How to account for after-sales service expenses in Oracle Cloud Maintenance
Regardless of their industry, purchased products may come back to manufacturers for preventive or corrective maintenance. Once a maintenance work order (WO) is released, the components issued and labor costs for the job are expensed out immediately — even if the WO is still in progress — and the cost of goods sold (COGS) is generated right away. However, revenue is not generated until the WO is complete and the product is returned to its owner. The potentially significant lag time between COGS generation and revenue generation results in a loss on P&L statements, which is not acceptable for most industries. To avoid that scenario, revenue and COGS must be generated at the same time. With Oracle Maintenance Cloud, it is possible for COGS to be generated when a sales order (SO) is closed. As a result, COGS and revenue are in harmony on P&L statements.
To accomplish this, the maintenance WO needs to be complete and closed. The picking and shipping process must also be completed to close the SO line. COGSs entries should be in a work in progress (WIP) clearing account and then posted to the general ledger (GL) on the SO and WO close lines. Finally, a report needs to be generated showing that the WO is closed, with components issued and resources used. The COGS entries should be associated with a WIP/clearing account instead of the COGS line itself so that COGS are not generated while the WO is in progress. Since the COGS entries are still in the WIP/clearing account, a GL API needs be used for posting the entries to the GL.
To do that, the GL date and the WO close date must match, and the GL needs to have a “Maintenance WO” category. All transactions should be available in the GL in “unposted status” so that users can review them and then post them manually. Next, the transaction in GL can be posted “status” to avoid manual intervention each subsequent time. As a result, the maintenance expense account will hold the WIP balances, and COGS will be booked only when the maintenance is completed. By eliminating COGS booking on every “Component Issue” or “Resource Absorption,” the P&L statement will be in balance.
Inspirage can help
As the Integrated Supply Chain Specialists, with recognition from Gartner, IDC, and winners of Oracle’s 2021 Game Changer Award for SCM Service Delivery Partner of the Year, Inspirage is uniquely qualified to be your success partner. Whether you are upgrading your on-prem system or have decided to move to the cloud where continuous improvement is built-in, our team is prepared to guide you on your transformational journey.
