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Introduction to Financial Accounting Processes

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

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Introduction to Financial Accounting Processes

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  1. Introduction to Financial Accounting Processes

  2. Categories of Accounting (1) • FinancialAccounting (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

  3. Categories of Accounting (2) • ManagerialAccounting (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

  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

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

  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

  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

  8. Company Tables • Table T000 stores the company codes • Table T001 stores the company code / GL assignment

  9. Organizational Data (Company Code) • Use transaction OX02 (IMG)

  10. Organizational Data (Division) • A division is an OU based on sales of materials and services • They are an OU for sales and distribution • They are assigned to sales organizations • Global Bike has two divisions

  11. Organizational Data (Business Area) • We often need internal financial accounting across company codes (legal boundaries) • A businessarea 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)

  12. Business Area (Illustration) • Global Bike has one business area (BI00) • Business area 0001 is part of the default SAP installation (US 0X03)

  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

  14. Business Area Plant Assignment • We can connect a plant and division to a business area through configuration

  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

  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

  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)

  18. Organizational Data (Credit Control Area)

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

  20. Credit Control Area (Global Bike) Assign credit control area – GB has one for both companies

  21. Required FI Org Units

  22. 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

  23. Fiscal Year • A period (usually 12 months) for which a company produced financial statements • Fiscal year need not correspond to a calendar year

  24. Fiscal Year Variants Global Bike uses K1

  25. Fiscal Year Variants • Assign fiscal year variant to company code • Both Global Bike companies use the same fiscal year variant

  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

  27. Posting Periods • IMG posting periods (OBBO)

  28. Posting Periods (Define Variant) • Use IMG transaction OBBO • Global bike used variant GL00. • This is not the operating ledger GL00

  29. Posting Periods (Open and Close) • IMG transaction code OB52

  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

  31. Tolerance Groups for Users • IMG transaction code OBA4

  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

  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

  34. Document Types (Example)

  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

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

  37. Posting Keys

  38. General Ledger Accounting • Define chart of accounts • Define account groups and number ranges • Define retained earnings account • Create GL master records

  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

  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

  41. GL Illustration

  42. SAP GL Tables

  43. SKB1 • Company Code Segment • (K) Client • (K) Company Code • (K) Account Number • Specific company accounts • For Global Bike (US00) and (DE00)

  44. SKA1 • Client Segment (SKA1) • (K) Client • (K) Chart of Accounts • (K) Account number • Balance sheet, PL, OR other account (Account Group)

  45. SKAT • It’s the GL account master record

  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

  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

  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

  49. Organizational Data (Company Code) Illustration • The general ledger GL00 is shared by both company code US00 and DE00

  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

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