Cost of Goods Sold (COGS) Recognition Process In Oracle Cloud

Understanding what is COGS (Cost of Goods Sold) in Oracle ERP

COGS stands for "Cost of Goods Sold." It is a financial accounting term that refers to the direct costs incurred by a company in producing the goods or services it sells. COGS (cost of good sold) includes expenses such as the cost of raw materials, labor, manufacturing overhead, and other costs directly associated with producing the goods or services.

COGS (cost of goods sold) is an important metric for businesses, as it is used to calculate the gross profit, which is the difference between the revenue generated from sales and the direct costs of producing those goods or services. Gross profit is a key indicator of a company's profitability and financial performance. By tracking COGS, businesses can assess the efficiency of their production processes and pricing strategies, and make informed decisions about pricing, inventory management, and profitability. COGS (cost of goods sold) is typically reported on a company's income statement or profit and loss (P&L) statement as a separate line item.

COGS (Cost of Goods Sold) and Revenue Accounting in Oracle fusion/ cloud

In Oracle Cloud, Cost of Goods Sold (COGS) can be tracked and accounted for using the Oracle Cloud Financials module, specifically the Inventory Management and Costing functionality. The Oracle Cloud Financials module provides robust accounting capabilities for managing and tracking COGS in a cloud-based environment.

Below are the steps which need to be performed to recognize COGS (cost of goods sold) and Revenue in oracle cloud

• Complete the sales order 
• Ship the goods and materials
• Once the goods and materials are shipped Import the invoice into accounts receivable (AR) by running Autoinvoice Import
• Recognize the revenue in accounts receivables by running Recognize revenue job 
• Post the invoice to GL
• Run "Transfer Transactions from Inventory to Costing" Job
• Run "Transfer Transactions from Production to Costing" Job
• Run "Transfer Transactions from Receiving to Costing" Job
• Run "Import Revenue Lines" Job
• Finally run the job "Create Cost Accounting Distributions process with COGS Recognition enabled"

1) Complete the sales order

- No accounting entries are generated at this time 

2) Ship the goods and materials

Cost of Goods Sold (COGS) Recognition Process In Oracle cloud

3) AR invoice imported 

4) Revenue Recognized in Accounts receivables 

5) Final entry generated when cogs recognition processes are run in cost management

Cost of Goods Sold (COGS) Recognition Process In Oracle cloud

Cost of goods sold(Cogs) and revenue accounting is an critical aspect of Revenue and COGS recognition process in any business and plays very crucial role in the organization’s/business financial statements. In the above section we have seen what is cogs recognition process in oracle in details and when/how accounting entries are generated for it.

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Oracle Fusion procure to pay (P2P) cycle in Oracle cloud

Procure to pay (P2P) cycle overview in oracle cloud

The Procure-to-Pay (P2P) cycle, also known as Purchase-to-Pay, is a process that covers the steps involved in procuring goods or services for a business or organization, and paying for them.

The Procure-to-Pay cycle helps businesses to streamline the procurement process and ensure that the goods or services are received on time and at the best possible price. It also ensures that payments are made accurately and on time, which helps to maintain good relationships with suppliers.

What is P2P cycle or Procure to pay cycle in oracle cloud/fusion

Oracle Cloud provides a comprehensive P2P-Procure-to-Pay solution that includes modules for procurement, inventory management, supplier management, and financials. It also includes features such as automated approval workflows, supplier self-service portals, and mobile access to help streamline the process and improve efficiency.

The Procure-to-Pay P2P cycle in Oracle Cloud is a comprehensive process that includes the following steps:

1. Purchase order requisition 

2. Request for Quotation (RFQ)

3. Quotations

4. Creating a Purchase Order

5. Receive Goods/Services

6. Creating an Invoice

7. Supplier Payment

8, Reconciliation 

1. Create purchase order requisition 

Requisitioning: The procure to pay (P2P) cycle in Oracle cloud begins with the creation of a requisition by a requester, which includes information such as the item or service requested, quantity, and delivery date.

2. Request for Quotation 

The user generates a request for a quotation after creating requisitions by providing all the required information (RFQ). An RFQ is a request for quotes, also known as an invitation to bid, that a business sends to possible suppliers.

A request for quotation (RFQ) is a letter that the supplier receives outlining the goods or services required and the buyer's pricing. Any other terms and conditions pertaining to the purchase are also included in the RFQ.

3. Quotations 

In the P2P (Procure-to-Pay) cycle, a quotation is a formal document issued by a supplier to a buyer in response to a request for quotation (RFQ). The RFQ typically specifies the goods or services that the buyer requires, and the supplier's quotation will include details such as the price, quantity, delivery terms, payment terms, and any other relevant information.

4. Create a Purchase order 

Once the Quotation is approved the the next step is to create a purchase order in the system.

A purchase is an essential document in the Procure-to-Pay (P2P) process in oracle cloud, as it authorizes a supplier to deliver products or services and provides evidence of the agreement between the two parties. It serves as a legal document that protects both the buyer and the supplier, ensuring that the buyer receives the correct products or services at the agreed price and the supplier is paid promptly.

The purchase order contains detailed information, such as the item description, quantity, price, delivery date, payment terms, and shipping instructions. The supplier must fulfill the terms and conditions specified in the PO, including delivering the products or services as agreed upon.

5. Receive Goods/Services

In the Procure to Pay (P2P) cycle, receiving is the process of acknowledging the delivery of goods or services from a supplier. Receiving is an important step in the P2P cycle because it allows organizations to ensure that they have received the correct quantity and quality of goods or services that they have ordered.

The receiving process typically involves comparing the goods or services received against the purchase order and verifying that they meet the required specifications. This can include inspecting the goods for damage or defects, verifying quantities, and confirming that the goods are of the quality specified in the purchase order.

Once the receiving process is complete, the receiving department will typically update the purchase order to reflect the goods or services that have been received, and will notify the accounts payable department that the invoice can be processed for payment.

Effective receiving processes can help organizations to minimize errors and discrepancies in their procurement processes, which can improve efficiency and reduce costs.

6. Create Invoice

Once the receipt is created into the system next step is to create the invoices into the system. This invoice is matched against the purchase order and receipt in Oracle Cloud to ensure that the correct items or services have been received.

7. Create Payment

Once the invoices are entered into the system the next step is to create the payment for the invoices as in when you receive the payment from supplier.

8. Reconciliation 

Finally, the accounts payable balance is reconciled in Oracle Cloud to ensure that all invoices have been paid and the balance is up-to-date.

By following these steps in Oracle Cloud, the Procure to Pay cycle can be completed accurately and efficiently, ensuring that the supplier is paid in a timely manner and the accounts payable balance is up-to-date.

 

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Automatic bank statement reconciliation in cash management in oracle cloud

In this blog we are going to discuss how automatic reconciliation in done in oracle cloud cash management and why reconciling the transaction is an Important task in any ERP.

Let us first understand what is bank statement reconciliation in oracle cloud cash management.

What is Bank Statement Reconciliation in Orcale Cloud Cash Management 

Bank statement reconciliation in Oracle Cloud cash management refers to the process of verifying and matching the transactions recorded in an organization's bank statement with the transactions recorded in its accounting system.

This is typically done to ensure that all transactions have been accurately recorded and to identify any discrepancies or errors that may require further investigation. By reconciling bank statements in Oracle Cloud, organizations can maintain accurate financial records and identify any potential issues before they become more serious.

Oracle Cloud offers a variety of tools and features to help organizations automate and streamline the bank statement reconciliation process. These tools typically involve importing bank statements into the system, matching transactions with those recorded in the accounting system, and resolving any discrepancies that are identified. The reconciliation process can be customized to meet the specific needs of the organization, and reports can be generated to provide an overview of the reconciliation process and any issues that were identified.

What is automatic bank statement reconciliation in oracle cloud cash management

Automatic bank statement reconciliation in Oracle Cloud cash management is a feature that enables organizations to automatically match transactions recorded in their bank statements with transactions recorded in their accounting system. This is done using predefined matching rules that are configured in Oracle Cloud.

The process of automatic bank statement reconciliation in oracle cloud cash management typically involves importing bank statements into Oracle Cloud, mapping the bank statement fields to the corresponding fields in the accounting system, and setting up matching rules that define how transactions should be matched.

Once the matching rules have been configured, Oracle Cloud automatically matches transactions in the bank statement with those recorded in the accounting system based on the defined rules. Any discrepancies that are identified are flagged for further investigation.

The advantage of automatic bank statement reconciliation in oracle cloud cash management is that it can significantly reduce the time and effort required for manual reconciliation, allowing organizations to focus on more strategic tasks. It also reduces the risk of errors and ensures that financial records are accurate and up-to-date.

How to configure Automatic bank statement reconciliation in oracle cloud cash management

Setting up automatic bank statement reconciliation in Oracle Cloud cash management involves several steps. Here are the general steps involved in setting up this feature:

1 Define Bank/Brach/Account: The first step in automatic bank statement reconciliation in oracle cloud cash management is to define the bank, bank branches and a account in Oracle Cloud cash management by providing details such as bank account number, bank name, and bank branch.

2. Define transaction codes: Define transaction codes that are used to identify transactions in the bank statement. These codes are typically provided by the bank and are used to categorize transactions such as deposits, withdrawals, fees, and interest. Some of the examples for transaction codes are given below.

 

3. Define matching rules: Define matching rules that specify how transactions in the bank statement should be matched with transactions in the accounting system. This includes rules such as matching based on transaction amount, transaction date, and transaction code. Further matching can be one to one , one to many, many to one and many to many.

Automatic Bank Statement Reconciliation in Oracle Cloud Cash Management

4. Define Tolerance rules : Tolerance rules in Oracle Cloud Cash Management define the acceptable differences or variances between the amounts recorded in a bank statement and the amounts recorded in an organization's accounting system. Tolerances can be created on date/days or on amount (value or percentage) or combination of both. If the bank statement lines lies within the tolerance rule range it will be reconciled with the system transactions.

5. Define Parsing Rules : One of the important setup in automatic bank statement reconciliation in oracle cloud cash management is defining parse rules. In simple language Parse rules are basically rules created to move data from one filed to another in other words parse rules transforms data from bank statement while bank statement import process. 

Consider the below example for better understanding

In the above example the there are 3 rules created. Rule 1 says that for the the transaction code 165 whatever ( (X~) ) is coming in "Customer reference" filed in bank statement move it to "Reconciliation reference" filed in system. It is simply moving the content of Customer reference filed in bank statement to Reconciliation reference filed of the system. 

Now this was a simple example the scenarios can be complex as well in that case we need toh write parse rules accordingly.

6. Define Reconciliation rule set :  In the previous steps we have created matching rules and tolerances rules. The next  important setup in automatic bank statement reconciliation in oracle cloud cash management is to combine those rules under a single rule to make a combination and this is called as Reconciliation rule set.

7.  Assign the Reconciliation Rule seta and Parse rule set to bank accounts : The next step is to assign the parse rule set and reconciliation rule set toh the bank accounts under controls tab in bank account section. 

8. Define transmission configurations : A transmission configuration is a set of specific transmission details. Configuration of transmission protocol is necessary if you want to automate the integration of your ERP system with bank. These integrations can be inbound in case of bank statement retrieval or it can be outbound in case of AP payment and positive pay. Below you can see how to configure transmission protocol for bank statement retrieval.

All the values provided in the fields are bank specific and you need discuss all these with the banks before setting this up.

Note: 

PGP Public Encryption Key :→ This will be provided by the bank (upload the file through Import and Export, file name should be ending with _public.key.)

PGP Private Signing Key: → This will be generated by our IT team (upload the file through Import and Export, file name should be ending with _secret. Key.)

9. Define payment system : Define the payment system for the banks for which automatic bank statement reconciliation is required. Assign the transmission protocol the payment system defined.

10: Now at the month end you can run the automatic bank statement reconciliation process: Run the automatic bank statement reconciliation process in oracle cloud cash management to match transactions in the bank statement with transactions in the accounting system based on the predefined matching rules.

11. Review and resolve discrepancies: Review any discrepancies identified during the reconciliation process and resolve them as necessary.

By following these steps, organizations can set up automatic bank statement reconciliation in Oracle Cloud and improve the accuracy and efficiency of their financial operations.

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