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February 12, 2016

2/12/2016 10:40:00 AM

As most of you know that till release 11i, the value of good shipped is expense  to COGS when the material in ship confirmed in shipping and revenue will get recognized after the invoices are generated in AR and revenue recognition is done. The problem that accountants face with this design is that on the last day of month COGS gets recognized when we ship confirm the material but invoice gets generated in next month and so revenue gets recognized in different month.
In other words

After ship confirm, user run the interface trip stop (ITS).
ITS in turns run the OM Interface and Inventory Interface.
Inventory Interface calls Inventory transaction manager which in turns call COGS Workflow.
But as per new practices COGS should be recognized along with the revenue.

This does not look good from the matching principle which requires the revenue and cost should get recognized in the same period.

The deferred COGS account is the new feature introduced in Release 12. The key fundamental behind the feature is that the COGS is now directly matched to the Revenue. In simple terms, this means, COGS for an order line will be recognized only if the revenue is recognized for that line making sure that the revenue and COGS are posted in the same month. Matching percentage is also taken care which ensures that revenue and cost are always in sync.
i.e During shipping process Inventory tables will hold the deferred COGS accounts. Only after invoicing has done in AR, AR will notify the Costing and Costing in turns call the COGS account generator to get the  cogs account .In that way COGS and revenue will be recognized in the same period.

In R12 used need to define deferred cogs account. These deferred cogs account can be defined at each inventory org level.


NEW ACCOUNTING:

Release 12 :

When a Sales order is shipped the following accounting takes place:

Inventory Valuation Account : Credit.
Deferred COGS account : Debit

Once the revenue is recognized, you would need to decide the percentage you wish to recognize the Revenue. A COGS recognition transaction will be created to reflect a change in the revenue recognition percentage for a sales order line.

The steps to generate such transactions are as follows:
1. Run the Collect Revenue Recognition Information program. This program will collect the change in revenue recognition percentage based on AR events within the user specified date range.
2. Run the Generate COGS Recognition Events. This program will create the COGS recognition
transaction for each sales order line where there is a mismatch between the latest revenue recognition percentage and the current COGS recognition percentage.

Note that users can choose how often they want to create the COGS Recognition Events.

Navigation to run the COGS recognition request :
- Cost > COGS Recognition > Collect Revenue Recognition Information
- Cost > COGS Recognition > Generate COGS Recognition Events
- Cost > View Transactions > Material Transactions


The distribution for the COGS Recognition transaction associated with the Sales Order transaction now would be as follows:

deferred  COGS : Debit y revenue percentage
COGS : Credit (Actual revenue percentage )

Thus, essentially the recognized COGS balance is to move the value from Deferred COGS to COGS.

This particular COGS recognition transaction actually correspond to a revenue recognition percentage change.

You can view the transactions as :
Navigation:
- Cost > View Transactions > Material Transactions > Distributions

A new 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

Query:
select ooha.order_number
from oe_order_lines_all oola,
mtl_material_transactions  mmt,
gmf_xla_extract_headers gxeh,
oe_order_headers_all ooha
where  oola.line_id=mmt.source_line_id
and  mmt.TRANSACTION_ID=gxeh.TRANSACTION_ID
and  to_char(OOHA.creation_date,'MON-YYYY')='JAN-2016'
 
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