Transfer Price Accounting in Oracle SCM
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Transcript of Transfer Price Accounting in Oracle SCM
Transfer Price Accounting in Oracle SCM An Oracle White Paper Feb 2006
Transfer Price Accounting Page 2
Transfer Price Accounting in Oracle SCM
Table of Contents 1) Executive Summary............................................................................. 3 2) Concepts ............................................................................................... 3 3) Intercompany Transaction Flow Configuration ............................. 7 4) Pricing Decision................................................................................... 9 5) Internal Order Cycle Accounting.................................................... 10 6) Profit In Inventory Accounting For Internal Orders................... 14 7) Currency Option in Intercompany Relations ................................ 15 8) Generic Accounting Rules for Drop Shipment and Global Procurement ................................................................................................ 16 9) Accounts Used in the Accounting Cycle........................................ 16 10) Business Flow Accounting Events Matrix ................................ 18 11) Accounting Entries for Drop Shipment and Global Procurement ................................................................................................ 21 12) Document Flows........................................................................... 23 13) Physical Flows................................................................................ 24 14) User Interfaces for Validation of Accounting .......................... 25 15) Screen Shots................................................................................... 26 16) Additional Reference Resources ................................................. 30
Transfer Price Accounting Page 3
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1) Executive Summary
The globalization phenomenon has lead to geographical proliferation of trade and
business. The business models have seen a paradigm shift. Today we have large
number of business conglomerates operating in multi country and multi location
model having complex business relationship among the entities inside and outside
the conglomerate. This has resulted in structuring of highly networked business
partnerships. The manufacturing and trading activities are spread across the globe
to leverage the competitive advantages of different geographies and also target
wider range of markets. Implementation of these business partnerships involves
policy making on pricing, costing, regulatory framework and other strategic
business areas. All these would necessitate a robust and clean way of initiating,
tracking and controlling the business transactions within the business’s strategic
framework as well as ensuring compliance of international laws. This paper aims to
provide insights about the Transfer Price Accounting Framework available in
Oracle E-Business Suite (11i10) and how effectively it can be used to meet these
complex business requirements.
2) Concepts
In a divisionalised Organization, the managers of different investment centres are
encouraged to operate them as separate economic entities. This separation will
only rarely be complete, however, as goods and services are often provided by one
division to another, particularly in a focused manufacturing environment. A value
Transfer Price Accounting Page 4
must obviously be placed on these intra-company transfers, and is known as
transfer price.
Transfer Price as a concept refers to the price at which one division sells
goods/services to another division falling within same business group. Such pricing
is required to measure more accurate profitability of the business divisions as well
as meet the corporate and taxation laws of different countries.
Typically manufacturing of goods might happen in one country centrally and sold
across the globe through country subsidiaries. In such a scenario, the
manufacturing division transfers goods to distribution divisions at a ‘Transfer
Price’.
This will ensure measurement of true profitability of the manufacturing division as
well compute Return on Investment & other performance metrics of the division.
What should be the ‘Transfer Price’?
Transfer price depends mainly on two factors viz.
a) The Business Policy on measurement of performance of selling
division as well as buying division
b) The transfer pricing laws in force in countries where they operate
Ideally Transfer Price could be any of the following:
a) Cost Based Pricing
� Marginal cost of production. It is cost of producing one
additional unit
� Absorption Cost. It is the fully absorbed unit cost of
production
� Standard Cost. It is the standard unit cost of production
b) Market Based Pricing. It is price close to market price of the goods.
The ‘Transfer Prices’ typically undergoes scrutiny by the tax regulators in each
country to ensure that the prices are at arms length relationship and does not result
in leakage of revenue to government.
Oracle E-Business Suite conceptualizes following business relationships:
� Internal Order Transfers of Goods and Services Across Business
Divisions
� International Drop Shipment of Goods and Services
o Internal Drop Shipment
o External Drop Shipment
� Shared Services Procurement or Global Procurement of Goods and
Services
Transfer Price Accounting Page 5
Before we get into these business transactions here is a brief overview of business
model architecture in Oracle E-Business Suite
Oracle E-Business Suite facilitates a flexible multi product, multi location business
configuration. Following is the hierarchy of different Business Entities in Oracle
E-Business Suite:
Business Groups
Set of Books
Legal Entities
Operating Units
Inventory Organizations
Business Groups represents the highest level at which the business operates.
Set of Books represents the financial reporting framework within which the
business transactions are performed
Legal Entities represents the corporate identity of the business in a country. This
is the level at which fiscal reporting is required
Operating Units represent a business division or a vertical. It is the level at which
financial and business policy making is configured. Typically business functions like
Purchasing, Order Management, Accounts Receivable, Accounts Payable operates
at this level.
Inventory Organization represents the lowest level of business entity. It typically
corresponds to a manufacturing facility or part there of, a trading unit or a
storage/warehousing facility. This is the level at which products like Inventory,
WIP, BOM and Cost Management operates.
Now let’s look into these business transactions in detail.
� Internal Order Transfers of Goods and Services Across Operating
Units
This business transaction represents transfer of goods between two
inventory organizations falling in different operating units. For example
the manufacturing unit might distribute goods to selling/distribution units
each operating in different country. This business flow involves use of
Internal Requisition and Internal Sales Order documents. These transfers
Transfer Price Accounting Page 6
could be at cost to sending Organization or at a ‘Transfer Price’. The
Transfer Price is the selling price and the sending operating unit bills the
receiving operating unit. Thus intercompany receivables and payables are
created at transfer price by this transaction.
� International Drop Shipment of Goods and Services
Drop shipment transaction represents a trading business model wherein
the selling unit does not stock goods and they are delivered directly from
another stocking inventory organization or an External supplier.
Following are two variations of the Drop Shipment business transaction:
o Internal Drop Shipment
This involves supply of goods and services directly by the
stocking operating unit (an entity within oracle implementation)
to the customer. The selling operating unit does not stock the
goods. For example manufacturing in one country and selling
across the globe. The manufacturing unit ships to the customers
directly.
Note: Oracle EBS currently supports shipment from an Internal
Organization (within oracle implementation) to external customer (not under
oracle implementation). It doesn’t support dropshipment from one internal
organization to another internal organization within same Oracle
Implementation. Oracle EBS customers can use Internal Order Flow
functionalityas a workaround.
o External Drop Shipment
This involves supply of goods and services directly by the
external supplier to the external customer. Both the selling
operating unit as well as the procuring operating unit do not
manufacture or stock the goods. For example, pure trading
business models like wholesale distribution, wherein the
distributor (oracle e-business customer) collects orders from
customers and places a purchase order with supplier. The
supplier directly delivers to distributor’s customers.
� Shared Services Procurement or Global Procurement of Goods and
Services
Shared services procurement involves procurement of goods and services
through a Centralized Procurement Unit. This would involve picking up
Transfer Price Accounting Page 7
requisitions from different inventory organizations in the business group
by the central procurement unit and place a consolidated purchase order
with the supplier. The aim is to ensure supply of quality goods and
services at best possible price and at right time.
� Transfer Price Accounting
Both Procurement and Drop shipment transaction requires transparent
accounting in all the business units (Operating units/Inventory
Organizations) involved at appropriate prices (Transfer Price/PO Price).
These transactions may involve routing of intercompany financial
obligations through different group subsidiaries to take advantage of tax
benefits as well as to implement different business strategies. The
functionality in Oracle E-Business Suite is based on the Intercompany
transaction flow framework, which defines the accounting flow and the
pricing policy involved.
Procurement and Drop shipment flows also requires creation of
appropriate business documents for ensuring a smooth business process
and physical movement of goods/services. Accordingly, the Sales Order,
Purchase Order and Purchase Requisition documents have been linked to
establish a document trail and pointers for physical flow of goods and
services.
To summarize Transfer Price accounting is supported for following
business transactions:
� Internal Order Transfers across operating Units – Implemented using
Shipping Network and Intercompany Relations
� Global/Shared Service Procurement - Implemented Using Procurement
Transactions Flow
� Internal Drop shipment – Implemented Using Shipment Flow
� External Drop shipment – Implemented Using Shipment/Procurement
Flow
3) Intercompany Transaction Flow Configuration
Following is the set up requirements in Oracle E-Business Suite for implementing
the described business transactions
Transfer Price Accounting Page 8
� Internal Order Transfers across operating Units – Implemented using
Shipping Network and Intercompany Relations
� Shipping Network with Internal Order Enabled
Define the shipping inventory organization and receiving inventory
organization
Shipping Network
� Profiles Set Up
� CST: Transfer Pricing Option: Yes (Price as
Incoming/Price Not as Incoming)
� INV: Intercompany Invoicing for Internal Orders: Yes
� Intercompany Relations Definition
� Operating unit belonging to sending organization as
‘Shipping OU’
� Operating unit belonging to receiving organization as
‘Selling OU’
� Price List association in ‘Bill To’ relationship in Internal Customer
defined in Intercompany Relations
Intercompany Relations
� International Drop Shipment of Goods and Services - Implemented
Using Shipment/Procurement Transactions Flow
� Financial Flow – Defined Using Transaction Flow
Start OU is Supplier Facing
End OU is Customer Facing/Receiving Org
Intermediate OUs are Accounting Only OUs
Type: Shipment/Procurement
Pricing: Transfer Price for Shipment, Transfer Price/PO Price for
Procurement
Intercompany Transaction Flow
Intercompany Relations
Inter-company Relations Driven Inter Company Invoicing
Old and New Accounting option for shipment flow
� Price List association in ‘Bill To’ relationship in Internal Customer
defined in Intercompany Relations
Transfer Price Accounting Page 9
� Document Flow – Defined Using Transaction Flow and Document
Transaction (PO and SO)
� Physical Flow – Defined Using Transaction Flow and Document
Transaction (PO and SO)
� Global/Shared Service Procurement - Implemented Using Procurement
Transactions Flow
� Financial Flow – Defined Using Transaction Flow
Start OU is Supplier Facing
End OU is Customer Facing/Receiving Org
Intermediate OUs are Accounting Only OUs
Type: Procurement
Pricing: Transfer Price/PO Price
Intercompany Transaction Flow
Intercompany Relations
Inter-company Relations Driven Inter Company Invoicing
� Price List association in ‘Bill To’ relationship in Internal Customer
defined in Intercompany Relations
� Document Flow – Defined Using Transaction Flow and Document
Transaction (PO and SO)
� Physical Flow – Defined Using Transaction Flow and Document
Transaction (PO and SO)
4) Pricing Decision
� Internal Order Transfers across operating Units
Pricing options available are
a. At Cost to Sending Organization
� Profile CST: Transfer Pricing Option defined as ‘No’
b. At Transfer Price
� Profile CST: Transfer Pricing Option defined as ‘Yes,
Price as Incoming Cost’
� Profile CST: Transfer Pricing Option defined as ‘Yes,
Price not as Incoming Cost’
� International Drop Shipment of Goods and Services
a. These transactions are always at ‘Transfer Price’ because all drop ship
transactions are driven by an underlying external sale transaction. The
Transfer Price Accounting Page 10
core purpose being sale, the intra-company transfers are also deemed
as sale.
� Global/Shared Service Procurement
a. These transactions could be at ‘PO Price’ or at ‘Transfer Price’ as
they can be for an underlying demand to stock goods/use for further
manufacture or could be driven by an underlying external sale.
b. Typically ‘PO Price’ may be used if the underlying demand is to stock
goods/use for further manufacture and ‘Transfer Price’ may be used
if the underlying demand is driven by an underlying external sale
� Transfer Price Definition
The ‘Transfer Price’ could either be a ‘Static’ Price or a ‘Formula’ based
price.
a. Static Price is the price defined in the price list associated in ‘Bill To’
relationship in Internal Customer defined in Intercompany Relations
b. ‘Formula’ Based price is application of a ‘Pricing Modifier’ on top of
the ‘Static Price’. The applicability of the modifier is governed by
profile ‘INV: Advanced Pricing Option’. Please refer to white paper
“Intercompany Invoicing and Advance Pricing Integration” detailing
this functionality avaiable in Metalink.
c. Customized APIs could also be used to derive the Price based on the
‘Cost’ in sending organization reflecting the cost based pricing
discussed earlier in this paper.
5) Internal Order Cycle Accounting
a. Transfer at Transfer Price – Inventory Valued at TP
CST: Transfer Pricing Option: 'Yes, Price as incoming cost':
INV: Intercompany Invoice for Internal Orders: Yes
Represents valuation of the transfer @ transfer price in the receiving org
Average Costing
Transaction Sending Org Receiving Org
Internal Order
Shipment (FOB
Shipment)
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Inventory
Dr Intransit Inventory
@ Transfer Price
Cr Accrual
Internal Order
Receipt (FOB
Shipment)
Dr Inventory @
Current Avg Cost
Cr Intransit Inventory
Transfer Price Accounting Page 11
Transaction Sending Org Receiving Org
Internal Order
Shipment (FOB
Receipt)
Dr Intransit @ Current Avg
Cost Inventory
Cr Inventory
Internal Order
Receipt (FOB
Receipt)
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Intransit Inventory
Dr Inventory@ Transfer
Price
Cr Accrual
Standard Costing
Transaction Sending Org Receiving Org
Internal Order
Shipment (FOB
Shipment)
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Inventory
Dr Intransit Inventory
@ Std Cost Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr PPV Account
Internal Order
Receipt (FOB
Shipment)
Dr Inventory @Std
Cost Receiving Org
Cr Intransit Inventory
Internal Order
Shipment (FOB
Receipt)
Dr Intransit @ Std Cost
Inventory
Cr Inventory
Internal Order
Receipt (FOB
Receipt)
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Intransit Inventory
Dr Inventory @ Std
Cost Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr PPV Account
Intercompany Invoicing
Transaction Shipping Operating Unit Selling Operating
Unit
Intercompany AR
Invoice
Dt I/C Receivable @
Transfer Price
Cr I/C Revenue
Intercompany AP
Invoice
Dr Accrual @ Transfer
Price
Cr I/C Payable
Transfer Price Accounting Page 12
b. Transfer at Transfer Price – Inventory Valued at Cost
CST: Transfer Pricing Option: 'Yes, Price not as incoming cost':
INV: Intercompany Invoice for Internal Orders: Yes
Represent valuation of the transfer @ cost of sending org in the receiving
org and the difference between Transfer Price and Cost going into 'Profit
in Inventory' Account defined in shipping network
Average Costing
Transaction Sending Org Receiving Org
Internal Order
Shipment (FOB
Shipment)
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Inventory
Dr Intransit Inventory
@cost to sending org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP – Cost to
sending org)
Internal Order
Receipt (FOB
Shipment)
Dr Inventory @
Current Avg Cost
Cr Intransit Inventory
Internal Order
Shipment (FOB
Receipt)
Dr Intransit @ Current Avg
Cost Inventory
Cr Inventory
Internal Order
Receipt (FOB
Receipt)
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Intransit Inventory
Dr Inventory@cost to
sending org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP – Cost)
Transfer Price Accounting Page 13
Standard Costing
Transaction Sending Org Receiving Org
Internal Order
Shipment (FOB
Shipment)
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Inventory
Dr Intransit Inventory
@Std Cost Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP – Std Cost
in Sending Org)
Dr/Cr PPV Account @
(Std Cost in Sending org –
Std Cost in Receiving Org)
Internal Order
Receipt (FOB
Shipment)
Dr Inventory @Std Cost
Receiving Org
Cr Intransit Inventory
Internal Order
Shipment (FOB
Receipt)
Dr Intransit @ Std Cost
Inventory
Cr Inventory
Internal Order
Receipt (FOB
Receipt)
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Intransit Inventory
Dr Inventory@ Std Cost
Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP – Std Cost
in Sending Org)
Dr/Cr PPV Account @
(Std Cost in Sending org –
Std Cost in Receiving Org)
Intercompany Invoicing
Transaction Shipping Operating Unit Selling Operating
Unit
Intercompany AR
Invoice
Dt I/C Receivable @
Transfer Price
Cr I/C Revenue
Intercompany AP
Invoice
Dr Accrual @ Transfer
Price
Cr I/C Payable
Transfer Price Accounting Page 14
For example say the
� Cost in sending org is USD80
� Transfer Price is USD100
The Accounting Entry in Sending Org will be
Dr Cost of Goods Sold USD 80
Cr InventoryUSD 80
Dr I/C Receivable USD 100
Cr I/C Revenue USD 100
The Accounting Entry in Receiving Org will be
Dr Inventory: USD80
Dr Profit in Inventory USD 20
Cr Inter Org Accrual USD 100
Dr Inter Org Accrual USD 100
Cr I/C Payable: USD 100
6) Profit In Inventory Accounting For Internal Orders Lets elaborate on the implications of scenario CST: Transfer Pricing Option: Yes, Price Not as Incoming Cost Profit in Inventory (PII) account captures the difference between the Transfer Price (TP) and cost in sending org (COSO) and is accounted always in receiving organization. This accounting is required only if there is a need to track the intercompany profits from accounting perspective. Such a need typically arises if the transactions are between group companies and requires consolidation of financial statements. The need for consolidation arises only if there exists a holding- subsidiary relationship or an explicit law requiring consolidation of related entities' financial statements (though not a holding-subsidiary by way of equity stake example.deemed subsidiaries). Therefore PII accounting should ideally be opted if there is a need for consolidation of financial statements. But the downside is that the Inventory valuation in financial statements of Receiving Org/company is deflated. However, the consolidation process is simplified to a great extent as we just need to netout the PII account balance along with I/C sales and I/C COGS using Intercompany Segment.
Transfer Price Accounting Page 15
Ultimately there will be two adjustments involved:
� Receiving organization adjusting its inventory by allocating the PII account
balance on sound business principles based criteria.
Write off the entire balance in PII account to P&L account of receiving company, in which case the inventory valuation would still be deflated, but would reflect true profits. Going by conservative accounting principles, the lower inventory valuation may not reflect an unfair view of financial statements. (OR) Acertain the ratio of COST OF GOODS SOLD (COGS) to CLOSING STOCK (for each intercompany relation) and apportion the PII account balance between these two. The amount allocated to COGS should be written off in P&L account and the amount allocated to Closing Stock should be added to Inventory through a cost update process. This will ensure more accurate profits and inventory valuation for receiving company
� Consolidated financial statements to net out Intercompany Revenue,
Intercompany COGS and PII account using Intercompany Balancing segment without touching the inventory. This way we can leverage oracle consolidation engine.
Margin Analysis report for the Receving company tracking the resale, would show margins based on original cost and not based on the TP. If TP based margin analysis needs to be tracked, PII accounting should not be opted.
Alternatively if the PII accounting is not used i.e CST: Transfer Pricing Option is set to ‘Yes, Price as Incoming Cost’ then inventory valuation is correct from receiving organization perspective. Margin analysis in receiving org too would be correct. But the Consolidation process would suffer. Since there is no explicit accounting, the customer should adopt a manual process to build PII account balance using margin analysis report of sending org and other accounting information. Based on that perform following adjustments:
� Net out the intercompany receivables and Payables in the consolidated
financial statements using intercompany segment
� Adjust the consolidated inventory to the extent of unsold stock using the Manual PII computation again based on sound business principles
7) Currency Option in Intercompany Relations
� ‘Currency Code’ option in intercompany relations is given only if QP: Advanced Pricing profile set to Yes. Again, QP: Advanced Pricing profile set to ‘Yes’ works only for ‘Transfer Price’. The business logic driving this
Transfer Price Accounting Page 16
treatment could be that transfer price is underlined a by sale transaction. So the parties to the transaction should be given an option to select the currency of payment obligation. In case of ‘PO Price’ option, the payment obligation is fixed in the currency of PO. Hence logically currency option need not be supported for PO pricing as purchasing is back-to-back transfer of goods
� But for the combination transfer price option and QP price set to 'No', the currency code option is not extended. The principle underlying the ‘Currency Code’ Option is use of ‘Transfer Price’ for valuing the obligations. Since Transfer Price can be a static price (where QP profile is not used), still the parties to the transactions would like to have option of selecting the currency of payment obligation. So it is ideal to extend ‘Currency Code’ option to all ‘Transfer Pricing’ cases irrespective of QP: 4Advanced Pricing Profile.
8) Generic Accounting Rules for Drop Shipment and Global
Procurement
Old Accounting – This is available Only for Shipment Flows. Accounting will
happen as if goods have come in and gone out. Accounting is restricted to
Receiving Operating Unit (OU). This does not reflect a complete accounting cycle
if Legal Entity/SOBs are crossed. It is not a recommended set up for cross
LE/SOB flows.
New Accounting – These are Logical Financial Events triggered by
Physical/Logical Events. The Logical Events are pure accounting only transactions
and does not touch the inventory.
9) Accounts Used in the Accounting Cycle
OU Clearing Account: This is the wash account used as a substitute to ‘Receiving
Inventory’ Account to route all Logical Receive and Logical Deliver Entries. This
is defined in Receiving Options at Organization Level.
I/C Inventory Accrual - This account is used for passing accrual entries in
Receiving Org for Inventory Destination. This creates the liability towards the
immediately facing sending org. This account is washed at the time of Inter
Company Invoicing. This account is defined in Inter Company Relations form
under 'AP Invoicing for Receiving'
I/C Expense Accrual - This account is used for passing accrual entries in
Receiving Org for Expense Destination. This creates the liability towards the
immediately facing sending org. This account is washed at the time of Inter
Company Invoicing. This account is defined in Inter Company Relations form
under 'AP Invoicing for Receiving'
Transfer Price Accounting Page 17
Inter Company COGS - This account is used for passing the logical shipment
entry in Sending Org. This will override the COGS account defined at different
levels. This account is offset at the time of Financial Statements Preparation.
Inventory AP Accrual Account - This account is used for passing accrual entries
in supplier facing Org for Inventory Destination. This Account is however not
used under Global Procurement and Drop ship Scenarios.
Expense AP Accrual Account - This account is used for passing accrual entries
in supplier facing Org for Expense Destination. This Account is used for PO
created under Global Procurement/Drop Ship irrespective of Destination type in
receiving Org. This is due to the fact that accounting in Supplier facing org is
Destination Neutral.
Inter Company Payable Account - This account is used for creating Inter
Company AP Invoicing Entries.
Inter Company Receivable Account - This account is used for creating Inter AR
Invoicing Entries.
Transfer Price Accounting Page 18
10) Business Flow Accounting Events Matrix Following represents the Accounting Events involved in Drop Shipment and Global Procurement Business Flow of Asset Items
Transfer Price Accounting Page 19
Business Flow User Interface
Event
Start OU
(Supplier Facing)
Intermediate OU End OU
(Customer Facing)
Logical PO Receive Logical I/C
Shipment Receipt
Logical I/C Shipment
Receipt
PO Receipt
Logical I/C Sales
Order Issue
Logical I/C Sales
Order Issue
Logical Sales Order
Issue
Physical RMA Logical I/C Sales
Order Return
Logical RMA
RMA Receipt
Logical I/C
Receipt Return
Logical I/C Receipt
Return
External Drop shipment
using Shipment Flow
RTV Physical RTV
Logical PO Receive Logical I/C
Procurement
Receipt
Logical I/C
Procurement Receipt
PO Receipt
Logical I/C Sales
Order Issue
Logical I/C Sales
Order Issue
Logical Sales Order
Issue
RMA Receipt Physical RMA
Logical RTV Logical I/C Sales
Order Return
Physical RTV
External Drop shipment
with Procurement Flow
RTV
Logical I/C
Procurement
Return
Logical PO Receive Logical I/C
Procurement
Receipt
Physical PO Receipt PO Receipt
Logical I/C Sales
Order Issue
Logical I/C Sales
Order Issue
Logical RTV Logical I/C
Procurement
Receipt
Physical RTV
Global Procurement
Flow
RTV
Logical I/C Sales
Order Issue
External Drop shipment
using Shipment and
Procurement Flow
PO Receipt There will be two legs of transaction flow viz. Procurement and
Shipment. For Procurement Leg, the events mentioned in ‘Global
Procurement’ above are triggered. For Shipment Leg, the events
mentioned in ‘Extenral Drop Shipment using Shipment Flow’ are
triggered.
Transfer Price Accounting Page 20
Business Flow User Interface
Event
Start OU
(Shipping OU)
Intermediate OU End OU
(Customer Facing)
Logical I/C SO
Issue
Logical I/C
Shipment Receipt
Logical I/C Shipment
Receipt
Sales Order
Shipment
Logical I/C Sales
Order Issue
Logical Sales Order
Issue
Physical RMA Logical I/C Sales
Order Return
Logical RMA
Internal Drop shipment
using Shipment Flow –
New Accounting
RMA Receipt
Logical I/C
Receipt Return
Logical I/C Receipt
Return
Internal Drop shipment
using Shipment Flow –
Old Accounting
Internal Order Transfer Sales Order
Shipment
Internal Sales Order
Issue
Not Supported Internal Order
Receipt
Transfer Price Accounting Page 21
11) Accounting Entries for Drop Shipment and Global Procurement
Following represents the Accounting Entries for all accounting events involved in
Drop Shipment and Global Procurement Business Flow of Asset Items
Transaction
Flow
User
Interface
Event
Event
Name/Transa
ction Type
Entry Value
Dr OU Clearing
Cr Supplier Accrual
or I/C Accrual
PO Price for Supplier
Facing OU and TP/PO
Price for Receiving OU
Shipment/Procur
ement
PO Receipt Logical PO
Receive
Dr Inventory
Cr OU Clearing
PO Price for Supplier
Facing OU and TP/PO
Price for Receiving OU
Shipment PO Receipt/
SO Shipment
Logical I/C
Shipment
Receipt
Dr Inventory
Cr I/C Accrual
Transfer Price
Procurement PO Receipt Logical I/C
Procurement
Receipt
Dr Inventory
Cr OU Clearing
Transfer Price/PO Price
Shipment/Procur
ement
PO Receipt/
SO Shipment
Logical I/C
Sales Order
Issue
Dr I/C COGS
Cr Inventory
Shipment – TP
Procurement – TP/PO
Price
Shipment PO Receipt/
SO Shipment
Logical Sales
Order Issue
Dr COGS
Cr Inventory
Transfer Price
Cr OU Clearing
Dr Supplier Accrual
or I/C Accrual
PO Price Shipment/Procur
ement
Return To
Vendor
Logical RTV
Cr Inventory
Dr OU Clearing
PO Price
Shipment/Procur
ement
RMA Receipt Logical I/C
Sales Order
Return
Dr Inventory
Cr I/C COGS
Shipment – TP
Procurement – TP/PO
Price
Shipment RMA Receipt Logical I/C
Receipt Return
Dr I/C Accrual
Cr Inventory
Transfer Price
Procurement Return To
Vendor
Logical I/C
Procurement
Return
Dr OU Clearing
Cr Inventory
PO Price
Transfer Price Accounting Page 22
Transaction
Flow
User
Interface
Event
Event
Name/Transa
ction Type
Entry Value
Dr Receiving
Inventory
Cr Supplier Accrual
or I/C Accrual
PO Price Procurement PO Receipt Physical PO
Receipt
Dr Inventory
Cr Receiving
Inventory
PO Price for Supplier
Facing OU and TP/PO
Price for Receiving OU
Shipment SO Shipment Physical
Shipment
Dr COGS
Cr Inventory
Transfer Price
Shipment RMA Receipt Physical RMA
Dr Inventory
Cr COGS or I/C
COGS
PO Price of the Drop ship
PO
Dr Inventory
Cr COGS
Transfer Price Shipment RMA Receipt Logical RMA
Dr I/C Accrual
Cr Inventory
Transfer Price
Shipment/Procur
ement/Internal
Order
I/C AR
Invoice
Request and
Auto Invoice
Request
I/C AR
Invoice
Dr I/C Receivable
Cr I/C Revenue
Shipment – TP
Procurement – TP/PO
Price
Internal Order – TP/Cost
Shipment/Procur
ement/Internal
Order
I/C AP
Invoice
Request and
Expense
Report
Import
I/C AP Invoice Dr I/C Accrual
Cr I/C Payable
Shipment – TP
Procurement – TP/PO
Price
Internal Order – TP/Cost
Shipment/Procur
ement
Auto Invoice
Request
AR Invoicing Dr Receivables
Cr Revenue
SO Price
Shipment/Procur
ement
Invoices AP Invoicing Dr Accrual Account
Cr AP Payable
Account
PO Price
Transfer Price Accounting Page 23
12) Document Flows
Business Flow PO Document SO Document
External Drop shipment using
Shipment Flow
PO: Start OU, Ship To:
Start OU Org
SO: End OU, Ship From: Start
OU Org
Source Type: External
External Drop shipment with
Procurement Flow
PO: Start OU, Ship To:
End OU Org
SO: End OU, Ship From: End
OU Org
Source Type: External
External Drop shipment using
Shipment and Procurement
Flow
PO: Start OU, Ship To:
End OU Org (in
Procurement Flow)
SO: End OU, Ship From: Start
OU Org (in Shipment Flow)
Source Type: External
Internal Drop shipment using
Shipment Flow
SO: End OU, Ship From: Start
OU Org
Source Type: Internal
Internal Drop shipment using
Global Procurement Flow
PO: Start OU, Ship To:
End OU Org
SO: End OU, Ship From: End
OU Org
Source Type: Internal
Internal Drop shipment using
Shipment and Procurement
Flow
PO: Start OU, Ship To:
End OU Org (in
Procurement Flow)
SO: End OU, Ship From: Start
OU Org (in Shipment Flow)
Source Type: Internal
Global Procurement PO: Start OU, Ship To:
End OU Org
Transfer Price Accounting Page 24
13) Physical Flows
Business Flow Forward Return
External Drop shipment using
Shipment Flow
Supplier to Customer Customer to Supplier Facing OU
Supplier Facing OU to Supplier
External Drop shipment with
Procurement Flow
Supplier to Customer Customer to ‘Shipe From’ org in
Sales Order
‘Shipe From’ org in Sales Order
to Supplier
External Drop shipment using
Shipment and Procurement
Flow
Supplier to Customer Customer to Intermediate
Physical Receiving OU
Intermediate Physical Receiving
OU to Supplier
Internal Drop shipment using
Global Procurement Flow
Supplier to Selling OU
Selling OU to Customer
Customer to Selling OU
Selling OU to Supplier
Internal Drop shipment using
Shipment Flow
Sending OU to Customer Customer to Sending OU
Internal Drop shipment using
Shipment and Procurement
Flow
Supplier to Intermediate
Physical Receiving OU
Intermediate Physical
Receiving OU to Customer
Customer to Intermediate
Physical Receiving OU
Intermediate Physical Receiving
OU to Supplier
Global Procurement Supplier to Receiving OU Receiving OU to Supplier
Transfer Price Accounting Page 25
14) User Interfaces for Validation of Accounting
User Interface
View Receiving Transactions
Summary (PO OU)
To view the Supplier and Intercompany Accrual
Accounting Events
View Material Transaction
(Procuring/Selling/Receiving/
OU)
To View the Logical Inventory Events through Parent
Transaction. The Distributions viewed through Parent
Transaction (Trigerring event) displays the accounting
for all logical events created in the transaction flow
Receiving Account Distribution
Report (PO OU)
To view the Supplier and Intercompany Accruals
Margin Analysis Report To track inter operating unit dropship sales margins
Transfer Price Accounting Page 26
15) Screen Shots
� Shipping Network
Transfer Price Accounting Page 27
� Intercompany Transaction Flow – Shipment
Transfer Price Accounting Page 28
� Intercompany Transaction Flow – Procurement
Transfer Price Accounting Page 29
� Intercompany Relatioships – Shipment
Transfer Price Accounting Page 30
� Intercompany Relatioships – Procurement
16) Additional Reference Resources White Papers a) Overview of Inter Company Invoicing b) Intercompany Invoicing and Advance Pricing Integration User Guides – Release 11i10 a) Cost Management User Guide b) Inventory User Guide c) Purchasing User Guide
Transfer Price Accounting in Oracle SCM
Feb 2006
Author: Shyam Sundar Santhanam, Project Leader, Cost Management Quality Assurance
Special Thanks to Cost Management PM, Development and QA for supporting my work on this paper.
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