on 05-12-2015 12:35 AM
Dear Gurus,
I'm currently working on providing a solution for Internal Sales between divisions operating under the same company code. These divisions are profit centers and they are actually selling products, services and projects to each other. Now, we have created a Customer Account Group and Vendor Account Group for these divisions and I have strong doubts on the solution design, so I will propose the solution and I hope from the experts on the subject to have a look and give his/her feedback especially when it comes to the Reconciliation Account, handling of Inventory and the GL Entries created:
Prelims/Assumptions:
Sales Process:
5- Delivery & Billing: Assuming the Classical Sales Order of selling Trading Goods, we now perform Sales Delivery and Billing for the Product being sold to division BB. For example, Division AA decides to sell the product to Division BB at the price of 120. Division BB is buying from Division AA:
Delivery: GL Entry @ Division AA: Dr. Cost of Goods Sold (P&L) 100 PC: AA
Cr. Inventory (Balance Sheet) 100 PC:AA
Billing: GL Entry @ Division AA: Dr. Inter Division Customer (BS) 120 PC: AA
Cr. Sales Revenue (P&L Account) 120 PC: AA
Goods Receipt: GL Entry @ Division BB: Dr. Inventory (BS) 120 PC: BB
Cr. Inter Division Vendor (BS) 120 PC: AA
(Ignore the standard Goods Receipt and Invoice Verification process done by Division BB involving the GR/IR Account which will be closed eventually. The impact eventually will be the same as above)
Note: Once this is happening the Inventory BS Account balance is now 120. And accordingly, the moving average for the Material is 120 for the 1 unit. Is this right from an Accounting perspective? Material Valuation has increased by 20 for the material due to Internal Purchase. PC AA has incurred a Profit of 20 USD.
At this stage: GL Entry @ Division BB: No Entry created except when selling to an external customer. Assuming Division BB sold the material to an external customer for this unit at 150 USD, the following will be GL Entries:
Delivery: Dr. COGS (P&L) 120 PC: BB
Cr. Inventory (BS) 120 PC: BB
Billing: Dr. Customer (BS) 150 PC: BB
Cr. Sales Revenue (P&L) 150 PC: BB
Now, here's my real inquiries:
Let me know your thoughts and please give me your inputs. I will also share this solution with other experts and I know that it might be Accounting relevant inquiry but I brought to you an Integration Scenario and we should be tackling integrated scenarios rather than isolated processes.
Thanks. I'm looking forward for an expert feedback.
Reda
Hi Reda,
This is an interesting business process. I was just wondering, what does division BB do with the goods it purchased from division AA, rather than selling it to customer?
Does division BB modify this good and sell to customer at 150 USD, or sell it as it is, without any value addition?
If so why cant division AA sell it to customer direclty at 150 USD ?
Regards
Jobi
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Hi Jobi,
Division BB sells its materials to their related customers. Each division is dealing with their own customers. You might wonder that Division BB might be purchasing the goods, modifying them, or assembling them and then it will be a new finished good. But no, they are selling it directly to a customer who does not belong to division AA.
Thanks.
Reda
Hi Reda,
the process flow you have designed looks logical to me. I dont see any specific issues with this.
Only thing is when 100 usd good is sold at 150 usd, the companies profit is 50 usd. And the 50 usd is from 2 divisions - 20 from AA and 30 from BB
Let us hear from other forum members too..
Thanks
Jobi
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