2009 Oracle Corporation Proprietary and Confidential

Cost Management Advisor Webcast

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<Insert Picture Here>

COGS Workflow and Troubleshooting

Feedback/ Comments to:
Divya Sudhakaran divya.sudhakaran@oracle.com
Ramya Balasubramanian ramya.x.balasubramanian@oracle.com

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2010 Oracle Corporation Proprietary and Confidential

<Insert Picture Here>

COGS Workflow and Troubleshooting

Feedback/ Comments to:
Divya Sudhakaran divya.sudhakaran@oracle.com
Ramya Balasubramanian ramya.x.balasubramanian@oracle.com

AGENDA

Definitions
Principles
COGS Workflow and Dataflow
Troubleshooting
Diagnostics

DEFINITIONS
Revenue
The gross inflow of economic benefits (cash, receivables, other assets)
arising from the ordinary operating activities of an entity (such as sales
of goods, sales of services, interest, royalties, and dividends). [IAS 18.7]
Cost Of Goods Sold (COGS)
The amount determined by subtracting the value of the ending
merchandise inventory from the sum of the beginning merchandise
inventory and the net purchases for the fiscal period.
COGS = Opening Stock + Purchases + Direct Expenses
Closing Stock Stock Unused for trading
COGS= Sales Gross Profit

Matching Principle
All of the expenses incurred in generating revenue should be matched
with the revenue generated, period by period.
Account Receivable
A current asset representing money due for services performed or
merchandise sold on credit.

PRINCIPLES
US GAAP matching principle requires matching of revenues and
expenses in the period when they are earned and incurred.
IAS 18 requires that - Revenues and related expenses must be
matched. If future related expenses couldnt be measured
reliably, revenue recognition should be deferred.
Business Requirements to be considered
COGS and Revenue should be recognized in the same period.
If revenue or costs of sales recognition is deferred then corresponding cost of sales or
revenue should be deferred as well and recognized in the accounting period when the initial
deferral is recognized.

Revenue and COGS should be recognized proportionally.

Revenue may only be partially recognized due to partial acceptance. Only that portion of
COGS that corresponds to the recognized revenue should itself be recorded.

Revenue reversal should result in COGS reversal.

Revenue recognition can be undone (rolled back) in which case the COGS corresponding to
the portions of rolled-back revenue should be likewise credited.

ACCOUNTING for COGS in R11 and R12

Sales Order Issue transaction is created in MTL_MATERIAL_TRANSACTIONS
when Sales Order is Ship Confirmed.
In 11i, The accounting for

Sales Order Issue

Debit
COGS

Credit
Inventory

In R12, concept of Deferred COGS is introduced to support Revenue/COGS

Matching principle.

Sales Order Issue

COGS Recognition

Debit
DCOGS(36)
COGS(35)

Credit
Inventory (1)
DCOGS(36)

COGS, DCOGS WORKFLOW

Revenue / COGS Recognition Process Flow:1.Sales order has to be booked.
2.Pick Release the SO and Ship Confirm.
3.Sales order Issue.
4.Review Sales Order Issue transactions and Source and destination
transactions in the Material Transactions form.
5.Run the Workflow Background Process request.
6.Create the Invoice with the Auto invoice request.
7.Check the Invoice in AR.
8.Recognize the revenue in AR.
9.After recognizing the revenue, accept it.
10.Run the following 3 Programs from Cost Management SLA.
Record Order Management Transactions.
Collect Revenue Recognition Information.
Generate COGS Recognition

SETUP

DATAFLOW Sales Order Creation

Event type 1 in cst_cogs_events signifies sales order issue

If Revenue Recognition is not run, the account_set_flag in

table ra_cust_trx_line_gl_dist_all will be Y.
Once Revenue Recognition is run, It changes to N as below

Record Order Management Transactions

If the Sales order issue transactions/ RMA Return

transactions remain uncosted, then The Record Order
Management Transactions concurrent program can
be executed, which picks up these transactions and
inserts rows in Cogs events and Cogs Revenue
Matching Tables to enable remaining programs
(Collect Revenue Recognition Information and
Generate COGS Recognition) to complete.
This process is not mandatory if the transactions are
already costed.

COLLECT REVENUE RECOGNITION INFORMATION

Once Collect Revenue Recognition is run, a row gets

inserted in the cst_revenue_recognition_lines table
with potentiallly_unmatched_flag as Y

GENERATE COGS RECOGNITION EVENTS

Cst_cogs_events will have a event_type of 3 and

cogs_percentage of 1 which denotes COGS recognition
after the Generate COGS recognition program is run

The potentiallly_unmatched_flag in
cst_revenue_recognition_lines table becomes NULL

COGS Revenue Matching Report

COGS Revenue Matching Report shows the revenue
and COGS information of sales order that fall within
the user specified date range by sales order line.

Return Material Authorization(RMA)

When the goods are returned by the customer to the

supplier, then it is called as RMA Receipt.
With respect to COGS and DCOGS Accounting
Entries for RMA, there are 2 Scenarios which can be
explained as follows.

Scenario I:1) Create a Sales Order Line and Ship the line. Cost
the Sales Order issue transaction.
2) DO Revenue Recognition and run Collect Revenue
Recognition Information program.
3) Run Generate COGS Recognition Events program.
4) Do RMA against the Sales Order created in step-1.
5) Do RMA Receipt and cost this RMA also.
Here RMA will hit COGS and Inventory accounts and
COGS Recognition event will have the full Sales
Order line quantity.

Scenario II:1) Create a Sales Order Line and Ship the line. Cost
the Sales Order issue transaction.
2) DO Revenue Recognition and run Collect Revenue
Recognition Information program.
3) Create a RMA against the Sales Order created in
step-1 and do RMA Receipt and cost the transaction.
4) Now run Generate COGS Recognition events
program.
Here COGS Recognition event will have qty =
(salesorder line qty - RMA line qty) and RMA hits
Inventory and DCOGS Accounts.

Diagnostics COGSDIAG.SQL

How to Use COGSDIAG.sql

---------------------------------------Execute COGSDIAG.sql for any Sales Order you wish
to troubleshoot using 'Run Script' command (or) run
individual queries as per requirement.
The SQL returns rows for all tables related to COGS
Recognition from OM, AR, Inventory and Costing.
COGS Dataflow and Diagnostics [Video] (Doc ID
1307906.1)

Acknowledgements
Vamshikrishna Katakam -Cost Management
Development
NOTES:
867912.1 - COGS Workflow
COGS AND DCOGS RECOGNITION ACCOUNTING
USEFUL TIPS (Doc ID 1060202.1)
COGS/ Deferred COGS common problems (Doc ID
1314335.1)
Internal Troubleshooting Tips for Revenue
Recognition Unprocessed Transactions (Doc ID
562584.1)

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