Finance & BankingFinancial SoftwareSAP

SAP ERP Financial Accounting and Controlling

Configuration and Use Management

SAP ERP Financial Accounting and Controlling

Introduction

In this introduction, I explain the meaning of the acronym SAP, the origin of SAP, and the concept of SAP implementation. We will go further to look at Enterprise Resource Planning (ERP) as it relates to SAP, the importance of SAP, and the steps involved in implementing SAP ERP.

 

What Is SAP?

SAP (Systems, Applications, and Products) in data processing is the leading ERP (Enterprise Resource Planning) business application software in the market today. The software provides a unified platform that allows business processes integration. SAP is developed by SAP AG, a German software company founded in 1972 by five ex-IBM employees. With its headquarters in Germany, SAP has regional offices around the world.

SAP is used by many Fortune 500 companies worldwide as a business solution for processing operational data and for generating reports in real-time, which helps all levels of management make better decisions and enables them to manage business processes effectively and efficiently.

 

ERP (Enterprise Resource Planning)

ERP is accomplished through business software packages like SAP that are made up of application modules that companies use to store data and manage business processes as a whole. Modules involve accounting, human resources, security, supply chain management, and more. These modules are used to manage the “8Ms,” (Man, Material, Machine, Money, Method, Minutes, Management, and Marketing). The idea is to improve efficient management enterprise resources.

Besides SAP, ERP packages are produced by Oracle (PeopleSoft), BAAN, JD Edwards, and Siebel, among others.

 

The Importance of SAP ERP

Since its inception in 1972, SAP has gained international acceptance across the world by large organizations as the most preferred business solution package. SAP ERP is structured in three-tier layers, which makes
it a robust ERP software solution. Apart from being the most widely used application software in the world today, the following benefits are derived from the use of SAPERP.

 

Real-Time Three-Tier Architecture

SAP supports a real-time three-tier (R/3) architecture made up of these three layers:

  • Presentation Layer: This is the first layer in a typical three-tier architecture and it serves as the input device that controls the SAP system. It is user-friendly Graphical User Interface (GUI) that’s used by the end-user to input data into the system. It also serves as a data-output device. The presentation layer communicates with the application layer.
  •  Application Layer: This layer serves as the middleman in a SAP system. It’s where the all processing is done. The application layer can be referred to as the central processing unit (CPU). It collects data from the database, processes it, and passes it to the presentation layer.
  •  Database: Allows the data to be stored, called up, and modified.

The real-time three-tier architecture allows separate business processes to function under a single,
integrated business management information system.

 

Customizable Solution

SAP ERP 6.0 is scalable and suited for medium and large organizations, since it provides a customizable solution using the structured programming language, ABAP/4. This flexibility allows companies to customize the system to meet their specific needs. In order to enable customers and partners to customize the SAP application to meet their specific-business requirements, SAP comes with the Easy Access menu and the Implementation Guide (IMG) menus.

 

Easy Access

The Easy Access menu is a user-specific point of entry into the SAP system. It is the first screen that comes up when you logon to SAP. It is designed in a tree structure containing a list several key items that provide the options that allow you to navigate the system and perform tasks and business processes. For example, you can perform transactions and generate reports and access web addresses (where you can access documents from a remote internet server).

 

IMG (Implementation Guide)

The IMG is a generic tool that you can use to customize business processes and requirements to meet specific needs of a company. You are presented with three implementation variants in SAP:

  • SAP Reference IMG. This is a standard structured hierarchical tool in R/3 system (real-time three-tier architecture) that contains the procedures for customizing various country settings and application modules in the SAP system.
  • Project IMG. Configuration process can be very daunting. To help manage the complexity involved when using the reference IMG, you can create each implementation project based on specific functions needed for business processes and requirements. For example, you could use it to reduce the project scope to specific objects such as countries.
  • Project View IMG. You choose certain properties by specific criteria in order to generate views to organize your project activities. For example, a project view could hold each activity required in a project IMG.

 

Matchcode

Matchcode is a user-friendly search function designed to help you lookup or retrieve data records stored in the system. It’s an efficient way of looking for records stored in the system when you do not remember their keys.

 

Supports Other Operating Systems

SAPERP 6.0 EHP7 is very versatile and supports various operating systems, such as:

  •  Microsoft Windows 2000 professional, Microsoft XP professional, and Microsoft Server 2003
  • HP UX 11.11 and HP UX 11.23
  • Novell SUSE SLES9
  • Sun Solaris 9 and Sun Solaris 1
  • IBM AIX 5.2 and IBM AIX 5.3

 

Unified Platform

SAP provides the platform where all business processes are executed in a single system and share common information.

 

Incorporating Multiple Languages and Currencies

SAP ERP is ideal for multinational organizations because of the flexibility incorporated, which allows the system to run on multiple currencies and use different languages. These features make SAP a global software solution.

 

Integrated ERP Solutions

SAPERP is an integrated ERP package that incorporates other modules. These include Financial (FI), Controlling (CO), Material Management (MM), Sales and Distribution (SD), Production Planning (PP), Human Resources (HR), Financial Supply Chain Management (FSCM), Customer Relationship Management (CRM), and others.

 

Reduced Implementation Cost

The cost and time needed to implement SAP can be reduced by applying rapid-implementation techniques using global and industry-specific templates during customization.

 

Global Presence

As the market leader in ERP, the SAPERP solution is currently used in over 28 industry sectors and has a strong global presence in more than 120 countries worldwide. This number is predicted to rise.

 

SAP FICO

FICO stands for Financial (FI) and Controlling (CO). These are the two core modules in SAP and are tightly integrated to help management maintain and generate financial reports for efficient decision-making and strategic planning.

 

Financial (FI)

The FI module is a business process designed specifically for organizations to maintain their financial records efficiently on a daily basis, for management to be able to ascertain their financial position, and for those who need to generate financial statutory reports for external purposes to meet the needs of various stakeholders in real-time.

The FI module consists of other sub modules, including: General Ledger (G/L), Accounts Receivable (AR), Accounts Payable (AP), Bank Accounting, Asset Accounting, Special Purpose Ledger, Travel Management, and so on.

FI is integrated into other modules like Sales and Distribution (SD) and Material Management (MM). Postings made in these modules with financial implications are posted real-time to FI.

 

Controlling (CO)

The Controlling module is designed specifically to provide operational information to management to aid better decision-making, and for formulating strategic and operational planning. In SAP ERP, the Controlling module is composed of the following sub modules: Cost Element, Cost Center, Internal Order, Activity-Based Costing, Product Costing, Profitability Analysis, and Profit Center.

 

Why This Book?

This book arose out of my sincere desire to simplify the complexity involved in SAP FICO configuration. It is also an attempt to make SAP FICO configuration an interesting career path for those so inclined.

As a SAP trainer at the corporate and individual level, I’ve learned that the best way to teach is to design a systematic approach that guides beginners step by step through using all learning resources available. This can make learning fun and interesting. That is what I have done in this book.

You’ll find that SAP ERP Financial Accounting and Controlling: Configuration and Use Management
is one of the most illustrative SAP FI books on the market. It includes numerous screenshots and practical examples. Even those without prior configuration knowledge or skills of any sort will be able to follow each step with ease, which is what makes this book unique.

To promote a better understanding of the complexities and concepts of the activities throughout
the book, I followed a problem-based approach that tries to replicate real-world situations. As you work through each problem, you will gain the practical experience needed to become an expert in the world of SAP. Every problem used in the book is geared to meet business processes and requirements unique to each customizing step, but the overall objective is to equip you as a functional SAP consultant on the completion of this book.

The book covers the financial (FI) module, the controlling (CO) module, the new general ledger (G/L) accounting modules, and some aspects of end-user postings.

This book is unlike others in that it incorporates IMG (Implementation Guide) and accounting. The IMG side of the system is where SAP configurations are performed and the accounting side of the system is where end-users input data into the system. It is also unique in giving readers a great opportunity to learn the rudiments of FI, CO, new G/L implementation, and accounting for end-users simultaneously.

The benefit of combining the SAP implementation and Easy Access is that you have an opportunity to explore both sides of the system to gain an in-depth understanding of how data flows in the system. Additionally, trainers will find the book excellent material for those charged with showing others how to configure and use SAP FICO.

 

A Quick Overview of the Book’s Contents

Each chapter provides a sequence to be followed in customizing SAP FICO from start to finish. The sequence has been arranged to give you the opportunity to work through a complete FICO customizing lifecycle progressively. Each chapter includes all the configuration concepts or activities necessary for your customizing or draws on a previous chapter.

Chapter 1 sets the scene by looking at organizational structure and explains how to create various objects in SAPR/3. This includes how to create company codes, business areas, segments, country-specific settings, and so forth.

Chapter 2 explains and defines the Master Record, including how to edit the Chart of Accounts and how to assign a company code to the Chart of Accounts. It further explores how to define the Account Group and Retained Earnings account.

Chapter 3 looks at the purpose of document control and various forms of document types in the SAP R/3 system. It also looks at the steps involved in defining number ranges and setting field status variants.
It emphasizes the various principles along with the importance of posting keys, normal and special posting periods, and how to create variants for posting periods.

Chapter 4 explores posting authorizations by discussing the purpose of posting authorization, defining tolerance groups for G/L accounts and employees, assigning users to defined tolerance groups, and creating accounts for clearing differences.

Chapter 5 takes a look at the general ledger and its sub ledgers. It covers when to use line items and open item management, how to create G/L accounts, and how to set other objects settings to consider when creating G/L accounts.

Chapter 6 discusses clearing open Items and various types of open-item clearing issues. It covers configuring automatic open item clearing, maximum exchange rate difference settings, the importance of foreign currency valuation, foreign currency balance sheet accounts, and G/L account balances managed on an open-item basis. It also looks at types of exchange rates and how open items are valued in foreign currency.

Chapter 7 explains how to define local and foreign currencies for company codes, maintain the relationship between currencies per currency type, and the purpose of exchange rates. It also explores how to maintain the various exchange rate types and how to define translation ratios for currency transactions.

Chapter 8 explores how to define GR/IR (Goods Receipt/Invoice Receipt) and how to configure GR/IR settings in the SAP R/3 system.

Chapter 9 deals with the House Bank and how master records are created in it. It explains using the House Bank ID and account ID, bank statements supported by SAP, creating global settings for electronic bank statements, configuring manual bank statements, defining posting keys and posting rules for check deposit, and defining variants for check deposit.

Chapter 10 looks at taxes on sales and purchases, including VAT. It covers how to create sale and purchase taxes in SAP R/3, how to specify the tax category in the G/L accounts to which taxes are posted, how to assign the basic tax code for sales and purchases, how to specify the accounts to which different tax types are posted, and how to assign tax codes for non-taxable transactions.

Chapter 11 covers the cash journal by explaining what it is and explaining which items are defined when setting up a new cash journal. It identifies the document types for cash journal items, explains how to create G/L accounts for cash journals, and how to set up the cash journal.

Chapter 12 explains the Financial Statement Versions (FSV). The chapter looks at how to create an FSV from scratch, covers the specifications to be conducted when defining FSV, how to call up FSV hierarchy nodes, and how to assign appropriate G/L accounts.

Chapter 13 explores the Integration of FI with other modules in SAP R/3. This includes automatic postings of material to FI, using the valuation class of material as the key to which the G/L account materials are posted, the settings for automatic posting configuration, how to create inventory accounts using the BSX transaction key, how to create corresponding credit accounts for GR/IR clearing account using the WRX transaction key, how integration of FI and SD works, how to prepare revenue account determination, and how to define accounts for overhead cost controlling.

Chapter 14 deals with Accounts Receivable and Accounts Payable, including the steps involved in creating a payables/receivables, the function of the account group, how to create IDs for accounting clerks, how to create vendor/customer details, how to resolve number range overlaps, and more. It also covers payment terms in SAP, the purpose of defining payment terms in SAP R/3, and how to create installment plans. The chapter also defines the sort method and adjustment accounts for regrouping receivables/payables, and adjustment accounts for receivables/payables by maturity. Finally, the chapter shows you how to adjust or post document reversals using the negative posting method, and how to define reasons for reversal.

Chapter 15 covers correspondence and dunning, including how to define correspondence types, sender details, the various levels involved in defining dunning. It explains how to determine special G/L transactions so the system can dun them.

Chapter 16 looks at why it is important to disclose special G/L transactions separately by using alternative reconciliation accounts. It provides an explanation of special G/L transactions, including guarantees, down payments, and bills of exchange. It also covers down payments in depth.

Chapter 17 looks at how to create and change vendor/customer master records in Easy Access, how to post invoices in the system, how to treat credit memos, how to hold and park documents, how to manage incoming and outgoing payments, how to process partial payments and residual items, how to generate dunning, and how to manage cash journal postings.

Chapter 18 explores some of the Controlling modules, starting with the overall organizational structure. It then looks at cost element accounting, cost center accounting, and profit centers.

Chapter 19 looks at the new general ledger and its benefits, the leading/non-leading ledgers, how to define ledgers and currencies, what scenarios are and how to assign them to ledgers. It also briefly explains accounting principles and how to assign them to ledger groups. Finally, it covers real-time integration
of controlling (CO) with FI, how to define documents for entry view in a ledger, the classification of G/L accounts for document splitting, zero-balance clearing, and more.

Appendix A covers all the appropriate G/L accounts needed for your configuration.

Appendix B provides some useful transaction codes that allow you to access tasks easily rather than going through the menu path, which may be time-consuming.

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