COGS (Cost of Goods Sold) in Oracle E-Business Suite Release 12

Deferred COGS is a new feature introduced in Oracle E-Business Suite Release 12. The basic fundamentals behind the enhancement are that the COGS are now directly matched to the Revenue.
Prior to this enhancement, the value of goods shipped from inventory were expensed to COGS upon ship confirm, despite the fact that revenue may not yet have been earned on that shipment. With this enhancement, the value of goods shipped from inventory will be put in a Deferred COGS account. As percentages of Revenue are recognized, a matching percentage of the value of goods shipped from inventory will be moved from the Deferred COGS account to the COGS account, thus synchronizing the recognition of revenue and COGS in accordance with the recommendations of generally accepted accounting principles.


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While this helps solve some key accounting issues, there are some key issues one needs to be aware of:
  • Currently Deferred COGS accounting cannot be turned off in Oracle EBS Release 12.
  • The activity of recording COGS recognition is now a multi-step process
  • Run AR Revenue Recognition, and Submit Accounting Processes
  • Run a set of concurrent processes in Cost Manager to record Sales Order and revenue recognition transactions and to create and cost COGS recognition transactions. 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.
  • Record Order Management Transactions: records new sales order transaction activity such as shipments and RMA returns in Oracle Order Management.
  • Collect Revenue Recognition Information: determines the percentage of recognized or earned revenue related to invoiced sales order shipment lines in Oracle Receivables.
  • Generate COGS Recognition Events: creates and costs COGS recognition events for new sales order shipments/returns and changes in revenue recognition and credits for invoiced sales order shipment lines.

The end result of these activities is a series of COGS Recognition Material Distributions. However these distributions will not be visible on the Material Transaction screen, unless the ‘Include Logical Transaction’ checkbox is checked.