COGS and DCOGS demystified

- When does an RMA debit inventory and credit DCOGS Account?

Answer: RMA has created after COGS Recognition. So RMA debits inventory
and credits COGS account. If RMA happens before COGS Recognition then
RMA debits inventory and credits DCOGS account.
2 - Why there is no accounting for COGS Recognition?
Answer: There is no accounting for COGS recognition because it has zero
quantity.
Reason: Customer has created RMA against this Sales Order Line.
3 - No COGS Recognized (COGS will never be recognized as there is
no reference to the original invoice). Why?
Answer: COGS Recognition is designed to match with AR revenue
recognition.If you don't have an invoice yet but only a credit memo, what
would be the percentage of revenue recognized from AR?
Ej:
The COGS recognition is not going to happen at the individual RMA level, it is
at the order line level that has been shipped.
Say you have debited the Deferred COGS for the original shipment at $100,
then you have credited the Deferred COGS for the RMA receipt at $40. The
net Deferred COGS is $60, so far so good. After the credit memo and invoice
have gone through, what matters at this point of time is how much net
percentage of revenue is recognized from AR for this order line. Suppose a
50% revenue recognized, then a distinct COGS recognition transaction is
going to be created that will credit deferred COGS at $30 and debit COGS at
$30. The accounting of original shipment and RMA transactions would not
change, but the additional COGS recognition transaction will make the order
line's recognized COGS to be matched with recognized revenue.
4 - Why Inter company COGS account is not working after
completing mandatory setup?
Answer: There is a difference between the internal order flow and drop
shipment or global procurement flow. The intercompany COGS account
defined in the Inter-company Relations form is only used in drop shipment
and global procurement flows. For internal order flows, the account is driven
by the Order Management Cost of Goods Sold Account workflow. In
default, the workflow process uses the item COGS account, but the user can
configure the process to use any other account.
Other references:
<Note 747638.1> - R12 Where To Define Inventory Cost Of Goods Sold
Account Workflow
Transfer Price Accounting in Oracle SCM, Feb 2006 (Note 360106.1).

5 - How to diagnose missing COGS Recognition events?

Answer: Checking whether the COGS events are costed is easy, you just
verify mmt.costed_flag. Checking whether COGS events are created is more
functional and less simple. You can use the R12 Revenue COGS matching
report to find out whether the result is expected. If the expected COGS
recognition percentage does not match Revenue percentage, there could be
a potential problem.
6 - Can we close the Inventory period without running the COGS
recognition concurrent programs? If not, what prevents it? If
so, what are the entries that are created when the recognition is
run the following month and the inventory period for the current
month is closed?
Answer: If the customer is using perpetual Costing Method "Standard",
"Average", "Layer" then the inventory period can be closed prior COGS
recognition process. If the customer is using PAC then the "Collect Revenue"
and "AR period" needs to be closed prior PAC period close.
7 - How to derive COGS Account Cost Center using Salesperson Value
from Sales Order form in Order Management thru SLA?
Answer: Looking at gmf_xla_extract_headers, for the OM issue from stores
transaction, the transaction_id on that row points to a row in
mtl_material_transactions and the column source_line_id in that table points
to the line_id in oe_order_lines_all.
8 - Why when generating Accounting--the COGS , accounting does
not follow the Revenue Accounting for the Receivable Invoices?
Answer: COGS account in Oracle EBS is driven and derived from Order
Management COGS account generator workflow. If you need help for that
workflow, contact Order Management team.
9 - Is there a way for Cost Management SLA (Subledger Account) to
utilize the same sources as the AR SLA?
Answer: Right now, there is no built-in cross reference of sources in SLA
between Receivables and Cost Management. There are two options for the
customer:
a - Inside SLA, build a few custom sources for Cost Management Application
that the customer is using for Receivables.
b - Even though the deferred COGS account is a fixed organization
parameter, the true COGS account is derived from Order Management COGS
Account Workflow. That is well-known in 11i and the functionality remains in
R12. The logic can be mimicked inside the workflow.
10 - Trying to generate Deferred COGS but instead the Inventory
Accrual account appears on the Inter-company AP invoice. How can
they get this to be a Deferred Accrual Account?

Answer: There is only deferred COGS, no such a thing called deferred

accrual. To do the drop shipment right, you need to set up the transaction
flow and inter-company relations with advanced accounting, not the shipping
network setup.
When the setup is right, you would get one physical transaction out of OU2,
one logical transaction for OU2, and two logical txns for OU1. The logical
sales order issue transaction of OU1 will hit deferred COGS account. The
deferred COGS will be transformed into true COGS after you run the COGS
recognition programs. As for the inter-company AP invoice, it should use the
intercompany accrual account defined in the inter-company relations form.
There is no concept of deferred accrual.
Please see Inventory documentation about transaction flow setup and Cost
Management User's Guide on Revenue and COGS Matching for more details.
11 - COGS account is going 100% into the account instead of getting
deferred into 5 groups. Our revenue accounting rule splits the
revenue into 5 deferred periods and we expect the COGS to do the
same. I ran the 3 programs under Cost Management (Resp.) ->
COGS accounting and the Material Distributions is still going 100%
into a single account, instead of creating 5 records for 20% each in
each period. Why?
Answer: For a given sales order shipment, it always goes to 100% deferred
COGS at first. Then after you run those programs for each period and
assuming AR passes the right percentage of revenue recognition, we will
move from deferred COGS to COGS accordingly. For example, at period 1, if
AR says 20% revenue recognized, then you then programs and you will have
80% deferred COGS and 20% COGS. And at period 2, if AR says now 40%
revenue recognized, you run the programs and you will have net 60%
deferred COGS and 40% COGS.
12 - After the COGS generation program is run, COGS entry can be
viewed from Material Transactions Distribution screen in Inventory.
The COGS account is wrong as the workflow was not updated. How
to change the cogs account after it is generated?
Answer: The COGS entry is recorded in material distribution, sub-ledger
accounting (SLA) and general ledger. There is no way to go back to re-cost or
re-account for old transactions. Practically speaking, the best way is to
manually adjust them inside GL and move forward with the correct
accounting for new transactions.
13 - How to use COGS Account Relationship to Advanced Pricing?
Answer: In order to get it working, both profile options INV:Inter-company
Invoice for Internal Orders and CST: Transfer Pricing Option must be set to Yes
at site level. Cost manager is at global level, there is no support at

responsibility level. Please study the following white papers:

- Transfer Price Accounting in Oracle SCM, Feb 2006 (Note 360106.1)
- Overview of Inter-company Invoicing, July 2005 (Note 336129.1)
- Inter-company Invoicing and Advance Pricing Integration, May 2002 (Note
733873.1)
14 - RMA Receipt transaction does not credit actual Cogs Account.
Why?
Answer: This is intended behavior in R12.
For RMA receipt Transaction with reference to original Sales Order document
will create below accounting distribution:
Dr.Inv
Cr.Deferred COGS
There will be separate COGS Adjusting entries created for the COGS
Adjustment based on the COGS Recognition percentage.
Dr./Cr.COGS
Cr./Dr.DCOGS
For RMA receipt Transaction without any reference to Sales Order document
will create below accounting distribution:
Dr.Inv
Cr.COGS
This will result in balanced journal entries.
15 - Sales Orders are for a single customer, linked to a single sales
rep, and can contain an item A which, depending on the usage at
sales order lines level, has to be linked to two distinct business
lines. Thus the same item used in the same order and in 2 sales
order lines has to generate revenue account and cogs accounts
linked to 2 distinct business lines. How this can be achieved ? Can
we use the order line type for this ? Impacts on the AR and COGS
auto-accounting ?
Answer: COGS and revenue accounts are not built the same way.
For revenue account, the auto-accounting allows to default your business line
segment from the bill to site, the transaction type (AR one, not the OM one),
the sales rep or the product. If the product is not the single driver for your
business line segment value, does one of these other values could be used ?
If not, it means the value will have to be corrected manually in the invoice, or
a custom to be built depending on customer rules. For the COGS, it's
generated by the account generator workflow, this can be customized to
default the value expected by the customer.

17 - Can we "Turn Off" DCOGS in Release 12.0.x ?

Answer: Deferred COGS and Revenue-COGS matching are mandatory new
features in R12 to help customers be legal-compliant. There is no standard
way to support disabling this best-practice feature set.
18 - Why is COGS charged to the incorrect GL account?
Answer: COGS account is stamped as MMT's (MTL_MATERIAL_TRANSACTIONS
table) distribution account, and it is driven by the Order Management Cost of
Goods Sold Account workflow. Customers can configure the workflow process
to achieve their business needs based on item types.
19 - In 11.5.10.x mtl_material_transactions table and locator_id field
was used to get information on inventory charged to projects. In
R12 locator_id field is blank, how to find?
Answer: In EBS release 12.x.x COGS is a logical transaction --not a material
transaction as 11.5.10.x.
COGS transactions will not have project and locator information.
20 - Can COGS Recognition transactions created in a closed
inventory period?
Answer: Refer Oracle Cost Management User Guide ->Revenue and COGS
Matching ->Period Close Considerations Here its clearly mentioned that
COGS Recognition transactions can be created in Closed Inventory Period. If
the GL period is closed then COGs Recognition events/transactions will be
created in next open GL period.
21 - COGS Recognition transactions are not showing material
distributions for items with zero costs. What is the logic behind
this?
Answer: This is the intended functionality.
When the transaction value is zero no accounting will be created. COGS
recognition is like redistributing expense across DCOGS and COGS. If there is
no expense to be distributed at all (zero cost), creating zero dummy
accounting entries among two expense accounts would be a waste and
hurting performance unnecessarily as well.
22 - How to find a COGS transaction on Material Transactions Form
( Inventory > Material Transactions)?
Answer: Be sure The "Include Logical Transactions" checkbox is selected in
the Find Material Transactions form when querying these transactions.
COGS recognition is a logical transaction. In order to see it, select the check
box "include logical transaction".