Transfer Price

Oracle SCM
An Oracle White Paper
Feb 2006

Accounting

in

Transfer Price Accounting in Oracle SCM

Table of Contents
1) Executive Summary............................................................................. 3
2) Concepts ............................................................................................... 3
3) Intercompany Transaction Flow Configuration ............................. 7
4) Pricing Decision................................................................................... 9
5) Internal Order Cycle Accounting.................................................... 10
6) Profit In Inventory Accounting For Internal Orders................... 14
7) Currency Option in Intercompany Relations ................................ 15
8) Generic Accounting Rules for Drop Shipment and Global
Procurement ................................................................................................ 16
9) Accounts Used in the Accounting Cycle........................................ 16
10)
Business Flow Accounting Events Matrix ................................ 18
11)
Accounting Entries for Drop Shipment and Global
Procurement ................................................................................................ 21
12)
Document Flows........................................................................... 23
13)
Physical Flows................................................................................ 24
14)
User Interfaces for Validation of Accounting .......................... 25
15)
Screen Shots................................................................................... 26
16)
Additional Reference Resources ................................................. 30

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1) Executive Summary
The globalization phenomenon has lead to geographical proliferation of trade and
business. The business models have seen a paradigm shift. Today we have large
number of business conglomerates operating in multi country and multi location
model having complex business relationship among the entities inside and outside
the conglomerate. This has resulted in structuring of highly networked business
partnerships. The manufacturing and trading activities are spread across the globe
to leverage the competitive advantages of different geographies and also target
wider range of markets. Implementation of these business partnerships involves
policy making on pricing, costing, regulatory framework and other strategic
business areas. All these would necessitate a robust and clean way of initiating,
tracking and controlling the business transactions within the businesss strategic
framework as well as ensuring compliance of international laws. This paper aims to
provide insights about the Transfer Price Accounting Framework available in
Oracle E-Business Suite (11i10) and how effectively it can be used to meet these
complex business requirements.

2) Concepts
In a divisionalised Organization, the managers of different investment centres are
encouraged to operate them as separate economic entities. This separation will
only rarely be complete, however, as goods and services are often provided by one
division to another, particularly in a focused manufacturing environment. A value

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must obviously be placed on these intra-company transfers, and is known as

transfer price.
Transfer Price as a concept refers to the price at which one division sells
goods/services to another division falling within same business group. Such pricing
is required to measure more accurate profitability of the business divisions as well
as meet the corporate and taxation laws of different countries.
Typically manufacturing of goods might happen in one country centrally and sold
across the globe through country subsidiaries. In such a scenario, the
manufacturing division transfers goods to distribution divisions at a Transfer
Price.
This will ensure measurement of true profitability of the manufacturing division as
well compute Return on Investment & other performance metrics of the division.
What should be the Transfer Price?
Transfer price depends mainly on two factors viz.
a) The Business Policy on measurement of performance of selling
division as well as buying division
b) The transfer pricing laws in force in countries where they operate
Ideally Transfer Price could be any of the following:
a) Cost Based Pricing

Marginal cost of production. It is cost of producing one
additional unit

Absorption Cost. It is the fully absorbed unit cost of
production

Standard Cost. It is the standard unit cost of production
b) Market Based Pricing. It is price close to market price of the goods.
The Transfer Prices typically undergoes scrutiny by the tax regulators in each
country to ensure that the prices are at arms length relationship and does not result
in leakage of revenue to government.

Oracle E-Business Suite conceptualizes following business relationships:



Internal Order Transfers of Goods and Services Across Business

Divisions
International Drop Shipment of Goods and Services
o Internal Drop Shipment
o External Drop Shipment
Shared Services Procurement or Global Procurement of Goods and
Services

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Before we get into these business transactions here is a brief overview of business
model architecture in Oracle E-Business Suite
Oracle E-Business Suite facilitates a flexible multi product, multi location business
configuration. Following is the hierarchy of different Business Entities in Oracle
E-Business Suite:
Business Groups
Set of Books
Legal Entities
Operating Units
Inventory Organizations

Business Groups represents the highest level at which the business operates.
Set of Books represents the financial reporting framework within which the
business transactions are performed
Legal Entities represents the corporate identity of the business in a country. This
is the level at which fiscal reporting is required
Operating Units represent a business division or a vertical. It is the level at which
financial and business policy making is configured. Typically business functions like
Purchasing, Order Management, Accounts Receivable, Accounts Payable operates
at this level.
Inventory Organization represents the lowest level of business entity. It typically
corresponds to a manufacturing facility or part there of, a trading unit or a
storage/warehousing facility. This is the level at which products like Inventory,
WIP, BOM and Cost Management operates.
Now lets look into these business transactions in detail.


Internal Order Transfers of Goods and Services Across Operating

Units
This business transaction represents transfer of goods between two
inventory organizations falling in different operating units. For example
the manufacturing unit might distribute goods to selling/distribution units
each operating in different country. This business flow involves use of
Internal Requisition and Internal Sales Order documents. These transfers

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could be at cost to sending Organization or at a Transfer Price. The

Transfer Price is the selling price and the sending operating unit bills the
receiving operating unit. Thus intercompany receivables and payables are
created at transfer price by this transaction.


International Drop Shipment of Goods and Services

Drop shipment transaction represents a trading business model wherein
the selling unit does not stock goods and they are delivered directly from
another stocking inventory organization or an External supplier.
Following are two variations of the Drop Shipment business transaction:
o Internal Drop Shipment
This involves supply of goods and services directly by the
stocking operating unit (an entity within oracle implementation)
to the customer. The selling operating unit does not stock the
goods. For example manufacturing in one country and selling
across the globe. The manufacturing unit ships to the customers
directly.
Note: Oracle EBS currently supports shipment from an Internal
Organization (within oracle implementation) to external customer (not under
oracle implementation). It doesnt support dropshipment from one internal
organization to another internal organization within same Oracle
Implementation. Oracle EBS customers can use Internal Order Flow
functionalityas a workaround.
o

External Drop Shipment

This involves supply of goods and services directly by the
external supplier to the external customer. Both the selling
operating unit as well as the procuring operating unit do not
manufacture or stock the goods. For example, pure trading
business models like wholesale distribution, wherein the
distributor (oracle e-business customer) collects orders from
customers and places a purchase order with supplier. The
supplier directly delivers to distributors customers.

Shared Services Procurement or Global Procurement of Goods and

Services
Shared services procurement involves procurement of goods and services
through a Centralized Procurement Unit. This would involve picking up

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requisitions from different inventory organizations in the business group

by the central procurement unit and place a consolidated purchase order
with the supplier. The aim is to ensure supply of quality goods and
services at best possible price and at right time.


Transfer Price Accounting

Both Procurement and Drop shipment transaction requires transparent
accounting in all the business units (Operating units/Inventory
Organizations) involved at appropriate prices (Transfer Price/PO Price).
These transactions may involve routing of intercompany financial
obligations through different group subsidiaries to take advantage of tax
benefits as well as to implement different business strategies. The
functionality in Oracle E-Business Suite is based on the Intercompany
transaction flow framework, which defines the accounting flow and the
pricing policy involved.
Procurement and Drop shipment flows also requires creation of
appropriate business documents for ensuring a smooth business process
and physical movement of goods/services. Accordingly, the Sales Order,
Purchase Order and Purchase Requisition documents have been linked to
establish a document trail and pointers for physical flow of goods and
services.

To summarize Transfer Price accounting is supported for following

business transactions:





Internal Order Transfers across operating Units Implemented using

Shipping Network and Intercompany Relations
Global/Shared Service Procurement - Implemented Using Procurement
Transactions Flow
Internal Drop shipment Implemented Using Shipment Flow
External Drop shipment Implemented Using Shipment/Procurement
Flow

3) Intercompany Transaction Flow Configuration

Following is the set up requirements in Oracle E-Business Suite for implementing
the described business transactions

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Internal Order Transfers across operating Units Implemented using

Shipping Network and Intercompany Relations

Shipping Network with Internal Order Enabled

Define the shipping inventory organization and receiving inventory
organization
Shipping Network

Profiles Set Up
 CST: Transfer Pricing Option: Yes (Price as
Incoming/Price Not as Incoming)
 INV: Intercompany Invoicing for Internal Orders: Yes

Intercompany Relations Definition
 Operating unit belonging to sending organization as
Shipping OU
 Operating unit belonging to receiving organization as
Selling OU

Price List association in Bill To relationship in Internal Customer
defined in Intercompany Relations
Intercompany Relations

International Drop Shipment of Goods and Services - Implemented

Using Shipment/Procurement Transactions Flow

Financial Flow Defined Using Transaction Flow

Start OU is Supplier Facing

End OU is Customer Facing/Receiving Org
Intermediate OUs are Accounting Only OUs
Type: Shipment/Procurement
Pricing: Transfer Price for Shipment, Transfer Price/PO Price for
Procurement
Intercompany Transaction Flow
Intercompany Relations
Inter-company Relations Driven Inter Company Invoicing
Old and New Accounting option for shipment flow

Price List association in Bill To relationship in Internal Customer
defined in Intercompany Relations

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Document Flow Defined Using Transaction Flow and Document

Transaction (PO and SO)
Physical Flow Defined Using Transaction Flow and Document
Transaction (PO and SO)

Global/Shared Service Procurement - Implemented Using Procurement

Transactions Flow

Financial Flow Defined Using Transaction Flow

Start OU is Supplier Facing

End OU is Customer Facing/Receiving Org
Intermediate OUs are Accounting Only OUs
Type: Procurement
Pricing: Transfer Price/PO Price
Intercompany Transaction Flow
Intercompany Relations
Inter-company Relations Driven Inter Company Invoicing

Price List association in Bill To relationship in Internal Customer
defined in Intercompany Relations

Document Flow Defined Using Transaction Flow and Document
Transaction (PO and SO)

Physical Flow Defined Using Transaction Flow and Document
Transaction (PO and SO)

4) Pricing Decision


Internal Order Transfers across operating Units

Pricing options available are
a. At Cost to Sending Organization
 Profile CST: Transfer Pricing Option defined as No
b. At Transfer Price
 Profile CST: Transfer Pricing Option defined as Yes,
Price as Incoming Cost
 Profile CST: Transfer Pricing Option defined as Yes,
Price not as Incoming Cost
International Drop Shipment of Goods and Services
a. These transactions are always at Transfer Price because all drop ship
transactions are driven by an underlying external sale transaction. The

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core purpose being sale, the intra-company transfers are also deemed
as sale.


Global/Shared Service Procurement

a. These transactions could be at PO Price or at Transfer Price as
they can be for an underlying demand to stock goods/use for further
manufacture or could be driven by an underlying external sale.
b. Typically PO Price may be used if the underlying demand is to stock
goods/use for further manufacture and Transfer Price may be used
if the underlying demand is driven by an underlying external sale

Transfer Price Definition

The Transfer Price could either be a Static Price or a Formula based
price.
a. Static Price is the price defined in the price list associated in Bill To
relationship in Internal Customer defined in Intercompany Relations
b. Formula Based price is application of a Pricing Modifier on top of
the Static Price. The applicability of the modifier is governed by
profile INV: Advanced Pricing Option. Please refer to white paper
Intercompany Invoicing and Advance Pricing Integration detailing
this functionality avaiable in Metalink.
c. Customized APIs could also be used to derive the Price based on the
Cost in sending organization reflecting the cost based pricing
discussed earlier in this paper.

5) Internal Order Cycle Accounting

a. Transfer at Transfer Price Inventory Valued at TP

CST: Transfer Pricing Option: 'Yes, Price as incoming cost':
INV: Intercompany Invoice for Internal Orders: Yes
Represents valuation of the transfer @ transfer price in the receiving org

Average Costing
Transaction
Internal Order
Shipment (FOB
Shipment)
Internal Order
Receipt (FOB
Shipment)

Sending Org
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Inventory

Receiving Org
Dr Intransit Inventory
@ Transfer Price
Cr Accrual
Dr Inventory @
Current Avg Cost
Cr Intransit Inventory

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Transaction
Internal Order
Shipment (FOB
Receipt)
Internal Order
Receipt (FOB
Receipt)

Sending Org
Dr Intransit @ Current Avg
Cost Inventory
Cr Inventory
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Intransit Inventory

Receiving Org

Transaction
Internal Order
Shipment (FOB
Shipment)

Sending Org
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Inventory

Internal Order
Receipt (FOB
Shipment)
Internal Order
Shipment (FOB
Receipt)
Internal Order
Receipt (FOB
Receipt)

Receiving Org
Dr Intransit Inventory
@ Std Cost Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr PPV Account
Dr Inventory @Std
Cost Receiving Org
Cr Intransit Inventory

Dr Intransit @ Std Cost

Inventory
Cr Inventory
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Intransit Inventory

Dr Inventory@ Transfer
Price
Cr Accrual

Standard Costing

Dr Inventory @ Std
Cost Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr PPV Account

Intercompany Invoicing
Transaction

Shipping Operating Unit

Intercompany AR
Invoice

Dt I/C Receivable @
Transfer Price
Cr I/C Revenue

Intercompany AP
Invoice

Selling Operating
Unit

Dr Accrual @ Transfer
Price
Cr I/C Payable

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b. Transfer at Transfer Price Inventory Valued at Cost

CST: Transfer Pricing Option: 'Yes, Price not as incoming cost':
INV: Intercompany Invoice for Internal Orders: Yes
Represent valuation of the transfer @ cost of sending org in the receiving
org and the difference between Transfer Price and Cost going into 'Profit
in Inventory' Account defined in shipping network
Average Costing
Transaction
Internal Order
Shipment (FOB
Shipment)

Sending Org
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Inventory

Internal Order
Receipt (FOB
Shipment)
Internal Order
Shipment (FOB
Receipt)
Internal Order
Receipt (FOB
Receipt)

Dr Intransit @ Current Avg

Cost Inventory
Cr Inventory
Dr Cost of Goods Sold
(COGS) @ Current Avg Cost
Cr Intransit Inventory

Receiving Org
Dr Intransit Inventory
@cost to sending org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP Cost to
sending org)
Dr Inventory @
Current Avg Cost
Cr Intransit Inventory

Dr Inventory@cost to
sending org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP Cost)

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Standard Costing
Transaction
Internal Order
Shipment (FOB
Shipment)

Sending Org
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Inventory

Internal Order
Receipt (FOB
Shipment)
Internal Order
Shipment (FOB
Receipt)
Internal Order
Receipt (FOB
Receipt)

Dr Intransit @ Std Cost

Inventory
Cr Inventory
Dr Cost of Goods Sold
(COGS) @ Std Cost
Cr Intransit Inventory

Receiving Org
Dr Intransit Inventory
@Std Cost Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP Std Cost
in Sending Org)
Dr/Cr PPV Account @
(Std Cost in Sending org
Std Cost in Receiving Org)
Dr Inventory @Std Cost
Receiving Org
Cr Intransit Inventory

Dr Inventory@ Std Cost

Receiving Org
Cr Accrual @ Transfer
Price
Dr/Cr Profit in
Inventory (TP Std Cost
in Sending Org)
Dr/Cr PPV Account @
(Std Cost in Sending org
Std Cost in Receiving Org)

Intercompany Invoicing
Transaction

Shipping Operating Unit

Intercompany AR
Invoice

Dt I/C Receivable @
Transfer Price
Cr I/C Revenue

Intercompany AP
Invoice

Selling Operating
Unit

Dr Accrual @ Transfer
Price
Cr I/C Payable

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For example say the

 Cost in sending org is USD80
 Transfer Price is USD100

The Accounting Entry in Sending Org will be

Dr Cost of Goods Sold USD 80
Cr InventoryUSD 80
Dr I/C Receivable USD 100
Cr I/C Revenue USD 100
The Accounting Entry in Receiving Org will be
Dr Inventory: USD80
Dr Profit in Inventory USD 20
Cr Inter Org Accrual USD 100
Dr Inter Org Accrual USD 100
Cr I/C Payable: USD 100

6) Profit In Inventory Accounting For Internal Orders

Lets elaborate on the implications of scenario CST: Transfer Pricing Option: Yes,
Price Not as Incoming Cost
Profit in Inventory (PII) account captures the difference between the Transfer
Price (TP) and cost in sending org (COSO) and is accounted always in receiving
organization. This accounting is required only if there is a need to track the
intercompany profits from accounting perspective. Such a need typically arises if
the transactions are between group companies and requires consolidation of
financial statements.
The need for consolidation arises only if there exists a holding- subsidiary
relationship or an explicit law requiring consolidation of related entities' financial
statements (though not a holding-subsidiary by way of equity stake
example.deemed subsidiaries).
Therefore PII accounting should ideally be opted if there is a need for
consolidation of financial statements.
But the downside is that the Inventory valuation in financial statements of
Receiving Org/company is deflated. However, the consolidation process is
simplified to a great extent as we just need to netout the PII account balance along
with I/C sales and I/C COGS using Intercompany Segment.

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Ultimately there will be two adjustments involved:

Receiving organization adjusting its inventory by allocating the PII account

balance on sound business principles based criteria.
Write off the entire balance in PII account to P&L account of receiving company, in which case
the inventory valuation would still be deflated, but would reflect true profits. Going by conservative
accounting principles, the lower inventory valuation may not reflect an unfair view of financial
statements.
(OR)
Acertain the ratio of COST OF GOODS SOLD (COGS) to CLOSING STOCK (for each
intercompany relation) and apportion the PII account balance between these two. The amount
allocated to COGS should be written off in P&L account and the amount allocated to Closing
Stock should be added to Inventory through a cost update process. This will ensure more accurate
profits and inventory valuation for receiving company

Consolidated financial statements to net out Intercompany Revenue,

Intercompany COGS and PII account using Intercompany Balancing segment
without touching the inventory. This way we can leverage oracle consolidation
engine.

Margin Analysis report for the Receving company tracking the resale, would show
margins based on original cost and not based on the TP. If TP based margin
analysis needs to be tracked, PII accounting should not be opted.

Alternatively if the PII accounting is not used i.e CST: Transfer Pricing Option is set to
Yes, Price as Incoming Cost then inventory valuation is correct from receiving
organization perspective. Margin analysis in receiving org too would be correct.
But the Consolidation process would suffer. Since there is no explicit accounting,
the customer should adopt a manual process to build PII account balance using
margin analysis report of sending org and other accounting information. Based on
that perform following adjustments:

Net out the intercompany receivables and Payables in the consolidated

financial statements using intercompany segment

Adjust the consolidated inventory to the extent of unsold stock using the
Manual PII computation again based on sound business principles

7) Currency Option in Intercompany Relations



Currency Code option in intercompany relations is given only if QP:

Advanced Pricing profile set to Yes. Again, QP: Advanced Pricing profile
set to Yes works only for Transfer Price. The business logic driving this

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treatment could be that transfer price is underlined a by sale transaction.

So the parties to the transaction should be given an option to select the
currency of payment obligation. In case of PO Price option, the payment
obligation is fixed in the currency of PO. Hence logically currency option
need not be supported for PO pricing as purchasing is back-to-back
transfer of goods
But for the combination transfer price option and QP price set to 'No',
the currency code option is not extended. The principle underlying the
Currency Code Option is use of Transfer Price for valuing the
obligations. Since Transfer Price can be a static price (where QP profile is
not used), still the parties to the transactions would like to have option of
selecting the currency of payment obligation. So it is ideal to extend
Currency Code option to all Transfer Pricing cases irrespective of QP:
4Advanced Pricing Profile.

8) Generic Accounting Rules for Drop Shipment and Global

Procurement
Old Accounting This is available Only for Shipment Flows. Accounting will
happen as if goods have come in and gone out. Accounting is restricted to
Receiving Operating Unit (OU). This does not reflect a complete accounting cycle
if Legal Entity/SOBs are crossed. It is not a recommended set up for cross
LE/SOB flows.
New Accounting These are Logical Financial Events triggered by
Physical/Logical Events. The Logical Events are pure accounting only transactions
and does not touch the inventory.

9) Accounts Used in the Accounting Cycle

OU Clearing Account: This is the wash account used as a substitute to Receiving
Inventory Account to route all Logical Receive and Logical Deliver Entries. This
is defined in Receiving Options at Organization Level.
I/C Inventory Accrual - This account is used for passing accrual entries in
Receiving Org for Inventory Destination. This creates the liability towards the
immediately facing sending org. This account is washed at the time of Inter
Company Invoicing. This account is defined in Inter Company Relations form
under 'AP Invoicing for Receiving'
I/C Expense Accrual - This account is used for passing accrual entries in
Receiving Org for Expense Destination. This creates the liability towards the
immediately facing sending org. This account is washed at the time of Inter
Company Invoicing. This account is defined in Inter Company Relations form
under 'AP Invoicing for Receiving'

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Inter Company COGS - This account is used for passing the logical shipment
entry in Sending Org. This will override the COGS account defined at different
levels. This account is offset at the time of Financial Statements Preparation.
Inventory AP Accrual Account - This account is used for passing accrual entries
in supplier facing Org for Inventory Destination. This Account is however not
used under Global Procurement and Drop ship Scenarios.
Expense AP Accrual Account - This account is used for passing accrual entries
in supplier facing Org for Expense Destination. This Account is used for PO
created under Global Procurement/Drop Ship irrespective of Destination type in
receiving Org. This is due to the fact that accounting in Supplier facing org is
Destination Neutral.
Inter Company Payable Account - This account is used for creating Inter
Company AP Invoicing Entries.
Inter Company Receivable Account - This account is used for creating Inter AR
Invoicing Entries.

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10) Business Flow Accounting Events Matrix

Following represents the Accounting Events involved in Drop Shipment and
Global Procurement Business Flow of Asset Items

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Business Flow
External Drop shipment
using Shipment Flow

External Drop shipment

with Procurement Flow

User
Interface
Event
PO Receipt

Start OU
(Supplier Facing)
Logical PO Receive

Intermediate OU

RMA Receipt

Logical I/C Sales

Order Issue
Physical RMA

Logical I/C Sales

Order Issue
Logical I/C Sales
Order Return
Logical
I/C
Receipt Return

Logical Sales Order

Issue
Logical RMA

Logical
I/C
Procurement
Receipt
Logical I/C Sales
Order Issue

Logical
I/C
Procurement Receipt

RTV

Physical RTV

PO Receipt

Logical PO Receive

Logical I/C Sales

Order Issue

Logical
I/C
Shipment Receipt

RMA Receipt
RTV

Global
Flow

Procurement

PO Receipt

RTV

External Drop shipment

using Shipment and
Procurement Flow

PO Receipt

Logical RTV

Logical I/C Sales

Order Return

End OU
(Customer Facing)
Logical I/C Shipment
Receipt

Logical I/C Receipt

Return

Logical Sales Order

Issue
Physical RMA
Physical RTV

Logical
I/C
Procurement
Return
Logical PO Receive Logical
I/C Physical PO Receipt
Procurement
Receipt
Logical I/C Sales Logical I/C Sales
Order Issue
Order Issue
Logical RTV
Logical
I/C Physical RTV
Procurement
Receipt
Logical I/C Sales
Order Issue
There will be two legs of transaction flow viz. Procurement and
Shipment. For Procurement Leg, the events mentioned in Global
Procurement above are triggered. For Shipment Leg, the events
mentioned in Extenral Drop Shipment using Shipment Flow are
triggered.

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Business Flow
Internal Drop shipment
using Shipment Flow
New Accounting

User
Interface
Event
Sales
Order
Shipment

RMA Receipt

Internal Drop shipment

using Shipment Flow
Old Accounting
Internal Order Transfer

Sales
Shipment

Start OU
(Shipping OU)
Logical I/C SO
Issue

Physical RMA

Order

Internal Sales Order

Issue

Intermediate OU
Logical
I/C
Shipment Receipt

End OU
(Customer Facing)
Logical I/C Shipment
Receipt

Logical I/C Sales

Order Issue
Logical I/C Sales
Order Return
Logical
I/C
Receipt Return

Logical Sales Order

Issue
Logical RMA

Not Supported

Internal
Receipt

Logical I/C Receipt

Return

Transfer Price Accounting

Order

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11) Accounting Entries for Drop Shipment and Global Procurement

Following represents the Accounting Entries for all accounting events involved in
Drop Shipment and Global Procurement Business Flow of Asset Items
Transaction
Flow
Shipment/Procur
ement

Shipment

Procurement

Shipment/Procur
ement
Shipment
Shipment/Procur
ement

User
Interface
Event
PO Receipt

Event
Name/Transa
ction Type
Logical
PO
Receive

PO Receipt/
SO Shipment

Logical
I/C
Shipment
Receipt
PO Receipt
Logical
I/C
Procurement
Receipt
PO Receipt/ Logical
I/C
SO Shipment Sales
Order
Issue
PO Receipt/ Logical Sales
SO Shipment Order Issue
Return
To Logical RTV
Vendor

Shipment/Procur
ement

RMA Receipt

Shipment

RMA Receipt

Procurement

Return
Vendor

To

Logical
I/C
Sales
Order
Return
Logical
I/C
Receipt Return
Logical
I/C
Procurement
Return

Entry

Value

Dr OU Clearing
Cr Supplier Accrual
or I/C Accrual
Dr Inventory
Cr OU Clearing

PO Price for Supplier

Facing OU and TP/PO
Price for Receiving OU
PO Price for Supplier
Facing OU and TP/PO
Price for Receiving OU
Transfer Price

Dr Inventory
Cr I/C Accrual
Dr Inventory
Cr OU Clearing

Transfer Price/PO Price

Dr I/C COGS
Cr Inventory

Shipment TP
Procurement TP/PO
Price
Transfer Price

Dr COGS
Cr Inventory
Cr OU Clearing
Dr Supplier Accrual
or I/C Accrual
Cr Inventory
Dr OU Clearing
Dr Inventory
Cr I/C COGS
Dr I/C Accrual
Cr Inventory
Dr OU Clearing
Cr Inventory

PO Price

PO Price
Shipment TP
Procurement TP/PO
Price
Transfer Price
PO Price

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Transaction
Flow
Procurement

User
Interface
Event
PO Receipt

Event
Name/Transa
ction Type
Physical
PO
Receipt

Entry

Value

Dr
Receiving
Inventory
Cr Supplier Accrual
or I/C Accrual
Dr Inventory
Cr
Receiving
Inventory
Dr COGS
Cr Inventory
Dr Inventory
Cr COGS or I/C
COGS
Dr Inventory
Cr COGS

PO Price

Dr I/C Accrual
Cr Inventory

Transfer Price

Dr I/C Receivable
Cr I/C Revenue

Shipment TP
Procurement TP/PO
Price
Internal Order TP/Cost

I/C AP Invoice

Dr I/C Accrual
Cr I/C Payable

Shipment TP
Procurement TP/PO
Price
Internal Order TP/Cost

AR Invoicing

Dr Receivables
Cr Revenue
Dr Accrual Account
Cr
AP
Payable
Account

SO Price

Shipment

SO Shipment

Shipment

RMA Receipt

Physical
Shipment
Physical RMA

Shipment

RMA Receipt

Logical RMA

Shipment/Procur
ement/Internal
Order

Shipment/Procur
ement/Internal
Order

Shipment/Procur
ement
Shipment/Procur
ement

I/C
AR
Invoice
Request and
Auto Invoice
Request
I/C
AP
Invoice
Request and
Expense
Report
Import
Auto Invoice
Request
Invoices

I/C
Invoice

AR

AP Invoicing

PO Price for Supplier

Facing OU and TP/PO
Price for Receiving OU
Transfer Price
PO Price of the Drop ship
PO
Transfer Price

PO Price

Transfer Price Accounting

Page 22

12) Document Flows

Business Flow
External Drop shipment using
Shipment Flow

PO Document
PO: Start OU, Ship To:
Start OU Org

External Drop shipment with

Procurement Flow

PO: Start OU, Ship To:

End OU Org

External Drop shipment using

Shipment and Procurement
Flow
Internal Drop shipment using
Shipment Flow

PO: Start OU, Ship To:

End
OU
Org
(in
Procurement Flow)

Internal Drop shipment using

Global Procurement Flow

PO: Start OU, Ship To:

End OU Org

Internal Drop shipment using

Shipment and Procurement
Flow
Global Procurement

PO: Start OU, Ship To:

End
OU
Org
(in
Procurement Flow)
PO: Start OU, Ship To:
End OU Org

SO Document
SO: End OU, Ship From: Start
OU Org
Source Type: External
SO: End OU, Ship From: End
OU Org
Source Type: External
SO: End OU, Ship From: Start
OU Org (in Shipment Flow)
Source Type: External
SO: End OU, Ship From: Start
OU Org
Source Type: Internal
SO: End OU, Ship From: End
OU Org
Source Type: Internal
SO: End OU, Ship From: Start
OU Org (in Shipment Flow)
Source Type: Internal

Transfer Price Accounting

Page 23

13) Physical Flows

Business Flow
External Drop shipment using
Shipment Flow

Forward
Supplier to Customer

External Drop shipment with

Procurement Flow

Supplier to Customer

External Drop shipment using

Shipment and Procurement
Flow

Supplier to Customer

Internal Drop shipment using

Global Procurement Flow

Supplier to Selling OU
Selling OU to Customer

Internal Drop shipment using

Shipment Flow
Internal Drop shipment using
Shipment and Procurement
Flow

Global Procurement

Return
Customer to Supplier Facing OU
Supplier Facing OU to Supplier
Customer to Shipe From org in
Sales Order
Shipe From org in Sales Order
to Supplier
Customer
to
Intermediate
Physical Receiving OU
Intermediate Physical Receiving
OU to Supplier
Customer to Selling OU

Sending OU to Customer

Selling OU to Supplier
Customer to Sending OU

Supplier to Intermediate
Physical Receiving OU

Customer
to
Intermediate
Physical Receiving OU

Intermediate
Physical
Receiving OU to Customer
Supplier to Receiving OU

Intermediate Physical Receiving

OU to Supplier
Receiving OU to Supplier

Transfer Price Accounting

Page 24

14) User Interfaces for Validation of Accounting

User Interface
View Receiving Transactions
Summary (PO OU)
View Material Transaction
(Procuring/Selling/Receiving/
OU)
Receiving Account Distribution
Report (PO OU)
Margin Analysis Report

To view the Supplier and Intercompany Accrual

Accounting Events
To View the Logical Inventory Events through Parent
Transaction. The Distributions viewed through Parent
Transaction (Trigerring event) displays the accounting
for all logical events created in the transaction flow
To view the Supplier and Intercompany Accruals
To track inter operating unit dropship sales margins

Transfer Price Accounting

Page 25

15) Screen Shots

Shipping Network

Transfer Price Accounting

Page 26


Intercompany Transaction Flow Shipment

Transfer Price Accounting

Page 27


Intercompany Transaction Flow Procurement

Transfer Price Accounting

Page 28


Intercompany Relatioships Shipment

Transfer Price Accounting

Page 29


Intercompany Relatioships Procurement

16) Additional Reference Resources

White Papers
a) Overview of Inter Company Invoicing
b) Intercompany Invoicing and Advance Pricing Integration
User Guides Release 11i10
a) Cost Management User Guide
b) Inventory User Guide
c) Purchasing User Guide

Transfer Price Accounting

Page 30

Transfer Price Accounting in Oracle SCM

Feb 2006
Author:

Shyam Sundar Santhanam, Project Leader, Cost Management Quality Assurance

Special Thanks to Cost Management PM, Development and QA for supporting my work on this paper.
Oracle India
Cybergateway
Hyderabad, India
Shyamsundar.santhanam@oracle.com
Worldwide Inquiries:
Phone: +1.650.506.7000
Fax: +1.650.506.7200
www.oracle.com
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Copyright 2006Oracle Corporation
All rights reserved.