anded Cost Management

Impacts the Accounting Flow in

a P2P.
Jun 24 2014
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1. Receive the PO with estimated landed cost calculated

- Receiving Inspection a/c DR @ Estimated Landed Cost
- AP Accrual a/c CR @ PO Price inclusive of Non-Recoverable
tax
- Landed Cost Absorption a/c CR @ (Estimated Landed cost PO Price inclusive of Non-Recoverable tax) (This a/c is defined
in Receiving options)
These accounting entries can be viewed from Receiving
Transaction summary > Transactions > Tools > View
Accounting
These entries get created in rcv_receiving_sub_ledger
2. Deliver the PO to Inventory destination

For Standard Costing organization

- Material Valuation a/c DR @ Std Cost
- Receiving Inspection a/c CR @ Estimated Landed Cost
- Purchase Price Variance a/c DR @ difference between Std
Cost and Estimated Landed Cost
For Average Costing organization
- Material Valuation a/c DR @ Estimated Landed Cost
- Receiving Inspection a/c CR @ Estimated Landed Cost
These entries can be viewed from Inventory > Material
Transactions > Distributions
These entries get created in mtl_transaction_accounts
3. Invoice validated and actual landed cost calculated
Once the Actual Landed Cost is calculated, LCM will populate
this information in cst_lc_adj_interface with rcv_transaction_id
corresponding to the receipt to which the invoice is matched.
Then the adjustment entries would get created as given
below on running the Landed Cost Adjustment Processor
Landed cost Adjustment - Receiving
- Receiving Inspection a/c DR @ difference between Actual LC
and Estimated LC
- Landed Cost Absorption a/c CR @ difference between Actual
LC and Estimated LC
Landed cost Adjustment - Delivery (Standard Costing)
- Receiving Inspection a/c CR @ difference between Actual LC
and Estimated LC

- Purchase Price Variance a/c DR @ difference between Actual

LC and Estimated LC
Landed cost Adjustment - Delivery (Average Costing)
- Receiving Inspection a/c CR @ difference between Actual LC
and Estimated LC
- Landed Cost Absorption a/c DR @ difference between Actual
LC and Estimated LC
These accounting entries can be viewed from Receiving
Transaction summary > Transactions > Tools > View
Accounting
These entries get created in rcv_receiving_sub_ledger
Average Cost Update (Average Costing)
- Material Valuation a/c DR @ difference between Actual LC
and Estimated LC
- Landed Cost Absorption a/c CR @ difference between Actual
LC and Estimated LC
LC Variance account is hit ONLY when the available onhand
quantity is less that the received (to be adjusted) quantity
but NOT zero. When the onhand balance is zero or negative,
the average cost variance account is hit
If this Average cost update happens for updating the item
cost with the difference between Actual and Estimated landed
cost for an item which has 0 or negative on-hand quantity,
then the accounting entries would be as follows:

- Material Valuation a/c DR @ 0

- Landed Cost Absorption a/c CR @ difference between Actual
LC and Estimated LC
- Average Cost Variance a/c DR
These entries can be viewed from Inventory > Material
Transactions > Distributions
These entries get created in mtl_transaction_accounts
The link between the Receiving transaction and Average
Cost update is done through txn_source_line_id.
Rcv_transaction_id of deliver transaction is stamped as
txn_source_line_id in mtl_material_transactions for the
LCM adjustment transaction which has the transaction
type as Average Cost Update.
4. Create accounting for item invoice
- AP Accrual a/c DR @ PO Price
- Tax a/c DR @ tax rate
- Liability a/c CR @ Invoice Price including tax
- LCM:Invoice Price Variance a/c DR @ difference between PO
Price and Invoice Price (This IPV a/c is defined in Receiving
options)
- LCM:Exchange Rate Variance a/c DR @ difference between
receipt exchange rate and Invoice exchange rate (This ERV
a/c is defined in Receiving options)
5. Create accounting for charge invoice

- Default Charge a/c DR @ invoice price (This charge a/c is

defined in Receiving options)
- Liability a/c CR @ invoice price
6. Perform Return transaction or negative correction after
invoice is accounted and actual landed cost is calculated
Return to Vendor /Negative Correction
- Receiving Inspection a/c CR @ Actual Landed Cost
- AP Accrual a/c DR @ PO Price + Non-Recoverable Tax
- Landed Cost Absorption a/c DR (Actual Landed Cost - {PO
Price+Non-Recoverable Tax})
These accounting entries can be viewed from Receiving
Transaction summary > Transactions > Tools > View
Accounting
These entries get created in rcv_receiving_sub_ledger
Return to Receiving/Negative Correction (Standard Costing)
- Material Valuation a/c CR @ Std Cost
- Receiving Inspection a/c DR @ Actual Landed Cost
- Purchase Price Variance a/c CR @ difference between Std
cost and Actual Landed Cost
Return to Receiving/Negative Correction (Average Costing)
- Material Valuation a/c CR @ Actual Landed Cost
- Receiving Inspection a/c DR @ Actual Landed Cost
These entries can be viewed from Inventory > Material
Transactions > Distributions
These entries get created in mtl_transaction_accounts

7. Raise a Debit Note

- AP Accrual a/c CR @ PO Price
- Tax CR @ tax rate
- Liability a/c DR @ Invoice Price including tax
- Invoice Price Variance a/c CR @ difference between PO price
and Invoice Price
Note:
1. Estimated and Actual Landed Cost are always inclusive of
PO price and Non-Recoverable tax.
2. Landed Cost Absorption account need not be having zero
balance at the end of this procure to pay cycle in LCM
enabled organization. It will be zero only if the Actual landed
cost has been calculated and the Charge a/c, IPV a/c and
Landed Cost
Absorption account are the same
3. Accounting entries for Expense POs and Shopfloor
destination POs has no impact as Landed Cost Management
is not applicable for Purchase Orders with Expense and
Shopfloor destination.
4. Landed Cost Management has no impact on the
Encumbrance Accounting as the PO gets reserved at PO price
and it gets reversed at PO price only even though the actual

charge account get hit at landed cost.

5. Retroactive Pricing is not supported in LCM enabled
organization and hence retroactive price update program will
not create the retroactive price adjustment entries in
Receiving subledger for the receiving transactions created.