609 Assignment 6 Discussion 6

Concepts in Enterprise Resource Planning
Fourth Edition
Chapter Five
Accounting in ERP Systems

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Objectives
After completing this chapter, you will be able to:
Describe the differences between financial and managerial accounting
Identify and describe problems associated with accounting and financial reporting in unintegrated information systems
Describe how ERP systems can help solve accounting and financial reporting problems in an unintegrated system

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Objectives (cont’d.)
Describe how the Enron scandal and the Sarbanes-Oxley Act have affected accounting information systems
Explain accounting and management-reporting benefits that accrue from having an ERP system
Explain the importance of Extensible Business Reporting Language (XBRL) in financial reporting

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Introduction
In this chapter, you will learn about the activities in the Accounting functional area
Accounting is tightly integrated with all other functional areas
Accounting activities are necessary for decision making

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Accounting Activities
Areas of accounting:
Financial accounting
Managerial accounting
Financial accounting
Documenting all transactions of a company that have an impact on the financial state of the firm
Using documented transactions to create reports for external parties and agencies
Reports, or financial statements, must follow prescribed rules and guidelines of various agencies

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Accounting Activities (cont’d.)
Common financial statements: balance sheets and income statements
Balance sheet
Statement that shows account balances such as:
Cash held
Amounts owed to company by customers
Cost of raw materials and finished-goods inventory
Long-term assets such as buildings
Amounts owed to vendors, banks, and other creditors
Amounts owners have invested in company

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Figure 5-1 Fitter Snacker sample balance sheet
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Accounting Activities (cont’d.)
Income statement
Profit and loss (P&L) statement
Shows company’s sales, cost of sales, and profit or loss for a period of time (typically a quarter or year)
Integrated information system simplifies the process of closing the books and preparing financial statements
Managerial accounting: determining costs and profitability of company’s activities

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Figure 5-2 Fitter Snacker sample income statement
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Accounting Activities (cont’d.)
Quarterly financial statement
Close books
Closing entries to nominal accounts
Nominal accounts – zero balance to start next cycle
Ensure accounts accurate and up-to-date
“Adjusting” entries
Integrated information system advantage
Simplifies process of closing books and preparing financial statements
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Figure 5-3 Balance sheet and income statement for Fitter Snacker in SAP ERP system
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Accounting Activities (cont’d.)
Managerial accounting
Determine costs and profitability of company’s activities
Provide managers with detailed information
Informed decisions
Create budgets
Determine profitability
Information that managers use to control day-to-day activities, develop long-term plans
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Using ERP for Accounting Information
Problems associated with unintegrated systems
Data sharing usually did not occur in real time
Accounting’s data were often out of date
Accounting personnel had to do significant research
ERP system, with its centralized database, avoids these problems
In traditional accounting, company’s accounts are kept in a record called a general ledger

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Using ERP for Accounting Information (cont’d.)
In the SAP ERP system, input to general ledger occurs simultaneously with business transactions
Many SAP ERP modules cause transaction data to be entered into general ledger, including:
Sales and Distribution (SD)
Materials Management (MM)
Financial Accounting (FI)
Controlling (CO)
Human Resources (HR)
Asset Management (AM)

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Operational Decision-Making Problem: Credit Management
Unintegrated information system
Out-of-date or inaccurate accounting data can cause problems when a company is making operational decisions
Industrial credit management
Fitter Snacker’s credit management procedures
Credit management in SAP ERP

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Industrial Credit Management
Credit management requires a good balance between:
Granting sufficient credit to support sales and
Making sure that the company does not lose too much money
Setting a limit on how much money a customer can owe at any one time
Monitoring that limit as orders come in and payments are received

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Industrial Credit Management (cont’d.)
Sales representative needs to be able to review an up-to-date accounts receivable balance when an order comes in
Problems arise if Marketing and Accounting have unintegrated information systems
Less than full cooperation on updates
Problems should not arise with an integrated information system
Accounts receivable is immediately updated

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Fitter Snacker’s Credit Management Procedures
FS sales clerk refers to a weekly printout of a customer’s current balance and credit limit to see if credit should be granted
Sales data are transferred to Accounting by disk three times a week
Accounting clerk can use sales input to prepare a customer invoice
Accounting must make any adjustments for partial shipments before preparing the invoice
Accounting clerks process customer payments

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Credit Management in SAP ERP
SAP ERP would allow FS to set a credit limit for each customer
Company can configure any number of credit-check options in SAP ERP system
Advantages of using SAP ERP to manage credit
Process is automated
Data are available in real time

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Figure 5-5 Credit management configuration
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Product Profitability Analysis
Business managers use accounting data to perform profitability analyses of a company and its products
When data are inaccurate or incomplete, the analyses are flawed
Main reasons for inaccurate or incomplete data
Inconsistent recordkeeping
Inaccurate inventory costing systems
Problems consolidating data from subsidiaries

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Figure 5-6 Credit management for Health Express
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Figure 5-7 Blocked sales order
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Inconsistent Recordkeeping
Each of FS’s marketing divisions maintains its own records and keeps track of sales data differently
Paper records might be inaccurate or missing, making validity of the final report questionable
Without integrated information systems, accounting and reporting to management requires:
Working around limitations of information systems to produce useful output
ERP system minimizes or eliminates these problems

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Inaccurate Inventory Costing Systems
Correctly calculating inventory costs
One of the most important and challenging accounting tasks in any manufacturing company
Inventory cost accounting background
Manufactured item’s cost has three elements:
Cost of raw materials
Cost of labor employed directly in production of item
Overhead: all other costs

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Inaccurate Inventory Costing Systems (cont’d.)
Inventory cost accounting background (cont’d.)
Direct costs: materials and labor
Can be estimated fairly accurately
Indirect costs: overhead items
Difficult to associate with specific product(s)
Standard costs for a product are established by:
Studying historical direct and indirect cost patterns
Taking into account the effects of current manufacturing changes
Cost variances: differences between actual costs and standard costs

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Inaccurate Inventory Costing Systems (cont’d.)
ERP and inventory cost accounting
Many companies with unintegrated accounting systems analyze their cost variances infrequently
Often, they do not know how much it actually costs to produce a unit of a product
If FS had an ERP system, employees throughout the company would have recorded costs in a company-wide database as they occurred
ERP system configurations allow analysts to track costs using many bases

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Inaccurate Inventory Costing Systems (cont’d.)
Product costing example
Suppose Fitter Snacker wishes to update standard costs for NRG-A bars
Product cost analysis for NRG-A bar
Product cost analysis in SAP ERP
Product cost variant: method for developing a product cost in an ERP system

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Figure 5-8 Product cost analysis for NRG-A bar
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Figure 5-9 Product cost analysis result in SAP ERP
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Inaccurate Inventory Costing Systems (cont’d.)
Activity-based costing and ERP
Activity-based costing (ABC)
Accountants identify activities associated with overhead cost generation and then keep records on costs and on activities
ABC requires more bookkeeping than traditional costing methods

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Companies with Subsidiaries
Account balances for each entity must be compiled and forwarded to the home office
Consolidated statement for the company as a whole must be created
Currency translation
Problems when currency translation is needed for a subsidiary’s accounts
Intercompany transactions
Transactions that occur between companies and their subsidiaries

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Management Reporting with ERP Systems
Generating the right reports for the right situation is often challenging
Without an ERP system, the job of tracking all the numbers that need to go into a report is a monumental undertaking
With ERP system, vast amount of information is available for reporting purposes

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Document Flow for Customer Service
With an ERP system, all transactions in all areas of a company get posted in a centralized database
Each transaction posted in SAP ERP gets its own unique document number
Allows quick access to the data
In SAP ERP, document numbers for related transactions are associated in the database
Provides an electronic audit trail

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Document Flow for Customer Service (cont’d.)
Figure 5-10 Document flow of a transaction in SAP ERP
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Built-In Management-Reporting and Analysis Tools
Accounting records maintained in the common database
Advantage of using a database is the ability to query the records to:
Produce standard reports
Answer ad hoc questions
SAP provides a data warehouse within each major module
Data warehouse: repository for data from various sources

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The Enron Collapse
October 16, 2001: Enron was one of the world’s largest electricity and natural gas traders
Reported a $618 million third-quarter loss and disclosed a $1.2 billion reduction in shareholder equity
U.S. Securities and Exchange Commission (SEC) inquiry into possible conflict of interest related to company’s dealings with partnerships run by CFO Fastow

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The Enron Collapse (cont’d.)
Volume of financial contracts was far greater than volume of contracts to actually deliver commodities
Some partnerships were faked to mask billions of dollars in debt
Enron’s financial statements had been audited by Arthur Andersen, a highly regarded accounting firm
Andersen employees on the Enron engagement team were instructed to destroy documentation relating to Enron

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Outcome of the Enron Scandal
Shareholders lost an estimated $40 billion dollars
Thousands of workers lost their jobs
31 individuals were either charged or pled guilty to criminal charges
Jurors convicted accounting firm Arthur Andersen for obstructing justice by destroying Enron documents
U.S. Congress passed Sarbanes-Oxley Act of 2002
Act was designed to prevent the kind of fraud and abuse that led to the Enron downfall

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Key Features of the Sarbanes-Oxley Act
Designed to encourage top management accountability in firms that are publicly traded in the United States
Title IX
Financial statements filed with the Securities and Exchange Commission must include a statement signed by the chief executive officer and chief financial officer, certifying that the financial statement complies with SEC rules

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Key Features of the Sarbanes-Oxley Act (cont’d.)
Title II
Auditor independence
Limits non-audit services that an auditor can provide
Title IV
More stringent requirements for financial reporting

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Implications of the Sarbanes-Oxley Act for ERP Systems
To meet the internal control report requirement, a company must:
Document the controls that are in place
Verify that the controls are not subject to error or manipulation
Companies with ERP systems in place will have an easier time complying with the Sarbanes-Oxley Act than will companies without ERP

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Archiving
SAP ERP software offers very few ways to delete items
Data are removed from SAP ERP system only after they have been recorded to media (tape backup, DVD-R) for permanent storage
Archive: permanent storage
SAP ERP systems keep track of when data are created or changed
Change Record

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Figure 5-11 Transaction options for material master data
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Archiving (cont’d.)
Figure 5-12 Change Record for material master
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User Authorizations
SAP ERP has sophisticated user administration tools that allow different levels of authorization management
Ensure that employees can perform only the transactions required for their jobs
Profile Generator
Provides a simple method for selecting functions that a user should be allowed to perform

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Figure 5-13 Display Roles screen in SAP
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Tolerance Groups
Setting limits on the size of transaction an employee can process
In an SAP ERP system, this is done using tolerance groups
Tolerance groups
Preset limits on an employee’s ability to post transactions
Set limits on the dollar value for a single item in a document as well as the total value of document

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Figure 5-14 Default tolerance group
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Financial Transparency
ERP systems provide the ability to drill down from a report to the source documents (transactions) that created it
Makes it easier for auditors to confirm the integrity of reports
With a properly configured and managed ERP system, there are direct links between the company’s financial statements and individual transactions that make up the statements
Fraud and abuse can be detected more easily

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Figure 5-15 G/L (general ledger) account balance for raw material consumption
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Financial Transparency (cont’d.)
Figure 5-16 Documents that make up G/L account balance for raw material consumption
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Financial Transparency (cont’d.)
Figure 5-17 Details on $10.00 line item in G/L account for raw material consumption
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Trends in Financial Reporting (XBRL)
Extensible Business Reporting Language (XBRL)
Standards based language
Extensible Markup Language (XML) coded data directly from web page into database
Reports processed faster and validated easier
ERP systems accept data in XML and XBRL
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Summary
Companies need accounting systems to record transactions and generate financial statements
Unintegrated information systems
Accounting data might not be current
Can cause problems for sales representatives trying to make operational decisions
Data can be inaccurate
Can affect decision making and therefore profitability

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Summary (cont’d.)
Closing the books at the end of an accounting period can be difficult with an unintegrated IS, but is relatively easy with an integrated IS
Closing the books means zeroing out temporary accounts
Using an integrated IS and a common database to record accounting data has important inventory cost-accounting benefits
Can lead to more accurate product cost calculations
Can help managers determine which products are profitable and which are not

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Summary (cont’d.)
Use of an integrated system and a common database to record accounting data has important management-reporting benefits
Built-in drill-down and query tools available
Sarbanes-Oxley Act, 2002 U.S. federal regulation
Written and passed in the wake of Enron collapse
Promoted management accountability by requiring extra financial approval and reporting
ERP systems can help companies meet the requirements of this legislation

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Summary (cont’d.)
Trends in financial reporting
XBRL
XML
ERP systems accept data in XML and XBRL into database
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Financial Accounting in SAP

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Table of Contents



Introduction



SAP Financial Accounting (FI)

 Integration of Financial Accounting with

other

components

Introduction to SAP ERP Logistics

Logistics Components

Enterprise Structure in SAP

Introduction

 Enterprise resource planning (ERP) is business process management

software that allows an organization to use a system of integrated

applications to manage the business and automate many back office

functions related to technology, services and human resources. ERP

software integrates all facets of an operation, including product

planning, development, manufacturing, sales and marketing.

 ERP software is considered an enterprise application as it is designed

to be used by larger businesses and often requires dedicated teams to

customize and analyze the data and to handle upgrades and

deployment. In contrast, Small business ERP applications are

lightweight business management software solutions, customized for

the business industry you work in.

 An Enterprise Resource Planning (ERP) System is a fully integrated

Business Management System covering the functional areas of an

enterprise, such as Accounting, Finance, Human Resources, Logistics

and Production etc. (Anderson, 2011).

Introduction

The word of “Integration” is the key element for ERP

implementation. An ERP system is an attempt to integrate

all functions across a company to a single computer

system that can serve all specific needs of users:

 It organizes and integrates operation processes and

information flows etc. to make the optimum use of

resources such as people, material, money and machine

etc.

 It may also integrate key customers and suppliers as

part of the enterprise’s operation.

 It provides integrated database and custom-designed

report systems.

 It adopts a set of “best practices” for carrying out all

business processes.

Introduction

Enterprise resource planning promises:

 one database,

 one application,

 and one user interface for the entire

enterprise, where once disparate systems

ruled manufacturing, distribution, finance

and sales etc.

Introduction

 In today’s world, there are many leading market

providers of ERP system and SAP is one of the

market and technology leaders in building

business software towards structured work and

data management in organizations. SAP stands

for Systems, Applications and Products in Data

Processing. SAP AG is originally German

multinational software who deals in software

development for business management and

improved customer relations in enterprises.

Introduction

 Systems Analysis and Program Development

(SAP) was founded in June, 1972 and since then,

many SAP ERP operations modules has

emerged that are designed focusing on various

different processes including SAP ERP sales and

service, sales and distribution, customer

relationship, financial management, business

intelligence and more. SAP development

modules are the following:

Introduction
 SAP Financial Accounting (FI)



SAP Controlling (CO)

 SAP Sales and Distribution (SD)



SAP Production Planning (PP)

 SAP Materials Management (MM)

 SAP Quality Management (QM)

 SAP Human Capital Management (HCM)

Introduction

 These modules are highly integrated in real-time, which means that if

information is shared between modules then the data is entered only

once. This reduces the chances of error arising from repetitive entry

and also reduces the man-hours. Managers and decision makers always

have information at their fingertips and this helps then in effective

decision making. SAP has been around for over three decades.

 SAP is the leading ERP (Enterprise Resource Planning) software.

Because of it’s liberal open-architecture, there are millions of

programmers working around the world to provide interaction

between thousands of major software and SAP. SAP is usually

implemented in phases. The first phase is when organizational

structure and accounting components are configured, tested and then

taken live. Gradually more modules are turned on (SAP, 2014a).

SAP Financial Accounting (FI)

 SAP Financial Accounting (FI) is an important

core module where in live-time, the financial

processing transactions are all captured to

provide the basis via which data is drawn for

external reporting. This SAP FI Module is

integrated with many parallel modules that

enable a company to unify processes that may

have needed the utilization of many software

packages (Brinkmann – Zeilinger, 2000). .

SAP Financial Accounting (FI)

 SAP FI module deals in managing financial transactions

within enterprises. This financial accounting module helps

employees to manage data involved in any financial and

business transactions in a unified system. This module

functions very well for reporting requirements. The SAP

FI module is very flexible and is functions well in any type

of economic situation. Be it a smaller organization or a

larger organization, SAP implementation helps in

consolidating data for diverse business transactions and

legal requirements. Financial Accounting module helps

one to get real-time financial position of an enterprise in

the market. SAP FI incorporates with other SAP modules

such as SAP SD, SAP MM, SAP PP, Payroll and more for

better work results.

SAP Controlling (CO)

 SAP CO module is another important SAP

modules offered to enterprises. The controlling

module supports in the process works of

planning, reporting and monitoring operations

of businesses. It involves methods to view and

organize costs that are required for financial

reporting. Controlling module enables one to

plan, track, perform and report about costs.

Controlling includes managing and configuring

master data that covers cost elements, cost

centers, profit centers, internal orders, and

functional area

and so on.

SAP NetWeaver Business

Warehouse (BW)

 SAP is the most important and greatest solution in

enterprise resource planning (ERP), and one of its

business intelligence (BI) solutions is SAP NetWeaver

Business Warehouse (BW).

 The Business Explorer Suite is a component of SAP

NetWeaver Business Warehouse. The Figure 1. overviews

the BEx tolls’ integration into the SAP NetWeaver BW

architecture. The SAP BusinessObjects Business

Intelligence Platform provides a series of other

applications for an enterprise-wide, end-to-end reporting

scenario that go far beyond the functional scope of the

Business Explorer tools. (Dinkel et al., 2011)

SAP NetWeaver Business

Warehouse (BW)
The Business Explorer contains the under

mentioned reporting tools:

 BEx Query Designer,

 BEx Analyzer,

 BEx Web Analyzer,

 BEx Web Application Designer,

 BEx Report Designer

 Information Broadcasting.

SAP NetWeaver Business
Warehouse (BW)

 The BW query is the central reporting interface

for analyzing Business Intelligence data within the

SAP NetWeaver BW architecture. However, an

SAP query can be used as a data source during

extraction from SAP source systems to the BW

system. When the term query is used within the

connection of data analysis in a BW system, the

BW query is meant. (Heilig et al., 2012)

SAP Sales and Distribution

(SD)
 SAP SD modules deal in managing all

transactions ranging from enquiries, proposals,

quotations and pricing and more. The sales and

distribution module helps greatly in inventory

control and management. SAP SD module

consists of master data, system configuration

and transactions. Some of the sub-components

of SAP SD module are: master data, sales

support, sales, shipping and transportation,

billing, credit management, and so on.

SAP Production Planning (PP)

 SAP PP module is another important module

that includes software designed specifically for

production planning and management. This

module also consists of master data, system

configuration and transactions in order to

accomplish plan procedure for production. SAP

PP module collaborate with master data, sales

and operations planning, distribution resource

planning, material requirements planning,

Kanban, product cost planning and so on while

working towards production management in

enterprises (Hilgefort, 2012).

SAP Materials Management

(MM)
 SAP MM module as the term suggests

manages materials required, processed

and produced in enterprises. Different

types of procurement processes are

managed with this system. Some of the

popular sub-components in SAP MM

module are vendor master data,

consumption based planning, purchasing,

inventory management, invoice

verification and so on.

SAP Quality Management

(QM)
 SAP QM module helps in management of

quality in productions across processes in

an organization. This quality management

module helps an organization to

accelerate their business by adopting a

structured and functional way of managing

quality in different processes. SAP QM

module collaborates in procurement and

sales, production, planning, inspection,

notification, control, audit management

and so on.

SAP Human Capital

Management (HCM)

 SAP HCM module enhances the work process

and data management within HR department of

enterprises. Right from hiring a person to

evaluating one’s performance, managing

promotions, compensations, handling payroll

and other related activities of an HR is

processed using this module. The task of

managing the details and task flow of the most

important resource i.e. human resource is

managed using this SAP ERP HCM module

SAP Financial Accounting (FI)

 SAP FI ( Financial Accounting ) is one the functional module in SAP

software. SAP FI module as the term suggests deals in managing

financial transactions within enterprises. This financial accounting

module helps employees to manage data involved in any financial

and business transactions in a unified system. This module functions

very well for reporting requirements.

 The SAP FI module is very flexible and is functions well in any type

of economic situation. Be it a smaller organization or a larger

organization, SAP implementation helps in consolidating data for

diverse business transactions and legal requirements. Financial

Accounting module helps one to get real-time financial position of

an enterprise in the market. SAP FI incorporates with other SAP

modules such as SAP SD, SAP MM, SAP PP, Payroll and more for

better work results (Dinkel et al, 2011).

SAP Financial Accounting (FI)

 Company-wide control and integration of

financial information is essential to

strategic decision making, SAP ERP

Financials enables you to centrally track

financial accounting data within an

international framework of multiple

companies, languages, currencies, and

charts of accounts (Hernandez et al,

2006) .

SAP Financial Accounting (FI)

SAP FI module mainly deals with

 Fixed asset

 accrual

 bank

 cash journal

 inventory

 tax accounting

 General ledger,

 Accounts receivable

 accounts payable

 AR/AP,

 Fast close functions

 Financial statements

 Parallel valuations

SAP Financial Accounting (FI)

2.1 Integration of Financial Accounting with other

components

All accounting-relevant transactions made in Logistics

(LO) or Human Resources (HR) components are posted

real-time to Financial Accounting by means of automatic

account determination. This data can also be passed on to

Controlling (CO). This ensures that logistical goods

movements (such as goods receipts and goods issues) are

exactly reflected in the value-based updates in accounting.

Integration within Financial Accounting.

Every posting that is made in the subledgers generates a

corresponding posting to the assigned G/L accounts. This

ensures that the subledgers are always reconciled with the

general ledger (I05).

SAP Financial Accounting (FI)

The Financial Accounting application component

comprises the following sub-components:

General Ledger (FI-GL)

 The central task of G/L accounting is to provide a

comprehensive picture for external accounting by

means of accounts. Recording all value-related business

transactions (primary postings as well as settlements

from internal accounting) in a software system that is

fully integrated with all the other operational areas of a

company ensures that the accounting data is always

complete and accurate.

SAP Financial Accounting (FI)
General Ledger (FI-GL)

 Essentially, the general ledger serves as a

complete record of all business transactions. It

is the centralized, up-to-date reference for the

rendering of accounts. Actual individual

transactions can be checked at any time in real-

time processing by displaying the original

documents, line items, and transaction figures at

various levels such as: account information,

journals, totals/transaction figures, balance

sheet/profit and loss evaluations (I05).

SAP Financial Accounting (FI)

Accounts Payable (FI-AP)

 The Accounts Payable application component

records and administers accounting data for all

vendors. It is also an integral part of the

purchasing system, where deliveries and invoices

are managed according to vendors. The system

automatically makes postings in response to the

operative transactions. In the same way, the

system supplies the Cash Management

application component with figures from

invoices in order to optimize liquidity planning.

SAP Financial Accounting (FI)

Accounts Receivable (FI-AR)

 The Accounts Receivable application

component records and administers

accounting data ofall customers. It is also

an integral part of sales management.

SAP Financial Accounting (FI)

Bank Accounting (FI-BL)

 This component is used to handle

accounting transactions that you process

with your bank. It includes the

management of bank master data, cash

balance management (check and bill of

exchange management), and the creation

and processing of incoming and outgoing

payments.

SAP Financial Accounting (FI)

Asset Accounting (FI-AA)

 Asset Acoounting is a sub component of SAP FI Module. It deals

with the fixed assets of the compant for their management and

analysis/ It provides the complete information about the fixed

assets transactions inside a company. So, the Asset Accounting (FI-

AA) component is used for managing and supervising fixed assets

with the SAP System.

 In Financial Accounting, it serves as a subsidiary ledger to the

General Ledger, providing detailed information on transactions

involving fixed assets. SAP Asset Accounting is tightly integrated

with many other moduels like MM, PM etc. For example if an item

purchased that can be considered as an asset, the information will

pass to Asset Accounting module ( FI-AA) from MM module.



SAP Financial Accounting (FI)

Funds Management (FI-FM)

 SAP Funds management ( FI-FM ) is another sub

component under FI module. As the name it helps the

organization to manage funds. It helps the companies for

proper budgeting and avoiding overrun budgets. Funds

management integrate with many modules like General

Ledger Accounting ( G/L ), bank accounting , Material

management ( MM ) etc to get the complete funds data.

It checks all the transactions like where from receiving

the funds, and where is all the funds expenditure occurs

and which are the funds to receive in future. based on

these data, organization can plan and create their

forecasting budgets and can utilize their funds more

better way.

SAP Financial Accounting (FI)

Travel Management (FI-TV)

 SAP Travel Management supports all

processes involved in handling business

trips. Its comprehensive functionality is

integrated with settlement, taxation, and

payment processes. Travel Management

enables you to request, plan, and book

trips, create travel expense reports, and

transfer expense data to other functional

areas.

SAP Financial Accounting (FI)

Special Purpose Ledger (FI-SL)

 Special purpose ledgers are ledgers

defined to meet the specific business

requirements, according to the

dimensions you define. They contains the

dimensions that you specify. This is the

only type of ledger you can create in your

FI-SL system (SAP, 2014c).

2.2 SAP FI General

Ledger

Accounting

 SAP General Ledger Accounting ( Shortly G/L

Accounting ) is one of the main sub component of SAP

FI module. A general ledger is the data that contains

entire transactions of a company. It acts as the main

record for all accounting purposes.

 The central task of G/L accounting is to provide a

comprehensive picture for external accounting and

accounts. Recording all business transactions (primary

postings as well as settlements from internal

accounting) in a software system that is fully integrated

with all the other operational areas of a company

ensures that the accounting data is always complete and

accurate.

2.2 SAP FI General Ledger
Accounting

 Essentially, the general ledger serves as a complete

record of all business transactions. It is the centralized,

up-to-date reference for the rendering of accounts.

Actual individual transactions can be checked at any

time in realtime processing by displaying the original

documents, line items, and transaction figures at

variouslevels such as:

◦ Account information

◦ Journals

◦ Totals/transaction figures

◦ Balance sheet/profit and loss evaluations

◦ (SAP General Ledger Accounting, FI-GL, 2001)



2.2 SAP FI General Ledger
Accounting

 It contains all the transactions like purchases from

vendors and customer transactions and other inside

company transactions.

 Important Transaction

codes

for SAP FI General

Ledger

◦ FB50 – Enter GL Account Document

◦ F-01 – Enter Sample Document

◦ FB02 – Change Document

◦ F-06 – Post Incoming Payments

◦ F-07 – Post Outgoing Payments

◦ FBCJ – Cash journal Posting

2.2.1. FI Organizational

Structure

Organizational structures occur in all important

functional areas of the SAP system.

 Represents the legal and/or organizational views of an

enterprise.

 Forms a framework that supports the activities of a

business in the manner desired by management.

 Permits the accurate and organized collection of

business information.

 Supports the development and presentation of relevant

information in order to enable and support business

decisions.

2.2.1. FI Organizational
Structure

Elements in FI Organizational Structure

 Client: An independent environment in the

system. Client is an obligatory organizational

unit (field name: Mandant), a commercially,

organizationally, and technically self-contained

unit within the SAP system, with its own master

records and tables.

2.2.1. FI Organizational
Structure
Elements in FI Organizational Structure

 Client: We can have more than one client defined in the

SAP system. The standard SAP system comes delivered

with clients 000 and 001. Because the client is the

highest level in the SAP system, and FI module hierarchy,

any specification we make or data we enter at this level

is valid for all company codes and for all other

organizational structures within that client.

 This ensures that the data is consistent: we need to

make specifications or enter data only once. We need to

enter a client key (three-digit identifier) when we log on

to the SAP system.

2.2.1. FI Organizational
Structure
Elements in FI Organizational Structure

 Client: The data entry, processing, and analysis are all

saved for each client. Used for external reporting

purposes, the organizational units of FI are designed to

fulfill our business requirements and meet the legal or

statutory regulations of external parties. We assign

these organizational units to each other in order to

build the framework for processing business

transactions by transferring data automatically between

the individual components. (Narayanan, 2015.)

2.2.1. FI Organizational
Structure
Elements in FI Organizational Structure

 Client: Before we start defining the required

organizational units, we need to meet the country

specific requirements by completing the localization of

sample organizational units supplied by SAP.

Specifications that we make at this level apply to all

company codes.

(Narayanan, 2015.)

2.2.1. FI Organizational
Structure

Company Code:

The most important organizational element in

Financial Accounting is the company code. It is the

smallest organizational unit of Financial

Accounting for which a complete self-contained

set of accounts can be drawn up for purposes of

external reporting. Company Code:

◦ Represents an independent legal accounting unit

◦ Balanced set of books, as required by law, are
prepared at this level.

◦ A client may have more than one company code.

2.2.1. FI Organizational
Structure

Chart of Accounts:

 – A classification scheme consisting of a

group of general ledger (G/L) accounts

 – Provides a framework for the recording

of values to ensure an orderly rendering

of accounting data. The G/L accounts it

contains are used by one or more

company codes.

2.2.1. FI Organizational
Structure

Credit Control Area

 – An organizational entity which grants

and monitors a credit limit for customers.

 – It can include one or more company

codes

2.2.1. FI Organizational Structure

Business Area

 An organizational unit that represents a

separate area of operations or responsibilities

within an organization and to which value

changes recorded in

 Financial Accounting can be allocated

 Financial statements can be created for business

areas, and these statements can be used for

various internal reporting purposes.

2.2.1. FI Organizational Structure
Business Area

The business area is an organizational unit that we can use

freely for internal or external reporting to depict

segmentation of our business within or across company

codes. Each business area is regarded as a financially

separate unit for which an internal balance sheet and

profit and loss statement can be created. The business

area is available in general ledger reporting (in both the

classic General Ledger and the new SAP General Ledger),

and can be set up in the special ledger tables. We can

create a business area using

2.2.1. FI Organizational Structure

Profit Centers

In new General Ledger Accounting, profit centers can be

part of Financial Accounting. That means that the profit

center information is stored in the totals table of FI *. As

company codes, the profit centers function as a dimension

for financial reporting. A profit center can represent many

things: an organizational unit within the company, a line of

business, a geographical location.

2.2.1. FI Organizational Structure

Segments

The segment is a new organizational unit available

with the new General Ledger Accounting.

Segments can also be used as a dimension for

reporting purposes. The aim of segment reporting

is providing an insight into different business

activities of a diversified company and provide

information about the general environment.

2.2.2 Accounting transactions

in General Ledger
 To ensure that business transactions are

constantly maintained correctly, you post

them to G/L accounts in General Ledger

Accounting. With the posting, the system

generates a document, saves the data in

the database, and provides the data for

the update.

2.2.2 Accounting transactions

in General Ledger
 Accountants create many journal entries as part

of their daily work. In SAP, accountants can use

a single-entry Enjoy screen for most of their

postings. In some cases, the traditional complex

screen is used. In both methods, G/L account

postings are automatically listed in the income

statement report (as long as the accounts are

included in the financial statement version). You

can display the respective postings also when

querying posted accounts.

2.3 SAP FI –Accounts Payable

 The Accounts Payable application component

records and manages accounting data for all

vendors. It is also an integral part of the

purchasing system: Deliveries and invoices are

managed according to vendors. The system

automatically triggers postings in response to

the operative transactions.

2.3 SAP FI –Accounts Payable

 The application component in financial accounting

is accounts payable and accounts receivables. The

longevity of an organization more or less will

depend on their abilities to manage the accounts

payable and receivables of the organization. There

is no organization without these words. Hence

these components have significant role in finance

module. Similarly even in sap also the same was

dealt accurately.

2.3 SAP FI –Accounts Payable

 While taking up the project we must understand the

various business processes involved in this area.

Furthermore we have to discuss with the company people

regarding their terms and conditions while coming into a

contract for either supply of goods or sale of goods. We

must have thorough knowledge in dealing with these

functionalities. Generally the sundry creditors are called

accounts payables in sap environment and sundry debtors

are called accounts receivables.

2.3 SAP FI –Accounts Payable

 Payables are paid with the payment

program. The payment program supports

all standard payment methods (such as

checks and transfers) in printed form as

well as in electronic form (data medium

exchange on disk and electronic data

interchange). This program also covers

country-specific payment methods.

2.3 SAP FI –Accounts Payable

 You can design balance confirmations,

account statements, and other forms of

reports to suit your requirements in

business correspondence with vendors.

There are balance lists, journals, balance

audit trails, and other internal evaluations

available for documenting transactions in

Accounts Payable.

2.4 SAP FI –Accounts

Receivable
 The Accounts Receivable application

component records and manages

accounting data of all customers. It is also

an integral part of sales management.

2.4 SAP FI –Accounts

Receivable
 All postings in Accounts Receivable are also recorded

directly in the General Ledger. Different G/L accounts

are updated depending on the transaction involved (for

example, receivables, down payments, and bills of

exchange). The system contains a range of tools that

you can use to monitor open items, such as account

analyses, alarm reports, due date lists, and a flexible

dunning program. The correspondence linked to these

tools can be individually formulated to suit your

requirements. This is also the case for payment notices,

balance confirmations, account statements, and interest

calculations. Incoming payments can be assigned to due

receivables using user-friendly screen functions or by

electronic means, such as EDI.

2.4 SAP FI –Accounts

Receivable
 The payment program can automatically carry

out direct debiting and down payments.

 There are a range of tools available for

documenting the transactions that occur in

Accounts Receivable, including balance lists,

journals, balance audit trails, and other standard

reports. When drawing up financial statements,

the items in foreign currency are revalued,

customers who are also vendors are listed, and

the balances on the accounts are sorted by

remaining life.

2.4 SAP FI –Accounts

Receivable
 Accounts Receivable is not merely one of

the branches of accounting that forms the

basis of adequate and orderly accounting.

It also provides the data required for

effective credit management, (as a result

of its close integration with the Sales and

Distribution component), as well as

important information for the

optimization of liquidity planning, (through

its link to Cash Management).

2.5 SAP FI – Bank Accounting

 SAP Bank Accounting is a sub component under FI

module. It deals with all the transactions done

through bank. This component is used to handle

accounting transactions that you process with

your bank. It includes the management of bank

master data, cash balance management (check and

bill of exchange management), and the creation

and processing of incoming and outgoing

payments. It is possible to freely define all

country-specific characteristics, such as the

specifications for manual and electronic payment

procedures, payment forms, or data media.

2.5 SAP FI – Bank Accounting

 In a company most of the transactions occuring

through banks only. So we can say it is one the

important component for SAP financial accounting

system. It deals with all the incoming and outgoing

transactions, balance management and bank

transaction master data. We can create and

process anytype of bank transactions using Bank

accounting component.

 SAP has a dedicated solution to handling of bank

accounts. This component is used to handle

accounting transactions that you process with

your bank as well as with the banks of customer

and vendor. This Solution is used to handle the

2.5 SAP FI – Bank Accounting

 Management of Bank Master data for your company’s

bank;

 Keeps Bank Master data for the customer of your

Company;

 Keeps Bank Master data for the vendors of your

company;

 Cash balance management ( Check and bills of exchange

management);

 Creation and process of incoming payments;

 Creation and process of outgoing payments;

 Handles Accounting transactions that you process with

your bank. (I04)

Subject: Enterprise IT Application and Integration

609 Assignment 6

Assignment Description

Read chapter 5 and reputable resources and briefly describe the benefits of using an ERP system for your accounting.

350+words APA format and two references please.

609 Discussion 6

Discussion Topic

Read chapter 5 and reputable resources and discuss problems associated with accounting and financial reporting in unintegrated information systems.

200+words APA format and one reference please