COGS account wouldn't be hit if RMA receipt debit INV account and credit DCOGS account before COGS recognition.

31 - When looking into Material Distribution, Will see there RMA number or original Sales Order for COGS?

 Answer:  Deferred COGS Account (DCOGS) in RMA Receipt does not inherit DCOGS Account from the original sales order.
In the form "material transaction distributions", for RMA Receipt the account with type Deferred Cost of Goods Sold is not the same with the account with type Deferred Cost of Goods Sold from the original sales order
This is standard functionality.

For RMA receipt Transaction without any reference to Sales Order document will create below accounting distribution:
Debit Inventory
Credit COGS
This will result in balanced journal entries.

The COGS Revenue Matching Report is showing:
The report displays earned and unearned (deferred) revenue, and cost of goods sold amounts for sales orders issues specified in the report's run-time parameters. The report displays shipped sales order and associated sales order lines, and shows the accounts where the earned and deferred COGS were charged.

The earned and deferred Cogs does not apply in this case, that's why does not appear the RMA .

COGS Revenue matching report will capture information related to RMA's.
In Case of Referenced RMA's the actual accounting happens against the actual order line only. You may not see separate line in Cogs Revenue Matching report , only Sales Order can be seen netting off the quantity.

REFERENCES