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SAP MM - Material Valuation

Material valuation is one of the must-known topics for all SAP Material Management (MM) learners, especially for MM consultant, FI consultant, and FI & MM administrator in a company. In a company, the material valuation procedure must be determined together with accounting department. It determines, among other things, how a material transaction recorded in accounting journal. The first thing that we should know in material valuation is the Valuation Area. It is the organizational level at which material is valuated. In SAP R/3 system, there are two possible organizational level at which material is valuated: 1. Plant. When stock is valuated at plant level, we can valuate a material in different plants at different prices. Valuation must be at this level in the following cases:

o o

If we want to use the application component Production Planning (PP) or Costing If our system is a SAP Retail system

2. Company Code. When stock is valuated at company code level, the valuation price of a material is the same in all of a company's plants (that is, in a company code). SAP recommends that we set material valuation at Plant level. We can define the valuation level in configuration process with T-Code SPRO and will be valid for whole client. The configuration process can be seen at these screen shots:

The above image is SAP AG 2010. All rights reserved

The above image is SAP AG 2010. All rights reserved

If weve never defined this before, the Valuation Level screen will be editable, but in this example it is not editable because it has been defined before. Defining the valuation level in Configuring is a fundamental setting, and is very difficult to reverse. The transactions in Inventory Management that can affect the valuation price of material in accounting record (depending on the type of price control) are: Goods Receipts. Goods Issues. Transfer Postings (for example, a stock transfer between two plants or a transfer posting from one material to another). Postings in Invoice Verification.

We must create the accounting data for each valuation area for all valuated materials so the above transactions can be carried out for those materials. In the accounting view of material master data, we can get an overview of the present valuation. Valuation of goods receipts depends on the price control procedure we set in the material master record. In the R/3 System, material valuation can be carried out according to the moving average price procedure (V price) or the standard price procedure (S price).

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In the standard price procedure (price control S), the system carries out all stock postings at a price defined in the material master. Variances are posted to price difference accounts. In the moving average price procedure (price control V), the system valuates goods receipts with the purchase order price and goods issues with the current moving average price. The system automatically calculates the latter upon every goods movement by dividing the total value by the total stock quantity. Differences between the purchase order price and the invoice are posted directly to the relevant stock account if there is sufficient stock coverage. Characteristic of Price Control S: All stock postings are made at a standard price. The system posts all differences from the standard price to an account Expense/Revenue from price difference. Exact values are available for cost accounting / controlling purposes (All goods issues, such as issues to a production order, are valuated at the same standard price. This allows better analysis of the costs of production orders). In the accounting view, we can display differences between the delivered price and the standard price. We can change material prices if required (generally at the end of period). This causes the system to revaluate the total stock for a valuation area.

Posting at Standard Price.

A receipt posted to a stock account is generally posted at the standard price. Differences between the order price and the standard price are posted to an Expenses/revenue from price differences account (2). Differences between the invoice price and the order price are posted to an Expenses/revenue from price differences account (3). The moving average price is also recorded in the material master when the material is valuated at a standard price. It indicates the extent to which the standard price differs from the delivered price. Characteristic of Price Control V.

Receipts are valuated at their actual price (as per purchase order, invoices,...) The system modifies the price in the material in the material master according to the delivered price. Issues are generally valuated at the current material price. The data used for cost accounting / controlling purposes therefore contains price fluctuations. Only in exceptional circumstances does the system post at a difference to the Expenses/Revenues from price differences account (The system makes a posting to an Expenses/revenue from price differences account for a material valuated at a moving average price only in the case of a debit or credit when the stock coverage in the company code is smaller than the quantity to be debited or credited, e.g.: When we reverse an invoice, the account movements made when the invoice was posted cannot always simply be reversed. For example, if there was sufficient stock coverage when we posted an invoice with a price variance for a material with moving average price, but when we reverse the invoice, there is insufficient stock coverage, the R/3 System posts the price difference in the credit memo to a price difference account, although the price variance was debited to the stock account when we posted the invoice) We can change material prices if required (generally at the end of period). This causes the system to revaluate the total stock for a valuation area.

Postings at Moving Average Price.

Receipts to the stock account are posted with the value Quantity x Order price. The moving average price is recalculated after every transaction and is therefore adjusted in line with delivered prices (2)/(4). Differences between the order price and the invoice price are debited to the stock account, as the invoiced quantity is in stock (3). The difference between the order price and the invoice price is only posted for the 50 pieces in stock. For the remaining 50 pieces that are not in stock, the difference between the order price and the invoice price is posted to an Expenses/revenue from price differences account (6).

SAP MM Automatic Account Determination


There are many transactions in Material Management (MM) that relevant for Accounting. These transactions must be recorded in accounting documents that contain the postings made to the G/L accounts in Financial Accounting (FI). The mostly used MM transactions that relevant for FI can be seen at Accounting Journals of SAP Material Management (MM) Transactions. For those transactions, as far as possible, the SAP R/3 System should determine automatically the G/L account numbers that are involved in the accounting journal. By doing so, we can minimize the inputs and error possibilities made by MM end-users who perform the transactions as they dont determine the G/L account numbers. We can do this by Automatic Account Determination process in MM configuration (T-

code: SPRO). The automatic account determination process must be done together with Accounting Department. The influencing factors that determine how SAP choose the G/L account numbers that are involved in the accounting journal for MM transactions are:

Chart of accounts of the company code We must assign a chart of account to each company code. Several company codes can use the same chart of accounts. This process must be done in FICO configuration. You can learn how to configure FICO module in its relation with MM module at SAP FICO minimal configuration for MM posting. SAP R/3 determines the chart of account affected by MM transaction from the company code or plant entered by user when performs a transaction.We must define the automatic account determination individually for each chart of accounts. Valuation grouping code of the valuation area See Material Valuation to know more about valuation area. The Valuation grouping code is a key to differentiate account determination by valuation area within a chart of account. Valuation grouping code is also called Valuation modification. SAP screenshots of How to activate the valuation grouping code(T-code: SPRO/OMWM): SPRO menu: IMG - Materials Management-Valuation and Account Assignment - Account Determination - Account Determination Without Wizard-Define Valuation Control

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A valuation grouping code consists of a group of valuation areas that can have same account determination in a specific chart of account. It is a tool that enables us to configure the automatic account determination with a minimum of effort. If we activate the valuation grouping code in configuration process, we have to assign a valuation grouping code to each valuation area. SAP Screenshots of How to define valuation grouping code (T-code: SPRO/OMWD): SPRO menu: IMG - Materials Management-Valuation and Account Assignment Account Determination - Account Determination Without Wizard - Group Together Valuation Areas.

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By activating and using the valuation grouping code, we dont have to configure account determination for each valuation area (that is a plant or company code) if we dont want to differentiate it for each valuation area. If we want the automatic account determination within a chart of accounts runs differently for valuation areas, we can assign different valuation grouping codes to these valuation areas. We must define the automatic account determination individually for every valuation grouping code within a chart of accounts. It applies to all valuation areas which are assigned to this valuation grouping code. For example, if we want to differentiate the account determination for a group of two plants with another group of other three plants in a company code (where the valuation level is plant), we can assign a valuation grouping code for the group of two plants and another valuation grouping code for the group of other three plants. By doing so, we just have to configure the account determination for the two valuation grouping codes, no need for five valuation areas (plants). SAP R/3 determines the valuation area and the valuation grouping code affected by MM transaction from the company code or plant entered by user when performs a transaction. Valuation class of material The valuation class is a key to differentiate account determination by materials. For example, we can post a goods receipt of a raw material to a different inventory account than if the goods receipt were for finished-product. We can do this by assigning different valuation classes to the raw material and finished-product and by assigning different G/L accounts to the posting transaction for every valuation class. If we dont want to differentiate account determination according to valuation classes we dont have to maintain a valuation class for a transaction. The valuation class must be entered in the accounting data view of material master data for a valuated-material. The allowed valuation classes for a material depend on its material type. More than one valuation class can be allowed for a

material type. More than one material type can be allowed for a valuation class. The relationship between valuation classes and material types is established by the account category reference. The account category reference is a compilation of valuation classes. A material type is assigned to only one account category reference.

SAP screenshots of How to define valuation classes (T-code: SPRO/OMSK) SPRO menu: IMG - Materials Management-Valuation and Account Assignment Account Determination - Account Determination Without Wizard-Define Valuation Classes.

The above image is SAP AG 2010. All rights reserved

The above image is SAP AG 2010. All rights reserved

The above image is SAP AG 2010. All rights reserved

The above image is SAP AG 2010. All rights reserved

The above image is SAP AG 2010. All rights reserved

The above image is SAP AG 2010. All rights reserved

Transaction/event key (internal processing key) The Transaction/event key is a key to differentiate account determination by business transaction. For example, we must differentiate G/L account posted by goods receipt transaction and posted by invoice receipt transaction. Posting transactions are predefined for those inventory management and invoice verification transactions relevant to accounting. Posting records, which are generalized in the value string, are assigned to each relevant movement type in inventory management and each transaction in invoice verification. These contain keys for the relevant posting transaction (for example, inventory posting and consumption posting) instead of actual G/L account numbers. We do not have to define these transaction keys, they are determined automatically from the transaction (invoice verification) or the movement type (inventory management). All we have to do is assign the relevant G/L account to each posting transaction. You can see list of transaction key here.

Account grouping(only for transaction: offsetting entries, consignment liabilities, and price differences) Account grouping is a key that allows us to subdivide number assignments for each transaction key in account determination. Account grouping is also called general modification. Since the posting transaction "Offsetting entry for inventory posting" is used for different transactions (for example, goods issue, scrapping, physical inventory), which are assigned to different accounts (for example, consumption account, scrapping, expense/income from inventory differences), it is necessary to divide the posting transaction according to a further key: account grouping code. An account grouping is assigned to each movement type in inventory management which uses the posting transaction "Offsetting entry for inventory posting". Under the posting transaction "Offsetting entry for inventory posting", we must assign G/L accounts for every account grouping, that is, assign G/L accounts. If we wish to post price differences to different price difference accounts in the case of goods receipts for purchase orders, goods receipts for orders, or other movements, we can define different account grouping codes for the transaction key. Using the account grouping, we can also have different accounts for consignment liabilities and pipeline liabilities. You can see list of account grouping here.

Configure Automatic Postings Automatic Postings are postings made to G/L accounts automatically in the case of Invoice Verification and Inventory Management transactions relevant to Financial and Cost Accounting. When entering the goods movement, the user does not have to enter a G/L account, since the SAP R/3 System automatically finds the accounts to which postings are to be made using the influence factors as explain above. SAP Screenshots of how to configure automatic posting (T-code: SPRO/OBYC): Posting made in the case of goods receipt (GR) to purchase order (PO): GR/IR Clearing Account 500

Inventory account 500

We need to update the BSX transaction key (Inventory posting) with the GL code Inventory account. SPRO menu: IMG - Materials Management-Valuation and Account Assignment - Account Determination - Account Determination Without Wizard - Configure Automatic Posting.

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The above image is SAP AG 2010. All rights reserved

Enter Chart of Account which we want to configure its account determination, then enter the G/L account affected by the transaction as below:

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We also need to update the WRX transaction key with the GL code GR/IR Clearing account.

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Enter Chart of Account which we want to configure its account determination, then enter the G/L account affected by the transaction as below:

The above image is SAP AG 2010. All rights reserved

posting made in the case of goods issue to cost center:

Inventory account 500

Material consumption expense account 500

We have configured the inventory posting transaction in the previous section (GR to PO). Now, we have to configure transaction key GBB. GBB key is used for various offsetting posting entries. Within GBB transaction there are various account grouping (general modification). In this case we need to update general modification VBR with the material consumption expense account.

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Enter Chart of Account which we want to configure its account determination, then enter the G/L account affected by the transaction as below:

Material Price Change Transaction


Sometimes we need to change the value (price) of our inventory material in order to adjust it to a certain condition. Maybe, it because the current standard price (for material with price control procedure S) has been differed too greatly with the statistical moving average price (MAP). For a material with price control procedure S, SAP R/3 system also calculates its moving average price and save it as statistical-MAP at accounting view on material master data. This statistical MAP has no influence in material valuation. Or, for a material with price control procedure V, we maybe need to change the price of a material because it has no movement transaction for a long time period and we want to revaluate it to the current market price (You can read our previous article to understand more aboutMaterial Valuation in SAP ). This material price change transaction usually occurs in manufacturing or trading companies. This transaction is an accounting transaction, not material transaction. It will post an accounting document but will not create a material document. It will change the price of a material at accounting view on material master data but will not change the quantity of it. The T-code fro the transaction is: MR21. The typical accounting journals for this transaction are:

If the new price is higher than the old one. For example, current material price is 5000, and we want to revaluate it to 6000. This transaction will increase the material value by 1000. Revenue from material revaluation 1000

Inventory account

1000

If the new price is lower than the old one. For example, current material price is 5000, and we want to revaluate it to 4000.

This transaction will decrease the material value by 1000. Expense from material revaluation 1000

Inventory account

1000

In the end, this transaction will result the same to the Balance Sheet and Profit & Loss Statement. It because as long as the business operation of the company runs, the material that revaluated by this transaction will be used, either for internal consumption or for sales. Lets assume that there is no other transaction for this material. For first condition (new price > old price) The typical accounting journal for consumption is: Inventory account 6000 Material consumption expense account 6000

The first journal will decrease the Asset by 6000 (the new material value), so it will result 0 in Inventory account. The second journal will decrease the current year profit, so it will decrease Equity, by 6000. It will result -6000+1000 (from revenue from material revaluation account when material price change transaction was done) =-5000 (decrease in Equity). It is the same with if there is no material price change transaction before. Inventory account 5000 Material consumption expense account 5000

For second condition (new price <> The typical accounting journal for consumption is: Material consumption expense account 4000

Inventory account 4000

The first journal will decrease the Asset by 4000 (the new material value), so it will result 0 in Inventory account. The second journal will decrease the current year profit, so it will decrease Equity, by 4000. It will result -4000-1000 (from expense from material revaluation account when material price change transaction was done) =-5000 (decrease in Equity). It is the same with if there is no material price change transaction before. Material consumption expense account 5000

Inventory account 5000

See Accounting journal of SAP MM Transactions Overview (including Accounting Basic Concept) to understand more about accounting journal.

SAP FICO minimal configuration for MM posting


There are many SAP Material Management (MM) learners who face the problem in their MM configuration learning process that they cant post any MM document, even if their MM configuration has been done correctly. It is because they have lack of knowledge in configuring Financial & Controlling (FICO) module as they have never learned it specifically. It can be very frustrating to solve that problem. These video collections give a clear step-by-step SAP FICO configuration in order to allow MM posting, so you can

learn it very easily. The videos show SAP IMG Help for every step, so you can know exactly what its all about. These step-by-step processes include: Create company code Create chart of account Maintain fiscal year Open & close posting period Define Account Group G/L account creation (including step-by-step LSMW recording for G/L Account creation) Maintain Document number range Financial Statement version Maintain Field Status Variants Check calculation procedure and more You cant find these valuable videos somewhere else at this price. They only cost 55 USD (Fifty Five US Dollars). There are no shipping cost, we will send them by email or give the download links to you. All videos are in ".avi" format and we will provide video codec so we can make sure you can watch it. You can download a sample video here (New).

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SEE DOC

Accounting (FICO) Journals of SAP Material Management (MM) Transactions


Accounting journal of Goods Receipt (GR) and Invoice Receipt (IR) Transactions

Accounting journal of Goods Issue (GI), Transfer Posting (TP), and Physical Inventory Difference posting.