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


.

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


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


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


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.


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


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


� 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


Inter-company Relations Driven Inter Company Invoicing

Old and New Accounting option for shipment flow




� Document Flow – Defined Using Transaction Flow and Document

Transaction (PO and SO)

� Physical Flow – Defined Using Transaction Flow and Document


� 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


Inter-company Relations Driven Inter Company Invoicing



� Document Flow – Defined Using Transaction Flow and Document


� Physical Flow – Defined Using Transaction Flow and Document


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’


a. These transactions are always at ‘Transfer Price’ because all drop ship

transactions are driven by an underlying external sale transaction. The


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



Internal Order

Shipment (FOB

Receipt)

Dr Intransit @ Current Avg

Cost Inventory

Cr Inventory

Internal Order

Receipt (FOB

Receipt)




Dr Inventory@ Transfer

Price

Cr Accrual

Standard Costing


Internal Order

Shipment (FOB

Shipment)


(COGS) @ Std Cost

Cr Inventory


@ Std Cost Receiving Org

Cr Accrual @ Transfer

Price

Dr/Cr PPV Account

Internal Order

Receipt (FOB

Shipment)

Dr Inventory @Std

Cost Receiving Org


Internal Order

Shipment (FOB

Receipt)

Dr Intransit @ Std Cost

Inventory

Cr Inventory

Internal Order

Receipt (FOB

Receipt)


(COGS) @ Std Cost


Dr Inventory @ Std

Cost Receiving Org


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


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


Internal Order

Shipment (FOB

Shipment)



Cr Inventory


@cost to sending org


Price

Dr/Cr Profit in

Inventory (TP – Cost to

sending org)

Internal Order

Receipt (FOB

Shipment)

Dr Inventory @

Current Avg Cost


Internal Order

Shipment (FOB

Receipt)

Dr Intransit @ Current Avg

Cost Inventory

Cr Inventory

Internal Order

Receipt (FOB

Receipt)




Dr Inventory@cost to

sending org


Price

Dr/Cr Profit in

Inventory (TP – Cost)


Standard Costing


Internal Order

Shipment (FOB

Shipment)


(COGS) @ Std Cost

Cr Inventory


@Std Cost Receiving Org


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


Internal Order

Shipment (FOB

Receipt)

Dr Intransit @ Std Cost

Inventory

Cr Inventory

Internal Order

Receipt (FOB

Receipt)


(COGS) @ Std Cost


Dr Inventory@ Std Cost

Receiving Org


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


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.


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


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'


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.


10) Business Flow Accounting Events Matrix Following represents the Accounting Events involved in Drop Shipment and Global Procurement Business Flow of Asset Items


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


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


with Procurement Flow

RTV

Logical I/C

Procurement

Return


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


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.


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


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


Facing OU and TP/PO


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


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


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


Facing OU and TP/PO


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


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


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


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


End OU Org

SO: End OU, Ship From: End

OU Org



Shipment and Procurement

Flow


End OU Org (in

Procurement Flow)


OU Org (in Shipment Flow)


Internal Drop shipment using

Shipment Flow


OU Org

Source Type: Internal


Global Procurement Flow


End OU Org

SO: End OU, Ship From: End

OU Org




Flow


End OU Org (in

Procurement Flow)


OU Org (in Shipment Flow)


Global Procurement PO: Start OU, Ship To:

End OU Org


13) Physical Flows

Business Flow Forward Return


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



Flow

Supplier to Customer Customer to Intermediate

Physical Receiving OU

Intermediate Physical Receiving

OU to Supplier


Global Procurement Flow

Supplier to Selling OU

Selling OU to Customer

Customer to Selling OU

Selling OU to Supplier


Shipment Flow

Sending OU to Customer Customer to Sending OU



Flow

Supplier to Intermediate


Intermediate Physical

Receiving OU to Customer

Customer to Intermediate


Intermediate Physical Receiving

OU to Supplier

Global Procurement Supplier to Receiving OU Receiving OU to Supplier


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


15) Screen Shots

� Shipping Network


� Intercompany Transaction Flow – Shipment


� Intercompany Transaction Flow – Procurement


� Intercompany Relatioships – Shipment


� 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.

Oracle India

Cybergateway

Hyderabad, India

[email protected]

Worldwide Inquiries:

Phone: +1.650.506.7000

Fax: +1.650.506.7200

www.oracle.com

Oracle is a registered trademark of Oracle Corporation. Various

product and service names referenced herein may be trademarks

of Oracle Corporation. All other product and service names

mentioned may be trademarks of their respective owners.

Copyright © 2006Oracle Corporation

All rights reserved.

Documents

Transfer Price Accounting in Oracle SCM