Introduction to Financial Accounting Processes

Introduction to Financial Accounting

Processes

Slide 2

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

Slide 3

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

Slide 4

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

Slide 5

Financial Accounting Tasks General Ledger Accounts Receivable Accounts Payable Asset accounting Withholding tax

Slide 6

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

Slide 7

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

Slide 8

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

Slide 9

Organizational Data (Company Code) Use transaction

OX02 (IMG)

Slide 10

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

Slide 11

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)

Slide 12

Business Area (Illustration) Global Bike has one business area

(BI00) Business area 0001 is part of the default

SAP installation (US 0X03)

Slide 13

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

Slide 14

Business Area Plant Assignment We can connect a plant and division to a

business area through configuration

Slide 15

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

Slide 16

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

Slide 17

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

Slide 18

Organizational Data (Credit Control Area)

Slide 19

Credit Control Area (Global Bike) Define credit control area (OB45)

Slide 20

Credit Control Area (Global Bike)

Assign credit control area – GB has one for both companies

Slide 21

Required FI Org Units

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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

Slide 23

Fiscal Year A period (usually 12 months) for which a

company produced financial statements Fiscal year need not correspond to a

calendar year

Slide 24

Fiscal Year VariantsGlobal Bike uses K1

Slide 25

Fiscal Year Variants Assign fiscal year variant to company

code Both Global Bike companies use the

same fiscal year variant (K1)

Slide 26

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

Slide 27

Posting Periods IMG posting periods (OBBO)

Slide 28

Posting Periods (Define Variant) Use IMG transaction OBBO Global bike uses variant GL00

This is not the operating ledger GL00

Slide 29

Posting Periods (Open and Close) IMG transaction code OB52

Slide 30

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

Slide 31

Tolerance Groups for Users IMG transaction code OBA4

Slide 32

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

Slide 33

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

Slide 34

Document Types (Example)

Slide 35

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

Slide 36

Posting Keys (OB41) Posting key 40 is a G/L debit

Slide 37

Posting Keys

Slide 38

General Ledger Accounting Define chart of accounts Define account groups and number

ranges Define retained earnings account Create GL master records

Slide 39

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

Slide 40

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

Slide 41

GL Illustration

Slide 42

SAP GL Tables

Slide 43

SKB1 Company Code Segment

(K) Client (K) Company Code (K) Account Number Specific company accounts For Global Bike (US00) and (DE00)

Slide 44

SKA1 Client Segment (SKA1)

(K) Client (K) Chart of Accounts (K) Account number Balance sheet, PL, OR other account

(Account Group)

Slide 45

SKAT It’s the GL account master record

Slide 46

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

Slide 47

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

Slide 48

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

Slide 49

Organizational Data (Company Code) Illustration The general ledger GL00 is shared by

both company code US00 and DE00

Slide 50

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

Slide 51

COA Illustration

Slide 52

COA (Creating) IMG transaction OB13 (Global Bike)

Slide 53

Chart of Accounts (Configuring)

Slide 54

Account Groups An account group defines how a GL

account behaves and the screens that are available

Slide 55

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

Slide 56

Retained Earnings Account Transaction code OB53 Global Bike has one retained earnings

account

Slide 57

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

Slide 58

The Recon Account Process A/R is a reconciliation account

Slide 59

The Recon Account Process And it’s a recon account for customers

(as opposed to vendors)

Slide 60

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

Slide 61

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

Slide 62

Accounts Payable

Slide 63

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)

Slide 64

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

Slide 65

Financial Accounting Outcomes The result of GL accounting is financial

statements Balance sheet Income statement (profit and loss) Statement of cash flows

Slide 66

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)