Drop Shipment Accounting

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Intercompany Transaction Accounting

Part2- Drop Shipment Accounting

Christopher David

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• Overview of Drop Shipment What is Drop Shipment

Drop Shipment types

Setups involved in Drop Shipment

• Accounting entries for Various Drop Shipment Scenarios

External Drop Shipment with Advanced Accounting

Internal Drop Shipment with Advanced Accounting

External Drop Shipment without Advanced Accounting

Internal Drop Shipment without Advanced Accounting

© 2007 Oracle Corporation – Proprietary and Confidential

Agenda

What is Drop Shipment

• Drop Shipment is a business process where the sales

order is placed in one operating unit and goods are directly

shipped from a supplier or an internal organization

belonging to another unit.

• Refer Drop Ship Sales Order Cycle In Order Management

(Doc ID 749139.1) for the steps to perform the Drop Ship

Sales Order Cycle

• When Drop Shipment is implemented using Intercompany

relations (which was discussed during last session):

Start OU is Supplier facing

End OU is Customer facing

Intermediate OU’s are Accounting OU’s only

Drop Shipment types

Drop Shipment flow is of two types

• External Drop Shipment flow (where supplier is external)

Source type is External in the Sales Order

• Internal Drop Shipment flow (where supplier is internal)

Source type is Internal in the Sales Order

Intercompany Transactions Flows

Intercompany Relations

• By enabling advanced accounting for an

intercompany transaction flow, you would be able to

define multiple nodes with Intercompany relations for

each nodes and generate multiple intercompany

invoices for these intermediate OU’s

• Logical intercompany receipt and issue transactions

are created to facilitate accounting in intermediate

OU’s

• Similarly, logical receipt and logical sales order issue

transactions are created for those receipts and issues

that are not accompanied with physical receipt and

issue of goods

Case 1: External Drop Shipment

(Advanced Accounting checked)



• In OU Vision Operations, Create a SO with Source as

‘External’ and Receiving Org as ‘D1’ and book it

• Run Workflow Background Engine

• In OU Singapore Distribution Center, run Requisition

Import program to generate the Purchase Requisition

• Auto Create a PO and receive the PO in D1 org

Item ‘test-ds’ has a list price of 10 in organization items form

Item ‘test-ds’ has a price of 15 in Price List form

Item ‘test-ds’ has a unit cost of 7 in ‘D1’ org

Transactions/ Accounting

Generated when PO is Received

Mtl_material_transactions table data

Org_id = 229 is D1 (Supplier facing OU)

Org_id = 207 is D1 (Customer facing OU)

Txn_type_id = 19 is Logical PO Receipt

Txn_type_id = 11 is Logical Intercompany Sales Issue

Txn_type_id = 10 is Logical Intercompany Shipment Receipt

Txn_type_id = 30 is Logical Sales Order Issue

Logical PO Receipt

Logical I/C SO Issue

Logical I/C Ship Rcpt

Logical SO Issue

Mtl_transaction_accounts table data

Acct_line_type = 31 (Clearing Account)

Acct_line_type = 2 (I/C COGS Account)

Acct_line_type = 16 (I/C Accrual Account)

Acct_line_type = 36 (DCOGS Account)

Acct_line_type = 1 (Inventory Valuation Account)

Various Accounting_Line_Types

• 1 = Inventory Valuation (Subinv Account)

• 2 = I/C COGS (Intercompany Relations)

• 16 = I/C Accrual Account (Intercompany Relations)

• 31 = Clearing Account (Receiving Options)

• 36 = Deferred COGS (Organization Parameters)

Case 2: Internal Drop Shipment





‘Internal’ and Warehouse as ‘D1’

• Book the Order

• Launch Pick Release, Auto Create Delivery

• Ship confirm the line

Item ‘test-ds’ has a list price of 10 in organization items form

Item ‘test-ds’ has a price of 15 in Price List form

Item ‘test-ds’ has a unit cost of 7 in ‘D1’ org


Generated when SO is Shipped

• A Physical Sales Order Issue is also generated in the

shipping org ‘D1’

• However, there will be no accounting entries for it

Mtl_material_transactions table data

Org_id = 229 is D1 (Supplier facing OU)

Org_id = 207 is D1 (Customer facing OU)

Txn_type_id = 33 is Sales Order Issue

Txn_type_id = 11 is Logical Intercompany Sales Issue

Txn_type_id = 10 is Logical Intercompany Shipment Receipt

Txn_type_id = 30 is Logical Sales Order Issue

Logical I/C Ship Rcpt

Logical I/C SO Issue

Logical SO Issue

Mtl_transaction_accounts table data

Acct_line_type = 2 (I/C COGS Account)

Acct_line_type = 16 (I/C Accrual Account)

Acct_line_type = 36 (DCOGS Account)

Acct_line_type = 1 (Inventory Valuation Account)

Intercompany Transaction Flows

(without Advanced Accounting)

• When advanced accounting is unchecked,

Organization need not be defined for the End OU

since no logical transactions are generated


(without Advanced Accounting)


‘External’ and Receiving Org as ‘D1’.

• Book the order

• Run Workflow Background Engine

• In OU Singapore Distribution Center, run the

Requisition Import program to generate the Purchase

Requisition

• Auto Create a PO and retain Ship To org as D1

• Receive the PO in D1 org


Generated when PO is Received


(without Advanced Accouning)


‘Internal’ and Warehouse as ‘D1’

• Book the Order

• Launch Pick Release, Auto Create Delivery

• Ship confirm the line


Generated when SO is Shipped

Advanced Accounting


• In this case material has not hit the Inventory. This

implies the following:

Logical trxns are created

Inventory is not re-averaged.

Even if IPV is there (at supplier end), it cannot be transferred

to inventory as material never hit the inventory

No impact on item cost

Old Accounting

(Advanced Accounting unchecked)

• Material is supposed to have hit the Inventory

implying the following:

Physical trxns are created

Inventory is to be re-averaged at PO or transfer price

as per setup before invoicing

Item cost is re-calculated

If IPV is there (at supplier end), then it should be

transferred to inventory

Some Additional Notes

• There are certain scenarios that are not supported

• Note: 336129.1 gives the list of the scenarios that are

not supported

References

• White Paper: Transfer Price Accounting in Oracle

SCM, Feb 2006 (Note: 360106.1)

• White Paper: Overview of Intercompany Invoicing,

July 2005 (Note: 336129.1)

• R12 Inventory and Costing User Guides

• A guide to understanding and setting up different GP

and DS scenarios,

Documents

Drop Shipment Accounting