Intercompany Transactions

An Oracle White Paper

July 2005
 Intercompany Transactions

EXECUTIVE SUMMARY............................................................................................................................................................ 3
INTRODUCTION ......................................................................................................................................................................... 3

INTERCOMPANY TRANSACTIONS..................................................................................................................................... 4
Flow 1: External drop shipment from supplier to customer.................................................................................................... 7
Return in Flow 1: External drop shipment from supplier to customer.................................................................................. 9
Flow 1A: External drop shipment from supplier to customer with intermediate financial nodes................................... 11
Return in Flow 1A: External drop shipment from supplier to customer with intermediate 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 and procurement financial flow .................. 17
Flow 2: Internal drop shipment from supplier (Global Procurement) ................................................................................. 18
Return in Flow 2: Internal drop shipment from supplier (Global Procurement) ............................................................... 21
Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement with
intermediate financial nodes)........................................................................................................................................................ 23
Return in Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement
with intermediate financial nodes)............................................................................................................................................... 25
Flow 2B: Internal drop shipment from supplier with intermediate financial nodes, using PO pricing option ............. 27
Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer ........ 29
Return in Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to
customer .......................................................................................................................................................................................... 31
Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization) .................................. 33
Return Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)..................... 34
Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt.......................................... 35
Return in Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt........................ 37
Return in Flow 4A: Global Procurement of Expense item in Expense destination with Accrue on Receipt ............... 40
Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt .................................... 42
Return in Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt .................. 43
Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt .................................... 45
Return in Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt .................. 46
Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End .............................. 47
Return in Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End ............ 49
Flow 8: Global Procurement with Shop 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 Floor destination of OSP item – OSP charges at standard rate ..................... 53
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: Global 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 throughout the world. These companies have multiple operating
units and organizations around the world. When goods are shipped or received, the financial ownership
through these organizations does not necessarily follow the physical movement of goods. Oracle Applications
support three main logistics needs of global organizations – Central Distribution, Central Procurement and
Drop Ship. This whitepaper details the intercompany transactions from an accounting perspective in Oracle
Applications as in 11.5.10.

INTRODUCTION
A corporation manages its global operations in various countries through a network of subsidiaries, separate
legal entities, licensees and several associated label 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 domestic company partnership.
• Most of the steel and aluminum companies in Asia sell their entire output to another marketing company.
• Automobile industries are increasingly centralizing their sourcing activities globally to leverage their
combined 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
agreements 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 Vision 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 china
through VJ. Though the financial transactions between V1 and VC are routed through VJ, logistic movement
of goods takes place directly between V1 and VC.

Example 2

Continuing the above example, Vision Operations (V1) has another subsidiary company called Vision
Singapore (VS), 100 % that it owns. Individual plants procure components from their own suppliers. VS
centralizes all the commodity (like steel, Aluminum etc.,) procurement needs of Vision Operations across
 world and procures the material on behalf of all VJ and its subsidiary plants and 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 implementation of Oracle applications in such a complex business
environment is the ability to process "intercompany transactions," where one business unit invoices another for
transfer of goods and services. Often these intercompany transactions involve transactions related to general
expenses, funds transfer, salary transfers, asset transfers, royalty payments and product transfers. This paper
discusses only those intercompany transactions that are related to product transfers such as sales of goods and
internal procurement.
This paper provides setup steps, implementation tips, and guidance for coordinating the many departments,
which become 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 Description OU1 Accounting OU2 Accounting

Time indicates the sequence of events happening. Transaction indicates the physical event. Logical transactions are
in italics. Description gives the underlying transactions - physical/logical that are created. These drive accounting
entries. 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 enabled

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 reconciliation of accounting entries in previous table are tabulated as below:
OU1 Reconciliation 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 Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in RC through RT: Receive in RC RI (Receiving Processor)
Receiving Desktop Form Dr OU1 Clearing 10
Cr Accrual 10
T2 Deliver into RC through RT: Deliver in RC
Receiving Desktop Form
MMT: PO receipt in RC (Cost processor)
(Accounting transaction) Dr Inventory RC 10
(Logical PO receipt) Cr OU1 Clearing 10

MMT: RC -> DC (I/C Invoicing) (Cost Processor)

(Accounting transaction) Dr I/C Receivable 15 Dr Inventory DC 15
(Logical I/C shipment) Cr I/C Revenue 15 Cr I/C Accrual 15
(Logical I/C receipt)
(Cost processor) (I/C Invoicing)
Dr I/C COGS 10 Dr I/C Accrual 15
Cr Inventory RC 10 Cr I/C Payable 15

MMT: DC -> C1 (Cost Processor)

(Accounting transaction) 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 OU2 Reconciliation

Dr I/C Receivable 15 Dr COGS DC 15
Dr I/C COGS 10 Dr Receivable DC 20
Cr Accrual 10 Cr Revenue DC 20
Cr I/C Revenue 15 Cr I/C Payable 15

NOTE:
• If logical receipt is made in DC then the same accounting entries/transactions as in Flow 2 (in pages to come) will be generated.
• 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 8
Return in Flow 1: External drop shipment from supplier to customer

Time Transaction Description OU1 Accounting OU2 Accounting

T1 RMA in RC MMT: RMA in RC
(No accounting)

MMT: RMA in DC (Cost processor)

(Accounting Dr Inventory DC 15
transaction) Cr COGS
(Logical RMA) 15
(Cost processor)
MMT: DC->RC Dr Inventory RC 12 (Cost processor)
(Accounting Cr I/C COGS Dr I/C Accrual 15
transaction) 12 Cr Inventory DC
(Logical I/C Shipment) 15
(Logical I/C Receipt) (I/C Invoicing)
(Credit Memo) (I/C Invoicing)
Dr I/C Revenue 15 (Credit Memo)
Cr I/C Receivable 15 Dr I/C Payable 15
Cr I/C Accrual
15
T2 AR Credit Memo (AR)
Dr Revenue DC 20
Cr Receivable DC 20
T3 Return to Receiving MMT: RC->RC RI (Cost processor)

Intercompany Transactions 9
 (Inventory) Dr RI RC 10
Cr Inventory RC
10
T4 Return to Vendor RT: Return to S1 (Receiving processor)
(Purchasing) (RC RI-> S1) Dr Accrual 10
Cr RI RC
10

OU1 Reconciliation OU2 Reconciliation

Dr Inventory 2 Dr I/C Payable 15
Dr I/C Revenue 15 Dr Revenue 20
Dr Accrual 10 Cr COGS 15
Cr I/C COGS 12 Cr Receivable 20
Cr I/C Receivable 15

NOTE:
• RMA receipts are always physical receipts, with transaction cost as the item’s current cost
• There is no re-average or PPV at the time of RMA receipt
• Since current 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 financial nodes

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 Receipt in PC through RT: Receive in PC (Receiving Processor)
Receiving Desktop Form Dr OU1 Clearing 10
Cr Accrual 10
T1 Deliver into PC through RT: Deliver in PC
Receiving Desktop Form
MMT: PO receipt in PC (Cost processor)
(Accounting Dr Inventory PC 10
transaction) Cr OU1 Clearing 10
(Logical PO receipt)

(I/C Invoicing) (Cost Processor)

MMT: PC -> RC Dr I/C Receivable 15 Dr Inventory RC 15
(Accounting Cr I/C Revenue Cr I/C Accrual
transaction) 15 15
(Logical I/C Shipment)
(Logical I/C Receipt) (Cost processor) (I/C Invoicing)
Dr I/C COGS 10 Dr I/C Accrual 15
Cr Inventory PC Cr I/C Payable
10 15

Intercompany Transactions 11
 (Cost Processor)
Dr Inventory DC 20
MMT: RC -> DC (I/C Invoicing) Cr I/C Accrual
(Accounting Dr I/C Receivable 20 20
transaction) Cr I/C Revenue
(Logical I/C Shipment) 20 (I/C Invoicing)
(Logical I/C Receipt) Dr I/C Accrual 20
(Cost processor) Cr I/C Payable
Dr I/C COGS 15 20
Cr Inventory RC
15 (Cost Processor)
MMT: DC -> C1 Dr COGS DC 20
(Accounting Cr Inventory DC
transaction) 20
(Logical SO Issue)
(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Receivable 15 Dr I/C Receivable 20 Dr COGS DC 20
Dr I/C COGS 10 Dr I/C COGS 15 Dr Receivable DC 25
Cr Accrual 10 Cr I/C Revenue 20 Cr Revenue DC 25
Cr I/C Revenue 15 Cr I/C Payable 15 Cr I/C Payable
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 intermediate financial nodes

20$ 12$
25$ 15$
Transfer Current cost 10$
Price list Transfer
price PO price
price
DC RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

PO Order
Financial Flow
OU: OU1 OU: OU3
Physical Flow
Ship to: PC Ship from: PC
Shipping Txn Flow: OU1->OU2->OU3
Procuring Txn Flow: None

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 RMA in PC MMT: RMA in PC
(No accounting)

MMT: RMA in DC (Cost processor)

(Accounting transaction) Dr Inventory DC 20
(Logical RMA) Cr COGS 20

MMT: DC->RC (Cost processor) (Cost processor)

(Accounting transaction) Dr Inventory RC 15 Dr I/C Accrual 20
(Logical I/C Shipment) Cr I/C COGS 15 Cr Inventory DC 20
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(Credit Memo) (Credit Memo)
Dr I/C Revenue 20 Dr I/C Payable 20
Cr I/C Receivable 20 Cr I/C Accrual 20
MMT: RC->PC (Cost processor) (Cost processor)
(Accounting transaction) Dr Inventory PC 12 Dr I/C Accrual 15
(Logical I/C Shipment) Cr I/C COGS 12 Cr Inventory RC 15
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
Intercompany Transactions 13
 Dr I/C Revenue 15 Dr I/C Payable 15
Cr I/C Receivable 15 Cr I/C Accrual 15
T2 AR Credit Memo (AR)
Dr Revenue DC 25
Cr Receivable DC 25
T3 Return to Receiving MMT: PC->PC RI (Cost processor)
(Inventory) Dr RI PC 10
Cr Inventory PC 10
T4 Return to Vendor RT: Return to S1 (Receiving processor)
(Purchasing) (PC RI->S1) Dr Accrual 10
Cr RI PC 10

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr Inventory 2 Dr I/C Payable 15 Dr I/C Payable 20
Dr I/C Revenue 15 Dr Revenue 20 Dr Revenue 25
Dr Accrual 10 Cr COGS 15 Cr COGS 20
Cr I/C COGS 12 Cr Receivable 20 Cr Receivable 25
Cr I/C Receivable 15

NOTE:
• RMA receipts are always physical receipts, with transaction cost as the item’s current cost
• There is no re-average or PPV at the time of RMA receipt
• Since current 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 financial flow

Intercompany Transactions 14
 Asset Item Asset Item Asset Item
15$
Inv. dest 20$ Inv. dest Accrue rcpt 10$
25$ Transfer
Transfer PO price
Price list price
DC price RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

Logical
Receiptt

PO Order

OU: OU1 OU: OU3

Financial Flow
Ship to: RC Ship from: RC Physical Flow

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 Receipt in RC RT: Receive in RC (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr OU2 Clearing 15
Cr Accrual 10 Cr I/C Accrual 15

MMT: PO receipt in PC (Cost processor)

(Accounting transaction) Dr Inventory PC 10
(Logical PO receipt) Cr OU1 Clearing 10

MMT: PC -> RC RI (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 15 Dr I/C Accrual 15
(Logical I/C Shipment) Cr I/C Revenue 15 Cr I/C Payable 15

(Cost processor)
Dr I/C COGS 10
Cr Inventory PC 10
T2 Deliver into RC
RT: Deliver in RC
T2 >= T1 Cost Processor
MMT: Logical PO Receipt in RC Dr Inventory RC 15
Cr. OU2 Clearing 15

MMT: RC -> DC
(Accounting transaction) I/C Invoicing)

Intercompany Transactions 15
 (Logical I/C Shipment) Dr I/C Receivable 20 (Cost Processor)
(Logical I/C Receipt) Cr I/C Revenue 20 Dr Inventory DC 20
Cr I/C Accrual 20
(Cost processor)
Dr I/C COGS 15 (I/C Invoicing)
Cr Inventory RC 15 Dr I/C Accrual 20
MMT: DC -> C1 Cr I/C Payable 20
(Accounting transaction)
(Logical SO Issue)
(Cost Processor)
Dr COGS DC 20
Cr Inventory DC 20

(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Receivable 15 Dr I/C Receivable 20 Dr COGS DC 20
Dr I/C COGS 10 Dr I/C COGS 15 Dr Receivable DC 25
Cr Accrual 10 Cr I/C Revenue 20 Cr Revenue DC 25
Cr I/C Revenue 15 Cr I/C Payable 15 Cr I/C Payable 20

Intercompany Transactions 16
Flow 1B: Return: External Drop shipment from supplier with shipment and procurement financial flow

Asset Item Asset Item

15$
Inv. dest 20$ Current cost $12 Accrue rcpt 10$
25$ Transfer
Transfer PO price
Price list price
DC price RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

PO Order

OU: OU1 OU: OU3

Financial Flow
Ship to: RC Ship from: RC Physical Flow

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 RMA in PC MMT: RMA in RC
(No accounting)

MMT: RMA in DC (Cost processor)

(Accounting transaction) Dr Inventory PC 20
(Logical RMA) Cr COGS 20

MMT: DC->RC (Cost processor) (Cost processor)

(Accounting transaction) Dr Inventory RC 12 Dr I/C Accrual 20
(Logical I/C Shipment) Cr I/C COGS 12 Cr Inventory PC 20
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(Credit Memo) (Credit Memo)
Dr I/C Revenue 20 Dr I/C Payable 20
Cr I/C Receivable 20 Cr I/C Accrual 20

T2 AR Credit Memo (AR)

Dr Revenue PC 25
Cr Receivable PC 25
T3 Return to Receiving MMT: RC->RC RI (Cost processor)
(Inventory) Dr RI RC 15
Intercompany Transactions 17
 Cr Inventory RC 15
T4 Return to Vendor RT: Return RC RI to S1 (Receiving Processor)
(Purchasing) Dr I/C Accrual 15
Cr RI DC 15
MMT: RC RI ->PC (Cost processor)
(Accounting transaction) Dr Inventory PC 10
(Logical I/C Shipment) Cr I/C COGS 10
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(Credit memo) (Credit memo)
Dr I/C Revenue 15 Dr I/C Payable 15
Cr I/C Receivable 15 Cr I/C Accrual 15
(Cost processor)
MMT: PC->PC RI (Accounting Dr OU1 clearing 10
transaction) Cr Inventory PC 10
(Logical RTV)
(Receiving Processor)
RAE: Return PC RI to S1 (Accounting
Dr Accrual 10
transaction) (Logical RTV)
Cr OU1 clearing 10

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Revenue 15 Dr I/C Revenue 20 Dr Revenue 25
Dr Accrual 10 Dr I/C Payable 15 Dr I/C Payable 20
Cr I/C COGS 10 Cr Inventory 3 Cr Receivable 25
Cr I/C Receivable 15 Cr I/C COGS 12 Cr COGS 20
Cr I/C Receivable 20

Flow 2: Internal drop shipment from supplier (Global Procurement)

Intercompany Transactions 18
 Asset Item Asset Item
15$
20$ Inv. dest Accrue rcpt 10$
Transfer
Price list DC RC PO price
price
C1 SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO Order Financial Flow

Physical Flow
OU: OU1 OU: OU2

Ship to: DC Ship from: DC Shipping Txn Flow: None

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr RI DC 15
Cr Accrual 10 Cr I/C Accrual 15

MMT: PO receipt in RC (Cost processor)

(Accounting transaction) Dr Inventory RC 10
(Logical PO receipt) Cr OU1 Clearing 10

MMT: RC -> DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 15 Dr I/C Accrual 15
(Logical I/C Shipment) Cr I/C Revenue 15 Cr I/C Payable 15

(Cost processor)
Dr I/C COGS 10
Cr Inventory RC 10
T2 Deliver into DC RT: Deliver in DC

T2 >= T1 MMT: PO Receipt in DC (Cost Processor)

(Regular transaction) Dr Inventory DC 15
Cr RI DC 15

T3 Ship from DC to C1 MMT: DC->C1 (Cost Processor)

(Regular transaction) Dr COGS DC 15

Intercompany Transactions 19
 Cr Inventory DC 15

(AR Invoice)
Dr Receivable DC 20
Cr Revenue DC 20

OU1 Reconciliation OU2 Reconciliation

Dr I/C Receivable 15 Dr COGS DC 15
Dr I/C COGS 10 Dr Receivable DC 20
Cr Accrual 10 Cr Revenue DC 20
Cr I/C Revenue 15 Cr I/C Payable 15

NOTE:
• The physical PO receipt transaction in DC will be used to re-average the inventory cost, or reflect PPV, as appropriate
• The PO receipt maybe at the Purchase Order price or the Transfer Price, based on the pricing option setup in the transaction flow.
• This transaction however, is not accounted for, or cost collected. 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)

14$
Current
cost 15$
20$ 10$
Transfer
Price list DC RC PO price
price
C1 SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO Order Financial Flow

Physical Flow
OU: OU1 OU: OU2
Shipping Txn Flow: None
Ship to: DC Ship from: DC
Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 RMA in DC MMT: RMA in DC (Cost Processor)
(Regular transaction) Dr Inventory DC 14
Cr COGS DC 14
T2 AR Credit Memo (AR)
Dr Revenue DC 20
Cr Receivable DC 20
T3 Return to receiving MMT: DC->RI DC (Cost processor)
(Inventory) (Regular transaction) Dr RI DC 15
Cr Inventory DC 15
T4 Return to vendor RT: Return DC RI to S1 (Receiving Processor)
(Purchasing) Dr I/C Accrual 15
Cr RI DC 15
MMT: DC RI ->RC (Cost processor)
(Accounting transaction) Dr Inventory RC 10
(Logical I/C Shipment) Cr I/C COGS
(Logical I/C Receipt) 10
(I/C Invoicing)
(I/C Invoicing) (Credit memo)
(Credit memo) Dr I/C Payable 15
Dr I/C Revenue Cr I/C Accrual 15

Intercompany Transactions 21
 15
MMT: RC->RC RI (Accounting transaction) Cr I/C Receivable
(Logical RTV) 15
(Cost processor)
Dr OU1 clearing 10
RT: Return RC RI to S1 Cr Inventory RC
(Accounting transaction) 10
(Logical RTV)
(Receiving Processor)
Dr Accrual 10
Cr OU1 clearing
10

OU1 Reconciliation OU2 Reconciliation

Dr I/C Revenue 15 Dr I/C Payable 15
Dr Accrual 10 Dr Revenue 20
Cr I/C COGS 10 Cr COGS 14
Cr I/C Receivable 15 Cr Receivable 20
Cr Inventory 1

NOTE:
• RMA receipt is a physical receipt at the item’s current cost. Hence I/C COGS may not be completely reversed
• The RTV transaction will reverse accruals at the PO price. However, I/C accounting may not be completely reversed, since transfer price
could have changed in the interim
• The user will need to post manual journal entries 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)

Asset Item Asset Item Asset Item

15$
Inv. dest 20$ Inv. dest Accrue rcpt 10$
25$ Transfer
Transfer PO price
Price list DC RC price PC
price
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

PO Order Financial Flow

OU: OU1 OU: OU3 Physical Flow

Ship to: DC Ship from: DC

Shipping Txn Flow: None
Procuring Txn Flow: OU1->OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr OU2 Clearing 15 Dr RI DC 20
Cr Accrual 10 Cr I/C Accrual 15 Cr I/C Accrual 20

MMT: PO receipt in PC (Cost processor)

(Accounting transaction) Dr Inventory PC 10
(Logical PO Receipt) Cr OU1 Clearing 10

MMT: PC -> RC (I/C Invoicing) (Cost Processor)

(Accounting transaction) Dr I/C Receivable 15 Dr Inventory RC 15
(Logical I/C Shipment) Cr I/C Revenue 15 Cr OU2 Clearing 15
(Logical I/C Receipt)
(Cost processor) (I/C Invoicing)
Dr I/C COGS 10 Dr I/C Accrual 15
Cr Inventory RC 10 Cr I/C Payable 15

Intercompany Transactions 23
 MMT: RC -> DC (I/C Invoicing)
(Accounting transaction) Dr I/C Receivable 20 (I/C Invoicing)
(Logical I/C Shipment) Cr I/C Revenue 20 Dr I/C Accrual 20
Cr I/C Payable 20
(Cost processor)
Dr I/C COGS 15
Cr Inventory RC 15
T2 Deliver into DC RT: Deliver in DC

T2 >= T1 MMT: PO Receipt in DC Cost Processor)

(Regular transaction) Dr Inventory DC 20
Cr RI DC 20
T3 Ship from DC to C1 MMT: DC->C1 (Cost Processor)
(Regular transaction) Dr COGS DC 20
Cr Inventory DC 20

(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Receivable 15 Dr I/C Receivable 20 Dr COGS DC 20
Dr I/C COGS 10 Dr I/C COGS 15 Dr Receivable DC 25
Cr Accrual 10 Cr I/C Revenue 20 Cr Revenue DC 25
Cr I/C Revenue 15 Cr I/C Payable 15 Cr I/C Payable 20

NOTE:
• The physical PO receipt transaction in DC will be used to re-average the inventory cost, or reflect PPV, as appropriate
• The PO receipt maybe at the Purchase Order price or the Transfer Price, based on the pricing option setup in the transaction flow.
• This transaction however, is not accounted for, or cost collected. The transaction is costed, when the associated accounting transactions have
distributions

Intercompany Transactions 24
Return in Flow 2A: Internal drop shipment from supplier with intermediate financial nodes (Global Procurement with intermediate financial nodes)

19$
C urrent cost 15$
20$ 10$
25$ Transfer
Transfer PO price
P rice list DC RC price PC
price
C1 SO B3/LE 3/ S O B 2/LE2/ S O B 1/LE 1/ S1
O U3 O U2 O U1

PO O rder
Financial Flow
O U : O U1 O U: O U3
Physical Flow
S hip to: DC Ship from : DC
Shipping Txn Flow: N one
P rocuring Txn Flow: O U 1->O U 2->O U 3

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 RMA in DC MMT: RMA in DC (Cost Processor)
(Regular transaction) Dr Inventory DC 19
Cr COGS DC 19
T2 AR Credit Memo (AR)
Dr Revenue DC 25
Cr Receivable DC 25
T3 Return to receiving MMT: DC->RI DC (Cost processor)
(Inventory) (Regular transaction) Dr RI DC 20
T3 Cr Inventory DC 20
>
T1
T4 Return to vendor RT: Return DC RI to S1 (Receiving Processor)
(Purchasing) Dr I/C Accrual 20
T4 Cr RI DC 20
> MMT: DC RI ->RC (Cost processor)
T3 (Accounting transaction) Dr Inventory RC 15
(Logical I/C Shipment) Cr I/C COGS 15
(Logical I/C Receipt) (I/C Invoicing)
(Credit Memo)
Dr I/C Revenue 20 (I/C Invoicing)

Intercompany Transactions 25
 Cr I/C Receivable 20 (Credit Memo)
Dr I/C Payable 20
(Cost Processor) Cr I/C Accrual 20
MMT: RC->PC (Cost processor) Dr OU2 clearing 15
(Accounting transaction) Dr Inventory PC 10 Cr Inventory RC 15
(Logical I/C Shipment) Cr I/C COGS 10 (I/C Invoicing)
(Logical I/C Receipt) (I/C Invoicing) Dr I/C Payable 15
Dr I/C Revenue 15 Cr I/C Accrual 15
Cr I/C Receivable 15
(Receiving Processor)
Dr. I/C Accrual 15
Cr. OU2 clearing 15

MMT: PC->PC RI (Cost processor)

(Accounting transaction) Dr OU1 clearing 10
(Logical RTV) Cr Inventory PC 10

(Receiving Processor)
RT: Return PC RI to S1
Dr Accrual 10
(Accounting transaction)
Cr OU1 clearing 10
(Logical RTV)

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Revenue 15 Dr I/C Revenue 20 Dr I/C Payable 20
Dr Accrual 10 Dr I/C Payable 15 Dr Revenue 25
Cr I/C COGS 10 Cr I/C COGS 15 Cr COGS 19
Cr I/C Receivable 15 Cr I/C Receivable 20 Cr Receivable 25
Cr Inventory 1

NOTE:
• RMA receipt is a physical receipt at the item’s current cost. Hence I/C COGS may not be completely reversed
• The RTV transaction will reverse accruals at the PO price. However, I/C accounting may not be completely reversed, since transfer price
could have changed in the interim
• The user will need to post manual journal entries 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 Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr OU2 Clearing 10 Dr RI DC 10
Cr Accrual 10 Cr I/C Accrual 10 Cr I/C Accrual 10

MMT: PO receipt in PC (Cost processor)

(Accounting transaction) Dr Inventory PC 10
Cr OU1 Clearing 10

MMT: PC -> RC (I/C Invoicing) (Cost Processor)

(Accounting transaction) Dr I/C Receivable 10 Dr Inventory RC 10
Cr I/C Revenue 10 Cr OU2 Clearing 10

(Cost processor) (I/C Invoicing)

Dr I/C COGS 10 Dr I/C Accrual 10
Cr Inventory RC 10 Cr I/C Payable 10

MMT: RC -> DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 10 Dr I/C Accrual 10
Cr I/C Revenue 10 Cr I/C Payable 10

(Cost processor)
Dr I/C COGS 10
Cr Inventory RC 10

Intercompany Transactions 27
 T2 Deliver into DC RT: Deliver in DC

T2 >= MMT: PO Receipt in DC Cost Processor)

T1 (Regular transaction) Dr Inventory DC 10
Cr RI DC 10
T3 Ship from DC to C1 MMT: DC->C1 (Cost Processor)
(Regular transaction) Dr COGS DC 10
Cr Inventory DC 10

(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Receivable 10 Dr I/C Receivable 10 Dr COGS DC 10
Dr I/C COGS 10 Dr I/C COGS 10 Dr Receivable DC 25
Cr Accrual 10 Cr I/C Revenue 10 Cr Revenue DC 25
Cr I/C Revenue 10 Cr I/C Payable 10 Cr I/C Payable 10

NOTE:
• When the transaction flow is set-up to use PO price, the financial transaction accounting ignores any transfer price that might be available for the
item.
• Return in Flow 2B is similar to that in Flow 2A.
• Cost collection for Flow 2B is similar to that in Flow 2A

Intercompany Transactions 28
Flow 3: Internal drop shipment from supplier (Global Procurement) and Internal drop shipment to customer

Asset Item Asset Item Asset Item

15$
Inv. dest 20$ Inv. dest Accrue rcpt 10$
25$ Transfer
Transfer PO price
Price list price
DC price RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

Financial Flow
PO Order
Physical Flow
OU: OU1 OU: OU3

Ship to: RC Ship from: RC

Shipping Txn Flow: OU2->OU3
Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 Receipt in RC RT: Receive in RC (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr RI RC 15
Cr Accrual 10 Cr I/C Accrual 15

MMT: PO receipt in PC (Cost processor)

(Accounting transaction) Dr Inventory PC 10
(Logical PO receipt) Cr OU1 Clearing 10

MMT: PC -> RC RI (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 15 Dr I/C Accrual 15
(Logical I/C Shipment) Cr I/C Revenue 15 Cr I/C Payable 15

(Cost processor)
Dr I/C COGS 10
Cr Inventory PC 10
T2 Deliver into RC RT: Deliver in RC

T2 >= T1 MMT: PO Receipt in RC (Cost Processor)

(Regular transaction) Dr Inventory RC 15

Intercompany Transactions 29
 Cr RI RC 15
T3 Ship from RC to C1 MMT: RC->C1
(No accounting)

MMT: RC -> DC I/C Invoicing) (Cost Processor)

(Accounting transaction) Dr I/C Receivable 20 Dr Inventory DC 20
(Logical I/C Shipment) Cr I/C Revenue 20 Cr I/C Accrual 20
(Logical I/C Receipt)
(Cost processor) (I/C Invoicing)
Dr I/C COGS 15 Dr I/C Accrual 20
Cr Inventory RC 15 Cr I/C Payable 20
MMT: DC -> C1 (Cost Processor)
(Accounting transaction) Dr COGS DC 20
(Logical SO Issue) Cr Inventory DC 20

(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Receivable 15 Dr I/C Receivable 20 Dr Receivable 25
Dr I/C COGS 10 Dr I/C COGS 15 Dr COGS 20
Cr I/C Revenue 15 Cr I/C Payable 15 Cr Revenue 25
Cr Accrual 10 Cr I/C Revenue 20 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

19$ 14$
Current cost Current cost 15$
20$ 10$
25$ Transfer
Transfer PO price
Price list price
DC price RC PC
C1 SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

PO Order
Financial Flow
OU: OU1 OU: OU3 Physical Flow
Ship to: RC Ship from: RC
Shipping Txn Flow: OU2->OU3
Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 RMA in RC MMT: RMA in RC
(No transaction)

MMT: RMA in DC (Cost processor)

(Accounting transaction) Dr Inventory DC 20
(Logical RMA) Cr COGS 20

MMT: DC->RC (Cost processor) (Cost processor)

(Accounting transaction) Dr Inventory RC 14 Dr I/C Accrual 20
(Logical I/C Shipment) Cr I/C COGS 14 Cr Inventory DC 20
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(Credit memo) (Credit memo)
Dr I/C Revenue 20 Dr I/C Payable 20
Cr I/C Receivable 20 Cr I/C Accrual 20
T2 AR Credit Memo (AR)
Dr Revenue DC 25
Cr Receivable DC 25
T3 Return to receiving MMT: RC->RC RI (Cost processor)
(Inventory) (Regular transaction) Dr RI RC 15
Cr Inventory RC 15
T4 Return to vendor RT: Return RC RI to S1 (Receiving Processor)

Intercompany Transactions 31
 (Purchasing) (No accounting) Dr I/C Accrual 15
Cr RI RC 15
MMT: RC RI ->PC (Cost processor)
(Accounting transaction) Dr Inventory PC 10
(Logical I/C Shipment) Cr I/C COGS
(Logical I/C Receipt) 10
(I/C Invoicing)
(I/C Invoicing) (I/C Credit memo)
(I/C Credit memo) Dr I/C Payable 15
Dr I/C Revenue 15 Cr I/C Accrual 15
Cr I/C Receivable 15
MMT: PC->PC RI (Accounting transaction)
(Logical RTV) (Cost processor)
Dr OU1 clearing 10
Cr Inventory PC 10
RT: Return PC RI to S1
(Accounting transaction)
(Receiving Processor)
(Logical RTV)
Dr Accrual 10
Cr OU1 clearing 10

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Revenue 15 Dr I/C Revenue 20 Dr Revenue 25
Dr Accrual 10 Dr I/C Payable 15 Dr I/C Payable 20
Cr I/C COGS 10 Cr Inventory 1 Cr Receivable 25
Cr I/C Receivable 15 Cr I/C COGS 14 Cr COGS 20
Cr I/C Receivable 20

Intercompany Transactions 32
Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)

Expense Item Asset Item

Inv. dest 20$ Current cost $14
25$
Transfer
Price list
DC price RC
C1 SOB3/LE3/ SOB2/LE2/
OU2 OU1

Financial Flow
Order
Physical Flow
OU: OU3

Ship to: RC Ship from: RC

Shipping Txn Flow: OU2->OU3

Time Transaction Description OU1 Accounting OU2Accounting

T1 Ship from RC to C1 MMT: RC->C1
(No accounting)

MMT: RC -> DC I/C Invoicing) (Cost Processor)

(Accounting transaction) Dr I/C Receivable 20 Dr Expense DC 20
(Logical I/C Shipment) Cr I/C Revenue 20 Cr I/C Accrual 20
(Logical I/C Receipt)
(Cost processor) (I/C Invoicing)
Dr I/C COGS 14 Dr I/C Accrual 20
Cr Inventory RC 14 Cr I/C Payable 20
MMT: DC -> C1 (AR)
(Accounting transaction) Dr Revenue DC 25
(Logical SO Issue) Cr Receivable DC 25
No Accounting

OU1 Reconciliation OU2 Reconciliation

Dr I/C Receivable 20 Dr Expense DC 20
Dr I/C COGS 14 Dr Revenue DC 25
Cr Inventory 14 Cr Receivable DC 25 Cr I/C Payable 20
Cr I/C Revenue 20

Intercompany Transactions 33
Return Flow 3A: Internal drop shipment to customer (Expense Item in Customer facing organization)

Expense Item Asset Item

Inv. dest 20$ Current cost $14
25$
Transfer
Price list
DC price RC
C1 SOB3/LE3/ SOB2/LE2/
OU2 OU1

Financial Flow
Order
Physical Flow
OU: OU3

Ship to: RC Ship from: RC

Shipping Txn Flow: OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Ship from RC to C1 MMT: RMA in RC
(No accounting)

MMT: RMA in DC
(Accounting transaction)
(Logical RMA)

MMT: DC->RC (Cost processor) (Cost Processor)

(Accounting transaction) Dr Inventory RC 14 Dr I/C Accrual 20
(Logical I/C Shipment) Cr I/C COGS 14 Cr Expense 20
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(Credit memo) (Credit memo)
Dr I/C Revenue 20 Dr I/C Payable 20
Cr I/C Receivable 20 Cr I/C Accrual 20

(AR Invoice)
Dr Receivable DC 25
Cr Revenue DC 25

Intercompany Transactions 34
 OU1 Reconciliation OU2 Reconciliation
Dr Inventory 14 Dr I/C Payable 20
Dr I/C Revenue 20 Dr Receivable 25
Cr I/C COGS 14 Cr Revenue 25
Cr I/C Receivable 20 Cr Expense 20

Flow 4: Global Procurement of Asset item in Expense destination with Accrue on Receipt

Expense Item Asset Item

15$ 10$
Expense dest. Accrue rcpt
Transfer PO price
DC RI price RC
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO

OU: OU1 Financial Flow

Physical Flow
Ship to: DC

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr RI DC 15
Cr Accrual 10 Cr I/C Accrual 15

MMT: PO receipt in RC (Cost processor)

(Accounting transaction) Dr Inventory RC 10
(Logical PO Receipt) Cr OU1 Clearing 10

MMT: RC -> DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 15 Dr I/C Accrual 15
(Logical I/C Shipment) Cr I/C Revenue 15 Cr I/C Payable 15

Intercompany Transactions 35
 (Cost processor)
Dr I/C COGS 10
Cr Inventory RC 10
T2 Deliver into DC RT: Deliver in DC (Receiving Processor)
Dr Charge Acct DC 15
T2 >= T1 Cr RI DC 15

OU1 Reconciliation OU2 Reconciliation

Dr I/C Receivable 15 Dr ChargeAcct DC 15
Dr I/C COGS 10 Cr I/C Payable 15
Cr Accrual 10
Cr I/C Revenue 15

NOTE:
• The destination type on the purchase order should not impact the accrual methodology in the procurement operating unit.
• Consequently, global procurement of inventory items, will be routed through the inventory account of the procurement organization
• Therefore, the supplier accrual on the procurement operating unit will always be accrue at receipt
• If the PO distribution for the destination organization, 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 Accrue on Receipt

Expense Item Asset Item

15$ 10$
Expense dest. Accrue rcpt
Transfer PO price
DC RI price RC
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO

OU: OU1 Financial Flow

Physical Flow
Ship to: DC

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Return to receiving DC->RI DC (Receiving processor)
(Purchasing) (Regular transaction) Dr RI DC 15
Cr Charge DC 15
T2 Return to vendor RT: Return DC RI to S1 (Receiving Processor)
(Purchasing) Dr I/C Accrual 15
Cr RI DC 15
MMT: DC RI ->RC (Cost processor)
(Accounting transaction) Dr Inventory RC 10
(Logical I/C Shipment) Cr I/C COGS 10
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(I/C Credit memo) (I/C Credit memo)
Dr I/C Revenue 15 Dr I/C Payable 15
Cr I/C Receivable 15 Cr I/C Accrual 15

MMT: RC->RC RI (Accounting transaction) (Cost processor)

(Logical RTV) Dr OU1 clearing 10
Cr Inventory RC 10
RT: Return RC RI to S1
(Accounting transaction) (Receiving Processor)
Dr Accrual 10
Cr OU1 clearing 10

Intercompany Transactions 37
OU1 Reconciliation OU2 Reconciliation
Dr I/C Revenue 15 Dr I/C Payable 15
Dr Accrual 10 Cr Charge DC 15
Cr I/C COGS 10
Cr I/C Receivable 15

Intercompany Transactions 38
low 4A: Global Procurement of Expense item in Expense destination with Accrue on Receipt

Expense Item Expense Item

15$ 10$
Expense dest. Accrue rcpt
Transfer PO price
DC RI price RC
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO

OU: OU1 Financial Flow

Physical Flow
Ship to: DC

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr RI DC 15
Cr Accrual 10 Cr I/C Accrual 15

MMT: PO receipt in RC (Cost processor)

(Accounting transaction) Dr Expense 10
(Logical PO Receipt) Cr OU1 Clearing 10

MMT: RC -> DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 15 Dr I/C Accrual 15
(Logical I/C Shipment) Cr I/C Revenue 15 Cr I/C Payable 15

(Cost processor)
Dr I/C COGS 10
Cr Expense 10
T2 Deliver into DC RT: Deliver in DC (Receiving Processor)
Dr Charge Acct DC 15
T2 >= T1 Cr RI DC 15

Intercompany Transactions 39
 OU1 Reconciliation OU2 Reconciliation
Dr I/C Receivable 15 Dr ChargeAcct DC 15
Dr I/C COGS 10 Cr I/C Payable 15
Cr Accrual 10
Cr I/C Revenue 15

NOTE:
• Since item is expense, it will be routed through the item/organization expense account in the procurement organization
• If the PO distribution for the destination organization, has a project tied to it, the accounting will default to PO price

Return in Flow 4A: Global Procurement of Expense item in Expense destination with Accrue on Receipt

Expense Item Expense Item

15$ 10$
Expense dest. Accrue rcpt
Transfer PO price
DC RI price RC
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO

OU: OU1 Financial Flow

Physical Flow
Ship to: DC

Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Return to receiving DC->RI DC (Receiving processor)
(Purchasing) (Regular transaction) Dr RI DC 15
Cr Charge DC 15
T2 Return to vendor RT: Return DC RI to S1 (Receiving Processor)
(Purchasing) (No accounting) Dr I/C Accrual 15
Cr RI DC 15
MMT: DC RI ->RC (Cost processor)
(Accounting transaction) Dr Expense 10
(Logical I/C Shipment) Cr I/C COGS 10
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(I/C Credit memo) (I/C Credit memo)

Intercompany Transactions 40
 Dr I/C Revenue 15 Dr I/C Payable 15
Cr I/C Receivable 15 Cr I/C Accrual 15

MMT: RC->RC RI (Accounting transaction) (Cost processor)

(Logical RTV) Dr OU1 clearing 10
Cr Expense 10

RT: Return RC RI to S1
(Accounting transaction) (Receiving Processor)
(Logical RTV) Dr Accrual 10
Cr OU1 clearing 10

OU1 Reconciliation OU2 Reconciliation

Dr I/C Revenue 15 Dr I/C Payable 15
Dr Accrual 10 Cr Charge DC 15
Cr I/C COGS 10
Cr I/C Receivable 15

Intercompany Transactions 41
Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt

Expense Item Asset Item Expense Item

20$ 15$ 10$
Expense dest. Accrue rcpt
Transfer Transfer PO price
DC RI price RC price PC
EXP SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

PO

OU: OU1 Financial Flow

Physical Flow
Ship to: DC

Procuring Txn Flow: OU1->OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor) (Receiving Processor)
Dr OU1 Clearing 10 Dr OU2 Clearing 15 Dr RI DC 20
Cr Accrual 10 Cr I/C Accrual 15 Cr I/C Accrual 20

MMT: PO receipt in PC (Cost processor)

(Accounting transaction) Dr Expense PC 10
(Logical PO Receipt) Cr OU1 Clearing 10

MMT: PC -> RC (I/C Invoicing) (Cost Processor)

(Accounting transaction) Dr I/C Receivable 15 Dr Inventory RC 15
(Logical I/C Shipment) Cr I/C Revenue 15 Cr OU2 Clearing 15
(Logical I/C Receipt)
(Cost processor) (I/C Invoicing)
Dr I/C COGS 10 Dr I/C Accrual 15
Cr Expense PC 10 Cr I/C Payable 15
MMT: RC -> DC (I/C Invoicing) (I/C Invoicing)
(Accounting transaction) Dr I/C Receivable 20 Dr I/C Accrual 20
(Logical I/C Shipment) Cr I/C Revenue 20 Cr I/C Payable 20

Intercompany Transactions 42
 (Cost processor)
Dr I/C COGS 15
Cr Inventory RC 15
T2 Deliver into DC RT: Deliver in DC (Receiving Processor)
Dr Charge DC 20
T2 >= T1 Cr RI DC 20

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Receivable 15 Dr I/C Receivable 20 Dr Charge DC 20
Dr I/C COGS 10 Dr I/C COGS 15 Cr I/C Payable 20
Cr Accrual 10 Cr I/C Revenue 20
Cr I/C Revenue 15 Cr I/C Payable 15

Return in Flow 5: Global Procurement of Expense item in Expense destination with Accrue on Receipt

Expense Item Asset Item Expense Item

20$ 15$ 10$
Expense dest. Accrue rcpt
Transfer Transfer PO price
DC RI price RC price PC
EXP SOB3/LE3/ SOB2/LE2/ SOB1/LE1/ S1
OU3 OU2 OU1

PO

OU: OU1 Financial Flow

Physical Flow
Ship to: DC

Procuring Txn Flow: OU1->OU2->OU3

Time Transaction Description OU1 Accounting OU2 Accounting OU3 Accounting

T1 Return to receiving DC->RI DC (Receiving processor)
(Purchasing) (Regular transaction) Dr RI DC 20
Cr Charge DC 20
T2 Return to vendor RT: Return DC RI to S1 (Receiving Processor)
(Purchasing) Dr I/C Accrual 20
Cr RI DC 20

Intercompany Transactions 43
 MMT: DC RI ->RC (Cost processor)
(Accounting transaction) Dr Inventory RC 15
(Logical I/C Shipment) Cr I/C COGS 15
(Logical I/C Receipt)
(I/C Invoicing) (I/C Invoicing)
(I/C Credit memo) (I/C Credit memo)
Dr I/C Revenue 20 Dr I/C Payable 20
Cr I/C Receivable 20 Cr I/C Accrual 20

MMT: RC->PC (Cost processor) (Cost Processor)

(Accounting transaction) Dr Inventory PC 10 Dr OU2 clearing 15
(Logical I/C Shipment) Cr I/C COGS 10 Cr Inventory RC 15
(Logical I/C Receipt)
Receiving Processor
Dr. I/C Accrual 15
Cr. OU2 clearing 15

(I/C Invoicing)
(I/C Invoicing)
(I/C Credit memo)
(I/C Credit memo)
Dr I/C Payable 15
Dr I/C Revenue 15
Cr I/C Accrual 15
Cr I/C Receivable 15

MMT: PC->PC RI (Cost processor)

(Accounting transaction) Dr OU1 clearing 10
(Logical RTV) Cr Inventory PC 10

RT: Return PC RI to S1 (Receiving Processor)

(Accounting transaction) Dr Accrual 10
(Logical RTV) Cr OU1 clearing 10

OU1 Reconciliation OU2 Reconciliation OU3 Reconciliation

Dr I/C Revenue 15 Dr I/C Revenue 20 Dr I/C Payable 20
Dr Accrual 10 Dr I/C Payable 15 Cr Charge 20
Cr I/C COGS 10 Cr I/C COGS 15
Cr I/C Receivable 15 Cr I/C Receivable 20

Intercompany Transactions 44
Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt

One time Item One time item

Expense dest. 20$ accrue receipt 10£
DC PO price RC PO price
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO Financial Flow
Physical Flow
OU: OU1
Procuring Txn Flow: OU1->OU2
Ship to: DC

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor)
Dr I/C Cost of Sales 10 Dr RI DC 20
Cr Accrual 10 Cr I/C Accrual 20

RC Æ DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 10 Dr I/C Accrual 20
Cr I/C Revenue 10 Cr I/C Payable 20
T2 Deliver into DC RT: Deliver in DC (Receiving Processor)
Dr Charge Acct. DC 20
Cr RI DC 20
T3 Supplier Invoice for 11 British Pounds Match invoice to rcpt Dr. Accrual 10
Dr. IPV 1
Cr. Liability 11

OU1 Reconciliation OU2 Reconciliation

Dr I/C Cost of Sale 10 Dr. Charge 20
Dr. I/C Receivable 10 Cr. I/C Payable 20
Dr. IPV 1
Cr. I/C Revenue 10
Cr. Liability 11

Intercompany Transactions 45
Return in Flow 6: Global Procurement of one time item in Expense destination with Accrue on Receipt

One time Item One time item

Expense dest. 20$ accrue receipt 10£
DC PO price RC PO price
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

Financial Flow
Procuring Txn Flow: OU1->OU2
Physical Flow

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Return to receiving DC Æ RI DC (Receiving processor)
(Inventory) (Regular transaction) Dr RI DC 20
Cr Charge acct. DC 20
T2 Return to vendor RT: Return DC RI to S1
(Purchasing) (No accounting)

DC RI Æ RC (Receiving Processor) (Receiving Processor)

(Accounting transaction) Dr Accrual 10 Dr I/C Accrual 20
Cr I/C Cost of Sales 10 Cr RI DC 20

(I/C Invoicing) (I/C Invoicing)

Dr I/C Revenue 10 Dr I/C Payable 20
Cr I/C Receivable 10 Cr I/C Accrual 20
T3 Credit Memo Supplier sends credit memo Dr Liability 11
Cr IPV 1
Cr Accrual 10

OU1 Reconciliation OU2 Reconciliation

Dr Liability 11 Dr. I/C Payable 20
Dr. I/C Revenue 10 Cr. Charge 20
Cr. IPV 1
Cr. I/C Receivable 10
Cr. I/C Cost of Sales 10

Intercompany Transactions 46
Flow 7: Global Procurement of one time item in Expense destination with Accrue at Period End

One time Item One time item

Expense dest. 20$ accrue per end 10£
DC PO price RC PO price
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

PO Financial Flow
Physical Flow
OU: OU1

Ship to: DC Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC No Accounting (Receiving Processor)
Dr RI DC 20
Cr I/C Accrual 20

RC Æ DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr. I/C Receivables 10 Dr. I/C Accrual 20
Cr. I/C Revenue 10 Cr. I/C Payables 20

T2 Deliver into DC RT: Deliver in DC (Receiving Processor)

Dr Charge Acct. DC 20
Cr RI DC 20
T3 Period End Accruals Dr. I/C Cost of Sales 10
Cr. Accrual 10

T4 Reopen next period Open Purchasing Period Dr. Accrual 10

Cr. I/C Cost of Sales 10

T5 Supplier Invoice for 11 British Pounds Match invoice to rcpt Dr. I/C Cost of Sales 11
Cr. Liability 11

Intercompany Transactions 47
 OU1 Reconciliation OU2 Reconciliation
Dr I/C Receivable 10 Dr. Charge 20
Dr. I/C Cost of Sales 11 Cr. I/C Payable 20
Cr. I/C Revenue 10
Cr. Liability 1

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 with Accrue at Period End

One time Item One time item

Expense dest. 20$ accrue per end 10£
DC PO price RC PO price
EXP SOB2/LE2/ SOB1/LE1/ S1
OU2 OU1

Financial Flow
Procuring Txn Flow: OU1->OU2
Physical Flow

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC No Accounting (Receiving Processor)
Dr RI DC 20
Cr I/C Accrual 20

RC Æ DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr. I/C Receivables 10 Dr. I/C Accrual 20
Cr. I/C Revenue 10 Cr. I/C Payables 20

T2 Deliver into DC RT: Deliver in DC (Receiving Processor)

Dr Charge Acct. DC 20
Cr RI DC 20

T3 Return to RI DC RT: Return to RI in DC (Receiving Processor

Dr. RI DC 20
Cr. Charge Acct DC 20
T4 Return from RI DC to S1 RT: Return to Vendor (Receiving Processor)
Dr. I/C Accrual 20
Cr. RI DC 20
DC Æ RC (I/C Invoicing) (I/C Invoicing)
Dr. I/C Revenue 10 Dr. I/C Payables 20
Cr. I/C Receivable 10 Cr. I/C Accrual 20
T4 Period End Accruals No Accounting since net quantity received is 0

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-company accounting can take
place. A reverse event needs to be created when a credit memo is received against the invoice
• I/C accounting will be a pure charge back for one-time items. 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 recognition of I/C profit

Intercompany Transactions 50
Flow 8: Global Procurement with Shop Floor destination of OSP item – OSP charges at PO price

OSP Item
any item type
Shop Fl. dest. 10$ 10$
DC PO price RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1

PO Financial Flow
Physical Flow
OU: OU1

Ship to: DC Procuring Txn Flow: OU1->OU2

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor)
Dr I/C Cost of Sales 10 Dr RI DC 10
Cr Accrual 10 Cr I/C Accrual 10

RC Æ DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 10 Dr I/C Accrual 10
Cr I/C Revenue 10 Cr I/C Payable 10
T2 Deliver into DC RT: Deliver in DC
(WCTI transaction)
(Cost Processor)
WT: Outside Processing Dr WIP Val OSP DC 10
Cr RI DC 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 recognition of I/C profit

OU1 Reconciliation OU2 Reconciliation

Dr I/C Cost of Sales 10 Dr WIP Val. OSP 20
Dr. I/C Receivable 10 Cr. I/C Payable 20
Cr. I/C Revenue 10
Cr. Accrual 10

Intercompany Transactions 51
Return in Flow 8: Global Procurement with Shop Floor destination of OSP item – OSP charges at PO price

OSP item any item type

10$ $10
DC PO price RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1

Financial Flow
Physical Flow

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Return to receiving DC Æ RI DC (Receiving processor)
(Regular transaction) Dr RI DC 10
Cr WIP Val OSP DC 10
T2 Return to vendor RT: Return DC RI to S1
(Purchasing) (No accounting)

DC RI Æ RC (Receiving Processor) (Receiving Processor)

(Accounting transaction) Dr Accrual 10 Dr I/C Accrual 10
Cr I/C Cost of Sales 10 Cr RI DC 10

(I/C Invoicing) (I/C Invoicing)

Dr I/C Revenue 10 Dr I/C Payable 10
Cr I/C Receivable 10 Cr I/C Accrual 10
T3 Credit Memo Supplier sends credit memo Dr Liability 11
Cr IPV 1
Cr Accrual 10

OU1 Reconciliation OU2 Reconciliation

Dr. I/C Revenue 10 Dr. I/C Payable 10
Dr. Liability 11 Cr. WIP Val OSP 10
Cr. IPV 1
Cr. I/C Cost of Sales 10
Cr. I/C Receivable 10

Intercompany Transactions 52
Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate

OSP Item
any item type
Shop Fl. dest. 10$
DC RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1

PO Financial Flow
Physical Flow
OU: OU1
Procuring Txn Flow: OU1->OU2
Ship to: DC

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor)
Dr I/C Cost of Sales 10 Dr RI DC 10
Cr Accrual 10 Cr I/C Accrual 10

RC Æ DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 10 Dr I/C Accrual 10
Cr I/C Revenue 10 Cr I/C Payable 10
T2 Deliver into DC RT: Deliver in DC
(WCTI transaction)
(Cost Processor)
WT: Outside Processing Dr WIP Val OSP DC 20
Cr RI DC 10
Cr PPV 10

NOTE:
• Any transfer price that is set up for this item is ignored.

OU1 Reconciliation OU2 Reconciliation

Dr. I/C Receivable 10 Dr. WIP Val. OSP 20
Dr. I/C Cost of Sales 10 Cr. I/C Payable 10
Cr. I/C Revenue 10 Cr. PPV 10
Cr. Accrual 10

Intercompany Transactions 53
Return in Flow 9: Global Procurement with Shop Floor destination of OSP item – OSP charges at standard rate

OSP item any item type

10$ $10
DC PO price RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1

Financial Flow
Physical Flow

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Return to receiving DC Æ RI DC (Receiving processor)
(Regular transaction) Dr RI DC 10
Dr PPV 10
Cr WIP Valuation DC 20
T2 Return to vendor RT: Return DC RI to S1
(Purchasing) (No accounting)

DC RI Æ RC (Receiving Processor) (Receiving Processor)

(Accounting transaction) Dr Accrual 10 Dr I/C Accrual 10
Cr I/C Cost of Sales 10 Cr RI DC 10

(I/C Invoicing) (I/C Invoicing)

Dr I/C Revenue 10 Dr I/C Payable 10
Cr I/C Receivable 10 Cr I/C Accrual 10
T3 Credit Memo Supplier sends credit memo Dr Liability 11
Cr IPV 1
Cr Accrual 10

OU1 Reconciliation OU2 Reconciliation

Dr. I/C Revenue 10 Dr. I/C Payable 10
Dr. Liability 11 Dr. PPV 10
Cr. I/C Receivable 10 Cr. WIP Val OSP 20
Cr. I/C Cost of Sales 10
Cr. IPV 1

Intercompany Transactions 54
Flow 10: Global Procurement with Shop Floor destination of EAM direct item

Direct Item
any item type
Shop Fl. dest. 10$ 10$
DC PO price RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1

PO Financial Flow
Physical Flow
OU: OU1
Procuring Txn Flow: OU1->OU2
Ship to: DC

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Receipt in DC RT: Receive in DC (Receiving Processor) (Receiving Processor)
Dr I/C Cost of Sales 10 Dr RI DC 10
Cr Accrual 10 Cr I/C Accrual 10

RC Æ DC (I/C Invoicing) (I/C Invoicing)

(Accounting transaction) Dr I/C Receivable 10 Dr I/C Accrual 10
Cr I/C Revenue 10 Cr I/C Payable 10

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 any item type

10$ $10
DC PO price RC PO price
Shop
SOB2/LE2/ SOB1/LE1/ S1
Floor
OU2 OU1

Financial Flow
Physical Flow

Time Transaction Description OU1 Accounting OU2 Accounting

T1 Return to receiving DC Æ RI DC (Receiving processor)
(Regular transaction) Dr RI DC 20
Cr Work Order Material 20
T2 Return to vendor RT: Return DC RI to S1
(Purchasing) (No accounting)

DC RI Æ RC (Receiving Processor) (Receiving Processor)

(Accounting transaction) Dr Accrual 10 Dr I/C Accrual 20
Cr I/C Cost of Sales 10 Cr RI DC 20

(I/C Invoicing) (I/C Invoicing)

Dr I/C Revenue 10 Dr I/C Payable 20
Cr I/C Receivable 10 Cr I/C Accrual 20
T3 Credit Memo Supplier sends credit memo Dr Liability 11
Cr IPV 1
Cr Accrual 10

Intercompany Transactions 56
CONCLUSION
This paper describes the intercompany business flows and their corresponding accounting entries. This paper
should give sufficient information to help understand the underlying accounting for the intercompany
transactions involving two or more 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.
• Oracle Accounts Receivable Users Guide, 11.5.10.
• Oracle Accounts Payable Users Guide, 11.5.10.
• Oracle Purchasing Users Guide, 11.5.10.

Intercompany Transactions 57
Intercompany Transactions
July 2005
Author: Karthik Gnanamurthy
Contributing Authors: Krish Ratnam Koothan

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