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 couldn’t 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

Debit Credit
Sales Order Issue COGS Inventory

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

Matching principle.

Debit Credit
Sales Order Issue DCOGS(36) Inventory (1)
COGS Recognition COGS(35) 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)
Questions & Answers

Q. Can we close the Inventory period without running

the COGS recognition concurrent programs? If not,
what prevents it?

A. If you are using perpetual Costing Method

"Standard", "Average", "Layer" then the inventory
period can be closed prior COGS recognition
process. If you are using PAC then the "Collect
Revenue" and "AR period" needs to be closed prior
PAC period close.
Questions & Answers

Q. Why there is a Balance in DCOGS Account even

after running the 3 concurrent Programs ?

A. You need to recognize the revenue from AR and

then run Collect Revenue Recognition Information &
Generate COGS Recognition Events programs.
If COGS event/transaction exists but still having
balance then check whether COGS is recognized fully
or not. Also verify whether cogs event/transaction is
costed or not.
Questions & Answers

Q. Why does COGS Recognition Transaction have ‘0’

as transaction quantity?

A. Symptom:-
Sales Order Line has non-zero quantity but COGS
is showing zero quantity.

Explanation:-
If RMA exists before COGS Recognition then
COGS Recognition transaction quantity
= Sales Order issue quantity - RMA quantity.
Thank You