Accounting Basics in SAP - Financials/Controlling


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Accounting Basics in SAP - Financials/Controlling

  1. 1. ACCOUNTING BASICS IN SAP SAP Financials and ControllingPrepared By: Ms.Pramila Nagaraj First Class MBA Finance Graduate (2009-10) Global Academy of Technology, Bangalore (VTU- Belgaum) Trained up in SAP FICO @ SAPTAC Bangalore (FRESHER) © 2010-2012 SAPTAC ALL RIGHTS RESERVED
  2. 2. ACCOUNTING BASICS IN SAP – FINANCIALS & CONTROLLINGTYPES OF ACCOUNTSThere are three types of Accounts in FinanceReal Account – Stock Account, Bank Account, Cash Account, Tax AccountNominal Account – Revenue Account, Expense AccountPersonal Account – Customer Account, Vendor AccountA Summary of all Real Account and Personal Account will appear in the Balance Sheet.A Summary of All Nominal Account will appear in Profit & Loss Account StatementBASIC RULES OF ACCOUNTING 1. For Real Accounts – “Debit what comes in and Credit what goes out” 2. For Nominal Accounts – “Debit Expenses & Losses and Credit Revenues & Gains” 3. For Personal Accounts – “Debit the Receiver and Credit the Giver”Every Nominal Account of Profit & Loss Account Statement in FINANCIALS can have an equivalentPrimary element of CONTROLLING.Revenue Account in FINANCIALS will have a Revenue element in CONTROLLING and ExpenseAccount will have a Cost Element in CONTROLLING.Costs are Debited to a Cost Element against a Cost Object. Cost Object can be a Cost Center, InternalOrder, Profitability Segment or any other sources of Costs such as MTO (Make to Order) Sales Order,a Work Break down Structure etc.The Cost element acts as a Connecter between the Transaction and the Cost Center. A Summary ofSecondary Cost Elements Cost Objects wise becomes important for Cost Analysis. In a way myreports dictate the creation of Secondary Cost Elements. Revenues can be posted against Costcenters only as a Statistical entry (not relevant for further settlement).Profitability Segment is a unique combination of characteristics at the Operating Concern level forwhich values are stored.Internal Orders are Cost Objects, which capture certain unique costs. Internal Orders are created atthe same level as that of Cost Centers. Internal Orders can also be used for detailed CONTROLLING.Statistical Internal Orders are Cost Objects used to map certain events across cost centers andrepresents an event – based sub division of the cost center. This helps in reports for certain types ofcosts (Primary Cost Elements) against all the statistical Internal Order. © 2010-2012 Copy Rights of SAPTAC
  3. 3. Cost Center – The Cost center is created for a combination of a Controlling area and a companycode. Cost centers have to be grouped in a cost center hierarchy. However other than the standardhierarchy, alternate multiple hierarchies can be created for information purposes.Profit Center – A Profit Center is attached to a Cost Center by inserting the profit center in themaster record of the cost center. This link enables costs to flow from a cost center to a profit center,the moment costs hit a certain cost center.For every Revenue account in FINANCIALS, a Revenue element is created in CONTROLLING.Transactions then create an extra document through which revenue hits revenue elements using theright profit centers. Profit Centers can be determined from the individual material masters.Activity types are the kind of activities that can be outputted for a cost center. Activity types aremade relevant for a cost category.Costs are settled (redistributed) amongst same type of cost objects through assessment/distribution.Costs are settled amongst different type of cost objects (from internal orders to cost objects)through settlement.Primary Cost Elements capture costs from FINANCIAL Transactions against certain cost objects (costcenter=canteen). Captured costs in primary cost elements against a cost object has to be furtherredistribute to certain cost centers (cost center= marketing, production). This redistribution(structuring) of costs can be done using secondary cost elements.This redistribution is done by a month and settlement cycle.Assessment is the redistribution of indirect costs between cost objects (example-overheads) using asecondary cost element. Cost components are recorded as separate line items having the origin ofcosts.Distribution is the redistribution of direct costs between cost objects (example – Accumulation ofdirect costs). Costs components do not exist as separate line items.Funds management is done at the financial management area level. A financial management area isconnected to a controlling area (for the sake of planning) and to company code(for the sake ofcapturing commitments/expenses).Planning of expenses/ Budgeting happen in controlling and then it is passed to the financialmanagement level as a matrix of fund centers and commitment items.A Fund center corresponds to a cost center or a cost center group, whereas the commitment itemrefers to a group of GL expense accounts or cost elements.Asset Accounting is done at the depreciation area level. There are different reasons why wedepreciate asset, each is mapped by a depreciation area. A list of depreciation areas makes a chartof depreciation. This chart of depreciation can be attached to multiple company codes. © 2010-2012 Copy Rights of SAPTAC
  4. 4. Different types of Assets are mapped by Asset Classes. Account determination and definition ofmaster layout is done at the Asset class level. Account determination involves an accumulateddepreciation accounts (B/S), a depreciation (Expense) account (P/L) and a P/L account for write upsthe number of asset accounts & accumulated depreciation accounts should ideally reflect thenumber of asset accounts.Whenever an asset comes in the asset account is debited and vendor is credited. Whenever adepreciation run begins for assets belonging to an asset class, a credit entry goes for every asset forthe value it is depreciated with a responding debit into a P&L expense account. End of year balanceof asset value for an entire class is calculated as a sum of debits in its asset account and the credit inits accumulated depreciation.Different methods and rates of depreciation would be applicable for every cell in a matrix ofdepreciation areas and Asset class. These different methods & rates are mapped by depreciationkeys which are created for a combination of an asset class and a depreciation area.So when we create an asset for a combination of a company codes and an asset class, the systemproposes a number of depreciation keys for some depreciation areas, some of which we rightfullyactivate.Unique bank ids are created for each country. Also multiple house banks are created at the companycode level. House banks are also assigned a bank id.A house bank can have multiple accounts each having an account id. Each account id should beconnected to a GL Account ideally each house bank should have 3 accounts – an incoming chequeaccount, an outgoing cheque account and a main account.Receiving cheques of a debit in the incoming cheque account while giving out cheques credit anoutgoing cheque account. Only upon receiving a daily bank statement can we offset theincoming/outgoing cheque account and post into the main account.An operating concern defines the cumulative market of all the company codes attached to it via thecontrolling area. Operating concern is divided into segments which are different views of the samemarket. © 2010-2012 Copy Rights of SAPTAC
  5. 5. ACCUNTING ENTRIES IN THE PURCHASE CYCLE 1. Goods Receipt Debit Stock Account (Real Account-Debit what comes in) Credit GR/IR Account (Real Account) 2. Invoice Receipt Debit GR/IR Account (Real Account) Credit Vendor Account (Personal Account – Credit the giver) 3. Vendor Payment Debit Vendor Account (Personal Account – Debit the Receiver) Credit Bank Account (Real Account – Credit what goes out)ACCOUNTING ENTRIES IN THE PRODUCTION CYCLE 1. Goods Issue to Production Debit Raw Material Consumed Account (Nominal Account – Debit Expenses +Debit cost element with appropriate production order X) Credit RM Stock Account (Real Account – Credit what goes out) 2. Receipt of Semi Finished Goods Debit Stock of Semi Finished Goods Account Credit Change in RM (Production Order X) 3. Issue of Semi Finished Goods Debit Change in Semi Finished Goods Account (Production Order X) Credit Semi Finished Stock 4. Receipt of Finished Goods Debit Finished Goods Inventory Credit Change in Semi Finished Goods Consumption 5. Work –in – Progress (WIP) Debit Work – in – Progress Account (Balance Sheet) Credit Change in WIP (P & L account) not a cost element © 2010-2012 Copy Rights of SAPTAC
  6. 6. ACCOUNTING ENTRIES IN THE SALES CYCLE 1. Goods Issue Debit Cost of Goods Sold (CGS) (Nominal Account – Debit Expenses + Debit Cost element with appropriate cost center) Credit Stock Account (Real Account – Credit what goes out) 2. Invoicing the Customer Debit Customer Account (Personal Account – Debit the Receiver) Credit Revenue Account (Nominal Account – Credit Revenue) Debit Discounts to the expense account (Nominal Account – Debit Expenses) + hit the cost element with the right cost center Credit Tax Account (Real Account – Credit what goes out) 3. Customer Payment Debit Bank Account (Real Account – Debit what comes in) Credit Customer Account (Personal Account – Credit the giver)ACCOUNTING ENTRY IN EXPENSE BOOKING 1. Debit Conveyance (Nominal Account – Debit Expense) Credit Cash Account (Real Account – Credit what goes out)ACCOUNTING ENTRY IN SERVICE CYCLE 1. Debit Service Labor Cost Account + Debit Labor Cost element(Secondary) with service order as the cost object Credit Labor Cost Account + Credit Labor Cost element (Primary) with cost center (Service department as the cost object). © 2010-2012 Copy Rights of SAPTAC