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Intercompany Transaction Accounting Part2- Drop Shipment Accounting

Christopher David

Agenda

Overview of Drop Shipment

What is Drop Shipment Drop Shipment types Setups involved in Drop Shipment

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Accounting entries for Various Drop Shipment Scenarios

External Drop Shipment with Advanced Accounting Internal Drop Shipment with Advanced Accounting External Drop Shipment without Advanced Accounting Internal Drop Shipment without Advanced Accounting

2007 Oracle Corporation Proprietary and Confidential

What is Drop Shipment

Drop Shipment is a business process where the sales order is placed in one operating unit and goods are directly shipped from a supplier or an internal organization belonging to another unit. Refer Drop Ship Sales Order Cycle In Order Management (Doc ID 749139.1) for the steps to perform the Drop Ship Sales Order Cycle When Drop Shipment is implemented using Intercompany relations (which was discussed during last session):
Start OU is Supplier facing End OU is Customer facing Intermediate OUs are Accounting OUs only

Drop Shipment types

Drop Shipment flow is of two types External Drop Shipment flow (where supplier is external) Source type is External in the Sales Order

Internal Drop Shipment flow (where supplier is internal) Source type is Internal in the Sales Order

Intercompany Transactions Flows

Intercompany Relations

 By enabling advanced accounting for an intercompany transaction flow, you would be able to define multiple nodes with Intercompany relations for each nodes and generate multiple intercompany invoices for these intermediate OUs Logical intercompany receipt and issue transactions are created to facilitate accounting in intermediate OUs Similarly, logical receipt and logical sales order issue transactions are created for those receipts and issues that are not accompanied with physical receipt and issue of goods

Case 1: External Drop Shipment (Advanced Accounting checked)

Case 1: External Drop Shipment (Advanced Accounting checked) In OU Vision Operations, Create a SO with Source as External and Receiving Org as D1 and book it Run Workflow Background Engine In OU Singapore Distribution Center, run Requisition Import program to generate the Purchase Requisition Auto Create a PO and receive the PO in D1 org
Item test-ds has a list price of 10 in organization items form Item test-ds has a price of 15 in Price List form Item test-ds has a unit cost of 7 in D1 org

Transactions/ Accounting Generated when PO is Received

Mtl_material_transactions table data

Logical PO Receipt Logical I/C SO Issue Logical I/C Ship Rcpt Logical SO Issue

Org_id = 229 is D1 (Supplier facing OU) Org_id = 207 is D1 (Customer facing OU) Txn_type_id = 19 is Logical PO Receipt Txn_type_id = 11 is Logical Intercompany Sales Issue Txn_type_id = 10 is Logical Intercompany Shipment Receipt Txn_type_id = 30 is Logical Sales Order Issue

Mtl_transaction_accounts table data

Acct_line_type = 31 (Clearing Account) Acct_line_type = 2 (I/C COGS Account) Acct_line_type = 16 (I/C Accrual Account) Acct_line_type = 36 (DCOGS Account) Acct_line_type = 1 (Inventory Valuation Account)

Various Accounting_Line_Types

1 = Inventory Valuation (Subinv Account) 2 = I/C COGS (Intercompany Relations) 16 = I/C Accrual Account (Intercompany Relations) 31 = Clearing Account (Receiving Options) 36 = Deferred COGS (Organization Parameters)

Case 2: Internal Drop Shipment (Advanced Accounting checked)

Case 2: Internal Drop Shipment (Advanced Accounting checked)

In OU Vision Operations, Create a SO with Source as Internal and Warehouse as D1 Book the Order Launch Pick Release, Auto Create Delivery Ship confirm the line
Item test-ds has a list price of 10 in organization items form Item test-ds has a price of 15 in Price List form Item test-ds has a unit cost of 7 in D1 org

Transactions/ Accounting Generated when SO is Shipped

A Physical Sales Order Issue is also generated in the shipping org D1 However, there will be no accounting entries for it

Mtl_material_transactions table data

Logical I/C SO Issue Logical I/C Ship Rcpt

Logical SO Issue

Org_id = 229 is D1 (Supplier facing OU) Org_id = 207 is D1 (Customer facing OU) Txn_type_id = 33 is Sales Order Issue Txn_type_id = 11 is Logical Intercompany Sales Issue Txn_type_id = 10 is Logical Intercompany Shipment Receipt Txn_type_id = 30 is Logical Sales Order Issue

Mtl_transaction_accounts table data

Acct_line_type = 2 (I/C COGS Account) Acct_line_type = 16 (I/C Accrual Account) Acct_line_type = 36 (DCOGS Account) Acct_line_type = 1 (Inventory Valuation Account)

Intercompany Transaction Flows (without Advanced Accounting)

When advanced accounting is unchecked, Organization need not be defined for the End OU since no logical transactions are generated

Case 3: External Drop Shipment (without Advanced Accounting)

In OU Vision Operations, Create a SO with Source as External and Receiving Org as D1. Book the order Run Workflow Background Engine In OU Singapore Distribution Center, run the Requisition Import program to generate the Purchase Requisition Auto Create a PO and retain Ship To org as D1 Receive the PO in D1 org

Transactions/ Accounting Generated when PO is Received

Case 4: Internal Drop Shipment (without Advanced Accouning)

In OU Vision Operations, Create a SO with Source as Internal and Warehouse as D1 Book the Order Launch Pick Release, Auto Create Delivery Ship confirm the line

Transactions/ Accounting Generated when SO is Shipped

Advanced Accounting (Advanced Accounting checked)

In this case material has not hit the Inventory. This implies the following:
Logical trxns are created Inventory is not re-averaged. Even if IPV is there (at supplier end), it cannot be transferred to inventory as material never hit the inventory No impact on item cost

Old Accounting (Advanced Accounting unchecked)

Material is supposed to have hit the Inventory implying the following: Physical trxns are created Inventory is to be re-averaged at PO or transfer price as per setup before invoicing Item cost is re-calculated If IPV is there (at supplier end), then it should be transferred to inventory

Some Additional Notes

There are certain scenarios that are not supported Note: 336129.1 gives the list of the scenarios that are not supported

References

White Paper: Transfer Price Accounting in Oracle SCM, Feb 2006 (Note: 360106.1) White Paper: Overview of Intercompany Invoicing, July 2005 (Note: 336129.1) R12 Inventory and Costing User Guides A guide to understanding and setting up different GP and DS scenarios,