ACCOUNTING BASICS IN SAP

SAP Financials and Controlling

Prepared 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

 ACCOUNTING BASICS IN SAP FINANCIALS & CONTROLLING

TYPES OF ACCOUNTS

There are three types of Accounts in Finance

Real Account Stock Account, Bank Account, Cash Account, Tax Account

Nominal Account Revenue Account, Expense Account

Personal Account Customer Account, Vendor Account

A 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 Statement

BASIC 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 equivalent
Primary element of CONTROLLING.

Revenue Account in FINANCIALS will have a Revenue element in CONTROLLING and Expense
Account 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, Internal
Order, 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 of
Secondary Cost Elements Cost Objects wise becomes important for Cost Analysis. In a way my
reports dictate the creation of Secondary Cost Elements. Revenues can be posted against Cost
centers only as a Statistical entry (not relevant for further settlement).

Profitability Segment is a unique combination of characteristics at the Operating Concern level for
which values are stored.

Internal Orders are Cost Objects, which capture certain unique costs. Internal Orders are created at
the 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 and
represents an event based sub division of the cost center. This helps in reports for certain types of
costs (Primary Cost Elements) against all the statistical Internal Order.

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Cost Center The Cost center is created for a combination of a Controlling area and a company
code. Cost centers have to be grouped in a cost center hierarchy. However other than the standard
hierarchy, 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 the
master 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 the
right 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 are
made 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 (cost
center=canteen). Captured costs in primary cost elements against a cost object has to be further
redistribute 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 a
secondary cost element. Cost components are recorded as separate line items having the origin of
costs.

Distribution is the redistribution of direct costs between cost objects (example Accumulation of
direct costs). Costs components do not exist as separate line items.

Funds management is done at the financial management area level. A financial management area is
connected to a controlling area (for the sake of planning) and to company code(for the sake of
capturing commitments/expenses).

Planning of expenses/ Budgeting happen in controlling and then it is passed to the financial
management 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 item
refers to a group of GL expense accounts or cost elements.

Asset Accounting is done at the depreciation area level. There are different reasons why we
depreciate asset, each is mapped by a depreciation area. A list of depreciation areas makes a chart
of depreciation. This chart of depreciation can be attached to multiple company codes.

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Different types of Assets are mapped by Asset Classes. Account determination and definition of
master layout is done at the Asset class level. Account determination involves an accumulated
depreciation accounts (B/S), a depreciation (Expense) account (P/L) and a P/L account for write ups
the number of asset accounts & accumulated depreciation accounts should ideally reflect the
number of asset accounts.

Whenever an asset comes in the asset account is debited and vendor is credited. Whenever a
depreciation run begins for assets belonging to an asset class, a credit entry goes for every asset for
the value it is depreciated with a responding debit into a P&L expense account. End of year balance
of asset value for an entire class is calculated as a sum of debits in its asset account and the credit in
its accumulated depreciation.

Different methods and rates of depreciation would be applicable for every cell in a matrix of
depreciation areas and Asset class. These different methods & rates are mapped by depreciation
keys 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 system
proposes a number of depreciation keys for some depreciation areas, some of which we rightfully
activate.

Unique bank ids are created for each country. Also multiple house banks are created at the company
code 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 be
connected to a GL Account ideally each house bank should have 3 accounts an incoming cheque
account, an outgoing cheque account and a main account.

Receiving cheques of a debit in the incoming cheque account while giving out cheques credit an
outgoing cheque account. Only upon receiving a daily bank statement can we offset the
incoming/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 the
controlling area. Operating concern is divided into segments which are different views of the same
market.

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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

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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).

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