Integrated Accounting in SAP

From scorekeeper to knowledge professional

www.siliconlabs.fi
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R/3 integrated business process model

V A L U E F L O W
COCOOM Production Administration Marketing Sales COCOPC Standard Costs Variances COCOPA

Product and customer profitability

FI

In R/3 the logistical value flows are automatically transformed to money flows in financial accounting and controlling.

Business Process

Procurement Production

Material Management

Sales

MM

PP

MM

SD
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R/3 modules
COCOOM COCOPC Overhead Cost Controlling (cost center accounting, cost element accounting) Product Costing

MM

Material Management

PP

Production

COCOPA

Profitability Analysis

SD

Sales and Distribution

FI

Financial Accounting

The traditional way of presenting SAP modules

Why SAP R/3 ?

M M PP Q M S D FI C O
Many companies had developed an IT jungle and were facing the risks of the millennium change. SAP R/3 was offering an easy way out and many companies started implementing R/3 and the SAP diamond picture became familiar all over the world.

R/3
ABAP/4 3.x -> 4.x
HR IS

A M P C

P M

W F

From SAP diamond to core SAP

Customer Relationship Management Strategic Enterprise Management Supply Chain Management

strategy, plan and optimize analyze

Business Information Warehouse

Core SAP (Finance, production, sales)

Headquarters Human Resources (SAP & Others)

Non-SAP Systems

Information producers (e.g.D&B, AC Nielsen)

execute

Over the years SAP had grown to an ERP market leader and has developed new functionalities. The original SAP diamond has become the core on which these new satellite modules build.
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R/3 is an integrated information system

Procurement

Production

Sales

SAP R/3 changes the world. Every store worker becomes a bookkeeper producing accounting postings. A horror scenario for accounting department, if the SAP use is not disciplined.
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Automatic account determination

Material process Accounting
Balance sheet Goods are in stock Inventories

Goods receipt or stock transfer

Profit and loss goods issue Material usage consumption

SAP has solved the discipline issue with automatic account determination. Behind all logistical transactions are lots of parameters and configuration settings that steer the process.
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On-line, real time integration

MM Material xx

Postings in material process, generate postings in FI and CO.

Total: 3200

Accounting

FI
P&L

PCA
Balance sheet Capital

CO

Costs

Postings in accounting
The accounting documents are generated mostly outside accounting module as by-products of postings in logistics.

SAP R/3 is a document based system. Everything you do creates a document in the system.

Document Relationship Browser

The relations between the documents can bee seen with Document Relationship Browser (transaction ALO1). From the document list you can drill down to the documents.

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Statistics from a manufacturing company

Manual postings
G/L documents Manual cust.invoices Manual vendor inv. 3.650 2.346 9.128

Automatic postings
Sales invoices from SD MM invoices Material movements 725.380 35.424 2.775.875

Via interfaces
Wages, salaries Here is an example of a company' document statistics in one year. As you s can see here the store workers produce the most of the accounting documents.
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Procurement: purchase order

We in accounting dont have do anything yet.

I will order some supplies to cafeteria.

Lets now look at an example and follow a purchase to a cost center.

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Integrated purchase process

Controlling Forecast/ Commitment Forecast/ Commitment Costs Add. Costs

EC/CO-modul

Material management Purchase Requisition Purchase order Goods Receipt Invoice verifiction

MM-modul

Financial accounting

FI-modul

Accounting

Payments

Reporting

The purchase process starts with a Purchase requisition. At this state a commitment item for the money to be spend is created in CO. The integration point to FI is at goods receipt. Then a posting to GR/IR-account is made. When the invoice is posted the second posting to GR/IR account takes place. From here the accounting department and accounts payables takes over.
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The buyer makes a purchase order (MM)

Vendor number, purchase organization, purchase group, material number, quantity, plant, cafeterias cost center

In this case the purchase is made to a cost center. The creator indicates this by putting a K in the assignment field. When the goods arrive, this will create a consumption posting. The price is defaulted from info record.

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The system fills the rest

Cost center is the only field to be filled. All the other fields - the account, business area, controlling area, company code - get values automatically on the basis of their assignments. The plant defines the company, cost center defines profit center. The account is derived from MM Account determination parameters.
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Goods receipt (MM)

Have some stuff for you.

The recipient must only give the purchase order number and accept the quantity.

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The goods receipt generates postings in accounting

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Goods receipt posting in accounting

Where does the system get these accounts from?

The goods receipt is posted to a cost account and a GR/IR account, which the system finds from the MM account determination parameters based on material and MM transactions type.
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Invoice receipt and verification (MM)

. The invoice clerk enters the amount payable, tax information and additional costs like freight.

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Invoice posting in accounting

How can I be sure, that these accounts are OK?

The invoice posting balances the GR/IR-account. The vendor postings generates to postings, one on vendor account in accounts payable and one on the reconciliation account in general ledger.

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Vendor payment

The accounting department continues from here. Goods receipt is posted and invoice verified. An open item in accounts payables waits for clearing. The accounts payable clerk runs the payments daily.

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What determines the accuracy of the postings?

1) Assignments between organizational structures

2) parameter configurations 3) used transactions

MMMM-processes
4) master data (materials, vendors, cost centers, etc) The automatic postings rely on correct system settings. The most important settings the skeleton of R/3 - are the assignments between organizational structures. It is also important, that the user knows how what to do, and picks the right transaction. The quality of master data is crucial to the posting quality.
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The role of organizational structures in integration

The logistics people dont think about accounts, they think about purchase organizations, vendors, plants, materials. The logistical structures are assigned to accounting structures in system settings (IMG).

Purch Org

Vendor

Plant

Company

Ch. acct

Account

Material

CoArea

Cost Element

The purchase organization determines the company in whose accounting the posting is made. The plant defines the company, to whom the material belongs. The accounts payable account is in the vendor master data.

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Postings in controlling
The goods receipt posting seems to be on the cafeteria cost center.

This example created a posting in CO, because the purchase was made to a cost center. Then the account must also be a cost element. The CO-postings can best be studied in the CO-reports.

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Assignments of organizational structures

1000 Hamburg 1100 Berlin 1200 Dresden

1000 IDES AG
CO Europe

Plants

1300 Frankfurt 1400 Stuttgart 2000 Heathrow 2010 London

IDES UK

2000

Controlling Area (CO)

Company code (FI)

Here is an example of the assignments of organizational structures in SAP IDES. Company codes are the accounting units and can have several plants. All european companies are assigned to same controlling area. Controlling area is the management accounting unit. This means, that common management reports are obtained for all European companies.
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Transaction type
If I buy, I choose Purchasing. If I make a receipt, I go to Inventory management.

MM

All MM inventory postings use a transaction type, which steers the processing in the system. The transaction type is also very important in account determination.
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Example of MM account determination parameters

From here the system somehow concludes how goods receipt is posted in accounting.
Process: Goods receipt

The account is determined based on Plant (valuation are), materials valuation class, movement type and MM transaction type.
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Automatic account determination configurations

img

The account for consumption postings can be tracked from IMG. The account modification code for Account assignment category is VBR. In transaction GBB Offsetting entry for inventory posting account 410000 is defined. The valuation class is in material master. At first sight this might seem difficult, but this is not rocket science and worth studying.

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Who sets the parameters?

Implementing R/3 usually means that an army of SAP consultants occupy your company. Hopefully they do a knowledge transfer of the configurations before they leave. You should be the one, who understands the system settings and knows the processes.

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Integration requires expert knowledge and new skills

A French tax code and a USvendor?

Tax code of the purchase?

An integrated system demands more knowledge and understanding the process, because also the errors are very integrated.

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Integration requires knowledge of the process

Example: production wants to produce something; where it needs raw material from another plant. Some genius orders the stuff with a sales order. Consequences: the goods arrive and production is happy. But the accountant is not. The sales transaction posts the material to a cost center. It creates a tax liability for own use and the posting goes to wrong accounts.

The right way would have been to make a stock transfer.

FI

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What are the main causes of the integration problems? Configuration errors: wrong assignments missing account determinations Master data errors: wrong or missing master data Human factors: misunderstandings lack of knowledge ignorance

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Problems, pitfalls
MM:
Balances master data moving average prices transfer prices

SD:
period accounting rebates

Intercompany transactions

Interfaces

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Integration management error situations

Errors are usually found: 1. Accounting finds something unusual like posting to a wrong accounts or unusual amounts. The drill down reveals wrong transaction type, wrong order type etc. The logistics users cannot get the posting through. They get an error message needs cost accounting assignment, error in account determination etc. 99% of cases these messages do not come from FICO parameters but erroneous procedures in logistics or missing master data.

2.

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Drill down helps only skilled accountants

The Fico users have to understand the basic functions of other modules. They must learn how to purchase, sell and use the MM and SD data. They must also have adequate user authorization to have access to these modules. They also have to know the processes and integration points.

Why is transaction type 301 used?

Not working!

LOG

Cultural differences in handling error situations.

FICO
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What finance people expect of the integration?

The data is registered at source The accountings postings are created realtime from original transactions Error are corrected at source

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R/3 is an excellent tool for process management

But only if you understand its principles and agree to work according to them.
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ERP Pros
The transparency of processes is increased (good drill down functions) Same figures everywhere in the organization (right or wrong) Corrections are no longer made in accounting but at source Common master data Real-time information

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ERP - cons
The errors are also very integrated. Especially the bad quality of master data creates problems. Demands more from users, can even disturb the business, particularly at the early stages of the implementation. The concepts can be strange and do not correspond those used in the organization. The translation to national languages is often clumsy and erroneous.

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Is it worth it?
If you survive, yes. Its a giant leap to an other level as IT user.

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