SAP01 Financials

May 2012


SAP ERP Financials is a single comprehensive program that provides a complete solution for your organization’s financial and management accounting. It includes financial accounting and supply chain management, corporate governance, and management accounting.

For the growth of your organization, you need to proactively manage business performance and profit, and streamline the accounting processes. With SAP ERP Financials, your organization can implement secure and transparent accounting. As financial and business information can be integrated, SAP ERP Financials enables superior control over the gamut of business processes in your organization, which is necessary for strategic operational decision-making. Further, it helps your enterprise optimize its financial supply chain management and improve the internal control processes for effective corporate governance.

This slide depicts an overview of the financial accounting aspects of the general ledger.

Financial accounting deals with recording

·        monetary and value flows,

·        profit and loss,

·        and asset accounting.

The general ledger contains the record of all business-related transactions and accounts in an organization. The central task of G/L accounting is to provide a detailed picture for external accounting.

The general ledger contains balance sheet and several reconciliation accounts. We have reconciliation accounts in two places – within customer master records and vendor master records. It is the user who sets up a reconciliation account. It is also the user who decides the groups or the types of ledgers to be made available within a reconciliation account. Some reconciliation accounts are profit and loss account, asset accounting, and bank accounting.

The balance sheet is one of the major financial statements. Assets of the company are listed in balance sheet, so it is a “snapshot” of the company’s financial position at a specific point in time.

The profit and loss account reports the revenue, gains, expenses, losses, net income, and other totals for a specific period. If a company’s stock is publicly traded, earnings per share must be documented on the profit and loss account.

The general ledger and its components enable you to perform parallel accounting by maintaining parallel ledgers for different accounting principles, analyze key figures, and do group consolidation.

 

As we discussed in the previous slide, the balance sheet is a financial document that states the company’s assets and liabilities. The balance sheet represents a company’s financial condition. It distinguishes between various types of assets and liabilities. The assets might include cash held by the company or its bank accounts and other receivables. The liabilities include loans, stockholder’s equity, and other liabilities.

The company’s total recorded assets are always equal to the sum of its liabilities plus the shareholder’s equity. If you subtract the liabilities from the assets, you will have the company’s net worth.

In SAP ERP Financials, the business transactions that are entered in the sub-ledgers as well as those entered in Material management or Financial supply chain management flow into the balance sheet in real time.

 

 

 

There are two ledger accountings within SAP - SAP FI general ledger and SAP ERP general ledger. The usage of different ledgers was implemented in SAP R/3. This was done to meet the requirements of different customers. The different ledgers included

·        the classic general ledger for legal requirements,

·        the cost of sales ledger,

·        the profit center ledger

·        and other special ledgers for multi-dimensional, customer-specific requirements.

The number of individual ledgers was reduced with the release of SAP ERP, which also lessened the problem of merging different sets of figures.

The main features of SAP FI general ledger are:

·         Free choice of level: Corporate group or company.

·         Automatic and simultaneous posting of all sub-ledger items in the appropriate general ledger accounts (reconciliation accounts).

·         Simultaneous updating of general ledger and cost accounting areas.

·         Real-time evaluation of and reporting on current accounting data in the form of account displays, financial statements with different financial statement versions, and additional analyses.

Compared to FI general ledger, the new SAP ERP general ledger has been enhanced with special ledger functions to create greater flexibility and offers several technical advantages, such as:

·         The introduction and portrayal of business models now occurs within a single solution. This design avoids any need for a separate cost of sales ledger, special-purpose ledger, reconciliation ledger, or profit center ledger.

·         Data is stored only once in the system – this eliminates data redundancy.

·         No need for additional reconciliation activities during closing.

·         It is easier to make adjustments to business-specific requirements.

Financial supply chain management is a set of applications that addresses every cash-to cash cycle process of your organization.

With SAP Financial supply chain management, companies get a single set of applications for complete support of the entire capital management cycle. You can tailor these applications to the specific needs of your company so that they work in harmony with your sales, inventory, and accounting systems. Some of these are SAP Electronic Bill Presentment and Payment, SAP Collections Management, and so on.

SAP Electronic Bill Presentment and Payment helps you manage account, billing, and payment information. Your business partners can display account balances from their finance and accounting departments as well as data from their billing systems, such as information from the sales and distribution applications.

SAP Collections Management helps you handle receivables proactively and prioritize accounts based on risk. Efficient receivables management has become critical for many companies in a difficult economic environment where classic dunning notices may no longer be effective with customers. It lets you navigate customer accounts directly through a collection work lists.

SAP Cash and Liquidity Management is a key application for financial supply chain management. It helps you monitor how your strategic planning affects the cash flow, that is, from both the macro and micro perspective.

SAP Treasury and Risk Management offers a comprehensive set of functions for managing financial transactions and risk. These functions enable easy processing of all investment, debt and foreign-exchange management, calculation of financial credit exposure, and so on.

SAP Credit Management helps you to check credit limit of a customer and enables you to analyze the customer’s creditability.

SAP In-House Cash Center helps the international companies manage the internal and external payments efficiently. You can use it to process payments between the individual company units.

SAP Dispute Management is used to process payment deductions.

In this slide, we will discuss the advantages of Electronic Bill Presentment and Payment versus Traditional Invoicing.

The SAP business scenario map is designed to show you how a seller and buyer can use the business internet to electronically send and settle a bill. The benefits of collaboration information are shared quickly and easily between business partners.

The Traditional Invoicing is a lengthy process and is wasteful in terms of effort and time utilized to create and issue an invoice. First, it must be created and inserted into an invoice printing batch, which in turn requires the use of a customized invoice with propositioned fields and logos, plus a review of the printed invoices, stuffing into envelopes, affixing postage, and finally mailing. Now, it is not necessary that the invoice is received on time. There may be delays as the mailroom sorts through the mail and delivers it internally. There is also the risk of losing the invoice due to a problem at the post office or because of the change in recipient’s address. At any rate, let us assume the invoice has reached the payer. Even then, it does not guarantee that you will get your money right away. You might have to go through the dunning aspect. So, you again create a bill reminder, send a reminder, and sort some bank statements, and hopefully, at some point, you can actually get your money.

On the other hand, the electronic method streamlines the process for efficiency. It just says create a bill, send the bill, send a reminder, and clear the invoice. The bank statement process is handled by the financial aspects of SCM, that is, treasury management, in-house cash management, and other capabilities. You can also use the system to generate reminders and dunning notices.

Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders, or constitution of a corporation as well as to external forces, such as consumer groups, clients, and government regulations.

Well-defined and enforced corporate governance provides a structure that works for the benefit of everyone concerned, such as auditors or external addressees by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws. To that end, organizations have been formed at the regional, national, and global levels. It also helps to cater the needs of the others concerned in the company, such as creditors. The analysis of financial statements can be done for assessing the company’s growth.

SAP ERP Financials provides comprehensive functions that reduce the overall cost of managing internal controls. It ensures adherence to standards and corporate governance laws. The different functions include Management of Internal Controls (MIC), Audit Information System (AIS), Whistleblower complaints, and Basel II.

Management accounting records all business-related expenses and revenues in detail. It is the internal accounting of your organization that deals with overhead costing, product cost controlling, and profitability analysis. It helps provide more exact information about the utilization of costs and assets within the company.

Cost element accounting is a part of accounting where you enter and organize the costs incurred during a settlement period. It is thus not an accounting system altogether, but a detailed recording of data that forms a basis for cost accounting.

Cost Center manages the costs incurred during company’s operation. Cost Center plans, records, and then analyzes the costs against the plan. It uses internal orders to plan, collect, and settle the costs of internal jobs and tasks. It also monitors internal orders throughout their entire lifecycle, that is, from the initial creation, through the planning and posting of all the actual costs, to the final settlement and archiving.

Product Cost Accounting manages the product portfolio. It documents the cost of goods manufactured (COGM) or the cost of goods sold (COGS). The cost incurred to manufacture a product, before it is sold, is broken down at each step of the production process and registered. This application uses cost information gathered about the product automatically from other SAP applications.

Profitability Analysis focuses on the analysis of the profits of your company. It displays the company’s internal and external activities that are responsible for the profit. All relevant postings are collected in the Profitability Analysis, and then, the results analysis is performed. In the service area, the results analysis is performed depending on the type of company, product range, and sales strategy.

In Profitability Analysis, costs and revenues are assigned to the Profitability segment. The profitability segment corresponds to a market segment. You can calculate the profitability of a segment by comparing its sales revenues against its costs. A profitability segment in an operating concern is defined by a combination of characteristic values. These characteristic concepts are already available in the SAP system, but you can define your own concepts as well.

The slide is a snapshot of integrated management accounting in SAP system. The external and internal quantity and value flows of an organization are displayed through different business-related processes such as Purchase to Pay, Plan to Product, and Order to Cash. In other words, it provides information on product costing, overhead management, and profitability analysis.

The financial accounting component is a primary data source for management accounting. Most expense postings that relate to the General Ledger result in a costs posting in management accounting such as postings for assets, vendor, and so on. Thus, expenses and revenues postings in financial accounting result in the costs and sales revenues in management accounting.

As discussed in the previous slide, Cost element accounting (CO-CEL) is the part of accounting where you enter and organize the costs incurred during a settlement period. It is used in the first phase together with the main areas of financial accounting.

The costs of each cost-accounting relevant business transaction can be assigned through cost and revenue element accounting (CO-OM-CEL) to an account assignment object in the controlling component (CO). For overhead costs, this can be cost centres, internal orders, business processes, or overhead projects.

Product cost planning (CO-PC) is an area within product cost controlling where you can plan the costs for materials and set prices for materials and other cost accounting objects. You can do this without referring to orders. Product cost planning accesses master data in other components such as BOMs, routings, and work centers in production planning and cost centers.

In CO-PA planning, you can create a sales and profit plan. As both types of Profitability Analyses can receive actual data in parallel, there is no common source of planning data.

You can use the methods of activity allocation, assessment, or distribution to further allocate costs, for example, to internal orders (CO-OM-OPA), cost objects (CO-PC), or market segments (CO-PA).

Profitability Analysis (CO-PA) enables you to calculate contribution margins per market segments. These market segments can be classified according to products, customers, orders, or any combination of these, or strategic business units, such as sales organizations or business areas, with respect to your company's profit or contribution margin.

The aim of the system is to provide your sales, marketing, product management and corporate planning departments with information to support internal accounting and decision-making.

SAP supports two forms of Profitability Analyses – costing-based and account-based.

·         Costing-based Profitability Analysis is the form of profitability analysis that groups costs and revenues according to value fields and costing-based valuation approaches. Both of these can be defined in the system. It guarantees the access at all times to a complete short-term profitability report.

·         Account-based Profitability Analysis is a form of profitability analysis organized in accounts using an account-based valuation approach. The distinguishing characteristic of this form is its use of cost and revenue elements. It provides you a profitability report that is permanently reconciled with financial accounting.

As stated earlier, market segments are defined by characteristics, such as products, product groups, customers, customer groups, geographical areas, and so on. When you set up Profitability Analysis in your company, you have a very flexible choice while selecting the characteristics that are relevant for the definition of the market segments for your company. Every clear combination of characteristics, for example, sale of product A to customer Y, defines a profitability segment that corresponds to a market segment.

Profitability Analysis provides you with a multidimensional reporting tool, which you can use to create reports that analyze the data for any market segment and profitability measure.