Introduction to

Financial Accounting
Processes
Categories of Accounting (1)
 Financial Accounting (FI) is concerned
with recording the financial impacts of
business processes (transactions) as they
occur
 Usually external sources are interested in these
outcomes
 Financial statements for shareholders
 Tax and regulatory requirements for
governmental agencies
Categories of Accounting (2)
 Managerial Accounting (controlling) (CO)
is of interest to the business itself
 Managerial reporting
 Allocation of costs and revenues
 Internal financial statements

 I’ll talk about each in turn but this lecture is

about financial accounting
Background
 For this lecture, I assume that you have
taken your core accounting classes. You
should be familiar with
 T accounts
 GL / AP / AR
 Account categories
Asset / Liability / Capital / Income / Expense
 Refer to my Web site link at www.middlecity.com for
an accounting tutorial
Financial Accounting Tasks
 General Ledger
 Accounts Receivable
 Accounts Payable
 Asset accounting
 Withholding tax
Enterprise Global Settings
 The following are not completely in the
financial accounting domain but occur prior to
FI configuration
 Company Code
 Business Area
 Functional Area
 Credit Controlling Area
Organizational Data
(Company Code)
 Financial statements are usually prepared at
the company code level
 (US00) (DE00) for Global Bike so they can
prepare financial statements for the US or
German company
 It’s the smallest unit of financial accounting
 We meet the regulatory and reporting
requirements of a particular country
Company Tables
 Table T000 stores the company codes
 Here we see how the Global Bike simulation
works
 Table T001 stores the company code / GL
assignment
Organizational Data
(Company Code)
 Use transaction
OX02 (IMG)
Organizational Data
(Division)
 A division is an OU based on sales of materials and
services
 There are OUs for sales and distribution

 They are assigned to sales organizations (another

OU)
 Global Bike has two divisions
Organizational Data
(Business Area)
 We often need internal financial accounting
across company codes (legal boundaries)
 A business area is an internal division of a
company used for internal reporting
 You can create internal financial statements by
business areas
 Use business areas to
 Organize (report by) product lines
 Organize geographically (usually reserved for
business segment)
Business Area (Illustration)
 Global Bike has one business area (BI00)
 Business area 0001 is part of the default SAP
installation (US 0X03)
Assignment of Business
Areas to Transactions
 When a transaction is recorded, we post to a
FI / GL account
 We assign the transaction to a business area or
segment too
 This can be done manually
 Or automatically through automatic assignment
of plant, division, sales areas, distribution
channels, and cost centers
Business Area Plant
Assignment
 We can connect a plant and division to a
business area through configuration
Organizational Data
(Segment)
 Segments are responsible for monitoring
performance and profitability
 Similar to a business area
 Typically used for product line reporting
 Use with business areas to internally report
by geography or product line

 Global Bike does not use segment accounting

Functional Area
 Used for cost-of-sales accounting
 Functional areas are used to classify expenses
 Finance, marketing, production, HR, etc..
 Global Bike does not define functional areas

 Functional areas are implemented by means

of a special purpose ledger
 We will not discuss them further here
Organizational Data
(Credit Control Area)
 Defines the area of responsibility for credit
monitoring (of companies)
 Again, the CCA can be centralized or
somewhat decentralized
 One CCA for multiple company codes
(centralized)
 One CCA for each company code (decentralized)
 Global Bike is centralized
Organizational Data
(Credit Control Area)
Credit Control Area
(Global Bike)
 Define credit control area (OB45)
 Credit Control Area
(Global Bike)
Assign credit control area – GB has one for both companies
Required FI Org Units
Financial Accounting
Global Settings (STEPS)
 Define fiscal year
 Define posting periods
 Define field status variant
 Define tolerance groups
 Define document types and number ranges
 Define posting keys
 Assign all of the above to company code
Fiscal Year
 A period (usually 12 months) for which a
company produced financial statements
 Fiscal year need not correspond to a calendar
year
Fiscal Year Variants
Global Bike uses K1
Fiscal Year Variants
 Assign fiscal year variant to company code
 Both Global Bike companies use the same
fiscal year variant (K1)
Posting Periods
 A period within a fiscal year to which
transactions are posted
 Every transaction has a posting period
 A posting period must be “Open” to post
transactions
 A posting period (variant) has a beginning
and an end
Posting Periods
 IMG posting periods (OBBO)
Posting Periods
(Define Variant)
 Use IMG transaction OBBO
 Global bike uses variant GL00
 This is not the operating ledger GL00
Posting Periods
(Open and Close)
 IMG transaction code OB52
Tolerance Groups
 Tolerance groups exist throughout SAP
 They define an accepted deviation from
specified values
 The chief accountant will likely have higher
tolerances than accounting clerks, for example
Tolerance Groups for Users
 IMG transaction code OBA4
Document Types
 Document types classify accounting
documents
 The document types appears in the header
record for accounting documents
 Document number ranges are based on the
document type
 Document Types (Example)
 The document type SA is the G/L Account
Document
 WA is for goods issue (goods out)
 WE is for goods receipt (goods in)

Trans code OBA7

Document Types (Example)
Posting keys
 A two-character numerical key that controls
the entry of a line item in an accounting
document
 Posting keys are defined by SAP but new keys
can be added
Posting Keys (OB41)
 Posting key 40 is a G/L debit
Posting Keys
General Ledger Accounting
 Define chart of accounts
 Define account groups and number ranges
 Define retained earnings account
 Create GL master records
Financial Accounting Processes
 Primary Ledger
 General Ledger (GL) contains the primary source
data used in financial reporting
 Subsidiary ledgers
 Accounts payable accounting is concerned with
procurement (Chapter 4)
 Accounts receivable accounting is concerned with
fulfillment (Chapter 5)
 Asset accounting is concerned with keeping track
of asset acquisition, depreciation, and disposal
General Ledger Accounting
(FI-GL)
 Provide a comprehensive view of financial accounting
 The GL is a COMPLETE record of all FI transactions
 Transactions are available in “real time”

 Some G/L transactions are posted manually (we’ll do

that today)
 Some G/L transactions are posted automatically
GL Illustration
SAP GL Tables
SKB1
 Company Code Segment
 (K) Client
 (K) Company Code
 (K) Account Number
 Specific company accounts
 For Global Bike (US00) and (DE00)
SKA1
 Client Segment (SKA1)
 (K) Client
 (K) Chart of Accounts
 (K) Account number
 Balance sheet, PL, OR other account
(Account Group)
SKAT
 It’s the GL account master record
Organizational Data
(Company Code – G/L) (Options)
 Centralized
 Cross company code accounting
 Multiple operational chart of accounts are
assigned to a group chart of accounts
 Decentralized
 One chart of accounts for each company code
 No cross company code accounting is possible
Accounting Master Data (COA)
 An ordered listing of accounts is called the
Chart of Accounts (COA)
 This is the same COA that you are familiar with
 Instead of one, SAP supports up to three
charts of accounts
 Operative
 Country specific
 Group
 You should be familiar with the standard
numbering scheme for account types
Accounting Master
Data (Operative COA)
 Operative (COA) – This is the primary GL
 Day-to-day postings are recorded here
 Shared by FI and CO
 In other words, it’s used by cost accounting
 Two company codes can use the same operative
COA
 The operative COA is required
Organizational Data
(Company Code) Illustration
 The general ledger GL00 is shared by both
company code US00 and DE00
Accounting Master
Data (Optional COAs)
 Country-specific operative (COA) – Used to
meet country-specific reporting requirements
 Optional
 Additional accounts are added to the ledger to
support local requirements
 Must be assigned to a company code!
 Group (COA) – Used to consolidate financial
statements
 Optional
COA Illustration
COA (Creating)
 IMG transaction OB13 (Global Bike)
Chart of Accounts
(Configuring)
Account Groups
 An account group defines how a GL account
behaves and the screens that are available
Retained Earnings Account
 Every P&L account is assigned to a retained
earnings account
 At the end of a fiscal year, the P&L accounts
are transferred to the corresponding retained
earnings account
 There has to be at least one retained
earnings account but there can be many
Retained Earnings Account
 Transaction code OB53
 Global Bike has one retained earnings
account
Clearing Accounts
 These are temporary accounts that hold data
until moved to another account
 These are typically AR and AP accounts
 Subsidiary ledgers and reconciliation accounts
The Recon Account Process
 A/R is a reconciliation account
The Recon Account Process
 And it’s a recon account for customers (as
opposed to vendors)
Accounts Receivable
Accounting
 Here we are concerned with customer
purchases (fulfillment)
 Each customer typically has a reconciliation
account in the sub-ledger
 See Figure 3-16 on page 65
Accounts Payable Accounting
 A/P accounts are reconciliation accounts
 Transactions are automatically posted to the
corresponding GL account
 For Global Bike, the AP reconciliation account
is #300000
Accounts Payable
GL Accounting Processes
 Some postings are made manually
 Most are made as a result of a business
transaction
 Procurement (goods receipt) / fulfillment (goods
issue)
 SAP has rules that define how these automatic
postings are performed (We will not get into
those rules here but will later)
Asset Accounting
 Organizations (hopefully) have assets
 Tangible (physical) assets
 Intangible assets (goodwill, patents,
trademarks)
 Financial assets (financial instruments,
mortgages due, …)
 We will do little with asset accounting in this
course
Financial Accounting
Outcomes
 The result of GL accounting is financial
statements
 Balance sheet
 Income statement (profit and loss)
 Statement of cash flows
Cost Centers (Using)
 When posting selected GL transactions, we
allocate expenses (costs) to a particular cost
center
 More next time when we talk about controlling
accounting (CO)