The following scenario illustrate a short example of a Revenue / COGS matching for a sales order where Accounting rule used is: 3 Months, Deferred
Please review attached file COGS1-Example
1.Define new Item
Navigate to : Inventory>Item Master>Define item MM-ITEM65 (Purchase Item)
Assign to Organization M3
2. Do a Miscellaneous Receipt in Organization M3.
Navigate to : Navigation: Miscellaneous Transactions>Receive MM-ITEM65 in Subinventory Store.
Qty 100@15USD
3. Check Item cost :
Navigate to : Costs>Item Costs>Enter Item MM-ITEM65 : Unit cost =15 USD
4. Define Accounting Rules in Account Receivables
Navigate to : Account Receivables>Setup>Transactions>Accounting Rules
There are two Predefined Accounting rules
a-3 Months , Deferred
b-Immediately
5.Navigate to : Sales Order screen > Enter a SO
Order Type =Mixed,
Customer=A.C Networks
Ordered item MM-ITEM65/qty=5/ price=15/ Accounting rule=3 Months, Deferred,
Date Ordered: 04-AUG-2009 ,
Total Value =75
Shipping warehouse=M3
(eg 63849)
6. Book the SO: SO 63849 booked
7. Navigate to: Order Management >Shipping>Transactions >Enter SO
a. Pick Release the SO
b.Ship Confirm the SO
Item is shipped
Line is closed
8. Review the Material Transactions form
9. Distribution of the SO issue
When a Sales order is shipped the following accounting takes place:
Inventory Valuation Account: Credit.
Deferred COGS account: Debit
10. Run the Workflow Background Process request
11. Create the Invoice with the Autoinvoice request
Navigate to : Sales Order Accounts Receivables>Interfaces>Autoinvoice
12.Check the Invoice in AR
Navigate to : Accounts Receivables>Control>Revenue Accounting>Enter reference number: SO (ie.63849)
13. Invoice generated:
Invoice= 10033708
14. Recognize the revenue in AR >
Navigate to : Accounts Receivables>Control>Run Revenue Recognition request
15. After recognizing the revenue. We need to accept it.
Navigate to : Accounts Receivables>Control>Revenue Accounting>Enter reference number: SO (ie.63849)Manage Revenue>Schedule Revenue
16. Now the revenue has been recognized according to our accounting rule: 3 Months, Deferred
GL Date Amount
50% August 37.5
25%September 18.8
25%October 18.7
For August: 50% of the revenue has been recognized
17. Now we run a set of concurrent processes to record sales order and revenue recognition transactions and to create and cost COGS recognition transactions. 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.
18. Record Order Management Transactions: records new sales order transaction activity such as shipments and RMA returns in Oracle Order Management.
19. Collect Revenue Recognition Information: determines the percentage of recognized or earned revenue related to invoiced sales order shipment lines in Oracle Receivables.
20. 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.
21. A non-physical transaction has been generated Transaction Type= COGS Recognition
The distribution for the COGS Recognition transaction associated with the Sales Order transaction now would be as follows:
Deferred COGS : Debit revenue percentage
COGS : Credit (Actual revenue percentage )
Thus, essentially the recognized COGS balance is to move the value from Deferred COGS to COGS.
This particular COGS recognition transaction actually corresponds to a revenue recognition percentage change.