Intercompany Transactions

An Oracle White Paper July 2005

Intercompany Transactions
EXECUTIVE SUMMARY...............................................................
................................................................................
............. 3 INTRODUCTION ...................................................
................................................................................
...................................... 3 INTERCOMPANY TRANSACTIONS..............
................................................................................
....................................... 4 Flow 1: External drop shipment from su
pplier to customer..............................................................
...................................... 7 Return in Flow 1: External drop shipmen
t from supplier to customer.....................................................
............................. 9 Flow 1A: External drop shipment from supplier to
customer with intermediate financial nodes................................... 1
1 Return in Flow 1A: External drop shipment from supplier to customer with inter
mediate financial nodes................. 13 Flow 1B: External Drop shipment from
supplier with shipment and procurement financial flow .........................
....... 14 Flow 1B: Return: External Drop shipment from supplier with shipment a
nd procurement financial flow .................. 17 Flow 2: Internal drop shipme
nt from supplier (Global Procurement) ..........................................
....................................... 18 Return in Flow 2: Internal drop shipm
ent from supplier (Global Procurement) .........................................
...................... 21 Flow 2A: Internal drop shipment from supplier with int
ermediate financial nodes (Global Procurement with intermediate financial nodes)
................................................................................
........................................................................ 23 Retu
rn in Flow 2A: Internal drop shipment from supplier with intermediate financial
nodes (Global Procurement with intermediate financial nodes)....................
................................................................................
........................................... 25 Flow 2B: Internal drop shipment f
rom supplier with intermediate financial nodes, using PO pricing option ........
..... 27 Flow 3: Internal drop shipment from supplier (Global Procurement) and I
nternal drop shipment to customer ........ 29 Return in Flow 3: Internal drop sh
ipment from supplier (Global Procurement) and Internal drop shipment to customer
...............................................................................
................................................................................
........................... 31 Flow 3A: Internal drop shipment to customer (Expe
nse Item in Customer facing organization) .................................. 33
Return Flow 3A: Internal drop shipment to customer (Expense Item in Customer fac
ing organization)..................... 34 Flow 4: Global Procurement of Asset it
em in Expense destination with Accrue on Receipt................................
.......... 35 Return in Flow 4: Global Procurement of Asset item in Expense dest
ination with Accrue on Receipt........................ 37 Return in Flow 4A: Glo
bal Procurement of Expense item in Expense destination with Accrue on Receipt ..
............. 40 Flow 5: Global Procurement of Expense item in Expense destinati
on with Accrue on Receipt .................................... 42 Return in Flow
5: Global Procurement of Expense item in Expense destination with Accrue on Rec
eipt .................. 43 Flow 6: Global Procurement of one time item in Expens
e destination with Accrue on Receipt .................................... 45 Ret
urn in Flow 6: Global Procurement of one time item in Expense destination with A
ccrue on Receipt .................. 46 Flow 7: Global Procurement of one time it
em in Expense destination with Accrue at Period End ............................
.. 47 Return in Flow 7: Global Procurement of one time item in Expense destinati
on with Accrue at Period End ............ 49 Flow 8: Global Procurement with Sho
p Floor destination of OSP item OSP charges at PO price ........................
.... 51 Return in Flow 8: Global Procurement with Shop Floor destination of OSP
item OSP charges at PO price......... 52 Flow 9: Global Procurement with Shop Fl
oor destination of OSP item OSP charges at standard rate ..................... 5
3 Flow 9: Global Procurement with Shop Floor destination of OSP item OSP charges
at standard rate ..................... 53 Return in Flow 9: Global Procurement
with Shop Floor destination of OSP item OSP charges at standard rate ... 54 Flow
10: Global Procurement with Shop Floor destination of EAM direct item .........
..................................................... 55 Return in Flow 10: Glob
al Procurement with Shop Floor destination of EAM direct item ..................
.......................... 56 CONCLUSION .......................................
................................................................................
...................................................... 57 ADDITIONAL RESOURCES..
................................................................................
................................................................. 57
Intercompany Transactions
ii
Intercompany Invoicing
EXECUTIVE SUMMARY
More and more companies are doing business globally, and taking advantage of the
operations and tax benefits that can be achieved by running operations througho
ut the world. These companies have multiple operating units and organizations ar
ound the world. When goods are shipped or received, the financial ownership thro
ugh these organizations does not necessarily follow the physical movement of goo
ds. Oracle Applications support three main logistics needs of global organizatio
ns Central Distribution, Central Procurement and Drop Ship. This whitepaper deta
ils the intercompany transactions from an accounting perspective in Oracle Appli
cations as in 11.5.10.
INTRODUCTION
A corporation manages its global operations in various countries through a netwo
rk of subsidiaries, separate legal entities, licensees and several associated la
bel franchisee. This complex network of operations is necessitated to take care
of local legal and fiscal environment, which prevail in each of those countries.
Following are few examples:

In tele-communications industry, most of the countries stipulate mandatory domes
tic company partnership. Most of the steel and aluminum companies in Asia sell t
heir entire output to another marketing company. Automobile industries are incre
asingly centralizing their sourcing activities globally to leverage their combin
ed volumes for a better price from their suppliers. Trading companies are setup
in tax haven nations to take advantage of bilateral and multi-lateral trade agre
ements to minimize the tax.

Consider the following two examples:

Example 1
Vision Operations (V1) is based in USA. It has a 100 % owned subsidiary company
called Vision Asia (VA). VA in turn has two subsidiaries Vision Japan (VJ) and V
ision China (VC). VJ has manufacturing facilities in Osaka (O1) and distribution
center at Tokyo (T1). Due to tax advantages, V1 sources all the goods from chin
a through VJ. Though the financial transactions between V1 and VC are routed thr
ough VJ, logistic movement of goods takes place directly between V1 and VC.
Example 2
Continuing the above example, Vision Operations (V1) has another subsidiary comp
any called Vision Singapore (VS), 100 % that it owns. Individual plants procure
components from their own suppliers. VS centralizes all the commodity (like stee
l, Aluminum etc.,) procurement needs of Vision Operations across
world and procures the material on behalf of all VJ and its subsidiary plants an
d places purchase orders on its suppliers. However, material is directly shipped
from the suppliers to all the manufacturing plants.
Figure 1 - Organization Hierarchy Model A key requirement for the global impleme
ntation of Oracle applications in such a complex business environment is the abi
lity to process "intercompany transactions," where one business unit invoices an
other for transfer of goods and services. Often these intercompany transactions
involve transactions related to general expenses, funds transfer, salary transfe
rs, asset transfers, royalty payments and product transfers. This paper discusse
s only those intercompany transactions that are related to product transfers suc
h as sales of goods and internal procurement. This paper provides setup steps, i
mplementation tips, and guidance for coordinating the many departments, which be
come involved with intercompany invoicing. We would be discussing implementation
of intercompany invoicing for the fictitious organization as depicted in Figure
1.
INTERCOMPANY TRANSACTIONS
This section briefly states the remaining business flows and their corresponding
accounting transactions that are possible in 11.5.10. For each business flow, 1
. The physical movement of goods and the corresponding financial flow is shown.
2. The accounting entries are then tabulated as below: Time Transaction Descript
ion OU1 Accounting OU2 Accounting
Time indicates the sequence of events happening. Transaction indicates the physi
cal event. Logical transactions are in italics. Description gives the underlying
transactions - physical/logical that are created. These drive accounting entrie
s. The next columns indicate the accounting entries for each operating unit. The
process that would do the accounting entries is also indicated Cost processor,
Inter-Company Invoicing, Receiving processor.
Box indicates that Transaction gets cost collected if organization is PJM enable
d
Intercompany Transactions
4
Flows 1, 1A, 2, 2A and 3 are for asset items. Hence inventory accounts are used.
Instead if they are expense items, expense account will be used. 3. The reconci
liation of accounting entries in previous table are tabulated as below: OU1 Reco
nciliation OU2 Reconciliation
4. A return flow is done repeating steps 1, 2 and 3.
Intercompany Transactions
5
Flow 1: External drop shipment from supplier to customer
Time T1 T2
Transaction Receipt in RC through Receiving Desktop Form Deliver into RC through
Receiving Desktop Form
Description RT: Receive in RC RI RT: Deliver in RC MMT: PO receipt in RC (Accoun
ting transaction) (Logical PO receipt) MMT: RC -> DC (Accounting transaction) (L
ogical I/C shipment) (Logical I/C receipt)
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost proc
essor) Dr Inventory RC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable C
r I/C Revenue 15
OU2 Accounting
15
(Cost Processor) Dr Inventory DC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Acc
rual 15 Cr I/C Payable 15
(Cost processor) Dr I/C COGS 10 Cr Inventory RC 10
MMT: DC -> C1 (Accounting transaction)
(Cost Processor) Dr COGS DC
15
Intercompany Transactions 7
(Logical SO Issue)
Cr Inventory DC 15 (AR Invoice) Dr Receivable DC 20 Cr Revenue DC 20
OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Reve
nue 15
OU2 Reconciliation Dr COGS DC 15 Dr Receivable DC 20 Cr Revenue DC 20 Cr I/C Pay
able 15
NOTE: If logical receipt is made in DC then the same accounting entries/transact
ions as in Flow 2 (in pages to come) will be generated. There is no cost re-aver
age or PPV at the time of deliver or I/C transfer. This is because there was no
physical receipt of goods
Intercompany Transactions
8
Return in Flow 1: External drop shipment from supplier to customer
Time T1
Transaction RMA in RC
Description MMT: RMA in RC (No accounting) MMT: RMA in DC (Accounting transactio
n) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Lo
gical I/C Receipt)
OU1 Accounting
OU2 Accounting
(Cost processor) Dr Inventory DC Cr COGS 15 (Cost processor) Dr Inventory RC Cr
I/C COGS 12 12
15
(Cost processor) Dr I/C Accrual 15 Cr Inventory DC 15 (I/C Invoicing) (Credit Me
mo) Dr I/C Payable 15 Cr I/C Accrual 15 (AR) Dr Revenue DC 20 Cr Receivable DC 2
0
(I/C Invoicing) (Credit Memo) Dr I/C Revenue 15 Cr I/C Receivable 15
T2 T3
AR Credit Memo Return to Receiving (Cost processor)
MMT: RC->RC RI
Intercompany Transactions
9
(Inventory) T4 Return to Vendor (Purchasing) RT: Return to S1 (RC RI-> S1)
Dr RI RC 10 Cr Inventory RC 10 (Receiving processor) Dr Accrual 10 Cr RI RC 10
OU1 Reconciliation Dr Inventory 2 Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr
I/C Receivable
12 15
OU2 Reconciliation Dr I/C Payable 15 Dr Revenue 20 Cr COGS 15 Cr Receivable 20

NOTE: RMA receipts are always physical receipts, with transaction cost as the it
em's current cost There is no re-average or PPV at the time of RMA receipt Since c
urrent cost might have changed, the I/C COGS reversal may not completely nullify
the expense that was originally incurred. This however, is a limitation in the
current architecture for Sales Order Shipments and will not be addressed in the
context of this project However, to help customers, a cost hook will be provided
for the RMA receipt transaction (NICE TO HAVE)
Intercompany Transactions
10
Flow 1A: External drop shipment from supplier to customer with intermediate fina
ncial nodes
Time T1 T1
Transaction Receipt in PC through Receiving Desktop Form Deliver into PC through
Receiving Desktop Form
Description RT: Receive in PC RT: Deliver in PC MMT: PO receipt in PC (Accountin
g transaction) (Logical PO receipt) MMT: PC -> RC (Accounting transaction) (Logi
cal I/C Shipment) (Logical I/C Receipt)
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost proc
essor) Dr Inventory PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Receivable C
r I/C Revenue 15 (Cost processor) Dr I/C COGS Cr Inventory PC 10
OU2 Accounting
OU3 Accounting
15
(Cost Processor) Dr Inventory RC 15 Cr I/C Accrual 15 (I/C Invoicing) Dr I/C Acc
rual 15 Cr I/C Payable 15
Intercompany Transactions 11
10
MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Recei
pt)
(I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C C
OGS 15 Cr Inventory RC 15
(Cost Processor) Dr Inventory DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Acc
rual 20 Cr I/C Payable 20 (Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (AR
Invoice) Dr Receivable DC 25 Cr Revenue DC 25
MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)
OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Reve
nue 15
OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C
Payable 15
OU3 Reconciliation Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC 25 Cr I/C Pay
able 20
NOTE:

There is no cost re-average or PPV at the time of deliver or I/C transfer. This
is because there was no physical receipt of goods
Intercompany Transactions
12
Return in Flow 1A: External drop shipment from supplier to customer with interme
diate financial nodes
25$ Price list C1 DC SOB3/LE3/ OU3
20$ Transfer price
12$ 15$ Current cost Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1
10$ PO price S1
PO OU: OU1 Ship to: PC
Order OU: OU3 Ship from: PC Shipping Txn Flow: OU1->OU2->OU3 Procuring Txn Flow:
None
Financial Flow Physical Flow
Time T1
Transaction RMA in PC
Description MMT: RMA in PC (No accounting) MMT: RMA in DC (Accounting transactio
n) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Lo
gical I/C Receipt)
OU1 Accounting
OU2 Accounting
OU3 Accounting
(Cost processor) Dr Inventory DC Cr COGS (Cost processor) Dr Inventory RC Cr I/C
COGS
20 20
15 15
(Cost processor) Dr I/C Accrual 20 Cr Inventory DC 20 (I/C Invoicing) (Credit Me
mo) Dr I/C Payable 20 Cr I/C Accrual 20
(I/C Invoicing) (Credit Memo) Dr I/C Revenue 20 Cr I/C Receivable 20 MMT: RC->PC
(Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) (Cost pro
cessor) Dr Inventory PC Cr I/C COGS (I/C Invoicing) 12 12 (Cost processor) Dr I/
C Accrual 15 Cr Inventory RC 15 (I/C Invoicing)
Intercompany Transactions
13
Dr I/C Revenue 15 Cr I/C Receivable 15 T2 T3 T4 AR Credit Memo Return to Receivi
ng (Inventory) Return to Vendor (Purchasing) MMT: PC->PC RI RT: Return to S1 (PC
RI->S1) (Cost processor) Dr RI PC 10 Cr Inventory PC 10 (Receiving processor) D
r Accrual 10 Cr RI PC 10 OU3 Reconciliation Dr I/C Payable 20 Dr Revenue 25 Cr C
OGS 20 Cr Receivable 25
Dr I/C Payable 15 Cr I/C Accrual 15 (AR) Dr Revenue DC 25 Cr Receivable DC 25
OU1 Reconciliation Dr Inventory 2 Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr
I/C Receivable
12 15
OU2 Reconciliation Dr I/C Payable 15 Dr Revenue 20 Cr COGS 15 Cr Receivable 20
NOTE: RMA receipts are always physical receipts, with transaction cost as the it
em's current cost There is no re-average or PPV at the time of RMA receipt Since c
urrent cost might have changed, the I/C COGS reversal may not completely nullify
the expense that was originally incurred. This however, is a limitation in the
current architecture for Sales Order Shipments and will not be addressed in the
context of this project However, to help customers, a cost hook will be provided
for the RMA receipt transaction (NICE TO HAVE)
Flow 1B: External Drop shipment from supplier with shipment and procurement fina
ncial flow
Intercompany Transactions
14
25$ Price list C1
Asset Item Inv. dest DC SOB3/LE3/ OU3
20$ Transfer price
Asset Item 15$ Accrue rcpt Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1 Logi
cal Receiptt
Asset Item Inv. dest
10$ PO price S1
PO OU: OU1 Ship to: RC
Order OU: OU3 Ship from: RC
Financial Flow Physical Flow
Time T1
Transaction Receipt in RC
Description RT: Receive in RC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost proc
essor) Dr Inventory PC Cr OU1 Clearing (I/C Invoicing) Dr I/C Receivable Cr I/C
Revenue (Cost processor) Dr I/C COGS Cr Inventory PC 10 10
OU2 Accounting (Receiving Processor) Dr OU2 Clearing 15 Cr I/C Accrual 15
OU3 Accounting
MMT: PO receipt in PC (Accounting transaction) (Logical PO receipt) MMT: PC -> R
C RI (Accounting transaction) (Logical I/C Shipment)
15 15 10 10
(I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15
T2 T2 >= T1
Deliver into RC
RT: Deliver in RC MMT: Logical PO Receipt in RC Cost Processor Dr Inventory RC 1
5 Cr. OU2 Clearing 15
MMT: RC -> DC (Accounting transaction)
I/C Invoicing)
Intercompany Transactions 15
(Logical I/C Shipment) (Logical I/C Receipt)
Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C COGS 15 Cr Invent
ory RC 15
(Cost Processor) Dr Inventory DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Acc
rual 20 Cr I/C Payable 20 (Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (AR
Invoice) Dr Receivable DC 25 Cr Revenue DC 25
MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)
OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Reve
nue 15
OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C
Payable 15
OU3 Reconciliation Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC Cr I/C Payabl
e
25 20
Intercompany Transactions
16
Flow 1B: Return: External Drop shipment from supplier with shipment and procurem
ent financial flow
Asset Item 15$ 20$ Current cost $12 Accrue rcpt Transfer Transfer price price DC
RC PC SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ OU3 OU2 OU1 Asset Item Inv. dest 10$ PO pri
ce S1
25$ Price list C1
PO OU: OU1 Ship to: RC
Order OU: OU3 Ship from: RC
Financial Flow Physical Flow
Time T1
Transaction RMA in PC
Description MMT: RMA in RC (No accounting) MMT: RMA in DC (Accounting transactio
n) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Lo
gical I/C Receipt)
OU1 Accounting
OU2 Accounting
OU3 Accounting
(Cost processor) Dr Inventory PC Cr COGS (Cost processor) Dr Inventory RC Cr I/C
COGS
20 20
12 12
(Cost processor) Dr I/C Accrual 20 Cr Inventory PC 20 (I/C Invoicing) (Credit Me
mo) Dr I/C Payable 20 Cr I/C Accrual 20 (AR) Dr Revenue PC 25 Cr Receivable PC 2
5
(I/C Invoicing) (Credit Memo) Dr I/C Revenue 20 Cr I/C Receivable 20 T2 T3 AR Cr
edit Memo Return to Receiving (Inventory) MMT: RC->RC RI (Cost processor) Dr RI
RC
15
Intercompany Transactions 17
T4
Return to Vendor (Purchasing)
RT: Return RC RI to S1 MMT: RC RI ->PC (Accounting transaction) (Logical I/C Shi
pment) (Logical I/C Receipt) (Cost processor) Dr Inventory PC Cr I/C COGS
Cr Inventory RC 15 (Receiving Processor) Dr I/C Accrual 15 Cr RI DC 15 10 10 (I/
C Invoicing) (Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15
MMT: PC->PC RI (Accounting transaction) (Logical RTV) RAE: Return PC RI to S1 (A
ccounting transaction) (Logical RTV)
(I/C Invoicing) (Credit memo) Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost proce
ssor) Dr OU1 clearing 10 Cr Inventory PC 10 (Receiving Processor) Dr Accrual Cr
OU1 clearing 10 10
OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receiva
ble 15
OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 Cr Inventory Cr I/C COGS
Cr I/C Receivable
3 12 20
OU3 Reconciliation Dr Revenue 25 Dr I/C Payable 20 Cr Receivable 25 Cr COGS 20
Flow 2: Internal drop shipment from supplier (Global Procurement)
Intercompany Transactions
18
20$ Price list C1
Asset Item Inv. dest DC SOB2/LE2/ OU2
15$ Transfer price
Asset Item Accrue rcpt RC SOB1/LE1/ OU1
10$ PO price S1
PO OU: OU1 Ship to: DC
Order OU: OU2 Ship from: DC
Financial Flow Physical Flow
Shipping Txn Flow: None Procuring Txn Flow: OU1->OU2
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost proc
essor) Dr Inventory RC Cr OU1 Clearing (I/C Invoicing) Dr I/C Receivable Cr I/C
Revenue (Cost processor) Dr I/C COGS Cr Inventory RC 10 10
OU2 Accounting (Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15
MMT: PO receipt in RC (Accounting transaction) (Logical PO receipt) MMT: RC -> D
C (Accounting transaction) (Logical I/C Shipment)
15 15 10 10
(I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15
T2 T2 >= T1
Deliver into DC
RT: Deliver in DC MMT: PO Receipt in DC (Regular transaction) (Cost Processor) D
r Inventory DC Cr RI DC (Cost Processor) Dr COGS DC 15 15 15
Intercompany Transactions 19
T3
Ship from DC to C1
MMT: DC->C1 (Regular transaction)
Cr Inventory DC 15 (AR Invoice) Dr Receivable DC 20 Cr Revenue DC 20 OU1 Reconci
liation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15 OU2
Reconciliation Dr COGS DC 15 Dr Receivable DC 20 Cr Revenue DC 20 Cr I/C Payable
15
NOTE: The physical PO receipt transaction in DC will be used to re-average the i
nventory cost, or reflect PPV, as appropriate The PO receipt maybe at the Purcha
se Order price or the Transfer Price, based on the pricing option setup in the t
ransaction flow. This transaction however, is not accounted for, or cost collect
ed. The transaction is costed, when the associated accounting transactions have
distributions.
Intercompany Transactions
20
Return in Flow 2: Internal drop shipment from supplier (Global Procurement)
20$ Price list C1
14$ Current cost DC SOB2/LE2/ OU2
15$ Transfer price
RC SOB1/LE1/ OU1
10$ PO price S1
PO OU: OU1 Ship to: DC
Order OU: OU2 Ship from: DC
Financial Flow Physical Flow
Shipping Txn Flow: None Procuring Txn Flow: OU1->OU2
Time T1 T2 T3 T4
Transaction RMA in DC AR Credit Memo Return to receiving (Inventory) Return to v
endor (Purchasing)
Description MMT: RMA in DC (Regular transaction)
OU1 Accounting
MMT: DC->RI DC (Regular transaction) RT: Return DC RI to S1 MMT: DC RI ->RC (Acc
ounting transaction) (Logical I/C Shipment) (Logical I/C Receipt) (Cost processo
r) Dr Inventory RC Cr I/C COGS 10 (I/C Invoicing) (Credit memo) Dr I/C Revenue
OU2 Accounting (Cost Processor) Dr Inventory DC 14 Cr COGS DC 14 (AR) Dr Revenue
DC 20 Cr Receivable DC 20 (Cost processor) Dr RI DC 15 Cr Inventory DC 15 (Rece
iving Processor) Dr I/C Accrual 15 Cr RI DC 15 10 (I/C Invoicing) (Credit memo)
Dr I/C Payable 15 Cr I/C Accrual 15
Intercompany Transactions 21
MMT: RC->RC RI (Accounting transaction) (Logical RTV) RT: Return RC RI to S1 (Ac
counting transaction) (Logical RTV)
15 Cr I/C Receivable 15 (Cost processor) Dr OU1 clearing 10 Cr Inventory RC 10 (
Receiving Processor) Dr Accrual Cr OU1 clearing 10 10
OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr I/C Receivable
10 15
OU2 Reconciliation Dr I/C Payable 15 Dr Revenue 20 Cr COGS 14 Cr Receivable 20 C
r Inventory 1
NOTE:

RMA receipt is a physical receipt at the item's current cost. Hence I/C COGS may n
ot be completely reversed The RTV transaction will reverse accruals at the PO pr
ice. However, I/C accounting may not be completely reversed, since transfer pric
e could have changed in the interim The user will need to post manual journal en
tries as appropriate to remove I/C profits while consolidating at the enterprise
level
Intercompany Transactions
22
Flow 2A: Internal drop shipment from supplier with intermediate financial nodes
(Global Procurement with intermediate financial nodes)
25$ Price list C1
Asset Item Inv. dest DC SOB3/LE3/ OU3
20$ Transfer price
Asset Item 15$ Accrue rcpt Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1
Asset Item Inv. dest
10$ PO price S1
PO OU: OU1 Ship to: DC
Order OU: OU3 Ship from: DC
Financial Flow Physical Flow
Shipping Txn Flow: None Procuring Txn Flow: OU1->OU2->OU3
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual (Cost process
or) Dr Inventory PC Cr OU1 Clearing 10
10
OU2 Accounting (Receiving Processor) Dr OU2 Clearing 15 Cr I/C Accrual 15
OU3 Accounting (Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20
MMT: PO receipt in PC (Accounting transaction) (Logical PO Receipt)
10
MMT: PC -> RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Recei
pt)
(I/C Invoicing) Dr I/C Receivable Cr I/C Revenue (Cost processor) Dr I/C COGS Cr
Inventory RC
15 15 10 10
(Cost Processor) Dr Inventory RC 15 Cr OU2 Clearing 15 (I/C Invoicing) Dr I/C Ac
crual 15 Cr I/C Payable 15
Intercompany Transactions
23
MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment)
(I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C C
OGS 15 Cr Inventory RC 15
(I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20
T2 T2 >= T1
Deliver into DC
RT: Deliver in DC MMT: PO Receipt in DC (Regular transaction) Cost Processor) Dr
Inventory DC 20 Cr RI DC 20 (Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (
AR Invoice) Dr Receivable DC 25 Cr Revenue DC 25
T3
Ship from DC to C1
MMT: DC->C1 (Regular transaction)
OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Reve
nue 15 NOTE:
OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue 20 Cr I/C
Payable 15
OU3 Reconciliation Dr COGS DC 20 Dr Receivable DC 25 Cr Revenue DC 25 Cr I/C Pay
able 20

The physical PO receipt transaction in DC will be used to re-average the invento

ry cost, or reflect PPV, as appropriate The PO receipt maybe at the Purchase Ord
er price or the Transfer Price, based on the pricing option setup in the transac
tion flow. This transaction however, is not accounted for, or cost collected. Th
e transaction is costed, when the associated accounting transactions have distri
butions
Intercompany Transactions
24
Return in Flow 2A: Internal drop shipment from supplier with intermediate financ
ial nodes (Global Procurement with intermediate financial nodes)
19$ C urrent cost 25$ P rice list C1 DC SO B3/LE 3/ O U3 20$ Transfer price RC S
O B 2/LE2/ O U2
15$ Transfer price
10$ PO price PC S O B 1/LE 1/ O U1 S1
PO O U : O U1 S hip to: DC
O rder O U: O U3 Ship from : DC Shipping Txn Flow: N one P rocuring Txn Flow: O
U 1->O U 2->O U 3
Financial Flow Physical Flow
Time T1 T2 T3 T3 > T1 T4 T4 > T3
Transaction RMA in DC AR Credit Memo Return to receiving (Inventory)
Description MMT: RMA in DC (Regular transaction)
OU1 Accounting
OU2 Accounting
MMT: DC->RI DC (Regular transaction)
OU3 Accounting (Cost Processor) Dr Inventory DC 19 Cr COGS DC 19 (AR) Dr Revenue
DC 25 Cr Receivable DC 25 (Cost processor) Dr RI DC 20 Cr Inventory DC 20 (Rece
iving Processor) Dr I/C Accrual 20 Cr RI DC 20
Return to vendor (Purchasing)
RT: Return DC RI to S1 MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shi
pment) (Logical I/C Receipt) (Cost processor) Dr Inventory RC Cr I/C COGS (I/C I
nvoicing) (Credit Memo) Dr I/C Revenue
15 15 20 (I/C Invoicing)
Intercompany Transactions 25
Cr I/C Receivable 20 MMT: RC->PC (Accounting transaction) (Logical I/C Shipment)
(Logical I/C Receipt) (Cost processor) Dr Inventory PC 10 Cr I/C COGS 10 (I/C I
nvoicing) Dr I/C Revenue 15 Cr I/C Receivable 15 (Cost Processor) Dr OU2 clearin
g 15 Cr Inventory RC 15 (I/C Invoicing) Dr I/C Payable 15 Cr I/C Accrual 15 (Rec
eiving Processor) Dr. I/C Accrual 15 Cr. OU2 clearing 15 MMT: PC->PC RI (Account
ing transaction) (Logical RTV) RT: Return PC RI to S1 (Accounting transaction) (
Logical RTV) OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr I
/C Receivable OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 Cr I/C COGS
Cr I/C Receivable (Cost processor) Dr OU1 clearing Cr Inventory PC (Receiving P
rocessor) Dr Accrual Cr OU1 clearing
(Credit Memo) Dr I/C Payable 20 Cr I/C Accrual 20
10 10 10
10
10 15
15 20
OU3 Reconciliation Dr I/C Payable 20 Dr Revenue 25 Cr COGS 19 Cr Receivable 25 C
r Inventory 1
NOTE:

RMA receipt is a physical receipt at the item's current cost. Hence I/C COGS may n
ot be completely reversed The RTV transaction will reverse accruals at the PO pr
ice. However, I/C accounting may not be completely reversed, since transfer pric
e could have changed in the interim The user will need to post manual journal en
tries as appropriate to remove I/C profits while consolidating at the enterprise
level
Intercompany Transactions
26
Flow 2B: Internal drop shipment from supplier with intermediate financial nodes,
using PO pricing option
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual (Cost process
or) Dr Inventory PC Cr OU1 Clearing (I/C Invoicing) Dr I/C Receivable Cr I/C Rev
enue (Cost processor) Dr I/C COGS Cr Inventory RC 10
10
OU2 Accounting (Receiving Processor) Dr OU2 Clearing 10 Cr I/C Accrual 10
OU3 Accounting (Receiving Processor) Dr RI DC 10 Cr I/C Accrual
10
MMT: PO receipt in PC (Accounting transaction) MMT: PC -> RC (Accounting transac
tion)
10 (Cost Processor) Dr Inventory RC 10 Cr OU2 Clearing (I/C Invoicing) Dr I/C Ac
crual 10 Cr I/C Payable
10 10 10
10
10
10 (I/C Invoicing) Dr I/C Accrual 10 Cr I/C Payable 10
MMT: RC -> DC (Accounting transaction)
(I/C Invoicing) Dr I/C Receivable 10 Cr I/C Revenue 10 (Cost processor) Dr I/C C
OGS 10 Cr Inventory RC 10
Intercompany Transactions
27
T2 T2 >= T1 T3
Deliver into DC
RT: Deliver in DC MMT: PO Receipt in DC (Regular transaction) Cost Processor) Dr
Inventory DC Cr RI DC (Cost Processor) Dr COGS DC Cr Inventory DC (AR Invoice)
Dr Receivable DC Cr Revenue DC 10 10
10 10
Ship from DC to C1
MMT: DC->C1 (Regular transaction)
25 25
OU1 Reconciliation Dr I/C Receivable Dr I/C COGS Cr Accrual Cr I/C Revenue NOTE:
10 10 10 10
OU2 Reconciliation Dr I/C Receivable Dr I/C COGS Cr I/C Revenue Cr I/C Payable 1
0 10 10 10
OU3 Reconciliation Dr COGS DC Dr Receivable DC Cr Revenue DC Cr I/C Payable 10 2
5 25 10

When the transaction flow is set-up to use PO price, the financial transaction a
ccounting ignores any transfer price that might be available for the item. Retur
n in Flow 2B is similar to that in Flow 2A. Cost collection for Flow 2B is simil
ar to that in Flow 2A
Intercompany Transactions
28
Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal d
rop shipment to customer
25$ Price list C1
Asset Item Inv. dest DC SOB3/LE3/ OU3
20$ Transfer price
Asset Item 15$ Accrue rcpt Transfer price RC PC SOB2/LE2/ SOB1/LE1/ OU2 OU1
Asset Item Inv. dest
10$ PO price S1
PO OU: OU1 Ship to: RC
Order OU: OU3 Ship from: RC
Financial Flow Physical Flow
Shipping Txn Flow: OU2->OU3 Procuring Txn Flow: OU1->OU2
Time T1
Transaction Receipt in RC
Description RT: Receive in RC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual (Cost process
or) Dr Inventory PC Cr OU1 Clearing (I/C Invoicing) Dr I/C Receivable Cr I/C Rev
enue (Cost processor) Dr I/C COGS Cr Inventory PC 10
10
OU2 Accounting (Receiving Processor) Dr RI RC 15 Cr I/C Accrual 15
OU3 Accounting
MMT: PO receipt in PC (Accounting transaction) (Logical PO receipt) MMT: PC -> R
C RI (Accounting transaction) (Logical I/C Shipment)
10 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15
15 15 10 10
T2 T2 >= T1
Deliver into RC
RT: Deliver in RC MMT: PO Receipt in RC (Regular transaction) (Cost Processor) D
r Inventory RC 15
Intercompany Transactions 29
Cr RI RC T3 Ship from RC to C1 MMT: RC->C1 (No accounting) MMT: RC -> DC (Accoun
ting transaction) (Logical I/C Shipment) (Logical I/C Receipt)
15
I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C CO
GS 15 Cr Inventory RC 15
(Cost Processor) Dr Inventory DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Acc
rual 20 Cr I/C Payable 20 (Cost Processor) Dr COGS DC 20 Cr Inventory DC 20 (AR
Invoice) Dr Receivable DC 25 Cr Revenue DC 25
MMT: DC -> C1 (Accounting transaction) (Logical SO Issue)
OU1 Reconciliation Dr I/C Receivable Dr I/C COGS Cr I/C Revenue Cr Accrual
15 10 15 10
OU2 Reconciliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Payable 15 Cr I/C
Revenue 20
OU3 Reconciliation Dr Receivable 25 Dr COGS 20 Cr Revenue 25 Cr I/C Payable 20
Intercompany Transactions
30
Return in Flow 3: Internal drop shipment from supplier (Global Procurement) and
Internal drop shipment to customer
14$ 15$ Current cost 20$ 25$ Transfer Transfer Price list price price DC RC PC S
OB3/LE3/ SOB2/LE2/ SOB1/LE1/ OU3 OU2 OU1 19$ Current cost
10$ PO price S1
C1
PO OU: OU1 Ship to: RC
Order OU: OU3 Ship from: RC
Financial Flow Physical Flow
Shipping Txn Flow: OU2->OU3 Procuring Txn Flow: OU1->OU2
Time T1
Transaction RMA in RC
Description MMT: RMA in RC (No transaction) MMT: RMA in DC (Accounting transacti
on) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (L
ogical I/C Receipt)
OU1 Accounting
OU2 Accounting
OU3 Accounting
(Cost processor) Dr Inventory DC Cr COGS (Cost processor) Dr Inventory RC Cr I/C
COGS (I/C Invoicing) (Credit memo) Dr I/C Revenue Cr I/C Receivable
20 20
14 14
(Cost processor) Dr I/C Accrual 20 Cr Inventory DC 20 (I/C Invoicing) (Credit me
mo) Dr I/C Payable Cr I/C Accrual (AR) Dr Revenue DC Cr Receivable DC
20 20
20 20 25 25
T2 T3 T4
AR Credit Memo Return to receiving (Inventory) Return to vendor MMT: RC->RC RI (
Regular transaction) RT: Return RC RI to S1 (Cost processor) Dr RI RC 15 Cr Inve
ntory RC 15 (Receiving Processor)
Intercompany Transactions
31
(Purchasing)
(No accounting) MMT: RC RI ->PC (Accounting transaction) (Logical I/C Shipment)
(Logical I/C Receipt) (Cost processor) Dr Inventory PC Cr I/C COGS 10 (I/C Invoi
cing) (I/C Credit memo) Dr I/C Revenue Cr I/C Receivable (Cost processor) Dr OU1
clearing Cr Inventory PC (Receiving Processor) Dr Accrual Cr OU1 clearing OU3 R
econciliation Dr Revenue 25 Dr I/C Payable 20 Cr Receivable 25 Cr COGS 20 10
Dr I/C Accrual Cr RI RC
15 15
15 15 10 10 10 10
(I/C Invoicing) (I/C Credit memo) Dr I/C Payable 15 Cr I/C Accrual 15
MMT: PC->PC RI (Accounting transaction) (Logical RTV) RT: Return PC RI to S1 (Ac
counting transaction) (Logical RTV)
OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS 10 Cr I/C Receiva
ble 15
OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 Cr Inventory Cr I/C COGS
Cr I/C Receivable
1 14 20
Intercompany Transactions
32
Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing org
anization)
25$ Price list C1
Expense Item Inv. dest DC SOB3/LE3/ OU2
Asset Item 20$ Current cost $14 Transfer price RC SOB2/LE2/ OU1
Order OU: OU3 Ship to: RC Ship from: RC
Financial Flow Physical Flow
Shipping Txn Flow: OU2->OU3
Time T1
Transaction Ship from RC to C1
Description MMT: RC->C1 (No accounting) MMT: RC -> DC (Accounting transaction) (
Logical I/C Shipment) (Logical I/C Receipt)
OU1 Accounting
OU2Accounting
I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (Cost processor) Dr I/C CO
GS 14 Cr Inventory RC 14
(Cost Processor) Dr Expense DC 20 Cr I/C Accrual 20 (I/C Invoicing) Dr I/C Accru
al 20 Cr I/C Payable 20 (AR) Dr Revenue DC 25 Cr Receivable DC 25
MMT: DC -> C1 (Accounting transaction) (Logical SO Issue) No Accounting OU1 Reco
nciliation Dr I/C Receivable 20 Dr I/C COGS 14 Cr Inventory 14 Cr I/C Revenue 20
OU2 Reconciliation Dr Expense DC 20 Dr Revenue DC 25 Cr Receivable DC 25
Cr I/C Payable
20
Intercompany Transactions
33
Return Flow 3A: Internal drop shipment to customer (Expense Item in Customer fac
ing organization)
25$ Price list C1
Expense Item Inv. dest DC SOB3/LE3/ OU2
Asset Item 20$ Current cost $14 Transfer price RC SOB2/LE2/ OU1
Order OU: OU3 Ship to: RC Ship from: RC
Financial Flow Physical Flow
Shipping Txn Flow: OU2->OU3
Time T1
Transaction Ship from RC to C1
Description MMT: RMA in RC (No accounting) MMT: RMA in DC (Accounting transactio
n) (Logical RMA) MMT: DC->RC (Accounting transaction) (Logical I/C Shipment) (Lo
gical I/C Receipt)
OU1 Accounting
OU2 Accounting
(Cost processor) Dr Inventory RC Cr I/C COGS (I/C Invoicing) (Credit memo) Dr I/
C Revenue Cr I/C Receivable
14 14
(Cost Processor) Dr I/C Accrual 20 Cr Expense 20 (I/C Invoicing) (Credit memo) D
r I/C Payable 20 Cr I/C Accrual 20 (AR Invoice) Dr Receivable DC 25 Cr Revenue D
C 25
20 20
Intercompany Transactions
34
OU1 Reconciliation Dr Inventory 14 Dr I/C Revenue 20 Cr I/C COGS Cr I/C Receivab
le
14 20
OU2 Reconciliation Dr I/C Payable 20 Dr Receivable 25 Cr Revenue 25 Cr Expense 2
0
Flow 4: Global Procurement of Asset item in Expense destination with Accrue on R
eceipt
Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2 15$ Transfer price Asset Item
Accrue rcpt RC SOB1/LE1/ OU1
10$ PO price S1
PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2
Financial Flow Physical Flow
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost proc
essor) Dr Inventory RC Cr OU1 Clearing (I/C Invoicing) Dr I/C Receivable Cr I/C
Revenue 10 10
OU2 Accounting (Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15
MMT: PO receipt in RC (Accounting transaction) (Logical PO Receipt) MMT: RC -> D
C (Accounting transaction) (Logical I/C Shipment)
15 15
(I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15
Intercompany Transactions
35
(Cost processor) Dr I/C COGS Cr Inventory RC T2 T2 >= T1 Deliver into DC RT: Del
iver in DC
10 10 (Receiving Processor) Dr Charge Acct DC 15 Cr RI DC 15
OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Reve
nue 15 NOTE:
OU2 Reconciliation Dr ChargeAcct DC 15 Cr I/C Payable 15

The destination type on the purchase order should not impact the accrual methodo
logy in the procurement operating unit. Consequently, global procurement of inve
ntory items, will be routed through the inventory account of the procurement org
anization Therefore, the supplier accrual on the procurement operating unit will
always be accrue at receipt If the PO distribution for the destination organiza
tion, has a project tied to it, the accounting will default to PO price
Intercompany Transactions
36
Return in Flow 4: Global Procurement of Asset item in Expense destination with A
ccrue on Receipt
Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2 15$ Transfer price Asset Item
Accrue rcpt RC SOB1/LE1/ OU1
10$ PO price S1
PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2
Financial Flow Physical Flow
Time T1 T2
Transaction Return to receiving (Purchasing) Return to vendor (Purchasing)
Description DC->RI DC (Regular transaction) RT: Return DC RI to S1 MMT: DC RI ->
RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)
OU1 Accounting
OU2 Accounting (Receiving processor) Dr RI DC 15 Cr Charge DC 15 (Receiving Proc
essor) Dr I/C Accrual 15 Cr RI DC 15 10 (I/C Invoicing) (I/C Credit memo) Dr I/C
Payable 15 Cr I/C Accrual 15
(Cost processor) Dr Inventory RC 10 Cr I/C COGS
(I/C Invoicing) (I/C Credit memo) Dr I/C Revenue 15 Cr I/C Receivable 15 MMT: RC
->RC RI (Accounting transaction) (Logical RTV) RT: Return RC RI to S1 (Accountin
g transaction) (Cost processor) Dr OU1 clearing 10 Cr Inventory RC (Receiving Pr
ocessor) Dr Accrual 10 Cr OU1 clearing
10
10
Intercompany Transactions
37
OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr I/C Receivable
OU2 Reconciliation Dr I/C Payable 15 Cr Charge DC 15 10 15
Intercompany Transactions
38
low 4A: Global Procurement of Expense item in Expense destination with Accrue on
Receipt
Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2
15$ Transfer price
Expense Item Accrue rcpt RC SOB1/LE1/ OU1
10$ PO price S1
PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2
Financial Flow Physical Flow
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual 10 (Cost proc
essor) Dr Expense Cr OU1 Clearing (I/C Invoicing) Dr I/C Receivable Cr I/C Reven
ue (Cost processor) Dr I/C COGS Cr Expense 10
OU2 Accounting (Receiving Processor) Dr RI DC 15 Cr I/C Accrual 15
MMT: PO receipt in RC (Accounting transaction) (Logical PO Receipt) MMT: RC -> D
C (Accounting transaction) (Logical I/C Shipment)
10 (I/C Invoicing) Dr I/C Accrual 15 Cr I/C Payable 15
15 15 10
10 (Receiving Processor) Dr Charge Acct DC 15 Cr RI DC 15
T2 T2 >= T1
Deliver into DC
RT: Deliver in DC
Intercompany Transactions
39
OU1 Reconciliation Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Reve
nue 15
OU2 Reconciliation Dr ChargeAcct DC 15 Cr I/C Payable 15
NOTE: Since item is expense, it will be routed through the item/organization exp
ense account in the procurement organization If the PO distribution for the dest
ination organization, has a project tied to it, the accounting will default to P
O price
Return in Flow 4A: Global Procurement of Expense item in Expense destination wit
h Accrue on Receipt
Expense Item Expense dest. EXP DC RI SOB2/LE2/ OU2 15$ Transfer price Expense It
em Accrue rcpt RC SOB1/LE1/ OU1 10$ PO price S1
PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2
Financial Flow Physical Flow
Time T1 T2
Transaction Return to receiving (Purchasing) Return to vendor (Purchasing)
Description DC->RI DC (Regular transaction) RT: Return DC RI to S1 (No accountin
g) MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C
Receipt)
OU1 Accounting
OU2 Accounting (Receiving processor) Dr RI DC 15 Cr Charge DC 15 (Receiving Proc
essor) Dr I/C Accrual 15 Cr RI DC 15 10 10 (I/C Invoicing) (I/C Credit memo)
Intercompany Transactions 40
(Cost processor) Dr Expense Cr I/C COGS (I/C Invoicing) (I/C Credit memo)
Dr I/C Revenue 15 Cr I/C Receivable 15 MMT: RC->RC RI (Accounting transaction) (
Logical RTV) RT: Return RC RI to S1 (Accounting transaction) (Logical RTV) (Cost
processor) Dr OU1 clearing Cr Expense 10 10
Dr I/C Payable 15 Cr I/C Accrual 15
(Receiving Processor) Dr Accrual 10 Cr OU1 clearing 10
OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C COGS Cr I/C Receivable
OU2 Reconciliation Dr I/C Payable 15 Cr Charge DC 15 10 15
Intercompany Transactions
41
Flow 5: Global Procurement of Expense item in Expense destination with Accrue on
Receipt
Expense Item Expense dest. EXP DC RI SOB3/LE3/ OU3 Asset Item RC SOB2/LE2/ OU2 E
xpense Item 15$ 10$ Accrue rcpt Transfer PO price PC price SOB1/LE1/ OU1
20$ Transfer price
S1
PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2->OU3
Financial Flow Physical Flow
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr OU1 Clearing 10 Cr Accrual
10
OU2 Accounting (Receiving Processor) Dr OU2 Clearing 15 Cr I/C Accrual 15
OU3 Accounting (Receiving Processor) Dr RI DC 20 Cr I/C Accrual 20
MMT: PO receipt in PC (Accounting transaction) (Logical PO Receipt) MMT: PC -> R
C (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt)
(Cost processor) Dr Expense PC 10 Cr OU1 Clearing 10 (I/C Invoicing) Dr I/C Rece
ivable Cr I/C Revenue (Cost processor) Dr I/C COGS Cr Expense PC 15 15 10 10 (Co
st Processor) Dr Inventory RC 15 Cr OU2 Clearing 15 (I/C Invoicing) Dr I/C Accru
al 15 Cr I/C Payable 15 (I/C Invoicing) Dr I/C Receivable 20 Cr I/C Revenue 20 (
I/C Invoicing) Dr I/C Accrual 20 Cr I/C Payable 20
Intercompany Transactions 42
MMT: RC -> DC (Accounting transaction) (Logical I/C Shipment)
(Cost processor) Dr I/C COGS 15 Cr Inventory RC 15 T2 T2 >= T1 OU1 Reconciliatio
n Dr I/C Receivable 15 Dr I/C COGS 10 Cr Accrual 10 Cr I/C Revenue 15 OU2 Reconc
iliation Dr I/C Receivable 20 Dr I/C COGS 15 Cr I/C Revenue Cr I/C Payable OU3 R
econciliation Dr Charge DC 20 Cr I/C Payable Deliver into DC RT: Deliver in DC (
Receiving Processor) Dr Charge DC 20 Cr RI DC 20
20 15
20
Return in Flow 5: Global Procurement of Expense item in Expense destination with
Accrue on Receipt
Expense Item Expense dest. EXP DC RI SOB3/LE3/ OU3 Asset Item RC SOB2/LE2/ OU2 E
xpense Item 15$ 10$ Accrue rcpt Transfer PO price PC price SOB1/LE1/ OU1
20$ Transfer price
S1
PO OU: OU1 Ship to: DC Procuring Txn Flow: OU1->OU2->OU3
Financial Flow Physical Flow
Time T1 T2
Transaction Return to receiving (Purchasing) Return to vendor (Purchasing)
Description DC->RI DC (Regular transaction) RT: Return DC RI to S1
OU1 Accounting
OU2 Accounting
OU3 Accounting (Receiving processor) Dr RI DC 20 Cr Charge DC 20 (Receiving Proc
essor) Dr I/C Accrual 20 Cr RI DC 20
Intercompany Transactions 43
MMT: DC RI ->RC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Rec
eipt)
(Cost processor) Dr Inventory RC 15 Cr I/C COGS 15 (I/C Invoicing) (I/C Credit m
emo) Dr I/C Revenue 20 Cr I/C Receivable 20 (I/C Invoicing) (I/C Credit memo) Dr
I/C Payable 20 Cr I/C Accrual 20
MMT: RC->PC (Accounting transaction) (Logical I/C Shipment) (Logical I/C Receipt
)
(Cost processor) Dr Inventory PC Cr I/C COGS
10
10
(Cost Processor) Dr OU2 clearing 15 Cr Inventory RC 15 Receiving Processor Dr. I
/C Accrual 15 Cr. OU2 clearing 15 (I/C Invoicing) (I/C Credit memo) Dr I/C Payab
le 15 Cr I/C Accrual 15
(I/C Invoicing) (I/C Credit memo) Dr I/C Revenue Cr I/C Receivable MMT: PC->PC R
I (Accounting transaction) (Logical RTV) RT: Return PC RI to S1 (Accounting tran
saction) (Logical RTV) OU1 Reconciliation Dr I/C Revenue 15 Dr Accrual 10 Cr I/C
COGS Cr I/C Receivable OU2 Reconciliation Dr I/C Revenue 20 Dr I/C Payable 15 C
r I/C COGS Cr I/C Receivable (Cost processor) Dr OU1 clearing Cr Inventory PC (R
eceiving Processor) Dr Accrual Cr OU1 clearing
15 15 10 10
10 10
OU3 Reconciliation Dr I/C Payable 20 Cr Charge 20 15 20
10 15
Intercompany Transactions
44
Flow 6: Global Procurement of one time item in Expense destination with Accrue o
n Receipt
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue receipt RC
SOB1/LE1/ OU1
20$ PO price
10 PO price S1
PO OU: OU1
Financial Flow Physical Flow
Procuring Txn Flow: OU1->OU2
Ship to: DC
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoic
ing) Dr I/C Receivable Cr I/C Revenue
10 10 10
OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr
I/C Accrual Cr I/C Payable (Receiving Processor) Dr Charge Acct. DC Cr RI DC
20 20 20 20
RC DC (Accounting transaction)
10
20 20
T2 T3
Deliver into DC
Supplier Invoice for 11 British Pounds
RT: Deliver in DC
Match invoice to rcpt
Dr. Accrual Dr. IPV Cr. Liability
10 1
11
OU1 Reconciliation Dr I/C Cost of Sale 10 Dr. I/C Receivable 10 Dr. IPV 1 Cr. I/
C Revenue Cr. Liability
OU2 Reconciliation Dr. Charge 20 Cr. I/C Payable 20 10 11
Intercompany Transactions
45
Return in Flow 6: Global Procurement of one time item in Expense destination wit
h Accrue on Receipt
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue receipt RC
SOB1/LE1/ OU1
20$ PO price
10 PO price S1
Procuring Txn Flow: OU1->OU2
Financial Flow Physical Flow
Time T1 T2
Transaction Return to receiving (Inventory) Return to vendor (Purchasing)
Description DC RI DC (Regular transaction)
RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)
OU1 Accounting
OU2 Accounting (Receiving processor) Dr RI DC Cr Charge acct. DC
20 20
(Receiving Processor) Dr Accrual Cr I/C Cost of Sales (I/C Invoicing) Dr I/C Rev
enue Cr I/C Receivable Dr Liability Cr IPV Cr Accrual
10
10
(Receiving Processor) Dr I/C Accrual Cr RI DC (I/C Invoicing) Dr I/C Payable Cr
I/C Accrual
20
20
10 10 11 1 10
20 20
T3
Credit Memo
Supplier sends credit memo
OU1 Reconciliation Dr Liability 11 Dr. I/C Revenue 10 Cr. IPV Cr. I/C Receivable
Cr. I/C Cost of Sales
OU2 Reconciliation Dr. I/C Payable 20 Cr. Charge 20 1 10 10
Intercompany Transactions
46
Flow 7: Global Procurement of one time item in Expense destination with Accrue a
t Period End
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue per end RC
SOB1/LE1/ OU1
20$ PO price
10 PO price S1
PO OU: OU1 Ship to: DC
Financial Flow Physical Flow
Procuring Txn Flow: OU1->OU2
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting No Accounting
OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual 10 10 (I/C Invoicin
g) Dr. I/C Accrual Cr. I/C Payables (Receiving Processor) Dr Charge Acct. DC Cr
RI DC
20
20
RC DC (Accounting transaction) T2 T3 T4 T5 Deliver into DC Period End Accruals R
eopen next period Supplier Invoice for 11 British Pounds Open Purchasing Period
Match invoice to rcpt RT: Deliver in DC
(I/C Invoicing) Dr. I/C Receivables Cr. I/C Revenue
20 20
20 20
Dr. I/C Cost of Sales Cr. Accrual
10 10 10 11
Dr. Accrual 10 Cr. I/C Cost of Sales Dr. I/C Cost of Sales Cr. Liability 11
Intercompany Transactions
47
OU1 Reconciliation Dr I/C Receivable 10 Dr. I/C Cost of Sales 11 Cr. I/C Revenue
10 Cr. Liability 1
OU2 Reconciliation Dr. Charge 20 Cr. I/C Payable
20
NOTE: IPV is not adjusted on the I/C invoice
Intercompany Transactions
48
Return in Flow 7: Global Procurement of one time item in Expense destination wit
h Accrue at Period End
One time Item Expense dest. EXP DC SOB2/LE2/ OU2 One time item accrue per end RC
SOB1/LE1/ OU1
20$ PO price
10 PO price S1
Procuring Txn Flow: OU1->OU2
Financial Flow Physical Flow
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting No Accounting
OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual 10 10 (I/C Invoicin
g) Dr. I/C Accrual Cr. I/C Payables (Receiving Processor) Dr Charge Acct. DC Cr
RI DC
20
20
RC DC (Accounting transaction) T2 Deliver into DC RT: Deliver in DC
(I/C Invoicing) Dr. I/C Receivables Cr. I/C Revenue
20 20
20 20
T3 T4
Return to RI DC Return from RI DC to S1
RT: Return to RI in DC RT: Return to Vendor DC RC (I/C Invoicing) Dr. I/C Revenu
e 10 Cr. I/C Receivable 10 No Accounting since net quantity received is 0
(Receiving Processor Dr. RI DC 20 Cr. Charge Acct DC (Receiving Processor) Dr. I
/C Accrual 20 Cr. RI DC (I/C Invoicing) Dr. I/C Payables 20 Cr. I/C Accrual
20 20 20
T4
Period End Accruals
Intercompany Transactions
49
T5
Reopen next period
Open Purchasing Period
No Accounting
NOTE: Net Accounting is nil, since the net quantity received is zero In case of
2 way match, it is not essential to have a receipt at the time of invoicing. The
receipt may never occur as well At the time of invoice, an inter-company event
will be generated in the receiving accounting events table, so that inter-compan
y accounting can take place. A reverse event needs to be created when a credit m
emo is received against the invoice I/C accounting will be a pure charge back fo
r one-time items. The I/C cost of sales at PO price will be offset by the I/C Re
venue, also at PO price, thereby ensuring that there is no recognition of I/C pr
ofit
Intercompany Transactions
50
Flow 8: Global Procurement with Shop Floor destination of OSP item OSP charges a
t PO price
OSP Item Shop Fl. dest. Shop Floor DC SOB2/LE2/ OU2
10$ PO price
any item type RC SOB1/LE1/ OU1
10$ PO price S1
PO OU: OU1 Ship to: DC
Financial Flow Physical Flow
Procuring Txn Flow: OU1->OU2
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoic
ing) Dr I/C Receivable Cr I/C Revenue
10 10 10 10
OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr
I/C Accrual Cr I/C Payable (Cost Processor) Dr WIP Val OSP DC Cr RI DC
10 10 10 10
RC DC (Accounting transaction)
T2
Deliver into DC
RT: Deliver in DC (WCTI transaction) WT: Outside Processing
10 10
NOTE: For phase 1, I/C accounting for OSP items will not use transfer price. I/C
invoices will be a pure charge back. The I/C cost of sales at PO price will be
offset by the I/C Revenue, also at PO price, thereby ensuring that there is no r
ecognition of I/C profit OU1 Reconciliation Dr I/C Cost of Sales Dr. I/C Receiva
ble Cr. I/C Revenue Cr. Accrual OU2 Reconciliation Dr WIP Val. OSP 20 Cr. I/C Pa
yable 20 10 10
Intercompany Transactions 51
10 10
Return in Flow 8: Global Procurement with Shop Floor destination of OSP item OSP
charges at PO price
OSP item Shop Floor DC SOB2/LE2/ OU2 10$ PO price any item type RC SOB1/LE1/ OU1
$10 PO price S1
Financial Flow Physical Flow
Time T1 T2
Transaction Return to receiving Return to vendor (Purchasing)
Description DC RI DC (Regular transaction)
RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)
OU1 Accounting
OU2 Accounting (Receiving processor) Dr RI DC Cr WIP Val OSP DC
10 10
(Receiving Processor) Dr Accrual Cr I/C Cost of Sales (I/C Invoicing) Dr I/C Rev
enue Cr I/C Receivable Dr Liability Cr IPV Cr Accrual
10 10 10 10 11 1 10
(Receiving Processor) Dr I/C Accrual Cr RI DC (I/C Invoicing) Dr I/C Payable Cr
I/C Accrual
10 10 10 10
T3
Credit Memo
Supplier sends credit memo
OU1 Reconciliation Dr. I/C Revenue 10 Dr. Liability 11 Cr. IPV Cr. I/C Cost of S
ales Cr. I/C Receivable
OU2 Reconciliation Dr. I/C Payable 10 Cr. WIP Val OSP 1 10 10
10
Intercompany Transactions
52
Flow 9: Global Procurement with Shop Floor destination of OSP item OSP charges a
t standard rate
OSP Item Shop Fl. dest. Shop Floor DC SOB2/LE2/ OU2
any item type RC SOB1/LE1/ OU1
10$ PO price S1
PO OU: OU1
Financial Flow Physical Flow
Procuring Txn Flow: OU1->OU2
Ship to: DC
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoic
ing) Dr I/C Receivable Cr I/C Revenue
10 10 10 10
OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr
I/C Accrual Cr I/C Payable (Cost Processor) Dr WIP Val OSP DC Cr RI DC Cr PPV
10 10 10 10
RC DC (Accounting transaction)
T2
Deliver into DC
RT: Deliver in DC (WCTI transaction) WT: Outside Processing
20 10 10
NOTE: Any transfer price that is set up for this item is ignored. OU1 Reconcilia
tion Dr. I/C Receivable 10 Dr. I/C Cost of Sales 10 Cr. I/C Revenue 10 Cr. Accru
al 10 OU2 Reconciliation Dr. WIP Val. OSP 20 Cr. I/C Payable 10 Cr. PPV 10
Intercompany Transactions
53
Return in Flow 9: Global Procurement with Shop Floor destination of OSP item OSP
charges at standard rate
OSP item Shop Floor DC SOB2/LE2/ OU2 10$ PO price any item type RC SOB1/LE1/ OU1
$10 PO price S1
Financial Flow Physical Flow
Time T1
Transaction Return to receiving
Description DC RI DC (Regular transaction)
RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)
OU1 Accounting
OU2 Accounting (Receiving processor) Dr RI DC 10 Dr PPV 10 Cr WIP Valuation DC
20
T2
Return to vendor (Purchasing)
(Receiving Processor) Dr Accrual Cr I/C Cost of Sales (I/C Invoicing) Dr I/C Rev
enue Cr I/C Receivable Dr Liability Cr IPV Cr Accrual
10
10
(Receiving Processor) Dr I/C Accrual Cr RI DC (I/C Invoicing) Dr I/C Payable Cr
I/C Accrual
10
10
10 10 11 1 10
10 10
T3
Credit Memo
Supplier sends credit memo
OU1 Reconciliation Dr. I/C Revenue 10 Dr. Liability 11 Cr. I/C Receivable Cr. I/
C Cost of Sales Cr. IPV
10 10 1
OU2 Reconciliation Dr. I/C Payable 10 Dr. PPV 10 Cr. WIP Val OSP
20
Intercompany Transactions
54
Flow 10: Global Procurement with Shop Floor destination of EAM direct item
Direct Item Shop Fl. dest. Shop Floor DC SOB2/LE2/ OU2 any item type RC SOB1/LE1
/ OU1
10$ PO price
10$ PO price S1
PO OU: OU1
Financial Flow Physical Flow
Procuring Txn Flow: OU1->OU2
Ship to: DC
Time T1
Transaction Receipt in DC
Description RT: Receive in DC
OU1 Accounting (Receiving Processor) Dr I/C Cost of Sales Cr Accrual (I/C Invoic
ing) Dr I/C Receivable Cr I/C Revenue
10 10 10 10
OU2 Accounting (Receiving Processor) Dr RI DC Cr I/C Accrual (I/C Invoicing) Dr
I/C Accrual Cr I/C Payable
10 10 10 10
RC DC (Accounting transaction)
T2
Deliver into DC
RT: Deliver in DC (WCTI transaction) WT: Direct Shopfloor Delivery
(Cost Processor) Dr Work Order Material 10 Cr RI DC
10
Intercompany Transactions
55
Return in Flow 10: Global Procurement with Shop Floor destination of EAM direct
item
Direct item Shop Floor DC SOB2/LE2/ OU2 10$ PO price any item type RC SOB1/LE1/
OU1
$10 PO price S1
Financial Flow Physical Flow
Time T1 T2
Transaction Return to receiving Return to vendor (Purchasing)
Description DC RI DC (Regular transaction)
RT: Return DC RI to S1 (No accounting) DC RI RC (Accounting transaction)
OU1 Accounting
OU2 Accounting (Receiving processor) Dr RI DC 20 Cr Work Order Material
20
(Receiving Processor) Dr Accrual Cr I/C Cost of Sales (I/C Invoicing) Dr I/C Rev
enue Cr I/C Receivable Dr Liability Cr IPV Cr Accrual
10 10 10 10 11 1 10
(Receiving Processor) Dr I/C Accrual Cr RI DC (I/C Invoicing) Dr I/C Payable Cr
I/C Accrual
20 20 20 20
T3
Credit Memo
Supplier sends credit memo
Intercompany Transactions
56
CONCLUSION
This paper describes the intercompany business flows and their corresponding acc
ounting entries. This paper should give sufficient information to help understan
d the underlying accounting for the intercompany transactions involving two or m
ore operating units.
ADDITIONAL RESOURCES Intercompany Invoicing: How to Set Up and Use this Feature
within Oracle Applications, Oracle White Paper, May 2000.

Intercompany Invoicing and Advanced Pricing Integration, Oracle White Paper, May
2002. Overview of Intercompany Invoicing, Oracle White Paper, July 2005. Oracle
Inventory Users Guide, 11.5.10. Oracle Order Management Users Guide, 11.5.10. O
racle Accounts Receivable Users Guide, 11.5.10. Oracle Accounts Payable Users Gu
ide, 11.5.10. Oracle Purchasing Users Guide, 11.5.10.
Intercompany Transactions
57
Intercompany Transactions July 2005 Author: Karthik Gnanamurthy Contributing Aut
hors: Krish Ratnam Koothan
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