Introduction to Financial Accounting Management EGN 5622 Enterprise Systems Integration Spring, 2015 Introduction to Financial Accounting Management EGN 5622 Enterprise Systems Integration Spring, 2015

Introduction to Financial Accounting Management Theories & Concepts Introduction to Financial Accounting Management Theories & Concepts

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC3 Financial Accounting (FI) Financial accounting Designed to collect transactional data for preparing a standard portfolio of reports

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC4 FI Organizational Objects Represent legal and organizational views of an enterprise Form a framework to support business activities desired by the management Accurately collect and organize business information Enable and support business planning and decisions

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC5 FI Organizational Objects Chart of Accounts ◦It is a classification scheme consisting of a group of general ledger (G/L) accounts. ◦It contains G/L accounts used by one or more company codes. General Ledgers (G/L) ◦A unique combination of Company Code and Chart of Accounts used for preparing financial accounting statements ◦Each G/L account with a unique account number is designated into a balance sheet account group and profit and loss account group.

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC6 Subsidiary Ledgers (Sub-ledgers) and Reconciliation Accounts Sub-Ledgers: Some financial data are not directly maintained in the general ledger. For example, customers accounts, which track the amounts customers owe and payments they paid, are maintained separately for each customer. Similarly, data about each vendor are maintained in separate accounts. Such accounts are called sub-ledgers, and don’t show up in the general ledger.

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC7 Subsidiary Ledgers (Sub-ledgers) and Reconciliation Accounts Reconciliation accounts: Part of general ledger accounts that consolidate data from a group of related sub-ledger accounts, such as customers and vendors. The reconciliation account for customers is accounts receivable (A/R). The reconciliation account for vendors is accounts payable (A/P). Transaction data must be posted to sub- ledger accounts, and then they are automatically posted to the corresponding reconciliation account.

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC8 Subsidiary Ledgers (Sub-ledgers) and Reconciliation Accounts The balance in the reconciliation account (for example accounts receivable and accounts payable) is the sum of the postings in the related sub-ledger accounts (for example, customers and vendors, respectively).

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC9 Vendor Accounts and A/P Accounts Payable (A/P) (General Ledger) Vendor Vendor Vendor Vendor

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.10 Accounts Payable Integration Debit to GR/IR Credit to A/P account Goods Receipt Balance Sheet Debit to Inventory account Credit to GR/IR account Invoice Receipt

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC11 Customer Accounts and A/R Accounts Receivable (A/R) (General Ledger) Customer Customer Customer Customer 189

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.12 Accounts Receivable Integration Credit to Revenue account Debit to A/R account Goods Issue Sales Order Invoice Income Statement Balance Sheet Debit to COGS account Credit to Inventory account SD Sales and Distribution

January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC13 Accountants and Audit Trails Audit trails allow an auditor to begin with an account balance on a financial statement and trace through the accounting records to the transactions that support the account balance Audit trails enable an auditor to trace individual transactions to the effected account balance(s) on a financial statement

Introduction to Financial Accounts Management SAP Implementation Introduction to Financial Accounts Management SAP Implementation

SAP Module View Integrated Solution Client / Server Open Systems Financial Accounting Controlling Fixed Assets Mgmt. Project System Workflow Industry Solutions Production Planning Sales & Distribution Materials Mgmt. Plant Management Quality Maintenance Human Resources

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.16 Components of Financial Accounting Financial Accounting (FI) Accounts Receivable Accounts Payable Special Purpose Ledger Fixed Assets Banks General Ledger

Business Processes Integration January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.17 MM PP SD Org Data Rules MM PP SD Master Data MM PP SD FISD MM FI PP

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.18 Business Processes Integration  Financial Accounting (FI)  Materials Management (MM)  Sales and Distribution (SD)  Production Planning (PP)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.19 Integration Procurement Process (Procure-to-Pay) Purchase Requisition Payment to Vendor Notify Vendor Shipment Invoice Receipt Goods Receipt Purchase Order

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.20 Sales Order Process (Order-to-Cash) Integration Sales Order Entry Post Goods Issue Invoice Customer Pick Materials Receipt of Customer Payment Pack Materials Check Availability

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.21 Schedule and Release Shop Floor Documents Finished Goods Receipt Order Settlement Raw Materials Issue Production Proposal (Planning/Other) Completion Confirmation Capacity Planning Production Process (Make-to-Stock) Integration

Financial Accounting Module January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.22 Org Data Rules Master Data FI

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.23 Financial Accounting Module Organization Data Master data Rules Transaction Data

Financial Accounting Module - Organization Data January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.24 Org Data FI

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.25 Organizational Data A hierarchy in which the organizational units in an enterprise are arranged according to functions and tasks They are static data and rarely changed Once the organizational structure is decided, it is not easy to change it The definition of organization units is a fundamental step; it is a critical factor in how the company will be structured

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.26 Client General Motors GM Corp. Chart of Accts GMCCadillacChevrolet Corporate Fiscal Year Var. GM–Corporate Credit CA Cars Trucks Business Areas Consolidation of Company Codes Optional Organizational Structures

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.27 Business Areas (review) Business Areas An enterprise organizational unit within financial accounting. It corresponds to a defined business segment or area of responsibility, to which you can assign value movements recorded in Financial Accounting. Business areas may also group product and market combinations as homogeneously as possible for the purpose of developing unified business policy.

Financial Accounting Module - Master Data January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.28 Master Data FI

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.29 Master Data (review) Financial Accounting General Ledger Accounts Material Master Vendor Master Customer Master Material Management Vendor Master Material Master Customer / Purchasing Info Records Manufacturing Process Material Master BOM Routing Work center PRT (Production Resource/Tools) Sales & Distribution Customer Master Material Master Pricing Credit Limits Customer Material Info Records Item Proposal

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.30 FI Master Data General Ledger Master Data ◦Chart of Accounts Data ◦Company Code Data ◦Reconciliation Accounts  Accounts Receivable (A/R)  Accounts Payable (A/P)  Goods Receipt/Invoice Receipt (GR/IR)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.31 General Ledger – Master Data General Ledger accounts are created at the client level A unique master record is created for each General Ledger account

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.32 General Ledger – Master Data (continued) Contains control information for: ◦Data entry ◦Data processing Specifies what is in: ◦the balance sheet, and ◦the income statement

Financial Accounting Module January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.33 Rules FI

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.34 Rules (Review) Defines the parameters for Master Data and Transactions Determines functionality for Master Data and Transactions Relatively fixed Changes as policy changes

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.35Rules Financial Accounting Account Groups Field Status Variant Fiscal / Posting Periods Tolerance Groups Document Types Number Ranges Automatic Account Assignment Valuation Area Grouping Parameter IDs Material Management Fiscal Periods Account Groups Material Types Plant Parameters Purc./Rec./Inv. Tolerances Automatic Account Assignment Reservations Material Group Loading Group Sales & Distribution Account Groups Pricing Procedure Determination Shipping Point Determination Revenue Account Determination Define Availability Check Define Credit Check Document Types

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.36 Rules Account Groups., for example,  BS – Balance Sheet Account Group  PL – Income Statement Account Group  RA – Reconciliation Account Group Field status variant ◦Field status groups Automatic Account Assignments Posting Periods Tolerance Groups for Account Postings Accounts Payable Settlement Document Numbers

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.37 An Example for Account Groups in GBI Chrt/Accts Acct Group NameFrom acctTo account GL##BS ## Balance Sheet Accounts GL##FA## Fixed Assets GL##LA## Liquid Assets GL##MA## Material Accounts GL##PL ## Profit & Loss Accounts GL##RA## Reconciliation Accounts

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.38 Account Groups Control which fields must be entered when an account is created Determine a valid number interval for each of the groups (types) of General Ledger accounts that have common attributes Must be created before General Ledger Chart of Accounts master records can be created You must assign each account to an appropriate account group

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.39 Field Status Field status controls how the data will be entered for a field when an accounting master record is being used in a transaction Determining whether a field is required, optional, suppressed, or display only Field status controls are also relevant to a specific activity — create, change, or display

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.40 Field Status Variant Fld status group Text ZALLAll Accounts ZBSABalance Sheet Accounts ZEXPExpense Accounts ZGRIMaterial Management (GR/IR) Accounts ZRCNReconciliation Accounts ZREVRevenue Accounts

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.41 Posting Periods Before it is possible to post documents, it is necessary to define posting periods Fiscal years are divided into one or more posting periods Each posting period is delimited by both a start and finish date A common division of a fiscal year involves defining 13 posting periods months and 1 quarter ending posting periods

Financial Accounting Module January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.42 FI

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.43 Transaction Data Includes transactions that describe business activities Unlike master data, aggregate transactional data is dynamic - it constantly changes, usually many times per day – each transaction is unique Transactions use organizational structure, master data, and rules

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.44 Transaction Overview Document Principles Document Types Posting Keys Invoice Receipt Invoice Entry Account Payable Process Account Receivable Process

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.45 Document Principles Each completed accounting transaction writes data to the database and creates a unique electronic document A financial accounting document records the impact (either debit or credit, and in which account) of a transaction step on financial accounting Each document contains information such as: ◦Responsible person ◦Date and time of the transaction ◦Commercial content including company codes

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.46 Document Principles – (continued) An accounting document captures the entire transaction in order to facilitates recall for reporting purposes It remains as a complete unit in the system until archived Once created, a document can not be deleted from the database

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.47 Document Types A way to categorize different transactions ◦Many different document types are supplied in the system A document type is two-digit code that identifies the specific business process Document types are associated with number ranges ◦All documents of the same document type are stored in the system by document number Determine the type of account that can be posted to

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.48 Document Types – (continued) Common used document types: SA – General ledger account documents DR – Customer invoices DG – Customer credit memos DZ – Customer payments KR – Vendor invoices KG – Vendor credit memos KZ – Vendor payments KN – Vendor net invoices and credit memos WA – Goods issue WE – Goods receipt

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.49 Document Numbers All posted transactions must have a unique number assigned to it Usually these numbers are system generated The numbers serve to specifically identify the business content of a transaction so that it may be recalled at a later time The actual system stored document number includes information respecting the year, date, and company codes

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.50 Document Numbers – (continued) Before any documents can be posted to a company or company code, there must be a number range assigned to the document type New transaction document number ranges must be created at the start of each new fiscal year

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.51 The posting key (PK) has a control function that pertains to the document line items. It determines the following: Account type for posting the line item Debit or credit posting of line items Field status for additional information Account Types: D – Customer K – Vendor A – Assets M – Material S – G/L Accounts Posting Keys

52 Accounting Document (-continued) Posting Key Examples: Posting KeyDebit/CreditAccount Type 01 (invoice)DebitCustomer 15 (payment)CreditCustomer 40 (debit)DebitG/L account 50 (credit)CreditG/L account 31 (invoice)CreditVendor 25 (payment)DebitVendor 89 (Stock In)DebitMaterial 99 (Stock out)CreditMaterial

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.53 Assets 7075 General Ledger 4050 Material 8999 Customers 0115 Vendors 2531 Common Posting Keys Posting Keys – (continued)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.54 Accounts Payable Process Purchase Order Goods Receipt Invoice Receipt Debit Credit Payment Program Verification

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.55 Goods Receipt / Invoice Receipt Reconciliation Account Purchase requisition Purchase order Materials Management (MM) and Financial Accounting (FI) via automatic account assignment Goods receipt No impact on Financial Accounting (FI) Dr Cr Inventory $100 Dr Cr GR / IR $100

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.56 Goods Receipt / Invoice Receipt Reconciliation Account Amount owed is assigned and transferred to vendor account payable Invoice receipt Dr Cr Vendor (sub-ledger) $100 Dr Cr GR / IR $100 Dr Cr A/P $100

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.57 Vendor Payment Amount owed is paid to vendor and account payable is reduced Bank Dr Cr A/P $100 Dr Cr Bank $100 Vendor (sub-ledger) Dr Cr $100

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.58 (FI – MM) Integration Points Invoice Receipt Payment Program Goods Receipt (Vendor) Dr Cr GR / IR $100 Bank Dr Cr Inventory $100 Dr Cr $100 AP Dr Cr $100

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.59 Accounts Receivable Process Sales Order From customer Issue Goods Issue Invoice Debit Credit Post Payment

Goods Issuing Reconciliation Account Sales quotation Sales order Materials Management (MM) and Financial Accounting (FI) Delivery/Goods Issuing No impact on Financial Accounting (FI) Dr Cr Inventory (Trading, F/G) $1,000 Dr Cr COGS $1,000

Dr Cr Sales Revenues $1,250 Billing Reconciliation Account Billing amount is assigned and transferred to customer account receivable Billing Dr Cr Account Receivable (AR) $1,250 Dr Cr Customer (sub-ledger) $1,250

Customer Payment Amount is paid by Customer and account receivable is reduced Bank Dr Cr Account Receivable (A/R) $1,250 Dr Cr Bank $1,250 Customer (sub-ledger) Dr Cr $1,250

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.63 (FI – SD) Integration Points Billing Payment Program Goods Issue (Customer) Dr Cr COGS $1,000 Bank Dr Cr Inventory (F/G) $1,000 $1,250 Dr Cr $1,250 AR Dr Cr $1,250 Dr Cr Revenue

Exercises: (Due date: 2/6/2015) 1. Display chart accounts 2. Run financial statements 3. Post transfer of funds to bank account 4. Post transfer of funds to alternative bank account 5. Create invoice receipt for rent expense 6. Display & review GL accounts and individual line items 7. Display & review accounts payable balances and individual line items 8. Post payment to landlord 9. Display & review accounts payable balances and individual line items 10. Post purchase of operating supplies 11. Run financial statements 12. Create purchase order 13. Create goods receipt 14. Post invoice receipt from vendor 15. Post payment to vendor 16. Run balance sheet/profit and loss statements