Transfer Price Accounting in

Oracle SCM
An Oracle White Paper
Feb 2006
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

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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

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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

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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

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 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

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 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

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 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

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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

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 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 Dr Cost of Goods Sold Dr Intransit Inventory
Shipment (FOB (COGS) @ Current Avg Cost @ Transfer Price
Shipment) Cr Inventory Cr Accrual
Internal Order Dr Inventory @
Receipt (FOB Current Avg Cost
Shipment) Cr Intransit Inventory

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Transaction Sending Org Receiving Org
Internal Order Dr Intransit @ Current Avg
Shipment (FOB Cost Inventory
Receipt) Cr Inventory
Internal Order Dr Cost of Goods Sold Dr Inventory@ Transfer
Receipt (FOB (COGS) @ Current Avg Cost Price
Receipt) Cr Intransit Inventory Cr Accrual

Standard Costing
Transaction Sending Org Receiving Org
Internal Order Dr Cost of Goods Sold Dr Intransit Inventory
Shipment (FOB (COGS) @ Std Cost @ Std Cost Receiving Org
Shipment) Cr Inventory Cr Accrual @ Transfer
Price
Dr/Cr PPV Account
Internal Order Dr Inventory @Std
Receipt (FOB Cost Receiving Org
Shipment) Cr Intransit Inventory
Internal Order Dr Intransit @ Std Cost
Shipment (FOB Inventory
Receipt) Cr Inventory
Internal Order Dr Cost of Goods Sold Dr Inventory @ Std
Receipt (FOB (COGS) @ Std Cost Cost Receiving Org
Receipt) Cr Intransit Inventory Cr Accrual @ Transfer
Price
Dr/Cr PPV Account

Intercompany Invoicing

Transaction Shipping Operating Unit Selling Operating

Unit
Intercompany AR Dt I/C Receivable @
Invoice Transfer Price
Cr I/C Revenue
Intercompany AP Dr Accrual @ Transfer
Invoice Price
Cr I/C Payable

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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 Dr Cost of Goods Sold Dr Intransit Inventory
Shipment (FOB (COGS) @ Current Avg Cost @cost to sending org
Shipment) Cr Inventory Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP – Cost to
sending org)
Internal Order Dr Inventory @
Receipt (FOB Current Avg Cost
Shipment) Cr Intransit Inventory
Internal Order Dr Intransit @ Current Avg
Shipment (FOB Cost Inventory
Receipt) Cr Inventory
Internal Order Dr Cost of Goods Sold Dr Inventory@cost to
Receipt (FOB (COGS) @ Current Avg Cost sending org
Receipt) Cr Intransit Inventory Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP – Cost)

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Standard Costing
Transaction Sending Org Receiving Org
Internal Order Dr Cost of Goods Sold Dr Intransit Inventory
Shipment (FOB (COGS) @ Std Cost @Std Cost Receiving Org
Shipment) Cr Inventory 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 Dr Inventory @Std Cost
Receipt (FOB Receiving Org
Shipment) Cr Intransit Inventory
Internal Order Dr Intransit @ Std Cost
Shipment (FOB Inventory
Receipt) Cr Inventory
Internal Order Dr Cost of Goods Sold Dr Inventory@ Std Cost
Receipt (FOB (COGS) @ Std Cost Receiving Org
Receipt) Cr Intransit Inventory 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 Dt I/C Receivable @
Invoice Transfer Price
Cr I/C Revenue
Intercompany AP Dr Accrual @ Transfer
Invoice Price
Cr I/C Payable

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 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.

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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

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 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'

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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.

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10) Business Flow Accounting Events Matrix

Following represents the Accounting Events involved in Drop Shipment and

Global Procurement Business Flow of Asset Items

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Business Flow User Interface Start OU Intermediate OU End OU
Event (Supplier Facing) (Customer Facing)
External Drop shipment PO Receipt Logical PO Receive Logical I/C Logical I/C Shipment
using Shipment Flow Shipment Receipt Receipt
Logical I/C Sales Logical I/C Sales Logical Sales Order
Order Issue Order Issue Issue
RMA Receipt Physical RMA Logical I/C Sales Logical RMA
Order Return
Logical I/C Logical I/C Receipt
Receipt Return Return
RTV Physical RTV

External Drop shipment PO Receipt Logical PO Receive Logical I/C Logical I/C
with Procurement Flow Procurement Procurement Receipt
Receipt
Logical I/C Sales Logical I/C Sales Logical Sales Order
Order Issue Order Issue Issue
RMA Receipt Physical RMA
RTV Logical RTV Logical I/C Sales Physical RTV
Order Return

Logical I/C
Procurement
Return
Global Procurement PO Receipt Logical PO Receive Logical I/C Physical PO Receipt
Flow Procurement
Receipt
Logical I/C Sales Logical I/C Sales
Order Issue Order Issue
RTV Logical RTV Logical I/C Physical RTV
Procurement
Receipt
Logical I/C Sales
Order Issue
External Drop shipment PO Receipt There will be two legs of transaction flow viz. Procurement and
using Shipment and Shipment. For Procurement Leg, the events mentioned in ‘Global
Procurement Flow Procurement’ above are triggered. For Shipment Leg, the events
mentioned in ‘Extenral Drop Shipment using Shipment Flow’ are
triggered.

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Business Flow User Interface Start OU Intermediate OU End OU
Event (Shipping OU) (Customer Facing)
Internal Drop shipment Sales Order Logical I/C SO Logical I/C Logical I/C Shipment
using Shipment Flow – Shipment Issue Shipment Receipt Receipt
New Accounting Logical I/C Sales Logical Sales Order
Order Issue Issue
RMA Receipt Physical RMA Logical I/C Sales Logical RMA
Order Return
Logical I/C Logical I/C Receipt
Receipt Return Return
Internal Drop shipment
using Shipment Flow –
Old Accounting
Internal Order Transfer Sales Order Internal Sales Order Not Supported Internal Order
Shipment Issue Receipt

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 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 User Event Entry Value

Flow Interface Name/Transa
Event ction Type
Shipment/Procur PO Receipt Logical PO Dr OU Clearing PO Price for Supplier
ement Receive Cr Supplier Accrual Facing OU and TP/PO
or I/C Accrual Price for Receiving OU
Dr Inventory PO Price for Supplier
Cr OU Clearing Facing OU and TP/PO
Price for Receiving OU
Shipment PO Receipt/ Logical I/C Dr Inventory Transfer Price
SO Shipment Shipment Cr I/C Accrual
Receipt
Procurement PO Receipt Logical I/C Dr Inventory Transfer Price/PO Price
Procurement Cr OU Clearing
Receipt
Shipment/Procur PO Receipt/ Logical I/C Dr I/C COGS Shipment – TP
ement SO Shipment Sales Order Cr Inventory Procurement – TP/PO
Issue Price
Shipment PO Receipt/ Logical Sales Dr COGS Transfer Price
SO Shipment Order Issue Cr Inventory
Shipment/Procur Return To Logical RTV Cr OU Clearing PO Price
ement Vendor Dr Supplier Accrual
or I/C Accrual
Cr Inventory PO Price
Dr OU Clearing
Shipment/Procur RMA Receipt Logical I/C Dr Inventory Shipment – TP
ement Sales Order Cr I/C COGS Procurement – TP/PO
Return Price
Shipment RMA Receipt Logical I/C Dr I/C Accrual Transfer Price
Receipt Return Cr Inventory
Procurement Return To Logical I/C Dr OU Clearing PO Price
Vendor Procurement Cr Inventory
Return

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Transaction User Event Entry Value
Flow Interface Name/Transa
Event ction Type
Procurement PO Receipt Physical PO Dr Receiving PO Price
Receipt Inventory
Cr Supplier Accrual
or I/C Accrual
Dr Inventory PO Price for Supplier
Cr Receiving Facing OU and TP/PO
Inventory Price for Receiving OU
Shipment SO Shipment Physical Dr COGS Transfer Price
Shipment Cr Inventory
Shipment RMA Receipt Physical RMA Dr Inventory PO Price of the Drop ship
Cr COGS or I/C PO
COGS
Shipment RMA Receipt Logical RMA Dr Inventory Transfer Price
Cr COGS
Dr I/C Accrual Transfer Price
Cr Inventory

Shipment/Procur I/C AR I/C AR Dr I/C Receivable Shipment – TP

ement/Internal Invoice Invoice Cr I/C Revenue Procurement – TP/PO
Order Request and Price
Auto Invoice Internal Order – TP/Cost
Request
Shipment/Procur I/C AP I/C AP Invoice Dr I/C Accrual Shipment – TP
ement/Internal Invoice Cr I/C Payable Procurement – TP/PO
Order Request and Price
Expense Internal Order – TP/Cost
Report
Import
Shipment/Procur Auto Invoice AR Invoicing Dr Receivables SO Price
ement Request Cr Revenue
Shipment/Procur Invoices AP Invoicing Dr Accrual Account PO Price
ement Cr AP Payable
Account

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 12) Document Flows

Business Flow PO Document SO Document

External Drop shipment using PO: Start OU, Ship To: SO: End OU, Ship From: Start
Shipment Flow Start OU Org OU Org
Source Type: External
External Drop shipment with PO: Start OU, Ship To: SO: End OU, Ship From: End
Procurement Flow End OU Org OU Org
Source Type: External
External Drop shipment using PO: Start OU, Ship To: SO: End OU, Ship From: Start
Shipment and Procurement End OU Org (in OU Org (in Shipment Flow)
Flow Procurement Flow) Source Type: External
Internal Drop shipment using SO: End OU, Ship From: Start
Shipment Flow OU Org
Source Type: Internal
Internal Drop shipment using PO: Start OU, Ship To: SO: End OU, Ship From: End
Global Procurement Flow End OU Org OU Org
Source Type: Internal
Internal Drop shipment using PO: Start OU, Ship To: SO: End OU, Ship From: Start
Shipment and Procurement End OU Org (in OU Org (in Shipment Flow)
Flow Procurement Flow) Source Type: Internal
Global Procurement PO: Start OU, Ship To:
End OU Org

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 13) Physical Flows

Business Flow Forward Return

External Drop shipment using Supplier to Customer Customer to Supplier Facing OU
Shipment Flow
Supplier Facing OU to Supplier
External Drop shipment with Supplier to Customer Customer to ‘Shipe From’ org in
Procurement Flow Sales Order
‘Shipe From’ org in Sales Order
to Supplier

External Drop shipment using Supplier to Customer Customer to Intermediate

Shipment and Procurement Physical Receiving OU
Flow Intermediate Physical Receiving
OU to Supplier
Internal Drop shipment using Supplier to Selling OU Customer to Selling OU
Global Procurement Flow Selling OU to Customer
Selling OU to Supplier
Internal Drop shipment using Sending OU to Customer Customer to Sending OU
Shipment Flow
Internal Drop shipment using Supplier to Intermediate Customer to Intermediate
Shipment and Procurement Physical Receiving OU Physical Receiving OU
Flow
Intermediate Physical Intermediate Physical Receiving
Receiving OU to Customer OU to Supplier
Global Procurement Supplier to Receiving OU Receiving OU to Supplier

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 14) User Interfaces for Validation of Accounting

User Interface
View Receiving Transactions To view the Supplier and Intercompany Accrual
Summary (PO OU) Accounting Events
View Material Transaction To View the Logical Inventory Events through Parent
(Procuring/Selling/Receiving/ Transaction. The Distributions viewed through Parent
OU) Transaction (Trigerring event) displays the accounting
for all logical events created in the transaction flow
Receiving Account Distribution To view the Supplier and Intercompany Accruals
Report (PO OU)
Margin Analysis Report To track inter operating unit dropship sales margins

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15) Screen Shots

Shipping Network

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Intercompany Transaction Flow – Shipment

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Intercompany Transaction Flow – Procurement

Transfer Price Accounting Page 28


Intercompany Relatioships – Shipment

Transfer Price Accounting Page 29


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

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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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