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OracleCostManagementUser'sGuide
Release12.1
PartNumberE1363505

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RevenueandCOGSMatching
Thischaptercoversthefollowingtopics:
OverviewofRevenue/COGSMatching
Revenue/COGSRecognitionMethodology
COGSRecognitionandConcurrentProcesses
SupportedBusinessScenarios

OverviewofRevenue/COGSMatching
Financialaccountinghastwoimportantgenerallyacceptedaccountingprinciples(GAAP)thatguidethe
statementoffinancialearnings:
Revenuerecognitionprinciple
Costmatchingprinciple
Therevenuerecognitionprinciplerequiresrevenuestoberecognizedwhenafirmhasperformedall,ora
substantialportionofservicestobeprovided,andcashreceiptisreasonablycertain.Thematchingprinciple
requiresthatcashoutlaysassociateddirectlywithrevenuesareexpensedintheperiodinwhichthefirm
recognizestherevenue.
TheOracleeBusinessSuitesupportsthismatchingprinciplebysynchronizingtherecognitionofcostofgoods
sold(COGS)withtherevenuerecognizedinOracleReceivablesforshipmentsmadeinOracleOrder
Management,orotherorderfulfillmentsystems.Withthisfeature,salesorderrevenueandtheassociatedCOGS
arerecognizedinthesameperiod.Inaddition,whensalesorderrevenueisonlypartiallyrecognized,the
associatedCOGSisrecognizedinthesameproportion.

Revenue/COGSRecognitionProcessFlow
WhenyoushipconfirmoneormoreorderlinesinOracleOrderManagementandthenruntheapplicableCost
Managementcostandaccountingprocesses,thecostofgoodssoldassociatedwiththesalesorderlineis
immediatelydebitedtoaDeferredCOGSaccountpendingtheinvoicingandrecognitionofthesalesorder
revenueinOracleReceivables.WhenOracleReceivablesrecognizesallorpartofthesalesrevenueassociated
withasalesorderline,yourunacostprocessthatcalculatesthepercentageoftotalbilledrevenuerecognized.
OracleInventorythencreatesacostrecognitiontransactionthatadjuststheDeferredCOGSandregularCOGS
amountfortheorderline.TheproportionoftotalshipmentcostthatisrecognizedasCOGSwillalwaysmatch
theproportionoftotalbillablequantitythatisrecognizedasrevenue.
RelatedTopics
RecognizingRevenue,OracleReceivablesUser'sGuide

Revenue/COGSRecognitionMethodology
ThefollowingdescribeshowOracleCostManagementsynchronizestherecognitionofearnedCOGStoearned
salesorderrevenueinavarietyofbusinessscenarios.
1. Revenue/COGSrecognitionmainbusinessflow
Atsalesordershipment,orderlinesarecostedandbookedtoaDeferredCostofGoodsSold
(COGS)account.Thisaccountissubsequentlyadjustedforanychangeinthepercentageofearned
orrecognizedrevenueassociatedwiththesalesorderlines.Thisisdonetoensurethatamountof

earnedCOGSisrecognizedproportionatelyastheamountofearnedrevenue.
Yourunasetofconcurrentprocessestorecordsalesorderandrevenuerecognitiontransactions
andtocreateandcostCOGSrecognitiontransactions.TheseCOGSrecognitiontransactionsadjust
deferredandearnedCOGSinanamountthatsynchronizesthe%ofearnedCOGStoearned
revenueonsalesordershipmentlines.
a. RecordOrderManagementTransactions:recordsnewsalesordertransactionactivitysuchas
shipmentsandRMAreturnsinOracleOrderManagement.
b. CollectRevenueRecognitionInformation:determinesthepercentageofrecognizedorearned
revenuerelatedtoinvoicedsalesordershipmentlinesinOracleReceivables.
c. GenerateCOGSRecognitionEvents:createsandcostsCOGSrecognitioneventsfornewsales
ordershipments/returnsandchangesinrevenuerecognitionandcreditsforinvoicedsales
ordershipmentlines.
COGSrecognitioneventsarecreatedfor:
a. Invoiceableandshippableorderlines
b. Configureditems:invoiceable(parent)lineifithasanyshippablebutnotinvoiceablechildren.
c. Ashippablenoninvoiceablelinethathasnoinvoiceableparent.
ACOGSrecognitioneventgeneratesaCOGSrecognitiontransactionwhosedateandtimestampis
theendofdayasspecifiedintheinventoryorganizationslegalentitytimezone.
ArejectedacceptanceenabledsalesorderlinewillnotinterfacewithOracleReceivablesandOracle
OrderManagement.
AnRMAreceiptwillresultinacredittototalCOGS(splitappropriatelybetweendeferredCOGSand
COGSifnecessary)withadebittoinventory.
2. CustomeracceptanceonlyaffectsCostingindirectly,inthat:
Itisarevenuerecognitioncontingencyforanorderline.
ArejectedsalesorderlinemeansallshippedquantitiesforthatlinewillneverbeinvoicedinA/R.
Whenyouclosethisorderline,OrderManagementflagsthisasanuninvoicedline.Whenthisoccurs,
CostManagementmovesthebalanceofthesalesorderlinefromdeferredCOGStoCOGS.
3. Thereisnoaccountingwhenasalesorderlineisrejected.Costingonlycreatesaccountingwhenthe
rejecteditemsarereceivedandtheneitherdeliveredtoaregularorascrapassetsubinventory.
4. Incustomerdropshipscenarioswithadvancedaccounting,revenue/COGSmatchingoccursonlyinthe
customerfacingorganization.Ifadvancedaccountingisnotenabled,revenueandCOGSmatchingdoes
notoccur.CostingbookstheentiresalesordershipmentamounttoCOGS.

COGSRecognitionandConcurrentProcesses
ThematchingandsynchronizationoftheearnedanddeferredcomponentsofsalesorderrevenueandCOGSis
accomplishedbyrunningthefollowingCOGSrecognitionconcurrentprocessesatuserdefinedintervals:
RecordOrderManagementTransactions
CollectRevenueRecognitionInformation
GenerateCOGSRecognitionEvents

RecordOrderManagementTransactions
TheRecordOrderManagementTransactionsconcurrentprocesspicksupandcostsalluncostedsalesorder

issueandRMAreturntransactionsandcreatesarecordforeachneworderlineinthecostingCOGSrecognition
matchingtable.Thisprocessisnotmandatory.Ifyoudontrunthisprocess,thenthecostprocessorwillselect
andcosttheuncostedsalesorderissuesandinsertthemintheCOGSmatchingtable.Thisprocesscanbeused
ifyouneedtoprocesstheCOGSrecognitiontransactionsatshorterintervalsthanthecostprocessor.
Torecordordermanagementtransactions
1. NavigatetotheRecordOrderManagementTransactionswindow.TheParameterswindowappears.
2. SelectaLedgerfromthelistofvalues.

3. ClickSubmittoruntherequest.

CollectRevenueRecognitionInformation
TheCollectRevenueRecognitionInformationconcurrentprocesscallsanOracleReceivablesAPItoretrievethe
latestrevenuerecognitionpercentageofallinvoicedsalesorderlinesinOraclereceivablesforaspecificledger
andwithactivitydateswithinauserspecifieddaterange.ThisprocessmustberunbeforetheGenerateCOGS
recognitionEventconcurrentprocess.
Tocollectrevenuerecognitioninformation
1. NavigatetotheCollectRevenueRecognitionInformationwindow.TheParameterswindowappears.

2. SelectaLedgertorestrictrevenuerecognitioneventswithinaspecificledger..
3. Thisconcurrentrequesthastwodateparametersthatallowyoutorestrictprocessingofrevenue
recognitioneventstoarangeofdates:
StartDate:Transactionspriortothisdatearenotselected.Thedefaultvalueisthedateofthelast
successfulrunoftheconcurrentrequest.
EndDate:Transactionsafterthisdatearenotselected.
4. ChooseOK.
5. ChooseSubmittoruntherequest.

GenerateCOGSRecognitionEvents
TheGenerateCOGSRecognitionEventsconcurrentrequestcomparestheCOGSrecognitionpercentageforeach
salesorderlineandaccountingperiodcombinationtothecurrentearnedrevenuepercentage.Whenthe
comparedpercentagesaredifferent,theprocessraisesaCOGSrecognitioneventandcreatesaCOGS
recognitiontransactioninOracleInventorythatadjuststheratioofearnedanddeferredCOGStomatchthatof
earnedanddeferredrevenue.YoumustrunthisprocessaftercompletionoftheCollectRevenueRecognition
Informationconcurrentprocess.
TogenerateCOGSrecognitionevents
1. NavigatetotheGenerateCOGSRecognitionEventswindow.TheParameterswindowappears.
2. SelectaLedgerfromthelistofvalues.

3. ClickSubmittoruntherequest.

PeriodCloseConsiderations
EnsurethatthereareopenGLperiodineachledgerfortheperiodsinwhichyouruntheconcurrent
process.
Inperpetualcostingorganizations,youcancreatebackdatedCOGSrecognitioneventsandtransactionsin
openandclosedinventoryperiods.
Inperiodiccostingorganizations,onlyeventsandtransactionsthatarewithinthecurrentperiodicperiods
startandenddateswillbeprocessed.
TheinventoryperiodcloseprocessmustbesynchronizedwithOracleReceivablesperiodclosetoensure
properrecognitionofrevenueandCOGSinanaccountingperiod.
Inperiodiccostingorganizations,youcannotclosetheaccountingperiodifOracleReceivableshasnotsoft
closeditsaccountingperiod.Attemptingtodosogeneratesanerrormessage.Thisconditionensuresthat
allbackdatedrevenuerecognitiontransactionsinOracleReceivablesareprocessedincostingpriorto
periodclose.
Inperiodiccostingorganizations,runtheGenerateCOGSRecognitionEventsconcurrentprocessafterthe
closeofaninventoryaccountingperiodtoensurethatallCOGSrecognitioneventshavebeenprocessed
andcosted.RerunthePeriodicCostProcessorandPeriodicDistributionProcessor.Costingperformsa
validationtoensurethatallorganizationsinaPeriodicAverageCosting(PAC)costgrouphaveno
mismatchedrevenueandCOGSorderlines,andgeneratesanerrormessageifunmatchedlinesarefound.

SupportedBusinessScenarios
Revenue/COGSmatchingissupportedforthefollowingsalesorderbusinessscenarios:
Salesorders:nocustomeracceptance

Salesorders:customeracceptanceenabled
Salesorders:configureditemsATO/PTO

SalesOrders:NoCustomerAcceptance
ThefollowingscenariosillustrateRevenue/COGSmatchingforsalesorderswherecustomeracceptanceisnot
inthebusinessprocessflow.Theunderlyingassumptioninthissetofscenariosisthatownershipistransferred
atthetimeofshipment.TheyapplywhencustomeracceptanceisnotenabledinOracleOrderManagement.
Scenariosinclude:
1. Scenario1:Salesorder/invoicing,RMA,andcreditmemo
2. Scenario2:Alternaterevenueallocationincreditmemo
3. Scenario3:CreditmemobeforeRMA
4. Scenario4:RMAfollowingfullrevenuerecognition
5. Scenario5:Salesorder,multipleRMA's,revenuerecognition,creditmemos
6. Scenario6:RMAnottiedtosalesorder
7. Scenario7:Uninvoicedsalesorder

Scenario1:Salesorder/invoicing,RMA,andcreditmemo
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
Account

Debit Credit

DeferredCOGS

500

Inventory

500

COGS

DeferredRevenue

1000

Receivables

1000

Revenue

Time2Revenuerecognizedat50%inA/R
Account

Debit Credit

DeferredRevenue 500

Revenue

500

COGSaccountingdistributionsareadjustedbasedonthetotalshippedquantity.A/Rflagsthat50percentofthe
revenueforthe10invoicedunitshasbeenrecognized.Costingappliesthesamepercentagetotheregularand
deferredCOGSaccounts.
COGS=500*.50=$250
Account

Debit Credit

COGS

250

DeferredCOGS

250

Time3RMAfor2unitsreceivedintoinventory
TheA/Rearnedrevenuepercentageremainsat50percent.WhenaccountingfortheRMAreceipt,costing

reducesthetotalCOGSbalancesothattheproportionofdeferredtoearnedismaintained.Thevalueofthe
RMAis2x$50=$100.CostingadjuststheearnedanddeferredCOGSaccountsasfollows:
Account

Debit Credit

Inventory

100

COGS

50

DeferredCOGS

50

Atthispointintime,theCOGSaccountbalanceis(500100)x.50or$200,andtheDeferredCOGSaccount
balanceis(500100)x.50or$200
Time4CreditmemocreatedinARrelatedtotheRMAfor2units
A/Relectstodebittheentireamountofthecreditmemointhedeferredrevenueaccountandnothinginthe
earnedrevenueaccount.Thiscanoccurwhenthereisanoutstandingcontingencyonthereturnedunitsandits
assumedthattherevenueonthereturnedunitshadpreviouslynotbeenrecognized.
Account

Debit Credit

DeferredRevenue 200

Receivables

200

Afterthistransaction,totalexpectedrevenueisreducedfrom$1000to$800.Theearned/unearnedrevenue
proportionhaschangedandcostingneedstocreateaCOGSrecognitioneventtokeeptheratioof
earned/deferredCOGSthesameastheratioofearned/unearnedrevenue.
Newearnedrevenuepercentage:$500/($500+$300)=62.5percent
Requiredearned/deferredCOGSpercentages:62.5percent/37.5percent
TotalexpectedCOGSbalancebeforeRMA/creditmemo:$400
Allocatedasfollows:$400x.50=$200earned,$400x.50=$200deferred
TotalexpectedCOGSbalanceafterRMA/creditmemo:$400
Allocatedasfollows:400x.625=$250earned,400x.375=$150deferred
COGSrecognitiontransaction:$50adjustmentfromdeferredtoearnedCOGS
Account

Debit Credit

COGS

50

DeferredCOGS

50

AsthecreditmemoaccountingdistributioninA/Ralteredtheratioofearnedtodeferredrevenue,costingwill
generateaCOGSrecognitionadjustmenttransactionthatkeepstheassociatedearned/deferredCOGSratiothe
sameastherevenueratio.

Scenario2AlternateRevenueAllocationinCreditMemo
Note:Time1toTime3transactionsarethesameasthoseinscenario1.
Time4CreditmemocreatedinA/RrelatedtotheRMAforthese2units
Insteadofapplyingtheentirecreditmemoamounttodeferredrevenue,A/Relectstoapplyitequallytothe
earnedanddeferredrevenueaccounts.
Account

Debit Credit

DeferredRevenue 100

Revenue

100

Receivables

200

Afterthecreditmemoisapplied,costingwillnotcreateaCOGSrecognitiontransactionastheproportionof
earned/deferredCOGSisstillequaltotheproportionofearned/deferredrevenue.
Newearnedrevenuepercentage:$400/($400+$400)=50.0percent
Requiredearned/deferredCOGSpercentages:50.0percent/50.0percent
Previousearned/deferredCOGSpercentages:50.0percent/50.0percent
TotalexpectedCOGSbalancebeforeRMA/creditmemo:$400
Allocatedasfollows:$400x.50=$200earned,$400x.50=$200deferred
TotalexpectedCOGSbalanceRMA/aftercreditmemo:$400
Allocatedasfollows:400x.50=$200earned,400x.50=$200deferred
COGSrecognitiontransaction:none

Scenario3:CreditMemoBeforeRMA
Note:Time1totime2transactionsarethesameasthoseinscenario1.
Time3CreditmemopeggedtooriginatingsalesordercreatedinA/Rfor$200
Account

Debit Credit

DeferredRevenue 100

Revenue

100

Receivables

200

CostingwillnotneedtocreateaCOGSrecognitionadjustmenttransactionasthecreditmemoaccounting
distributiondoesnotchangetheratioofearned/deferredrevenue.

Scenario4:RMAAfterFullRevenueRecognition
Time1Salesorderissue,fullrevenuerecognition:Qty=10,Cost=$50,Price=$100
Whentheitemsareshipped,thefullvalueoftheshipmentisbookedtothedeferredCOGSaccount.
Account

Debit Credit

DeferredCOGS 500

Inventory

500

InA/R,thesalesorderlineisbilledandalloftherevenueisrecognized.
Account

Debit Credit

Receivables 1000

Revenue

1000

CostingcreatesaCOGSadjustmenteventtorecognizethefullamountofCOGSasearned.
Account

Debit Credit

COGS

500

DeferredCOGS

500

Time2RMAfor2unitsreceivedintoinventory
Sincethecurrentratioofearnedtounearnedrevenueis1/0(earned/unearned),costingappliestheentire
amountoftheRMAtotheearnedCOGSaccount.
Account Debit Credit
Inventory 100

COGS

100

ThisRMAcouldhavebeencreatedtoreplaceadefectiveproduct.Asaresult,nocreditmemoisexpectedand
replacementunitsareexpectedtobeshippedatalaterdate.TheexpectedCOGSistemporarilyreducedto
$400pendingtheshipmentofthereplacements.

Scenario5:SalesOrder,MultipleRMAs,RevenueRecognition,CreditMemos
Time1Salesorderissue,fullrevenuerecognition:Qty=10,Cost=$50,Price=$100
Whentheitemsareshipped,thefullvalueoftheshipmentisbookedtothedeferredCOGSaccount.
Account

Debit Credit

DeferredCOGS 500

Inventory

500

InA/R,thesalesorderlineisinvoicedandalloftherevenueisdeferred.
Account

Debit Credit

Receivables

1000

DeferredRevenue

1000

Time2RMAreceiptfor2unitsandcreditmemo
AnRMAfor2unitspeggedtotheoriginatingsalesorderisreceivedintoinventoryandcostingbooksthefull
amountoftheRMAintodeferredCOGS.
Account

Debit Credit

Inventory

100

DeferredCOGS

100

Time3CreditmemoforRMAcreatedinA/R
A/Rcreatesacreditmemotoreducetheexpectedrevenueandcustomerreceivableduetothereturnedunits.
Account

Debit Credit

DeferredRevenue 200

Receivables

200

Asthecreditmemodoesnotchangetheratioofearned/unearnedrevenue,noCOGSrecognitionadjustment
transactionisneededasaresultofthecreditmemo.
Time4RMAnoreceiptfor3unitsandcreditmemo
AnRMAwithnoassociatedreceiptdoesnotgenerateanyaccounting.

AftertheRMAnoreceiptiscreated,A/Rcreatesacreditmemo.Asnorevenueontheassociatedsalesorder
hasyetbeenrecognizedinthisscenario,thefullamountofthecreditmemoisadebittothedeferredrevenue
account.
Note:ThenonreceiptofRMAitemsmayresultintheunderstatementofCOGS.Forfurtherinformation,seethe
SpecialCasesectionneartheendofthischapter.
Account

Debit Credit

DeferredRevenue 300

Receivables

300

Time5Revenuerecognitionat40percentonremaining5units
Theoriginalsalesordershipped10unitstothecustomer,anRMAwithreceiptandcreditreturned2unitsinto
inventory,andanRMAnoreceiptbutwithcreditfor3units(presumablyscrapped)yieldsanexpected
revenue/receivableononly5units.A/Rrecognizes40percentoftheexpectedrevenueonthese5units,
therefore$500x.40or$200ofearnedrevenuemustbebooked.
Account

Debit Credit

DeferredRevenue 200

Revenue

200

AssumingthescraptransactionalternativeinTime4isnotperformed,thetotalexpectedCOGSforthese5units
is$400($500minus$100fortheRMAwithreceipt).CostingcreatesaCOGSrecognitiontransactionto
recognize40percentofthecostontheseunits,whichis$400x.40,or$160.
Account

Debit Credit

COGS

160

DeferredCOGS

160

TorevisitthetopicintroducedatTime5,COGSmaybeunderstatedifyouexpectedtheRMAinstepTime5to
beascrapevent.However,asexplained,youshouldcreateanexplicitscrapbyreceivingtheRMAintoascrap
subinventory.
Time6RMAnoreceiptfor1unitandcreditmemo
AnRMAwithnoassociatedreceiptintoinventorydoesnotgenerateanyaccounting.
AnadditionalRMAnoreceiptwithcreditmemoiscreated.AftertheRMAnoreceiptiscreated,A/Rcreatesa
creditmemoandallocatestheamountentirelytotheunearned(Deferred)revenueaccounts.
Note:ThenonreceiptofRMAitemsmayresultintheunderstatementofCOGS.Forfurtherinformation,seethe
SpecialCasesectionneartheendofthischapter.
Account

Debit Credit

DeferredRevenue 100

Receivables

100

AnadditionalRMAnoreceiptwithcreditmemoiscreated.A/RcreatesacreditmemofortheRMAandallocates
theamountequallybetweentheearnedandunearnedrevenueaccounts.
Atthispointintime,totalexpectedrevenueis$400($1000less$600forthreeRMAs)ofwhich$200or50
percenthasbeenearnedandrecognized.Asthecreditmemochangestheratioofearned/deferredrevenue,
costingcreatesaCOGSrecognitiontransactiontoalignearned/deferredCOGSandrevenue.
Currentearnedrevenuepercentage:$200/($200+$200)=50.0percent.
Requiredearned/deferredCOGSpercentages:50percent/50percent

TotalexpectedCOGSbalancebeforecreditmemo:$400
TotalexpectedCOGSbalanceaftercreditmemo:$400
COGSrecognitiontransaction:$40adjustmentfromdeferredtoearnedCOGS
Account

Debit Credit

COGS

40

DeferredCOGS

40

Asthisscenariodemonstrates,whenyoucreateanRMAwithcreditanddonoreceivetheRMAunitsinto
inventory,thenearnedCOGSwillbeunderstated(anddeferredCOGSoverstated)bytheamountofthe
unreceivedRMAunits.Thisunder/overstatementappliesfromthetimetheRMAcreditisprocessedtothetime
revenueandCOGSarefullyrecognizedandearned.
Forexample,inTime4,thecreditmemoreducesthetotalexpectedrevenueby$300from$800to$500with
theentireamountindeferredrevenue.Hadthe3RMAunitsbeenreceivedintoinventory,totalCOGSwould
havebeenreducedby$150from$400to$250withtheentireamountindeferredCOGS.However,theRMA
unitswerenotreceivedintoinventoryandwerepresumablyscrappedbythecustomer.Asaresultthedeferred
COGSaccountisoverstatedby$150atTime4.
Forfurtherdetails,seetheSpecialCasesectionneartheendofthischapter.

Scenario6:RMANotTiedtoSalesOrder
WhenyouprocessanRMAthatisnottiedorpeggedtoanoriginatingsalesorder,A/Rcannotassociatethe
returneditemstoanyparticularshipmentorcustomerinvoice.Asaresult,previouslyearnedordeferredrevenue
onthereturneditemsisnotchanged.Inthisscenario,costingassumesthatalloftherevenueassociatedwith
thereturnwaspreviouslyrecognizedandcreditstheentireamountoftheRMAintheearnedCOGSaccount.
Account Debit Credit
Inventory 500

COGS

500

Scenario7:UninvoicedSalesOrder
Time1Newsalesorderiscreatedtoship10units,noinvoicingcreated
Whencustomersreturngoods,itiscommonpracticetoexchangereturnedunitswithnewoneswithnocredit
memoforthereturnedunits,andnocustomerinvoiceforthereplacementunits.Whenthereplacementunits
areshippedtothecustomer,asalesorderiscreated.However,noinvoicewillbecreatedforit.Whenthe
replacementsalesorderships,costingdoesnotknowthattheorderwillnotbebilledandaccountsforthe
transactionasaregularthatistobeinvoicedasasalesordershipment.
Account

Debit Credit

DeferredCOGS 500

Inventory

500

Time2Orderisclosed
Noinvoicewillbecreatedfortheshipment,andtheaccountedamountwillremaininthedeferredCOGSaccount
untilthesalesorderlineisclosedinOracleOrderManagement.Theclosingofasalesorderlinewithuninvoiced
itemscreatesanassumptionthatrevenuehasbeenrecognizedoutsideofthenormalprocess,orthatrevenue
willneverberecognized.Ineithercase,costingmovestheuninvoicedamountfromtheDeferredCOGSaccount
toCOGS.

Account

Debit Credit

COGS

500

DeferredCOGS

500

SalesOrders:CustomerAcceptanceEnabled
ThefollowingscenariosillustrateRevenue/COGSMatchingforsalesorderswherecustomeracceptanceisin
thebusinessprocessflow.Theunderlyingassumptioninthissetofscenariosisthatownershipistransferredat
thetimeofshipment.TheyapplywhencustomeracceptanceisnotenabledinOracleOrderManagement.
Scenariosinclude:
Scenario1Salesorder,acceptance,invoicing,revenuerecognition,RMA,creditmemo
Scenario2Salesorder,RMAreplacement,acceptance,invoicing,preinvoicingacceptance
Scenario3Salesorder,invoicing,RMAreceiptwithcredit,rejection,RMAnoreceiptwithcredit,post
invoicingacceptance
Scenario4Salesorder,rejection
Scenario5Uninvoicedsalesorder

Scenario1SalesOrder,Acceptance,Invoicing,RevenueRecognition,RMA,
CreditMemo
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
WhencustomeracceptanceisenabledforasalesorderinOracleOrderManagement,revenuerecognitionmust
bedeferreduntiltheacceptanceisreceivedandrecorded.
Account

Debit Credit

DeferredCOGS 500

Inventory

500

Time2Customeracceptstheentireshipment
Noaccounting
Time3Customerbilledfortheentirequantity
Oncecustomeracceptanceisreceivedandrecorded,A/Rcreatesacustomerinvoiceandthependingreceivable.
Account

Debit Credit

Receivables

1000

DeferredRevenue

1000

Time4Revenuerecognitionof50percent
Revenueonthecustomeracceptancesalesorderis50percentrecognized.Thiscanoccurwhencontract
contingenciesorotherrevenuerecognitionrulesrequirepartialrecognition.
Account

Debit Credit

DeferredRevenue 500

Revenue

500

Withthe50percentrecognitionofsalesorderrevenue,costingcreatesaCOGSrecognitiontransactionthat
moves50percentofthesalesordershipmentcostfromthedeferredtoearnedCOGSaccount.

Account

Debit Credit

COGS

250

DeferredCOGS

250

Time5RMAfor2unitsreceivedintoInventory
Thecustomerreturns2unitsthatarereceivedintoinventory.TheRMAreferencestheoriginatingsalesorder
linesonwhich50percentoftherevenuehasbeenrecognized.CostingallocatestheRMAamountequally
betweenthedeferredandearnedCOGSaccounts.
Account

Debit Credit

Inventory

100

DeferredCOGS

50

COGS

50

Time6CreditmemocreatedforRMAfor2units
A/RelectstodebittheentireRMAamountinthedeferredrevenueaccount.Contractcontingenciesorother
revenuerecognitionrulesdeterminewhetherRMA/creditmemosforshipmentswhoserevenuehasnotbeenfully
recognizedwillreduceearnedordeferredrevenue.
Account

Debit Credit

DeferredRevenue 200

Receivables

200

Theallocationofthecreditmemoamounttothedeferredrevenueaccountchangesthepriorratioof
earned/deferredrevenue.Asaresult,costingcreatesaCOGSrecognitiontransactiontorealignthe
earned/deferredportionsofCOGSandrevenue.
Newearnedrevenuepercentage:$500/($500+$300)=62.5percent
Requiredearned/deferredCOGSpercentages:62.5percent/37.5percent
Previousearned/deferredCOGSpercentages:50.0percent/50.0percent
TotalexpectedCOGSbalancebeforeRMA/creditmemo:$500
Allocatedasfollows:$500x.50=$250earned,$500x.50=$250deferred
TotalexpectedCOGSbalanceafterRMA/creditmemo:$400
Allocatedasfollows:400x.50=$200earned,400x.500=$200deferred
COGSallocationrequired:400x.625=$250earned,400x.375=$150deferred
COGSrecognitiontransaction:$50adjustmentfromdeferredtoearnedCOGS
Account

Debit Credit

COGS

50

DeferredCOGS

50

Scenario2SalesOrder,RMAReplacement,Acceptance,Invoicing,Pre
invoicingAcceptance
Time1SalesorderissueOrder#1:Qty=10,Cost=$50,Price=$100
SalesOrder1isshippedtoacustomersubjecttocustomeracceptance.

Account

Debit Credit

DeferredCOGS 500

Inventory

500

Time2RMAfor4unitsonSalesOrder1
Customerreturns4unitsofsalesorderandthesearereceivedintoinventory.
Account

Debit Credit

Inventory

200

DeferredCOGS

200

Time3SalesordershipmentofreplacementsunitsonSalesOrder2
SalesOrder2iscreatedandreplacementitemsareshippedtocustomer.
Account

Debit Credit

DeferredCOGS 200

Inventory

200

Time4SalesOrder2isclosed
Thissalesorderwascreatedtoshipreplacementitemstothecustomer.Salesorderlineswillnotbeinvoicedas
replacementsareprovidedtothecustomeratnocostasagestureofgoodwill.Whenthesalesorderisclosed,
costingmovesthecostoftheshippeditemsfromthedeferredtoearnedCOGSaccount.
Account

Debit Credit

COGS

200

DeferredCOGS

200

Time5Acceptanceandinvoicingof10unitsonSalesOrder1
Thecustomersendsacustomeracceptancenotificationforthe10unitsinsalesorder1,andA/Rinvoicesthe
customerfortheseunits.
Account

Debit Credit

Receivables

1000

DeferredRevenue

1000

Atthispointintime,theproportionofearned/deferredinrevenueandCOGSarenolongerthesame.The
transactionflowgenerated$1000indeferredrevenueandonly$300indeferredCOGS.TheclosingofSales
Order2inthepreviousstepreducedthedeferredaccountby$200andbookedthisamounttoearnedCOGS.
Note:InordertokeeptheCOGSaccountsproperlysynchronizedwiththerevenueaccountswhenthe
transactionsspanmultipleaccountingperiods,amanualjournalentrymaybeneededthatreversesthe
accountinggeneratedbythereplacementorder(SalesOrder2).ThisadjustmentincreasestheDeferredCOGS
accountbalanceto$500andreducestheearnedCOGSaccountbalancetozerowhichexactlysynchronizeswith
therevenueaccounts.
Account

Debit Credit

DeferredCOGS 200

COGS

200

Time6Revenuerecognitionof50percentSalesOrder1

A/Rrecognizes50percentofthe$1000revenueforSalesOrder1.
Account

Debit Credit

DeferredRevenue 500

Revenue

500

Withthe50percentrecognitionofsalesorderrevenue,costingcreatesaCOGSrecognitiontransactionthat
moves50percentofthe$300costofSalesOrder1fromthedeferredtotheearnedCOGSaccount.
Account

Debit Credit

COGS

150

DeferredCOGS

150

Atthispointintime,theproportionofearned/deferredinrevenueandCOGSisnolongerthesame.The
transactionflowgenerated$500/$500or50percentinearned/deferredrevenue,andtheearned/deferredCOGS
accountbalancesforthecombinedordersare$150/$350
Important:InordertokeeptheCOGSaccountsproperlysynchronizedwiththerevenueaccountswhenthe
transactionsspanmultipleaccountingperiods,amanualGLjournalentryisneededtoincreasetheearnedCOGS
forthecombinedordersto$250.
Account

Debit Credit

COGS

100

DeferredCOGS

100

Thisadjustmentresultsinearned/deferredCOGSaccountbalancesof$100/$100or50percentforSalesOrder
2to$100,and$250/$250or50percentforthecombinedorders.
Thisprocedureisrequiredifyouwanttosynchronizerevenue/COGSmatchingacrossanoriginatingsalesorder
withanRMA,andanassociatedunbilledreplacementsalesorderwhosecostisrecognizedwhentheorderis
closed.
Iftheaccountingimpactisnotmaterialorthetransactionflowdoesnotcrossaccountingperiods,analternative
accountingapproachistoforegothemanualGLjournalentries.ThiswillresultintheearlyrecognitionofCOGS
forunbilledreplacementordersandareducedrecognitionofCOGSinsubsequentperiodsontheoriginating
salesorder.

Scenario3:SalesOrder,Invoicing,RMAReceiptWithCredit,Rejection,RMAno
ReceiptWithCredit
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
Asalesorderisshippedtocustomersubjecttocustomeracceptance.
Account

Debit Credit

DeferredCOGS 500

Inventory

500

Time2Customerbilledfortheentirequantity
A/Rcreatesaninvoicethatbillsthecustomerforthesalesordershipment.
Account

Debit Credit

Receivables

1000

DeferredRevenue

1000

Time3Revenuerecognitionof50percent
WhencustomeracceptanceisenabledforasalesorderinOracleOrderManagement,revenuerecognitionmust
bedeferreduntiltheacceptanceisreceivedandrecorded.Theattempttorecognizerevenuefails.
Time4RMAreceiptwithcreditfor2units,receivedintoinventory
Thecustomerreturns2unitsforcreditthatarereceivedintoinventory.
Account

Debit Credit

Inventory

100

DeferredCOGS

100

Time5CreditmemocreatedforRMAfor2units
A/Rcreatesacreditmemoandtheentireamountisallocatedtodeferredrevenuebecausenorevenuehas
beenrecognized.
Account

Debit Credit

DeferredRevenue 200

Receivables

200

Note:NoCOGSrecognitiontransactionisneededbecausethereisnochangeinproportionofearned/deferred
revenue.
Time6Salesordershipmentisrejectedbycustomer
Noaccounting.
Time7RMAfor4unitsintoscrapsubinventory
AnRMAfor4unitsisreceivedintoascrapassetsubinventoryforinspectionandsubsequentdisposal.
Account

Debit Credit

ExpenseSubinventory 200

DeferredCOGS

200

Note:Youmustsetupascrapassetsubinventorysothataspecifiedscrapexpenseaccountischargedupon
RMAreceipt.

Scenario4:SalesOrderRejection
Time1Salesorderissue:Qty=10,Cost=$50,Price=$100
Asalesorderisshippedtothecustomerandissubjecttocustomeracceptance.
Account

Debit Credit

DeferredCOGS 500

Inventory

500

Time2Customerrejectsthesalesordershipment
Thecustomerrejectsthesalesordershipmentanddoesnotreturntherejecteditemsbecausethesewillbe
scrappedatthecustomersite.ThesalesorderlineisclosedandcostingcreatesaCOGSrecognitiontransaction
torecordtheearnedcost.
Account

Debit Credit

COGS

500

DeferredCOGS

500

Scenario5:UninvoicedSalesOrder
Onorderswherecustomeracceptancehasbeenenabled,youcannotcloseasalesorderlineuntilthelineis
accepted.Oncethesalesorderlineisaccepted,thetransactionflowandaccountingisthesameassalesorders
wherecustomeracceptancehasnotbeenenabled.See:UninvoicedSalesOrder.

SalesOrders:ConfiguredItemsPTO/ATO
OracleCostManagementsupportstheallocationofitemcostbetweenearnedanddeferredCOGSforAssemble
toOrder(ATO)andPicktoOrder(PTO)items.Revenue/COGSsynchronizationforconfigureditemsisachieved
bymatchingashipped,costedlinetotheinvoiceablelinethatitmostcloselyrelatesto.Iftheshippedlineis
invoiced,thentherevenuerecognitionscheduleforthatlinedrivesCOGSrecognition.Iftheshippedlineisnot
invoiced,thenCOGSforthatlinewillbedrivenbytherevenuerecognitionforthenearestinvoicedlinethatit
rollsupto.
Youcansynchronizerevenue/COGSforthefollowingtypesofconfigureditems:
Kit(PTOwithoutoptions)
ATOmodel
PTOmodel
PTOmodelwithimbeddedATOmodel

Scenario1:Kit(PickToOrderItemWithoutOptions)
Akitisagroupedsetofitemsthataresoldtogetherasaunitandinwhichtherearenooptionalitems.ABOM
isusedtodefinethekitscomponents.IntheOracleeBusinessSuite,salesorders,pricelists,andinvoicesare
createdandmanagedatthekitlevel.However,ordershipmentsandshipmentcostsaremanagedatthe
includeditemlevel.ThefollowingexampleillustrateshowrevenueandCOGSaresynchronizedafterthe
shipmentofakit.
KititemK1iscomposedoftwoincludeditems,AandB.ItemsAandBareshippedbutonlyK1isinvoiceable.

ShipModelComplete
Whenakitisshippedwithallofitsincludeditems,adeferredCOGStransactioniscreatedforeachofthe
shippable,costeditems.Inthisexample,theseareitemsAandB.WhenA/Rinvoicesandrecognizesrevenue
forkitK1,costingfirstperformsachecktodeterminewhetherallofthekitsitemshavebeenshipped.Inthis
example,ifthekitisshipmodelcomplete,costingcreatesaCOGStransactionforitemAanditemBwhich
resultsintherecognitionofearnedCOGSforAandBthatisproportionaltotheearnedrevenueforkitK1.
NonshipModelComplete
Nonshipmodelcompleteoccurswhenyouinvoicethekit,butshiponlypartoftheincludeditemsthatmakeup
thekit.Forexample,itemAisshippedandthemodelisinvoicedbeforeBisshipped.Whenrevenueis
recognized,costingonlycreatesaCOGSrecognitiontransactionfortheshipmentlinewithitemA.Onlywhen
itemBissubsequentlyshippedwillcostingapplytheearnedrevenuepercentageit.

Scenario2:AssembleToOrder(ATO)Model
AnAssembletoOrder(ATO)modelisaconfigurationthatismanufacturedorassembledinresponsetoa
customerorderthatincludesbothmandatoryandoptionalitems.TheATOmodeliscreatedusingamodelbillof
materialwithincludedandoptionalitemsandoptionselectionrules.Itisconfiguredduringtheentryofa
customerorderandmaybeshippedtothecustomercompleteorinstagedshipments.
IntheOracleeBusinessSuite,itstheATOmodelanditsoptionalitemsthatareordered,priced,andinvoiced.
However,itstheconfigureditem(staritem)thatgetsshippedandcosted.
ThefollowingdiagramillustratesanATOmodelthatisdefinedbyabillofmaterialandroutingthatproducesa
modelwitharolledupcost,andoptionalitemsO1andO2.Duringsalesorderconfiguration,theATOmodelisa
mandatoryorderlineselectionwhileoneorbothoftheoptionalitems(O1andO2)canbeselected.The
configureditemATO*isshipped.However,itstheATOmodel(anditsincludeditems)O1andO2thatare
invoiced.

Scenario3:PickToOrder(PTO)Model
APicktoOrder(PTO)modelisaconfigurationthatisfulfilledinthewarehouseinresponsetoacustomerorder
thatincludesbothmandatoryandoptionalitems.ThePTOmodeliscreatedusingamodelbillofmaterialwith
includedandoptionalitems,andoptionselectionrules.Itisconfiguredduringtheentryofacustomerorder,
pickedandfulfilledinthewarehouse,andmaybeshippedtothecustomercompleteorinstagedshipments.
IntheOracleeBusinessSuite,itsthePTOmodelanditsoptionalitemsthatareordered,priced,andinvoiced.
However,anycombinationofthemodelline,includeditems,andoptionalitemscanbeshippedandcosted.
ThefollowingdiagramillustratesaPTOmodelitemthatiscomposedofincludeditemsAandB,optionalitem
O1,andoptionclassOCwithincludeditemCandoptionalitemO2.PTOmodelscanbeshippedcompleteorin
stageswithmultipleshipments,dependingontheavailabilityofthemodelsspecifieditems.
Forexample,allofthemodelsitems(PTOModel,A,B,O1,andO2)areshipped(optionclassesarenot
shippableorcostingenabled).WhenA/Rinvoicesthecustomerfortheconfiguredmodel,onlythreeoftheitems
areinvoiced(PTOModel,O1andO2).ItemsAandBareincludeditemsinthemodelandarenotpricedor
invoicedseparately.ModeloptionChasnopriceandisnotinvoiceable.AllitemsexceptoptionclassOCare
costed.

Whenthesixsalesorderlinesareshipconfirmed,costingraisesaCOGSrecognitioneventforeachshipment
lineandbookstheitemcostintoadeferredCOGSaccount.WhenA/RinvoicesandrecognizesrevenueforPTO
ModelandoptionsO1andO2,costingappliestherevenuerecognitionpercentagetothecosteditemsand
recordsearnedCOGSforthoseitems.Incaseswhereamodelitemisnotinvoiceable,therevenuerecognition

percentageofthenearestparentitemisused.

Scenario4:PTOModelWithEmbeddedATOModel
APTOmodelmayhaveoneormoreATOmodelsdefinedinitsBillofMaterial.Forexample,PTOModel2is
composedofincludeditemsAandBandoptionalitemsATO2andC2.Inthisexample,PTO2,A,B,ATO2*and
C2areshipped,butPTO2,ATO2anditsoptionsandC2areinvoiced.

Thisisnodifferentthanthepreviousexample.TheATOisjustanothershippablelinethatmusthavethe
percentageappliedwhenitispassedfromARforthetopmodel.

DropShipmentsandIntercompanyAccounting
Forinternaldropshipmentstocustomers,CostManagementonlysynchronizesrevenueandCOGSinthe
customerfacingOperatingUnit(OU)whenadvancedaccountingisenabled.Revenue/COGSsynchronizationis
notperformedinthenoncustomerfacingoperatingunits.
Forasalesorderissueoutoftheshippingoperatingunitandotherintermediateoperatingunits,the
intercompanyCOGSisnotdeferred.Theapplicationappliestheentirecostoftheshipmentinallofthenon
bookingoperatingunitstoIntercompanyCOGSandintercompanyrevenue.

Time1SalesorderissueinBookingOUfromShipOU:Qty=10,Cost=$50,Price=$75
AninternalorderiscreatedinthebookingOU(customerfacingOU)andshippeddirectlytothecustomerfrom
theshippingOU.Anintermediateoperatingunitispartofthetransactionflow.Theinternaltransferpriceis$75
inalloperatingunits.
Account

Debit Credit

IntercompanyCOGS(ShippingOU) 500

Inventory(ShippingOU)

500

DeferredCOGS(BookingOU)

750

Inventory(BookingOU)

750

ExternalDropShipment(fromSuppliertoCustomer)
Inexternaldropshipmentscenarioswhereshipmentsaremadedirectlyfromthesuppliertothecustomer,
intercompanyrevenueandCOGSarefullyrecognized.TherevenueandCOGSdeferralstakeplaceonlyinthe

customerfacingbookingoperatingunit.

ASpecialCaseRMAwithnoReceipt
IfyouneedtoimmediatelyrecognizethescrappingofphysicallynonreceivedRMAitems,Oraclerecommends
thatyoucreateanRMAwithreceipt,andthenperformavirtualreceiptoftheunreceivedintoanasset
subinventorydesignatedasascrapinventory.Thevaluationaccountforthissubinventorycanbesetuptopoint
toascrapvaluationorexpenseaccountsotheRMAreceiptisimmediatelyrecognizedaseitheranimpaired
assetorarealizedscrapexpense.
IfyourbusinessneedsmandatethatyouprocesstheunreceivedRMAitemsasanRMAnoreceipt,thenthe
deferredCOGSassociatedwiththeoriginatingsalesordershipmentwillbeoverstatedandthescrappingor
disposalofreturnedunitswillnotbebookedtoascraporotherdesignatedexpenseaccount.Once
revenue/COGSarefullyrecognized,theearnedCOGSaccountforthesalesordershipmentwillincludethecost
oftherejected,unreceivedRMAunits.
Ifthiscostneedstobereclassifiedasascrap/loss/disposalexpense,thenyoucancreateamanualGLjournal
entrytotransferRMAnoreceiptamountsfromdeferredCOGStoadesignatedexpenseaccount.

OtherSpecialCases
CashandCarry
Thephysicalflowforcashandcarrysalesorderstypicallyincludespicking,staging,andshipmentactivities.
Goodscanbepickedupinawarehouseorshowroombythecustomer,andpaidincash.However,thesales
orderlinesareshipconfirmedandasalesorderissuetransactioniscreatedinthesamewayasanoncash
salesorder.CashandcarrysalesordersareinterfacedwithOracleReceivablesthatinvoicesthesalesorderand
recognizesrevenueasearned.
Whenthesalesorderissuetransactioniscreated,theaccountingflowisthesameasthatofregularnoncash
salesorders.ThesalesorderissueamountischargedtothedeferredCOGSaccountandtransferredtoearned
COGSwhenarevenuerecognitioneventisreceivedfromOracleReceivables.
RMAReceiptafterStandardCostUpdate
WhenyouperformanRMAreceiptforanitemwhichreferencestheoriginatingsalesorder,OracleCost
ManagementlooksupthecostoftheitematthetimeofshipmentandcreditstheCOGSaccountforthat
amount.Iftheorderisshippedfromastandardcostingmethodorganizationandyouhaveperformeda
standardcostupdateontheitemaftertheitemshipped,butpriortotheRMAreceipt,thenthedifference
betweenshippedandupdatedcostiscreditedtothedeferredCOGSaccountdebitedatshipment.
Forexample,anitemisshippedatacostof$100,astandardcostupdatechangesthecostto$110,andan
RMAreceiptisperformed.Revenueonthisitemhasnotbeenrecognized.Inthisscenario,theaccountingentries
areasfollows:
Accountingwhentheitemships:
Account

Debit Credit

DeferredCOGS 100

Inventory

100

ThenanRMAreceiptisperformed:

Account

Debit Credit

Inventory

110

DeferredCOGS

100

StandardCostUpdateAdjustment

10

Note:TheCOGSaccountdefinedintheOrganizationParameterswindowwillbeusedfortheStandardCost
UpdateAdjustmentaccount.

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