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  • As a result of this chapter, you should be able to: Discuss the concept of closing and some of the processes involved Discuss the business requirements for period-end and year-end closing. Discuss the purpose of and execute the GR/IR Account Analysis Program. Discuss the purpose of and execute the balance carry forward programs. Perform the closing process.
  • Although managing the Posting Period Table is the only system requirement in the closing process, many tasks may be associated with finalizing the financial statements and preparing month end. The system provides reports and programs that fully support the closing process.
  • The closing of a period is performed in three steps: Pre-closing activities Financial Closing Managerial Closing Because of SAP’s split of management accounting duties (e.g., cost center accounting) and financial accounting duties (e.g., general ledger accounting) into two different modules, you can produce the financial statements (from the FI module) before all allocations are performed. The allocations performed in cost center accounting, do not affect the value of any given G/L account, simply the cost object associated with a portion of the value within an account. Note: For now, think of allocations as moving expenses from one cost object to another. The allocation of overhead expenses such as utilities to the engineering and accounting departments is a typical example of this activity. You will learn about allocations in the Cost Center Accounting section.
  • A recurring entry is one that occurs on a periodic basis (e.g., depreciation, rent, etc.) Accruals are revenue or expense items that have been booked; however, receipt or payment is not actually realized until a later period. For example, each month a company may record a portion of its annual bonus; however, the bonus is not actually paid (i.e., the expense is realized) until December.
  • The topics above will be discussed in detail on the following slides.
  • The exchange rate differences associated with any of the above processes are posted with automatic line items made possible by the configuration of automatic account assignments.
  • When a customer or vendor invoice is posted in a foreign currency, the payment to close the item may be processed with an exchange rate that differs from that used when the original item was created. When an invoice in a foreign currency is posted and subsequently cleared by a payment, the system posts any exchange rate difference automatically (this is an example of an Automatic Line Item). The automatic posting of the exchange rate difference is possible because the user defines the gain / loss accounts to which the differences are posted for automatic account assignment.
  • To be reported on the Balance Sheet in local currency, G/L Balance Sheet Accounts managed in a foreign currency must be valuated in local currency. Since exchange rates at period-end can differ from those when the transactions were originally posted, a gain or loss can exist. Report RFSBEW00 is executed during period-end closing to valuate G/L Balance Sheet Accounts managed in a foreign currency. This report generates a batch input session to post the revenue or expense resulting from any exchange rate differences. These are not realized differences . When account balances are valuated, the system adjusts the local currency amount in an account managed in foreign currency based on the exchange rate (from the Exchange Rate Table) on the date of the valuation. As with the clearing of open receivables or payables with an exchange rate difference, the automatic posting of the exchange rate difference is possible because the user defines the gain / loss accounts to which the differences are posted for automatic account assignment. The system provides the option to group accounts using an “Exchange Rate Difference Key”. This feature is useful if valuated accounts will post to different gain and loss accounts.
  • When valuating open items or accounts using the automated programs discussed, the programs require certain specifications such as the exchange rate and the procedure with which it is to make the valuation. Valuation Methods are used to combine this information to streamline the process.
  • For balance sheet preparation, open items are valuated on the key date (e.g., the last day of the month). The valuation can consist of some or all of the steps highlighted above, and these steps may be configured or combined differently depending on the valuation. Foreign Currencies - The system will valuate all items recorded in a currency other than the company code (local) currency into the local currency. Any gains or losses due to this valuation will be recorded to an appropriate gain or loss account. Discounting - The system calculates what a long-term receivables is worth in today (i.e., it calculates the net present value) based on currency and a run-specific discount rate, which is defined in the program’s Application-side Environment settings . Flat-Rate Value Adjustment - This procedure establishes a bad debt reserve. The system searches for all the appropriate customer items (based on days overdue and country) and carries out valuation according to a particular algorithm. Custom procedure - SAP allows two additional procedures to accommodate, for example, Local GAAP valuations.
  • This procedure is similar in concept to that used for Balance Sheet accounts managed in a foreign currency. Report SAPF100 is executed during period-end closing to valuate receivables and payables that remain open at period-end. These open items must be valuated with the period-end exchange rates for inclusion on the Balance Sheet. This report generates a batch input session to post the entries resulting from any exchange rate differences. The automatic posting of the exchange rate difference is possible because the user defines the gain / loss accounts to which the differences are posted for automatic account assignment.
  • During the program run, a customer account is selected for flat-rate value adjustment if its total balance is in a debit position. The postings are accumulated by a combination of reconciliation account and business area. The open item update and postings can be performed for each valuation area (for example, Local GAAP, Foreign GAAP, Management view, and so on.) that you have defined in the R/3 System. The example above illustrates how the system determines the total adjustment. If the credit memos had not existed then the first item would have received a $20 adjustment and the second item would have received a $8 adjustment.
  • The R/3 System offers standard valuation methods, such as: Method 1 = Foreign Currency Valuation, Method 2 = Discounting Method 3 = Flat rate value adjustment In general, SAP recommends the following order of valuation programs: Valuation of foreign currency items (SAPF100) Flat rate value adjustment or discounting (SAPF107) Regrouping of open items (SAPF101) Subsequent, valuations may use the prior valuation as a basis for calculation. Regrouping of open items can be performed on the basis of the preceding valuations.
  • The example above illustrates how the system determines the value of receivables due in the future. The first item was not discounted because it is due prior to the discount date.
  • The system will automatically create a proposal; however, the user can modify these results on a line item basis prior to transferring the results to the G/L. Alternatively you can enter the desired result in the document line item (T-Code: FB02). before running the program. Any such entry will override any automatic entry made by the valuation program. Following transfer (i.e., posting), automatic postings are generated for the results of the discounting and flat-rate value adjustment. The corresponding account determination has to be defined in Customizing. Open receivables are sorted and reclassified on the basis of the receivables for which valuation adjustment has been carried out. If a customer account has been selected for a valuation, it cannot be selected by other valuation runs; however, you can use alternative valuation methods, such as valuation according to national commercial codes or General Accepted Accounting Principles (GAAP). Notes: Configuring Discounting is nearly identical to Flat Rate Adjustments except you need to identify the discount rate and date when maintaining the parameters A batch session will only be created after the valuation transfer if there errors; otherwise, the postings occur automatically.
  • The Goods Receipt / Invoice Receipt (GR/IR) Account is a clearing account for goods and invoices in transit. It is posted to as the offsetting entry whenever goods or invoices are received. It is the link between Purchasing (Materials Management Module) and Accounts Payable (Financial Accounting Module). Before creating a Balance Sheet during closing, the GR/IR Account is analyzed with Program RFWERE00. This program allocates the net balance in the GR/IR Account to one of two G/L Accounts (depending on whether the balance is a net debit or credit) created to actually describe the net effect of the balance in the GR/IR Account. The example above assumes only one transaction occurred during the period. The following scenario is reflected in the above scenario: Goods received in the amount of $3,000 is posted to the appropriate Asset (Balance Sheet) Account. The system automatically posts the offsetting entry to the GR/IR Account. The organization has been invoiced $1,000 for part of the delivery. This amount is posted to the Vendor Account and to the GR/IR Account. At the end of the period, there remains a portion of the above order which has been delivered but not yet invoiced. Program RFWERE00 is executed, resulting in the following: On the Balance Sheet Key Date, transfer postings are required to identify the portion of the goods delivered but not yet invoiced. The system allocates the balance in the GR/IR Account by posting $2,000 to the GR/IR Clearing Account and posting the offsetting entry to the G/L Account Goods Delivered but Not Invoiced (known as the target account). These postings are reversed after the Balance Sheet has been created. $2, 000.
  • The same process is followed for year-end closing as that followed for period-end closing, with the addition of a requirement to carry forward account balances to the next year. The G/L Account Balance Carried Forward Program (SAPF011) processes General Ledger Accounts in the following manner: Income and expense accounts are closed out to Retained Earnings and start the new year with a zero balance. Balance sheet accounts are carried forward to the new year with the year-end closing balance.
  • A Profit and Loss Key is assigned to each Profit & Loss G/L Account master record in the P&L Statement Acct. Type field. Only the Profit and Loss Keys configured with a G/L Account assignment under Transaction / Event Process Key BIL (Balance Carried Forward) can be used. Each Profit and Loss Key must be assigned a Retained Earnings G/L Account. When the G/L Account Balance Carried Forward program (SAPF011) is executed, all revenue and expense G/L Accounts will be closed into this Retained Earnings Account and will have a zero balance carried forward into the next year. The G/L Account Balance Carried Forward program carries forward the profit or loss to the corresponding Profit or Loss Carry Forward Account.
  • Closing - the periodic process of reviewing system reports and executing system programs in preparing the legal financial statements of the organization. Foreign Currency Valuation - The process of converting accounts and open items to the local currency and creating postings for exchange rate differences so as to generate the balance sheet/income statement. Valuation Method - A configuration item where valuation run specifications are stored. Flat Rate Adjustments - Deducts a percentage of an overdue item and adds it to a bad debt account. Discounting - Calculates the net present value of an open item that is not yet due. GR/IR Account - A clearing account for goods and invoices. It is a link between the MM and FI modules. Balance Carry Forward - transfer of prior year’s profit/loss to the corresponding equity account.

Transcript

  • 1. Chapter 27 Closing
    • Closing is the periodic process of reviewing system reports and executing system programs in preparing the legal financial statements of the organization.
    • Chapter Objectives
      • Provide an understanding of the closing process as it is supported by the system.
      • Provide an understanding of the system and business requirements involved in period-end and year-end closing.
      • Explain the purpose of executing the various reports and programs used to support the closing process.
  • 2. System Requirements for Closing
    • Close Prior Posting Period
    • Open New Posting Period
  • 3. Period Closing Where do I start????
    • Pre-closing activities
    • Financial closing
    • Managerial closing
  • 4. Pre-Closing Activities
    • Post journal entries to record recurring entries and accruals.
    • Make sure all entries have been included from the entire system (depreciation, material valuations, salaries, invoicing complete, etc.)
    • Make sure all external programs affecting the trial balance have been interfaced.
  • 5. Financial Closing
    • Foreign Currency Valuation
    • Execute the Financial Accounting Comparative Analysis.
    • Create financial statements for review and analysis.
    • Post final adjustment entries
  • 6. Foreign Currency Valuation
    • Types
      • Receivables & Payables (when clearing)
      • Balance Sheet Accounts Maintained in Foreign Currency (RFSBEWOO)
      • Open Item Accounts (SAPF100)
  • 7. Clearing a Receivable / Payable with an Exchange Rate Difference Amount in BRR - 4,800 Amount in USD - 5,000 Step 1 - Invoice Amount in BRR - 4,800 Amount in USD - 5,200 Step 2 - Payment 200 USD Exchange Rate Difference
    • Automatic Posting To Gain / Loss Accounts Configured as Realized Exch. Rate Differences
  • 8. Revaluing Balance Sheet Accounts Managed in Foreign Currency Posting 1 100 FC Exchange Rate .80 Month End Exchange Rate .70 200 FC = 140 LC FC Account Posting 2 100 FC Exchange Rate .75 100 FC 80 LC 100 FC 75 LC 200 FC 155 LC Loss from Exchange Rate Difference 15LC
  • 9.
    • Used when running automated valuation programs
    Valuation Method
    • Combines Specifications
      • Exchange Rate Type
    • Document Types
  • 10. Valuation of Open Items US-GAAP Discounting Valuation Process Local GAAP Management (Political) Custom Algorithm Foreign Currencies Flat-rate individual value adjustment Valuations Receivables and Payables Receivables
  • 11. Foreign Currency Valuation of Open Items A / R A / P End of Period Different Exchange Rate Valuation POSTING
    • Automatic (SAPFIOO)
    • Posted to Adjustment Account
    • Offset to Gain / Loss Account
  • 12. Flat-Rate Value Adjustment 1st step: Check if account has debit balance 2nd step: Clear total of all credit memo items to the oldest receivable item (baseline date) 100 - 110 = -10 Item 100: No revaluation 3rd step: Clear difference of 2nd step to the amount of next oldest item 80 -10 = 70 -> 70 * 10 % = 7 -> revaluation amount: 63 (= 70 -7) 4th step: Next younger item: 60 * 10% = 6 -> revaluation amount: 54 (= 60 - 6) Customer account 100 (01.01.00) 80 (02.01.00) 60 (03.01.00) Baseline dates 60 50 Receivables Credit memos Adjustment for: 30 days overdue: 10% 90 days overdue: 20% Current Date: 04.01.00
  • 13. Flat Rate Value Adjustment Base Amounts Explanation: Flat rate value adjustment (method 3) uses the result of the foreign currency valuation (method 1). Example: 1. Open item : 100 For. Curr. 170 Loc. Curr. 2. For. curr. val. result: 160 3. Flat rate val. adj. result: 160 - 10% = 144 Adjustment = 10% Method Base amount 3 1 Example 1 Example 2 Method Base amount Explanation: Any valuation method (2,3,98,99) uses local currency amount of the documents. Example: 1. Open item : 100 For. Curr. 170 Loc. Curr. 2. Flat rate val. adj. result: 170 - 10% = 153
  • 14. Discounting 1st step: Check if account has debit balance 2nd step: Clear total of all credit memo items to the oldest receivable item 3rd step: Determine if any items are due beyond the discount date 4th step: Discount Items at 10%per year Item 2: $75.49, Item 3: $56.15 Customer account 100 (9.01.00) 80 (11.01.00) 60 (12.01.00) Due dates Receivables Interest Rate: 10% per year Discount Date: 10/01/00 Current Date: 04.01.00
  • 15. Discounting and Flat Rate Value Adjustment - Steps Customizing Maintain parameters : Key date, reval. method, postings, doc type Valuat. Adj. key AB Adjmt. Account (B/S) G/L Acct 1 Target account (P&L) G/L Acct 2 Etc... Customer Master Documents No.:13000543 No.:19300534 Dispatch: Start time, start date, immediately Edit valuation run: Valuation transfer: Forward (line item update), (sample) posting, log display Line item update/posting No.:13000543 No.:19300534 Change valuations, display log, value list, delete Honda Ford
  • 16. GR/IR Account Allocation GR/IR Clearing Account 2000 2000 3 4 GR/IR Account 1000 3000 2 1 Asset Account 3000 1 Vendor 1000 2 Goods Delivered but Not Invoiced 2000 2000 4 3 A Single Balance Sheet Item Target Account
  • 17. Financial Accounting Comparative Analysis Customers Vendors G/L Accounts Totals from: Customers Vendors G/L Accounts Totals from: Customers Vendors G/L Accounts Transaction figures Indexes Documents Program SAPF190 compares totals contained in the indexes and documents (customers, vendors, G/L accounts) with the corresponding account balances. Program SAPF190
  • 18. End of Period Reporting
    • Balance Sheet / Profit and Loss Statement
    • General Ledger Account Information System
      • Financial Statement Versions
      • Key Figure / Ratio Reports
    • Special Purpose Ledger - for reports with more customized format.
  • 19. Year-End Closing Account Carry Forward: Customer / Vendor Balance Carried Forward General Ledger Account Balance Carried Forward
  • 20. Automatic Line Items Balance Carried Forward
  • 21. Managerial Closing
    • Preliminary close of controlling accounting period.
    • Reallocation and settlement of costs throughout the entire organization.
    • Review and analysis of internal reports.
    • Re-opening of the controlling accounting period to correct and adjust accounting data.
    • Run FI-CO Reconciliation ledger
    • Execute readjustment programs to ensure Business Areas and Profit Centers are in balance
  • 22. Closing Chapter Summary
    • Key Terms:
      • Closing
      • Valuation
      • Valuation Method
      • Flat Rate Adjustments
      • Discounting
      • GR/IR Account
      • Balance Carry Forward