Record Order Management Transactions: records new sales order transaction activity such as shipments and RMA returns in Oracle Order Management.Ĭollect Revenue Recognition Information: determines the percentage of recognized or earned revenue related to invoiced sales order shipment lines in Oracle Receivables. These COGS recognition transactions adjust deferred and earned COGS in an amount that synchronizes the % of earned COGS to earned revenue on sales order shipment lines. You run a set of concurrent processes to record sales order and revenue recognition transactions and to create and cost COGS recognition transactions. This is done to ensure that amount of earned COGS is recognized proportionately as the amount of earned revenue. This account is subsequently adjusted for any change in the percentage of earned or recognized revenue associated with the sales order lines. Revenue / COGS recognition main business flowĪt sales order shipment, order lines are costed and booked to a Deferred Cost of Goods Sold (COGS) account. The following describes how Oracle Cost Management synchronizes the recognition of earned COGS to earned sales order revenue in a variety of business scenarios. Recognizing Revenue, Oracle Receivables User's Guide Revenue / COGS Recognition Methodology The proportion of total shipment cost that is recognized as COGS will always match the proportion of total billable quantity that is recognized as revenue. Oracle Inventory then creates a cost recognition transaction that adjusts the Deferred COGS and regular COGS amount for the order line. When Oracle Receivables recognizes all or part of the sales revenue associated with a sales order line, you run a cost process that calculates the percentage of total billed revenue recognized. When you ship confirm one or more order lines in Oracle Order Management and then run the applicable Cost Management cost and accounting processes, the cost of goods sold associated with the sales order line is immediately debited to a Deferred COGS account pending the invoicing and recognition of the sales order revenue in Oracle Receivables. In addition, when sales order revenue is only partially recognized, the associated COGS is recognized in the same proportion. With this feature, sales order revenue and the associated COGS are recognized in the same period. The Oracle e-Business Suite supports this matching principle by synchronizing the recognition of cost of goods sold (COGS) with the revenue recognized in Oracle Receivables for shipments made in Oracle Order Management, or other order fulfillment systems. The matching principle requires that cash outlays associated directly with revenues are expensed in the period in which the firm recognizes the revenue. The revenue recognition principle requires revenues to be recognized when a firm has performed all, or a substantial portion of services to be provided, and cash receipt is reasonably certain. COGS Recognition and Concurrent Processesįinancial accounting has two important generally accepted accounting principles (GAAP) that guide the statement of financial earnings:.This chapter covers the following topics:
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