COGS vs DCOGS - Few important points

COGS vs DCOGS - Few important points

What are COGS & DCOGS ?

The purpose of this document is to explain how COGS Recognition works on Create Accounting engine.

There is no Deferred COGS functionality in 11i, this functionality was introduced in R12 to be compliant with the Sarbanes-Oxley legislation, hence before R12 there is no Cogs Recognition process. In 11i a sales order issue will be costed hitting the COGS account directly hence there is no Cogs recognition process, the normal accounting template for Sales order issue (no intercompany) will be Debit Cogs and Credit the Inventory valuation from where the item is being issued from.

 

QUESTIONS AND ANSWERS

1 - When does an RMA debit  inventory and credit  DCOGS account?
A. RMA has created after COGS Recognition. So RMA debits inventory and credits COGS account. If RMA happens before COGS Recognition then RMA debits inventory and credits DCOGS account.

2 - Why there is no accounting for COGS recognition?
A. There is no accounting for COGS recognition because it has zero quantity.
Reason :- Customer has created RMA against this Sales Order Line.

3 - No COGS Recognized (COGS will never be recognized as there is no reference to the original invoice). Why?
A.  COGS recognition is designed to match with AR revenue recognition.If you don't have an invoice yet but only a credit memo, what would be the percentage of revenue recognized from AR?
Ej:
The COGS recognition is not going to happen at the individual RMA level, it is at the order line level that has been shipped.
Say you have debited the Deferred COGS for the original shipment at $100, then you have credited the Deferred COGS for the RMA receipt at $40. The net Deferred COGS is $60, so far so good. After the credit memo and invoice have gone through, what matters at this point of time is how much net percentage of revenue is recognized from AR for this order line. Suppose a 50% revenue recognized, then a distinct COGS recognition transaction is going to be created that will credit deferred COGS at $30 and debit COGS at $30. The accounting of original shipment and RMA transactions would not change, but the additional COGS recognition transaction will make the order line's recognized COGS to be matched with recognized revenue.

4 - Why Inter company COGS account is not working after completing mandatory setup?
A. There is a difference between the internal order flow and drop shipment or global procurement flow. The intercompany COGS account defined in the Inter-company Relations form is only used in drop shipment and global procurement flows. For internal order flows, the account is driven by the Inventory Cost of Goods Sold Account workflow. In default, the workflow process uses the item COGS account, but the user can configure the process to use any other account.

Other references:
Note 747638.1 - R12 Where To Define Inventory Cost Of Goods Sold Account Workflow
Transfer Price Accounting in Oracle SCM, Feb 2006 (Note 360106.1).

5 - How to diagnose missing COGS Recognition events?
A. Checking whether the COGS events are costed is easy, you just verify mmt.costed_flag. Checking whether COGS events are created is more functional and less simple. You can use the R12 Revenue COGS matching report to find out whether the result is expected. If the expected COGS recognition percentage does not match Revenue percentage, there could be a potential problem.

6 - Can we close the Inventory period without running the
COGS recognition concurrent programs? If not, what prevents it? If so,
what are the entries that are created when the recognition is run the
following month and the inventory period for the current month is
closed?
A. If the customer is using perpetual Costing Method "Standard", "Average", "Layer" then the inventory period can be closed prior COGS recognition process. If the customer is using PAC then the "Collect Revenue" and "AR period" needs to be closed prior PAC period close.

7 - How to derive COGS Account Cost Center using Salesperson Value from Sales Order form in Order Management thru SLA?
A. Looking at gmf_xla_extract_headers, for the OM issue from stores transaction, the transaction_id on that row points to a row in mtl_material_transactions and the column source_line_id in that table points to the line_id in oe_order_lines_all.

8 - Why when generating  Accounting--the COGS , accounting does not follow the Revenue Accounting for the Receivable Invoices?
A. COGS account in Oracle EBS is driven and derived from Order Management COGS account generator workflow. If you need help for that workflow, contact Order Management team.

9 - Is there a way for Cost Management SLA (Subledger Account) to utilize the same sources as the AR SLA?
A. Right now, there is no built-in cross reference of sources in SLA between Receivables and Cost Management. There are two options for the customer:
a - Inside SLA, build a few custom sources for Cost Management Application that the customer is using for Receivables.
b - Even though the deferred COGS account is a fixed organization parameter, the true COGS account is derived from Order Management COGS Account Workflow. That is well-known in 11i and the functionality remains in R12. The logic can be mimicked inside the workflow.

10 - Trying to generate Deferred COGS but instead the Inventory Accrual account appears on the Inter-company AP invoice. How can they get this to be a deferred accrual account?
A. There is only deferred COGS, no such a thing called deferred accrual. To do the drop shipment right, you need to set up the transaction flow and inter-company relations with advanced accounting, not the shipping network setup.

When the setup is right, you would get one physical transaction out of OU2, one logical transaction for OU2, and two logical txns for OU1. The logical sales order issue transaction of OU1 will hit deferred COGS account. The deferred COGS will be transformed into true COGS after you run the COGS recognition programs. As for the inter-company AP invoice, it should use the intercompany accrual account defined in the inter-company relations form. There is no concept of deferred accrual.

Please see  Inventory documentation about transaction flow setup and Cost Management User's Guide on Revenue and COGS Matching for more details.

11 - COGS account is going 100% into the account instead of getting deferred into 5 groups. Our revenue accounting rule splits the revenue into 5 deferred periods and we expect the COGS to do the same. I ran the 3 programs under Cost Management (Resp.) -> COGS accounting and the Material Distributions is still going 100% into a single account, instead of creating 5 records for 20% each in each period.  Why?
A: For a given sales order shipment, it always goes to 100% deferred COGS at first. Then after you run those programs for each period and assuming AR passes the right percentage of revenue recognition, we will move from deferred COGS to COGS accordingly. For example, at period 1, if AR says 20% revenue recognized, then you then programs and you will have 80% deferred COGS and 20% COGS. And at period 2, if AR says now 40% revenue recognized, you run the programs and you will have net 60% deferred COGS and 40% COGS.

12 - After the COGS generation program is run, COGS entry can be viewed from Material Transactions Distribution screen in Inventory. The COGS account is wrong as the workflow was not updated.  How to change the cogs account after it is generated?
A. The COGS entry is recorded in material distribution, sub-ledger accounting (SLA) and general ledger. There is no way to go back to re-cost or re-account for old transactions. Practically speaking, the best way is to manually adjust them inside GL and move forward with the correct accounting for new transactions.

13 - How to use COGS Account Relationship to Advanced Pricing?
A. n order to get it working, both profile options INV:Inter-company Invoice for Internal Orders and CST: Transfer Pricing Option must be set to Yes at site level. Cost manager is at global level, there is no support at responsibility level. Please study the following white papers:

- Transfer Price Accounting in Oracle SCM, Feb 2006 (Note 360106.1)
- Overview of Inter-company Invoicing, July 2005 (Note  336129.1)
- Inter-company Invoicing and Advance Pricing Integration, May 2002  (Note 733873.1)

14 - RMA Receipt transaction does not credit actual Cogs Account. Why?
A. This is intended behavior in R12.

For RMA receipt Transaction with reference to original Sales Order document will create below accounting distribution:
Dr.Inv
      Cr.Deferred COGS
There will be separate COGS Adjusting entries created for the COGS Adjustment based on the COGS Recognition percentage.
Dr./Cr.COGS
     Cr./Dr.DCOGS

For RMA receipt Transaction without any reference to Sales Order document will create below accounting distribution:
Dr.Inv
    Cr.COGS
This will result in balanced journal entries.

15 - Sales Orders are for a single customer, linked to a single sales rep, and can contain an item A which, depending on the usage at sales order lines level, has to be linked to two distinct business lines.
Thus the same item used in the same order and in 2 sales order lines has to generate revenue account and cogs accounts linked to 2 distinct business lines. How this can be achieved ? Can we use the order line type for this ? Impacts on the AR and COGS auto-accounting ?

A. COGS and revenue accounts are not built the same way.

For revenue account, the auto-accounting allows to default your business line segment from the bill to site, the transaction type (AR one, not the OM one), the sales rep or the product. If the product is not the single driver for your business line segment value, does one of these other values could be used ? If not, it means the value will have to be corrected manually in the invoice, or a custom to be built depending on customer rules. For the COGS, it's generated by the account generator workflow, this can be customized to default the value expected by the customer.

17 - Can we "Turn Off" DCOGS in Release 12.0.x ?

A. Deferred COGS and Revenue-COGS matching are mandatory new features in R12 to help customers be legal-compliant. There is no standard way to support disabling this best-practice feature set.

18 - Why is COGS charged to the incorrect GL account?

A. COGS account is stamped as MMT's (MTL_MATERIAL_TRANSACTIONS table) distribution account, and it is driven by the Order Management Cost of Goods Sold Account workflow. Customers can configure the workflow process to achieve their business needs based on item types.

19 - In 11.5.10.x  mtl_material_transactions table and locator_id field was used to get information on inventory charged to projects. In R12 locator_id field is blank, how to find?

A. In EBS release 12.x.x COGS is a logical transaction --not a material transaction as 11.5.10.x.
     COGS transactions will not have project and locator information.

20 - Can COGS Recognition transactions created in a closed inventory period?

A. Refer Oracle Cost Management User Guide ->Revenue and COGS Matching ->Period Close Considerations Here its clearly mentioned that COGS Recognition transactions can be created in Closed Inventory Period. If the GL period is closed then COGs Recognition events/transactions will be created in next open GL period.

COGS PROCESSES:
------------------------------
- Record Order Management Transactions
- Collect Revenue Recognition Information
- Generate COGS Recognition Events
Related Reports:
----------
- Material Distribution Detail report
- COGS Revenue Matching report 

Some few other Links from oracle Support :

REFERENCES

NOTE:867912.1 - COGS and DCOGS Workflow
NOTE:360106.1 - Transfer Price Accounting in Oracle SCM
NOTE:549688.1 - Deferred COGS Is Not Hit When Intercompany Shipment Is Done
NOTE:733873.1 - Intercompany Invoicing (Chapter 19: R12 Inventory User's Guide in a Note)
NOTE:747638.1 - How To Define Inventory Cost Of Goods Sold Account Workflow?
NOTE:1307906.1 - COGS Dataflow and Diagnostics [Video]

Order Management Setups : Document Sequence

Let's have a look at one of the important setup in Order Management i.e. Document Sequence. To define your custom sequence for different documents like sales order, sales agreement in Order Management we use the document sequencing. Let's define Order Sequence for Transaction type "Test Car Orders".

There are four setups steps for the same

1) Define Profile Option "Sequential Numbering" as "Always" at site level

There are three options for this profile values

Always Used: You may not enter a document if no sequence exists for it.
Not Used: You may always enter a document.
Partially Used: You will be warned, but not prevented from entering a document, when no sequence exists.

2) Define Document Sequences

Navigate: OM>Setups>Shipping>Documents>Document Sequences

 Document Sequence

Here,
a) Give a name to your order Sequence,
b) Select Applications as : Order Management
c) Select effective dates
d) Type: Choose as Automatic.
e) Select a Initial Value. Lets take it as 2500 in our case.
f) Save your work

For Type, there are three options
Automatic: System will automatic assign the sequence and you can not enter the document number
Manual : You need to enter the document sequence number
Gapless: Some time for audit and legal purposes you need to set the order numbering as Gap less. Here system will prevent you to delete the order where you have selected the method as Gap less

3) Define Document Categories

You can create a document category for shipping documents such as a packing slip, bill of lading and assign it to a location or all locations.

But for for new transaction types, a new document category gets created automatically with same Name

4) Assign Document Sequence

After defining document sequences and categories, we need to assign document sequences to document categories.

 Assign Document Sequence

a) Select Application as Order Management
b) As already stated, transaction type is "Test Car orders". we will create new orders for this transaction type and will see the numbering for the same
c) Ledger: Vision Operations
d) Method: This the method of entering the documents. This is Optional

Automatic: if you are using some interface to create documents, then this numbering will take affects
Manual: manual way of entering the sales order then this will take effect


Now move to second Tab: Assignment

e) Give Start and end dates
f) Assign the document sequence created in the Second Step : Car Orders
g) Save Your Work

This Completes The setup Part. Now test case

Test Case for Document Sequence

Step 1) Create a new order type as "Test Car Orders" and save the headers




You see the Order number Started from 2500 as we have defined in our setups

Descriptive Flexfields in Oracle Apps

Overview of Flexfields:

A flexfield is a field made up of sub–fields, or segments. There are two types of flexfields: key flexfields and descriptive flexfields.

Key Flexfields:

A Key flexfield is a field made up of segments, where each segment has both a value and a meaning, which appears on your form as a normal text field with an appropriate prompt.

One example of a key flexfield is the Accounting Flexfield. This flexfield can always be customized to have as many segments as needed like Company, Department, Cost center, Account etc.

Descriptive flexfields:

Descriptive flexfields lets you add additional fields to the form in order to track additional information needed by the business that would not be captured by the standard form. Descriptive flexfields can be context sensitive, where the information your application stores depends on other values your users enter in other parts of the form.

A descriptive flexfield appears on a form as a single–character, unnamed field enclosed in Square Brackets [ ]. Each field or segment in a descriptive flexfield has a prompt and can have a set of valid values

Descriptive Flexfield Concepts:

Descriptive flexfields have two different types of segments, global and context–sensitive.

A global segment is a segment that always appears in the descriptive flexfield pop–up window.

A context–sensitive segment is a segment that may or may not appear depending upon what other information is present in your form.

A descriptive flexfield can get context information from either a field somewhere on the form, or from a special field (a context field) inside the descriptive flexfield pop–up window. If the descriptive flexfield derives the context information from a form field (either displayed or hidden from users), that field is called a reference field for the descriptive flexfield.

A descriptive flexfield uses columns that are added on to a database table. A descriptive flexfield requires one column for each possible segment and one additional column in which to store structure information (that is, the context value). The descriptive flexfield columns are usually named ATTRIBUTEn where n is a number.

For example, if you have a descriptive flexfield on an Order Entry (Header) form, it populates the Structure column with the context field and the columns ATTRIBUTEn with the flexfield segments of the table OE_ORDER_HEADERS_ALL.

Example of enabling DFF:

Goal: Enable DFF in Sales Order form in Order Management
Navigation: Go to “Order management super User, Vision Operations” responsibility > Orders, Returns >> Sales Orders

Enable the DFF at right bottom screen.

To know the name of the DFF in a particular form do the following

Navigation: Help Menu >> Diagnostics >> Examine

Select Block Name as $DESCRIPTIVE_FLEXFIELD$

Field as ORDER.DF

Value will be populated and it will be the title of your DFF.

Title: Additional Header Information (Order Management)

Order management in the brackets represent the Application in which this DFF is registered.

To enable this

Navigation: Go to Application Developer >> Flexfield >> Descriptive >> Segments

Query the DFF

Press F11 and enter

Title: Additional Header Information

Application: Order Management

Press CTL + F11 to query the record

Click on Segments

Enter the following information

Number: 5

Name: Erp Schools Demo

Window Prompt: Erp Schools Demo

Column: ATTRIBUTE11

Save the record (CTL + S)

Press OK

You can assign any value set if you want, its optional so I am just leaving it as blank

Now check the “Freeze Flexfield Definition” Checkbox

Press OK

Now Click Compile button

Press OK

You will see the confirmation as shown above.

Now to go to Order management super User, Vision Operations” and open the Sales order Form and click on DFF box.

You can hide the context field by un checking the Displayed Check Box in Context Field

To Make any changes you have to uncheck the “Freeze Flexfield Definition” Checkbox

Press OK

Now uncheck the Displayed Box in Context Field area as shown

Save your Record

Check the “Freeze Flexfield Definition” Checkbox

Press OK

Press Compile Button

Press OK

“Flexfield View Generator” concurrent program will be submitted. To see the status of the program go to View Menu on top >> Requests >> Find

Once you see the status as completed you can go to Order Management and check for your changes

Now you should be able to hide the Context.

• Descriptive Flexfields (DFF) in Oracle Apps....Useful

Health Check & Assessment for Order Management in Oracle EBS

The  OM Assessment will provide the client with some suggestions on how to improve or fix their existing issues. In addition, the client will be given some suggestions on how to avoid long term issues, suggestions for better business process, improvement on efficiency, and quick win solutions by leveraging some unused functionality.
This Assessment will include:

• A review of the company’s business process flow at a high level such as the order taking process, quoting process, and RMA process.
• A review of the customer’s pain points and bottleneck issues.
• An analysis of high level gap/fit of business process flow and transaction types
• A review of current transaction type configurations such as: ship and bill, bill only, and RMA
• Monitoring users on how they create sales order and offer quick win suggestions. Some examples would include:
  • Sales order form layout(folder)
  • Change to quick sales order form
  • Defaulting rules
  • Processing constraints
  • Navigation
• A review of the available functionality being leveraged, if any. For example:
  • Sales agreements
  • Pricing and Availability
  • Quoting
  • Audit History
  • Version control
  • Preview and print
• A review of customer setup and process:
  • Is there a good understanding of the forms and navigation and available functionality
  • Review data integrity issues(is there a lot of invalid and duplicate data)
• A review of shipping process and configuration of key shipping setups
  • Shipping parameter
  • Pick slip grouping rules
  • Release sequence rules
  • Release rules
• A review use of the shipping form
• A review of the client’s pricing strategy, needs and requirements
• A review to see if the client is using the full potential and functionality of advanced pricing such as: formula, attribute mapping and GCP
• A review of the price list setup
• A review of the modifier setup

Order Management