2
The Intercompany Transaction Flow:..............................................................................2
Intercompany Transaction Flow..........................................................................................4
Transfer Price...................................................................................................................5
Freight..............................................................................................................................5
Tax...................................................................................................................................6
Currency..........................................................................................................................6
Internal Drop shipment (Central Distribution)....................................................................7
Intercompany Invoicing
Intercompany invoicing is done when one organization offers products / services to
another operating unit. For example, when a customer order is processed through the
order cycle and then invoiced, the selling organization records journal entries to accounts
receivable, revenue, and as applicable tax and freight. The shipping warehouse records
journal entries to its inventory asset and cost of goods sold accounts. When this scenario
involves a selling organization in one business unit but a shipping warehouse in a
different business unit, additional accounting must take place. The shipping organization
needs to bill the selling organization at transfer price, and the selling organization needs
to make the corresponding payment.
Note that intercompany invoicing is possible only between two operating units. You
cannot invoice between two inventory orgs if they belong to the same operating unit.
The intercompany AR invoice is the transaction used by Oracle to record intercompany
receivable accounting for the shipping organization: debiting intercompany AR (at
transfer price), tax, and freight and crediting intercompany revenue.
The intercompany AP invoice is the transaction used by Oracle to record the payable
accounting for the selling organization: debiting intercompany COGS (at transfer price)
and freight and crediting the intercompany payable account. Ideally, these transactions
should happen automatically and as soon as possible after the shipment takes place. This
can be done using the intercompany invoicing process within Oracle applications.
Oracle supports intercompany invoicing when:
Shipping operating unit is different from selling operating unit and
Receiving operating unit is different from procuring operating unit.
For a single process flow (one procure-to-pay cycle or order-to-cash cycle), you can
model Oracle to generate intercompany invoices between two or more operating units.
The building block of intercompany invoicing is the setup of intercompany transaction
flow.
Transfer Price
Transfer Price is the price at which an item is transferred from one operating unit to
another operating unit. Transfer price is also usually called as Arms length Price and is
generally guided by the originating countrys accounting standards.
Logic for transfer price determination for shipping flows is explained in Figure .
However, for procuring flow, you can specify whether the transfer price is same as the
PO price in intercompany transaction flow. This means that an operating unit sells at the
same price at which it procured the item to another operating unit. If you specify that the
transfer price is not same as the PO price in the intercompany transaction flow, then
system uses the same logic as depicted in . For procuring flow, you specify the pricing
option (transfer price or PO price) separately for asset and expense items.
Freight
Freight charges can be added to the intercompany invoice. Auto-invoice will apply freight
only if you set Allow Freight field to Yes in the AR transaction type defined at the
intercompany transaction relationship between two operating units. You need to define an
inventory item with user type as Freight. Then assign this item in the profile Tax:
Invoice Item as Freight. You need to setup a modifier of type Freight and Special
Charge List and define the freight charge for the Freight Item. Freight is a line item on
the intercompany invoice and the item to be mentioned on the invoice line is determined
from the profile Tax: Invoice Item as Freight.
Tax
You can also apply tax to intercompany invoices. Auto-invoice will apply taxes only if
you set Tax Calculation field to Yes in the AR transaction type defined at the
intercompany transaction relationship between two operating units. Auto-invoice looks
for a tax code in the following order, stopping at the first place where it finds a tax code:
1. Ship-To-Site
2. Bill-To-Site
3. Customer
4. Item
If you do not want tax to be calculated on freight lines, make sure that the profile option
Tax: Invoice Freight as Revenue is set to No. If this is set to Yes, AR creates a line item
of type 'Line' on the invoice for the freight amount and the tax will be calculated on the
freight line. Logic for determination of Tax Code for the freight will be same as that of
any other invoice line item.
You need to setup the same tax structures (tax codes and rates) in Oracle Receivables and
Oracle Payables. This will allow AR invoices to be correctly mirrored into intercompany
Oracle Payables.
You can offset the tax liability on the AP invoice for VAT purposes. For example, an
office in an EU state paying an intra EU invoice can assign a VAT tax and a
corresponding Offset tax to an invoice, so it can record and report VAT taxes without
actually paying any to other operating unit. If the tax code on the AP invoice line has an
associated offset tax and if you enabled the Use Offset Tax check box for the supplier
site, system creates a default offsetting tax distribution for each tax distribution on an
invoice. You can use offset taxes to record the value added tax (VAT) name and amount
without paying VAT to other operating unit (the tax distribution and the offset tax
distribution net to zero). For example, in the Tax Codes window, you can define an offset
tax code named Offset 10 that has a negative 10% rate. You can then define a userdefined tax called VAT 10 that has a 10% rate. You can assign the Offset 10 tax to the
VAT 10 tax.
A separate business flow should be identified to treat other charges like insurance,
handling charges that affect only one organization and does not affect other organization.
For example, custom duties need to be paid on the intercompany invoices in international
transactions. Handling of customs duty should be treated as a separate processes from
intercompany invoices.
Currency
You have different currency options to be used in an intercompany invoice. The attributes
that determine which currency to be used in an intercompany invoice for shipping flow
are the profile option INV: Advanced Pricing for Intercompany Invoice and Currency
Code attribute in intercompany transaction flow.
The attributes that determine on the currency to be used in an intercompany invoice for
procuring flow are the profile option Intercompany: Use Advanced Pricing and
Currency Code and Pricing Option attributes in intercompany transaction flow.
INTERCOMPANY INVOICING
Intercompany Transactions Flow Setup:
Bill To Details:
Price List:
The Create Intercompany Invoice program checks for the Sales Order Issue Transaction
ID of the concerned Sales Order for dumping data into the
RA_INTERFACE_LINES_ALL Table:
Few usefule columns that you can check in RA_INTERFACE_LINES_ALL table after
the above Intercompany program is successfully run: