GRIR

Accounting (FICO) Journals of SAP Material Management (MM)
Transactions
SAP R/3 is Enterprise Resource Planning (ERP) software that makes an

enterprise able to integrate all of its business processes so it can be run more
efficient. It can reduce the duplication of data and process. Data recorded by one
department can be used by other departments in a real-time process. As an
example we will explain the typical business process in an enterprise.
Typical business processes in an enterprise
Demand for finished products from customer will be recorded by Sales

department in a sales order document. Sales order data can be analyzed by
Inventory department. If there are not enough finished products in current stock,
the sales order can trigger a production order that request the Production
department to start producing the finished products. In order to produce the
finished products maybe it requires some raw materials that have to be bought
from vendors. The production order can trigger a purchase requisition for the raw
materials. The purchase requisition will be processed by Procurement
department to be a purchase order that is sent to vendor. Vendor will deliver the
raw materials and Inventory department will receive them. Accounting
department will record the vendor’s invoice and Finance department will process
the payment. Once the raw materials are available, the Production process
begins. Then the finished products will be delivered to the customer, and Finance
department will send invoice to the customer.All of the above processes need
man powers that are managed by HR department and paid by Payroll Accounting
department.
All of the above processes can be recorded by SAP R/3 in:
• Sales and Distribution (SD) module.

• Production Planning (PP)
• Material Management (MM) module.
• Finance & Controlling (FICO) module
• HR Module
Certain transactions in the above example also trigger accounting business

process. FICO module posts accounting documents for some transactions that
have an accounting effect in SD, PP, and MM module, such as finished products
issue for sale to customer, raw materials receipt from vendor, etc. These
processes will affect the financial reports such as Balance Sheet and Profit &
Lost Statement.
In this blog-post, we will explain the way MM transactions affect the FICO
module. First, we will explain basic accounting business process principle that
used in FICO module.
Accounting Business Process Basic Principle
Accounting is the systematic process of measuring the economic activity of a

business to provide useful information to those who make economic decisions
(internal or external parties of an enterprise). It records all economic transactions
(usually, but not always, involves money) in a systematic and generally accepted
way. The transaction records are organized and presented in certain forms of
reports. The most used reports in financial accounting business process are
Balance Sheet and Profit & Lost Statement.
Balance Sheet
The balance sheet shows an enterprise’s Assets, Liabilities, and Equity at a

specific time (such as Balance Sheet on December 31, 2007). It is sometimes
described as a snapshot of the business in financial terms.
Asset = Liabilities + Equity
Assets are valuable resources that a firm owns or controls, such as:
• Cash
• Bank account
• Inventory
• Account Receivable
• Fixed Asset
• Intangible Asset
• etc
Liabilities are obligations of the business to convey something of value in the

future, such as:
• Account Payable
• Notes Payable
• etc
Equity refers to the owner's interest in the business, such as:
• Capital stock
• Retained earning
• Current year net profit/loss (in traditional accounting that is without a real-
time software such as SAP, there is no current year net profit/loss
account. The Balance Sheet is usually prepared at the end of fiscal period,
such as December 31 every year. All of the profit/loss in that year from
Profit & Loss Statement, after deducted by dividend that given to
shareholders, will be recorded as an addition to Retained earning account.
But, in SAP system, the current year net profit/loss from Profit & Loss
Statement is directly recorded in balance sheet under equity, without
waiting transferred to retained earning account, so it is possible to have a
snapshot of enterprise balance sheet at any time along the year, not have
to wait until the end of year.)
Profit & Loss Statement
The Profit & Loss Statement summarizes the earnings generated by an

enterprise during a specified period of time (such as Profit & Loss Statement in
year 2007).
It contains at least two major sections: revenues and expenses.
Revenues are inflows of assets from providing goods and services to customers,
such as:
• Sales to customers.
• Gain from foreign currency exchange transaction
• etc
Expenses are the costs incurred to generate revenues, such as:
• Cost of goods sold (COGS) include raw material consumption, etc

• General and administrative expenses include salaries, rent, and other
items
• Tax expense
• etc
The difference between revenues and expenses is net profit (or net loss if
expenses are greater than revenues).
Relationship between Balance Sheet and Profit & Loss Statement
Balance Sheet and Profit & Loss Statement are all based on the same underlying
transaction information, but they present different “views” of an enterprise. They
should not be thought of as alternatives to each other but as a complement.
The balance sheet represents an expansion of the accounting equation and
explains the various categories of assets, liabilities, and equity. The profit & loss
statement explains changes in financial position (that is, assets and liabilities)
that result from profit generating transactions in terms of revenue and expense
transactions. The resulting number, net profit, represents an addition to the
equity in the enterprise. This relationship is called articulation.
DEBIT and CREDIT rules in accounting journal

Name of account
Debit Credit
Increases in Assets are recorded by debits.
Decreases in Assets are recorded by credits.
Increases in Liabilities and Equity are recorded by credits.
Decreases in Liabilities and Equity are recorded by debits.
Revenues increases equity, therefore revenue are recorded by a credits.
Expenses decreases equity, therefore expenses are recorded by a debits.
Accounting journals of MM Transactions
The MM transactions which have effect to accounting (FICO module) are

transactions that involve valuated-materials (and also non-valuated-materials for
GR for PO transaction), such as:
• Goods Receipt (GR):

o GR for initial entry for stock balance (movement type: 561)
o GR for Purchase Order/PO (movement type: 101)
o GR other/without PO (movement type: 501)
• Goods Issue (GI):
o GI to cost center (movement type: 201)

o GI to sales order (movement type: 231)
o GI to asset (movement type: 241)
o GI for sales (movement type: 251)
o GI to order (movement type: 261)
o GI for scrapping (movement type: 551)
• Invoice Receipt
• Transfer material to material (movement type: 309) if the receiving

material has different valuation class with the supplying material
• GR Subcontract PO
o GR for Subcontract PO material (movement type: 101) and GI for

component material provided to vendor (movement type: 543)
• Physical Inventory difference posting
o GR for gain on physical inventory count (movement type: 701)

o o GI for loss on physical inventory count (movement type: 702)
GR for initial entry for stock balance (movement type: 561).
T-Code used: MIGO or MB1C.
We must carry out an initial entry of stock balances when implementing the MM
module of SAP R/3 System in order to transfer physical warehouse stocks or
book inventories from an existing inventory accounting software into the SAP R/3
System as book inventories.
“Typically, a traditional accounting software program usually has an inventory

sub module which records the inventories values in the balance sheet. But it’s
not an online accounting software which record the inventory movement
transaction in real-time basis like SAP does. Usually, this accounting software
records the material movements transaction once in a certain period, e.g. once a
month after get the information from other department.”
In the GR for initial entry for stock balance transaction, no physical movements
actually take place.
The the typical accounting journal is:

Initial inventory
Inventory account clearing account
1000 1000
The initial inventory clearing account then will be cleared against other
appropriate accounts by FI module.
GR for Purchase Order (PO) (movement type: 101).
In a PO, the field that determines the accounting journal is “account assignment
category” field. The account assignment in a PO is usually adopted from
Purchase Requisition (PR).
The account assignment category determines:
• The nature of the account assignment (cost center, sales order, and so
on) .
• Which accounts are to be charged when the incoming invoice or goods
receipt is posted.
• Which account assignment data you must provide.
The above image is © SAP AG 2010. All rights
reserved
The most used Account Assignment Categories (AAC).
AAC Description Required account assignment
data
“A” Asset Main asset number and sub-
number
“K” Cost center Cost center and G/L account
number
“” Inventory Material number
For PO with account assignment “A” (Fixed Asset) the typical accounting journal
is:
Fixed asset account GR/IR Clearing Account
6000 6000
The first journal will increase the Asset and the second journal will increase the
Liabilities (GR/IR is a liabilities account), and the Balance sheet stays balance
(Asset = Liabilities + Equity).
The goods receipt/invoice receipt (GR/IR) clearing account is posted to whenever

you receive goods that have not been invoiced yet or whenever you receive
invoices for goods that have not been delivered yet.
For PO with account assignment “K” the typical accounting journal is:
Expense account GR/IR Clearing Account
10 10
The first journal will decrease the Current year net profit (so it will decrease
Equity) and the second journal will increase the Liabilities (GR/IR is a liabilities
account), and the Balance sheet stays balance, since decrease in equity is
balanced by increase in liabilities and asset stays the same (Asset = Liabilities +
Equity).
For PO with account assignment “ ”(blank) the accounting journal depends on

price control procedure of the material received. (see material valuation for detail
on price control procedure).
• If price control is “S” (standard price), the typical accounting journal is:
Inventory account GR/IR Clearing Account
550 500
Revenue from price

assumption: differences account
standard price= 550 50
• The first journal will increase the Asset by 550 and the second journal will
increase the Liabilities (GR/IR is a liabilities account) by 500. The third
journal will increase the net profit (so it will increase Equity) by 50, and the
Balance sheet stays balance (Asset = Liabilities + Equity).
•
• If price control is “V” (moving average price), the typical accounting journal
is:

500 500
• The first journal will increase the Asset and the second journal will
increase the Liabilities (GR/IR is a liabilities account), and the Balance
sheet stays balance (Asset = Liabilities + Equity).
•
See material valuation to understand the effect of material’s price control

procedure to the accounting journal on Goods Receipt transaction.
In the end, the accounting journal for price control procedure “S” and “V” will
result the same to the Balance Sheet and Profit & Loss Statement. It is because
as long as the business operation of the company runs, the material that
received by this PO will be used, either for consumption or for sales. Let’s
assume that there is no other transaction for this material.
The typical accounting journal for consumption for price control “S” is:
Material consumption
Inventory account expense account
550 550
The first journal will decrease the Fixed Asset by 550 (same amount with the
increase of the Asset when GR is done, so it will result 0 in Inventory account).
The second journal will decrease the current year profit, so it will decrease
Equity, by 550. It will result -550+50(from “revenue from price differences
account” when GR is done) =-500 (decrease in Equity).
The typical accounting journal for consumption for price control “V” is:
500 500
The first journal will decrease the Asset by 500 (same amount with the increase
of the Asset when GR is done, so it will result 0 in Inventory account). The
second journal will decrease the current year profit, so it will decrease Equity, by
500.
GR Subcontract PO.
In subcontract order processing, the vendor receives materials (components)
with which it produces the finished-product. The following are involved:
• We order the finished-product using a subcontract order (subcontract PO).

The components that the vendor needs to manufacture the finished-
product are specified in the purchase order, and we provide them to
vendor.
• When we send the component to vendor, in Inventory Management, we
transfer those components from unrestricted-stock to special stock (“stock
of material provided to vendor”). These special stocks are still shown as
our stock in MMBE (T-code for stock overview). This transaction will not
post the accounting journal.
• The vendor performs its service and delivers the ordered material (the
finished-product). GR is done for the finished-product, and automatically
the consumption of the components is posted.
The typical accounting journal when GR is done is:

Inventory account (fin.- Inventory account
product) (comp. mat)
1000 800
GR/IR clearing
account
200
Assumption: The vendor’s fee (PO value) =200; the component value=800.
The first journal will increase the Asset by 1000, and the second journal will
decrease the Asset by 800. The third journal will increase the Liabilities (GR/IR is
a liabilities account) by 200, so the Balance sheet stays balance, Asset (1000-
800) = Liabilities (200) + Equity (0).
Invoice Receipt (IR)

T-Code used: MIRO or MIR6 and MIR7.
The typical invoice accounting journal is:
Vendor account
GR/IR Clearing account (Account Payable)
1000 1000

procedure to the accounting journal on Invoice Receipt transaction.
The vendor account (account payable) will be followed up by finance department

using FI module to payment processing. The typical accounting journal of the
payment processing is:
Vendor account
(Account Payable) Cash / Bank account
1000 1000
GR other/without PO (movement type: 501)

Inventory account Other revenue account
1000 1000
See Accounting Journals of SAP Material Management (MM) Transactions



Initial inventory
1000 1000

on) .
receipt is posted.

reserved
data
number
number
is:
6000 6000
10 10
Equity).

550 500
Revenue from price


•
•
is:
500 500
•

550 550
500 500
500.
GR Subcontract PO.

vendor.

1000 800
GR/IR clearing
account
200

Vendor account
1000 1000


Vendor account
1000 1000

1000 1000
Goods Issue(GI)
T-Code used: MIGO or MB1A.
The Goods Issue transaction will trigger cost accounting process. Cost
accounting will record the expense occurred from the goods issue transaction
whether it will be charged to cost center, cost of goods sold, or other objects.
The required field that must be filled in all Goods Issue process:
• Material number which will be issued

• Quantity issued
• Plant from where the material issued
• Storage location from where the material issued
A goods issue leads to a reduction in inventories stock.
• GI to cost center (movement type: 201)

The additional required field: Cost center number.
The typical accounting journal is:
1000 1000
• GI to Sales Order (movement type: 231)

The additional required field: Sales Order number.
Cost of Goods Sold

Inventory account account
1000 1000
•
After the sales processed, usually the finance department will bill (invoice)
the customer (using SD Module T-Code: VF01), the typical accounting
journal for this billing process is:
Customer account
(Account Receivable) Revenue from sales
1000 1000
•
• GI to Order (movement type: 261)

The additional required field: Order number.
1000 1000
• GI for sales (movement type: 251)

The additional required field: Cost Center.
1000 1000
• GI to asset (movement type: 241)

The additional required field: Asset number.
Inventory account Fixed asset account

1000 1000
• GI for scrapping (movement type: 551)

Material scrapping
1000 1000
Transfer material to material (movement type: 309)

T-Code used: MB1B
The receiving and supplying materials might be had same valuation class, that is,
same inventory G/L account, or different valuation class, that is, different
inventory G/L account.
Inventory account Inventory account

(receiving mat) (supplying mat)
1000 1000
Physical Inventory difference posting
• GR for gain on physical inventory count (movement type: 701)

1000 1000
• GI for loss on physical inventory count (movement type: 702)

Inventory account Other expense account
1000 1000
See Accounting Journals of SAP Material Management (MM) Transactions.

INVOICE RECEIPT


Initial inventory
1000 1000
on) .
receipt is posted.

reserved
data
number
number
is:
6000 6000

10 10
Equity).

550 500
Revenue from price

•
is:
500 500
•

550 550
500 500
500.
GR Subcontract PO.

vendor.

1000 800
GR/IR clearing
account
200

Vendor account
1000 1000


Vendor account
1000 1000


1000 1000

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Accounting (FICO) Journals of SAP Material Management (MM)

SAP R/3 is Enterprise Resource Planning (ERP) software that makes an

Typical business processes in an enterprise

Demand for finished products from customer will be recorded by Sales

All of the above processes can be recorded by SAP R/3 in:

• Sales and Distribution (SD) module.

Certain transactions in the above example also trigger accounting business

Accounting is the systematic process of measuring the economic activity of a

The balance sheet shows an enterprise’s Assets, Liabilities, and Equity at a

Asset = Liabilities + Equity

Liabilities are obligations of the business to convey something of value in the

Equity refers to the owner's interest in the business, such as:

Profit & Loss Statement

The Profit & Loss Statement summarizes the earnings generated by an

It contains at least two major sections: revenues and expenses.

Expenses are the costs incurred to generate revenues, such as:

• Cost of goods sold (COGS) include raw material consumption, etc

Relationship between Balance Sheet and Profit & Loss Statement

DEBIT and CREDIT rules in accounting journal

Increases in Assets are recorded by debits.

Decreases in Assets are recorded by credits.

Increases in Liabilities and Equity are recorded by credits.

Decreases in Liabilities and Equity are recorded by debits.

Revenues increases equity, therefore revenue are recorded by a credits.

Expenses decreases equity, therefore expenses are recorded by a debits.

Accounting journals of MM Transactions

The MM transactions which have effect to accounting (FICO module) are

• Goods Receipt (GR):

• Goods Issue (GI):

o GI to cost center (movement type: 201)

• Transfer material to material (movement type: 309) if the receiving

o GR for Subcontract PO material (movement type: 101) and GI for

• Physical Inventory difference posting

o GR for gain on physical inventory count (movement type: 701)

T-Code used: MIGO or MB1C.

“Typically, a traditional accounting software program usually has an inventory

The the typical accounting journal is:

GR for Purchase Order (PO) (movement type: 101).

T-Code used: MIGO or MB1C.

The account assignment category determines:

Fixed asset account GR/IR Clearing Account

The goods receipt/invoice receipt (GR/IR) clearing account is posted to whenever

Expense account GR/IR Clearing Account

For PO with account assignment “ ”(blank) the accounting journal depends on

Inventory account GR/IR Clearing Account

Revenue from price

standard price= 550 50

Inventory account GR/IR Clearing Account

See material valuation to understand the effect of material’s price control

• We order the finished-product using a subcontract order (subcontract PO).

The typical accounting journal when GR is done is:

Invoice Receipt (IR)

The goods receipt/invoice receipt (GR/IR) clearing account is posted to whenever

The vendor account (account payable) will be followed up by finance department

GR other/without PO (movement type: 501)

Inventory account Other revenue account

See Accounting Journals of SAP Material Management (MM) Transactions

T-Code used: MIGO or MB1C.

“Typically, a traditional accounting software program usually has an inventory

The the typical accounting journal is:

GR for Purchase Order (PO) (movement type: 101).

T-Code used: MIGO or MB1C.

The account assignment category determines: