Summer Training Report

On

FINANCIAL ACCOUNTING

Submitted to

Punjab Technical University

In partial fulfillment of the requirements for the degree of

Bachelor of Commerce (B.COM.)

LUDHIANA COLLEGE OF ENGINEERING & TECHNOLOGY

SUBMITTED TO: SUBMITTED

BY:

GURVIR SINGH ANANT KAUSHAL

DESIGANATION 1709027
CERTIFICATE
 Acknowledgement

I have taken efforts in this project. However, it would not have been possible
without the kind support and help of many individuals and organizations. I
would like to extend my sincere thanks to all of them. I would like to express
my gratitude towards my parents & member of Rockman industries limited,
Mangli Plant for their kind co-operation and encouragement which help me in
completion of this project. I would like to express my special gratitude and
thanks to industry persons for giving me such attention and time. My thanks and
appreciations also go to my colleague in developing the project and people who
have willingly helped me out with their abilities.
 STUDENT DECLARATION

This is certify that I have completed the Summer Project titled’’ (FINANCE
AND ACCOUNTING)” under the guidance of “(MR. GURVIR)” in partial
fulfillment of the requirement for the award of Degree of Bachelor of
Commerce at Ludhiana College Of Engineering & Technology, Ludhiana. This
is an original piece of work & I have not submitted it earlier elsewhere

Date: Signature:

Place: ANANT
KAUSHAL
CHAPTER PLAN
1. Introduction to the subject
2. Introduction to Organisation
a) Overview
b) Profile of Organisation
c) Company’s history
d) Achievements
e) Products manufactured
f) Performance of company
 5S’s
 Kaizen
g) Customers of Organisation
3. Objectives of study
4. ERP (Enterprise Resource Planning)
5. SAP (System Analysis and Program Development)
a) Introduction of SAP
b) Functions of SAP
c) SAP Financial accounting
6. Integration of Financial accounting with other components
a) SAP FI General ledger accounting
b) FI Organisational structure
c) SAP FI Accounts payable
d) SAP FI Accounts receivable
e) SAP FI Bank accounting
7. Financial Accounting
a) Income statement
b) Cash flow statement
c)
 CHAPTER – 1

INTRODUCTION OF SUBJECT – FINANCIAL

ACCOUNTING

Financial accounting is a specialised branch of accounting that keeps track of a

company’s financial transactions. Using standardized guidelines, the
transactions ae recorded, summarized, and present in a financial report or
statement such as income statement or a balance sheet.
Companies issued financial statements on routine schedule. The statements are
considered external because it is given to the people outside the company, with
the primary recipients being owners/stock holders as well as certain leaders. If
corporation stock is publicly traded however its financial statements tend to be
widely circulated, and information will likely reach secondary recipients such as
competitions, employees, labour organisations, and investment analysis.
It is important to point out that the purpose of financial accounting is not to
report the value of a company rather, its purpose is to provide enough
information to the others to access the value of a company for themselves.
Financial accounting generates the following general purpose, external,
financial statements:
 Income statement
 Balance sheet
 Cash flow statement
 Statement of stock holder equity
 Profit and loss statement
 CHAPTER-2
INTRODUCTION OF ORGANISATION

Overview
Rockman Industries, formerly Rockman Cycles limited, is an Indian auto
components manufacturer, based in New Delhi, India. The company is one of
the India’s largest auto component manufacturers. Rockman industries
primarily engaged in manufacturing of aluminium die casting components,
machines and painted assemblies, auto chains and parts. In January 2017,
Rockman industries entered in carbon composites sector with the acquisition of
moldex composites, a UK-India carbon composites design and manufacturing
company. Rockman was founded in 1960 and is led by Suman Kant Munjal,
Chairman and Ujjwal Munjal, Managing Director.
Rockman industries was set up in 1960 by late Sh. Brij Mohan Munjal with
production of bicycle chains in India. In 1996 with the help of Japanese
technology, the plant is expanded for the automotive chains. Subsequently, in
1999, its operations were expanded to manufacture Aluminium Die Casting,
machined, painted and sub assembled components. In 2008 it started low
pressure and gravity casting in Haridwar. Current rapid growth in volumes and
variety. An in-house model tool room. Present production level 12million
motorcycle chains per annum and 20 million motorcycle hub per annum.
World’s largest producer with exports to over 30 country globally.

Profile of Organisation
Company Name: Rockman industries ltd. Mangli Plant
Address: Area Mangli, Nichi Mangli, Chandigarh road, Ludhiana.
Area code: 141014
ROCKMAN INDUSTRIES LTD, MANGLI PLANT

Locations of Rockman industries in India

Company’s History
A part of Hero group, Rockman industries was set in 1960 and started to
manufacture bicycle chains and hub for Hero cycles. In 2005 it closed the
bicycle chains and hubs business and from November 2005 its only
manufacturing is die casting components and auto parts. In 1999 it diversified
into high pressure aluminium die casting components and automotive chain for
Hero MotoCorp. In 2008 a new auto component plant was set up in Uttaranchal.
In February 2014 Rockman industries acquired Sargam die casting company
and started its new state of the art facility in Bawal (Haryana). In January 2017
Rockman industries acquired majority stakes in Moldex Composites to enter in
aerospace motorsport and high-end auto component manufacturing space.

Achievements
 2018: Won 1st prize in Kaizen contest by ACMA.
 2018: Won 3rd prize in QCC competition organised by CII.
 2018: Global award of “Outstanding supplier in value performance”
 2017: Gold award at ICQCC 2017, Manila
 2016: Gold Award 2016QCFI Bangkok
 2015: Acma bronze award for manufacturing excellence 2015
 2015: Par excellence award at national level QCFI Chennai
 2014: IRMI National award for manufacturing
 2014: HCCQC Award 2014, Gold prize
 2014: GDC Tech award (Cost effective technology), and so on.

Gold award 2016 QCFI Bangkok Won 1st prize for Kaizen by ACMA
2018
 Won 3rd prize QCC competition by CII 2018

Award for TPM Excellence, Category A

Products Manufactured
Products manufacture under Rockman industries ltd, Mangli, Ludhiana are:
 Drive chains
 Cam chains
 O Ring drive chains
 Sprockets
Drive chains

Solid bush
drive
1595W/O chain
420 Drive
Ring Drive
chain
chain

1595 O
428 Drive
Ring Drive
chain
chain

DRIVE
CHAINS

520 ORing
428 Solid
Drive
bush drive
chain

520 Drive
428 H
chain
Drive
428 H X chain
Ring Drive
chain
 Cam Chain

25H Cam Solid Bush

chain Cam chain

Starter 25HS Cam

Cam chain chain
Cam
Chains

Sprockets
Performance of Company
Rockman industries, the auto components arm of the $ 6 billion Hero groups, is
a leading manufacturer and supplier of aluminium die casting components,
machined and painted assemblies to the world’s largest motorcycle
manufacturer and other renowned automobiles OEMs. Rockman industries has
also diversified into Carbon composites technology through the acquisition of
British Indian enterprise, Moldex composites.
Rockman industries is the leader in India in two-wheeler alloy wheels
manufacturing with an installed capacity of 5.6 million wheels annually. The
company manufactures cylinder head, cylinder block, crank case, crank case
cover, oil pan, transmission housing, among other products. Rockman industries
also manufactures and supplies drive chains, cam chains, and starter chains for
motorcycle to OEMs and to the after-market.
With six plants across Haridwar, Ludhiana and Mangli, Chennai, Bawal and
Surat, Rockman has the capacity to annually process more than 65000 tonnes of
aluminium. Rockman is planning additional capacity through its upcoming
manufacture plants in Halol (Gujarat) and Tirupati (Andhra Pradesh). The
company has expertise in all the three casting processes – Gravity Die Casting
(GDC), Low Pressure Die Casting (LPDC), High Pressure Die Casting (HPDC).
Performance of company also determined by the policies of industries.
Rockman industries follows the 5S’s criteria for maintain the quality in
performance of industry.
5S’s
5S’s is a system of organizing spaces so work can be perform efficiently,
effectively and safely. The system focuses on putting everything where it
belongs and keeping the work place clean, which makes it easier for the people
to do their jobs without wasting time or risking injury.
5S’s comes from 5 Japanese words:
 Seiri
 Seiton
 Seiso
 Seiketsu
 Shitsuke

In English these words are:

 Sort
 Sustain
 Standardize
 Set in order
 Shine

Sort

Sustain Set in order

5S
Standardize Shine

Kaizen
Kaizen mean improvement, continuous improvement involving every one in the
organisation from the top management, to managers to supervisors, and to
workers. In Japan the concept of kaizen is so deeply engrained in the of both
managers and the workers that they often do not even realize they are thinking
kaizen as a customer drive strategy for the improvement. This philosophy
assumes according Imai that – “our way of life – be it our working life, our
social life or our home life – deserves to be constantly improved”
Kaizen strategies:
Elimination of 7 wastes
 Over production
 Downtime
 Transportation
 Inappropriate processing
 Unnecessary inventory
 Unnecessary motions
 Defects
KAIZEN TEIAN
Continous suggestions and Improvement

Standarddized
work

Implement Make problems

solutions visible

Develop
Test hypothesis counter
measures

Hypothesize Determine root

solution cause

Customers of Organisation
Rockman industries has various customers in the national market as well as in
international market. The mangli plant of Rockman industries produces the
chians and sprockets for mootorcycles and used to sell their finished goods in
domestic market and also used to export their finished goods. The plant has a
variety in no. of customers near about more then 150 cutomers.
The company has :
 After market sales: Under these all the domestic customers are there.
These customers used to purchase drive chain and cam chain kits from the
Rockman. Some of the after market customers are:
a) Honda
b) Mahindra
c) TVS

d) TATA

e) Ford
f) Royal Enfeild
g) Borgwarner
h) Denso
i) BOSCH
j) Magna
k) Continentinal
l) Gates

k) Gates etc.
 OEMs: These are the customers who used to purchase the chains from the
rockman. In other words they puchase the assembled products from
Rockman i.e. only chains withot sprocket. But its only availed by the
Hero.

 Expots: customers outside the country always used to purchase full drive
chain kit and cam chain kit from the Rockman industries.
These all are the trusted customers of Rockman Industries who have confidence
on the organisation for best quality of goods. Rockman is only sell its finished
goods in domestic market even also in international market.

CHAPTER-3
OBJECTIVE OF STUDY
The objective of study is to making us aware about the organisational structures,
organisational works, organisational process, rules and regulations of working,
etc. But the main objective of this to present my study or data in such a form
which makes us aware about the official works done in organisation.
My study is on the financial accounting and on the industry in which I have
done my training of 45 days.
 CHAPTER-4
ERP (ENTERPRISE RESOURCE PLANNING)

 Enterprise resource planning (ERP) is business process management

software that allows an organization to use a system of integrated
applications to manage the business and automate many back office
functions related to technology, services and human resources. ERP
software integrates all facets of an operation, including product planning,
development, manufacturing, sales and marketing.
 ERP software is considered an enterprise application as it is designed to
be used by larger businesses and often requires dedicated teams to
customize and analyses the data and to handle upgrades and deployment.
In contrast, Small business ERP applications are lightweight business
management software solutions, customized for the business industry you
work in.
 An Enterprise Resource Planning (ERP) System is a fully integrated
Business Management System covering the functional areas of an
enterprise, such as Accounting, Finance, Human Resources, Logistics and
Production etc. (Anderson, 2011).
The word of “Integration” is the key element for ERP implementation. An ERP
system is an attempt to integrate all functions across a company to a single
computer system that can serve all specific needs of users:
 It organizes and integrates operation processes and information flows etc.
to make the optimum use of resources such as people, material, money
and machine etc.
 It may also integrate key customers and suppliers as part of the
enterprise’s operation.
 It provides integrated database and custom-designed report systems.
 It adopts a set of “best practices” for carrying out all business processes.
ENTERPRISE RESOURCE PLANNING PROMISES:
 On Database

On Application

And one user interface for the entire enterprise, where once disparate
systems ruled manufacturing, distribution, finance and sales etc.

In today’s world, there are many leading market providers of ERP system and
SAP is one of the market and technology leaders in building business software
towards structured work and data management in organizations. SAP stands for
Systems, Applications and Products in Data Processing. SAP AG is originally
German multinational software who deals in software development for business
management and improved customer relations in enterprises.

CHAPTER-5
 SAP (SYSTEM ANALYSIS AND PROGRAM
DEVELOPMENT)

INTRODUCTION OF SAP
Systems Analysis and Program Development (SAP) was founded in June, 1972
and since then, many SAP ERP operations modules has emerged that are
designed focusing on various different processes including SAP ERP sales and
service, sales and distribution, customer relationship, financial management,
business intelligence and more. These modules are highly integrated in real-
time, which means that if information is shared between modules then the data
is entered only once. This reduces the chances of error arising from repetitive
entry and also reduces the man-hours. Managers and decision makers always
have information at their fingertips and this helps then in effective decision
making. SAP has been around for over three decades.
SAP is the leading ERP (Enterprise Resource Planning) software. Because of
its several open-architecture, there are millions of programmers working around
the world to provide interaction between thousands of major software and SAP.
SAP is usually implemented in phases. The first phase is when organizational
structure and accounting components are configured, tested and then taken live.
Gradually more modules are turned on (SAP, 2014a).

FUNCTIONS OF SAP
 SAP Sales
and FUNCTIONS SAP
Distribution Controlling
(SD)
OF SAP
(CO)

SAP SAP Financial

Materials Accounting
Management (FI)
(MM)

vSAP Quality
Management
(QM)
SAP Human
Capital
Management
(HCM) SAP
Production
Planning (PP)

 SAP Financial Accounting (FI)

SAP Financial Accounting (FI) is an important core module where in live-time,
the financial processing transactions are all captured to provide the basis via
which data is drawn for external reporting. This SAP FI Module is integrated
with many parallel modules that enable a company to unify processes that may
have needed the utilization of many software packages (Brinkmann - Zeilinger,
2000).
SAP FI module deals in managing financial transactions within enterprises. This
financial accounting module helps employees to manage data involved in any
financial and business transactions in a unified system. This module functions
very well for reporting requirements. The SAP FI module is very flexible and is
functions well in any type of economic situation. Be it a smaller organization or
a larger organization, SAP implementation helps in consolidating data for
diverse business transactions and legal requirements. Financial Accounting
module helps one to get real-time financial position of an enterprise in the
market. SAP FI incorporates with other SAP modules such as SAP SD, SAP
MM, SAP PP, Payroll and more for better work results.

 SAP Controlling (CO)

SAP CO module is another important SAP modules offered to enterprises. The
controlling module supports in the process works of planning, reporting and
monitoring operations of businesses. It involves methods to view and organize
costs that are required for financial reporting. Controlling module enables one to
plan, track, perform and report about costs. Controlling includes managing and
configuring master data that covers cost elements, cost centres, profit centres,
internal orders, and functional area and so on.

 SAP NetWeaver Business Ware house (BW)

SAP is the most important and greatest solution in enterprise resource planning
(ERP), and one of its business intelligence (BI) solutions is SAP NetWeaver
Business Warehouse (BW).
The Business Explorer Suite is a component of SAP NetWeaver Business
Warehouse. The Figure 1. overviews the BEx tolls’ integration into the SAP
NetWeaver BW architecture. The SAP BusinessObjects Business Intelligence
Platform provides a series of other applications for an enterprise-wide, end-to-
end reporting scenario that go far beyond the functional scope of the Business
Explorer tools. (Dinkel et al., 2011)

The Business Explorer contains the under mentioned reporting tools:

 Bex Web Analyzer
 Bex Web Application Designer
 Bex Report Designer
 Information Broadcasting
 Bex Query Designer
 Bex Analyzer.

The BW query is the central reporting interface for analysing Business

Intelligence data within the SAP NetWeaver BW architecture. However, an
SAP query can be used as a data source during extraction from SAP source
systems to the BW system. When the term query is used within the connection
of data analysis in a BW system, the BW query is meant. (Heilig et al., 2012)

 SAP SALES AND DISTRIBUTION (SD)

SAP SD modules deal in managing all transactions ranging from enquiries,
proposals, quotations and pricing and more. The sales and distribution module
helps greatly in inventory control and management. SAP SD module consists of
master data, system configuration and transactions. Some of the sub-
components of SAP SD module are: master data, sales support, sales, shipping
and transportation, billing, credit management, and so on.

 SAP PRODUCTION PLANNING (PP)

SAP PP module is another important module that includes software designed
specifically for production planning and management. This module also consists
of master data, system configuration and transactions in order to accomplish
plan procedure for production. SAP PP module collaborate with master data,
sales and operations planning, distribution resource planning, material
requirements planning, Kanban, product cost planning and so on while working
towards production management in enterprises (Hilgefort, 2012).

 SAP MATERIALS MANAGEMENT (MM)

SAP MM module as the term suggests manages materials required, processed

and produced in enterprises. Different types of procurement processes are
managed with this system. Some of the popular sub-components in SAP MM
module are vendor master data, consumption based planning, purchasing,
inventory management, invoice verification and so on.

 SAP QUALITY MANAGEMENT (QM)

SAP QM module helps in management of quality in productions across
processes in an organization. This quality management module helps an
organization to accelerate their business by adopting a structured and functional
way of managing quality in different processes. SAP QM module collaborates
in procurement and sales, production, planning, inspection, notification, control,
audit management and so on.

 SAP HUMAN CAPITAL MANAGEMENT (HCM)

SAP HCM module enhances the work process and data management within HR
department of enterprises. Right from hiring a person to evaluating one’s
performance, managing promotions, compensations, handling payroll and other
related activities of an HR is processed using this module. The task of managing
the details and task flow of the most important resource i.e. human resource is
managed using this SAP ERP HCM module.

SAP FINANCIAL ACCOUNTING (FI)

SAP FI (Financial Accounting) is one the functional module in SAP software.

SAP FI module as the term suggests deals in managing financial transactions
within enterprises. This financial accounting module helps employees to
manage data involved in any financial and business transactions in a unified
system. This module functions very well for reporting requirements.
The SAP FI module is very flexible and is functions well in any type of
economic situation. Be it a smaller organization or a larger organization, SAP
implementation helps in consolidating data for diverse business transactions and
legal requirements. Financial Accounting module helps one to get real-time
financial position of an enterprise in the market. SAP FI incorporates with other
SAP modules such as SAP SD, SAP MM, SAP PP, Payroll and more for better
work results (Dinkel et al, 2011).
Company-wide control and integration of financial information is essential to
strategic decision making, SAP ERP Financials enables you to centrally track
financial accounting data within an international framework of multiple
companies, languages, currencies, and charts of accounts (Hernandez et al,
2006).
SAP FI module mainly deals with:
 Fixed asset
 Bank
 Cash journal
 Inventory
 Tax accounting
 General ledger,
 Accounts receivable
 Accounts payable
 AR/AP
 Fast close functions
 Financial statements
 Parallel valuations
 Accrual

CHAPTER-6
INTEGRATION OF FINANCIAL ACCOUNTING
WITH OTHER COMPONENTS

All accounting-relevant transactions made in Logistics (LO) or Human

Resources (HR) components are posted real-time to Financial Accounting by
means of automatic account determination. This data can also be passed on to
Controlling (CO). This ensures that logistical goods movements (such as goods
receipts and goods issues) are exactly reflected in the value-based updates in
accounting. Integration within Financial Accounting. Every posting that is made
in the subledgers generates a corresponding posting to the assigned G/L
accounts. This ensures that the subledgers are always reconciled with the
general ledger (I05).

The Financial Accounting application component comprises the following sub-

components:
 General Ledger (FI-GL)
The central task of G/L accounting is to provide a comprehensive picture for
external accounting by means of accounts. Recording all value-related business
transactions (primary postings as well as settlements from internal accounting)
in a software system that is fully integrated with all the other operational areas
of a company ensures that the accounting data is always complete and accurate.
Essentially, the general ledger serves as a complete record of all business
transactions. It is the centralized, up-to-date reference for the rendering of
accounts. Actual individual transactions can be checked at any time in real time
processing by displaying the original documents, line items, and transaction
figures at various levels such as: account information, journals,
totals/transaction figures, balance sheet/profit and loss evaluations (I05).

 Accounts Payable (FI-AP)

The Accounts Payable application component records and administers
accounting data for all vendors. It is also an integral part of the purchasing
system, where deliveries and invoices are managed according to vendors. The
system automatically makes postings in response to the operative transactions.
In the same way, the system supplies the Cash Management application
component with figures from invoices in order to optimize liquidity planning.
 Accounts Receivable (FI-AR)
The Accounts Receivable application component records and administers
accounting data of all customers. It is also an integral part of sales management.
 Bank Accounting (FI-BL)
This component is used to handle accounting transactions that you process with
your bank. It includes the management of bank master data, cash balance
management (check and bill of exchange management), and the creation and
processing of incoming and outgoing payments.
 Asset Accounting (FI-AA)
Asset Accounting is a sub component of SAP FI Module. It deals with the fixed
assets of the company for their management and analysis, it provides the
complete information about the fixed assets transactions inside a company. So,
the Asset Accounting (FI-AA) component is used for managing and supervising
fixed assets with the SAP System.
In Financial Accounting, it serves as a subsidiary ledger to the General Ledger,
providing detailed information on transactions involving fixed assets. SAP
Asset Accounting is tightly integrated with many other modules like MM, PM
etc. For example if an item purchased that can be considered as an asset, the
information will pass to Asset Accounting module (FI-AA) from MM module.
 Funds Management (FI-FM)
SAP Funds management (FI-FM) is another sub component under FI module.
As the name it helps the organization to manage funds. It helps the companies
for proper budgeting and avoiding overrun budgets. Funds management
integrate with many modules like General Ledger Accounting (G/L), bank
accounting, Material management (MM) etc to get the complete funds data. It
checks all the transactions like where from receiving the funds, and where is all
the funds expenditure occurs and which are the funds to receive in future. based
on these data, organization can plan and create their forecasting budgets and can
utilize their funds more better way.
 Travel Management (FI-TV)
SAP Travel Management supports all processes involved in handling business
trips. Its comprehensive functionality is integrated with settlement, taxation, and
payment processes. Travel Management enables you to request, plan, and book
trips, create travel expense reports, and transfer expense data to other functional
areas.
 Special Purpose Ledger (FI-SL)
Special purpose ledgers are ledgers defined to meet the specific business
requirements, according to the dimensions you define. They contain the
dimensions that you specify. This is the only type of ledger you can create in
your FI-SL system (SAP, 2014).

SAP FI General Ledger Accounting

SAP General Ledger Accounting (Shortly G/L Accounting) is one of the main
sub component of SAP FI module. A general ledger is the data that contains
entire transactions of a company. It acts as the main record for all accounting
purposes.
The central task of G/L accounting is to provide a comprehensive picture for
external accounting and accounts. Recording all business transactions (primary
postings as well as settlements from internal accounting) in a software system
that is fully integrated with all the other operational areas of a company ensures
that the accounting data is always complete and accurate.
Essentially, the general ledger serves as a complete record of all business
transactions. It is the centralized, up-to-date reference for the rendering of
accounts. Actual individual transactions can be checked at any time in real time
processing by displaying the original documents, line items, and transaction
figures at various levels such as:
◦ Account information
◦ Journals
◦ Totals/transaction figures
◦ Balance sheet/profit and loss evaluations
◦ (SAP General Ledger Accounting, FI-GL, 2001)
It contains all the transactions like purchases from vendors and customer
transactions and other inside company transactions.
Important Transaction codes for SAP FI General Ledger
◦ FB50 - Enter GL Account Document
◦ F-01 - Enter Sample Document
◦ FB02 – Change Document
◦ F-06 - Post Incoming Payments
◦ F-07 - Post Outgoing Payments
◦ FBCJ - Cash journal Posting

FI ORGANIZATIONAL STRUCTURE
Organizational structures occur in all important functional areas of the SAP
system.
Represents the legal and/or organizational views of an enterprise.
Forms a framework that supports the activities of a business in the manner
desired by management.
Permits the accurate and organized collection of business information.
Supports the development and presentation of relevant information in order to
enable and support business decisions.
Elements in FI Organizational Structure
 Client: An independent environment in the system. Client is an obligatory
organizational unit (field name: Mandant), a commercially,
organizationally, and technically self-contained unit within the SAP
system, with its own master records and tables.
We can have more than one client defined in the SAP system. The standard
SAP system comes delivered with clients 000 and 001. Because the client is the
highest level in the SAP system, and FI module hierarchy, any specification we
make or data we enter at this level is valid for all company codes and for all
other organizational structures within that client. This ensures that the data is
consistent, we need to make specifications or enter data only once. We need to
enter a client key (three-digit identifier) when we log on to the SAP system.
The data entry, processing, and analysis are all saved for each client. Used for
external reporting purposes, the organizational units of FI are designed to fulfill
our business requirements and meet the legal or statutory regulations of external
parties. We assign these organizational units to each other in order to build the
framework for processing business transactions by transferring data
automatically between the individual components. (Narayanan, 2015.)
Before we start defining the required organizational units, we need to meet the
country specific requirements by completing the localization of sample
organizational units supplied by SAP. Specifications that we make at this level
apply to all company codes. (Narayanan, 2015.)
  Company Code: The most important organizational element in Financial
Accounting is the company code. It is the smallest organizational unit of
Financial Accounting for which a complete self-contained set of accounts
can be drawn up for purposes of external reporting. Company Code:
◦ Represents an independent legal accounting unit
◦ Balanced set of books, as required by law, are prepared at this level.
◦ A client may have more than one company code.

 Chart of Accounts: A classification scheme consisting of a group of

general ledger (G/L) accounts, It provides a framework for the recording
of values to ensure an orderly rendering of accounting data. The G/L
accounts it contains are used by one or more company codes.

 Credit Control Area: An organizational entity which grants and monitors a

credit limit for customers. It can include one or more company codes.

 Business Area: An organizational unit that represents a separate area of

operations or responsibilities within an organization and to which value
changes recorded in. Financial Accounting can be allocated. Financial
statements can be created for business areas, and these statements can be
used for various internal reporting purposes. The business area is an
organizational unit that we can use freely for internal or external reporting
to depict segmentation of our business within or across company codes.
Each business area is regarded as a financially separate unit for which an
internal balance sheet and profit and loss statement can be created. The
business area is available in general ledger reporting (in both the classic
General Ledger and the new SAP General Ledger), and can be set up in
the special ledger tables. We can create a business area using

 Profit Centre: In new General Ledger Accounting, profit centres can be

part of Financial Accounting. That means that the profit centre
information is stored in the totals table of FI. As company codes, the profit
centre function as a dimension for financial reporting. A profit centre can
 represent many things: an organizational unit within the company, a line
of business, a geographical location.

 Segments: The segment is a new organizational unit available with the

new General Ledger Accounting. Segments can also be used as a
dimension for reporting purposes. The aim of segment reporting is
providing an insight into different business activities of a diversified
company and provide information about the general environment.

Accounting transactions in General Ledger

To ensure that business transactions are constantly maintained correctly, you
post them to G/L accounts in General Ledger Accounting. With the posting, the
system generates a document, saves the data in the database, and provides the
data for the update. Accountants create many journal entries as part of their
daily work. In SAP, accountants can use a single-entry Enjoy screen for most of
their postings. In some cases, the traditional complex screen is used. In both
methods, G/L account postings are automatically listed in the income statement
report (as long as the accounts are included in the financial statement version).
You can display the respective postings also when querying posted accounts.
SAP FI –Accounts Payable
The Accounts Payable application component records and manages accounting
data for all vendors. It is also an integral part of the purchasing system.
Deliveries and invoices are managed according to vendors. The system
automatically triggers postings in response to the operative transactions.
The application component in financial accounting is accounts payable and
accounts receivables. The longevity of an organization more or less will depend
on their abilities to manage the accounts payable and receivables of the
organization. There is no organization without these words. Hence these
components have significant role in finance module. Similarly even in sap also
the same was dealt accurately.
While taking up the project we must understand the various business processes
involved in this area. Further more we have to discuss with the company people
regarding their terms and conditions while coming into a contract for either
supply of goods or sale of goods. We must have thorough knowledge in dealing
with these functionalities. Generally the sundry creditors are called accounts
payables in sap environment and sundry debtors are called accounts receivables.
Payables are paid with the payment program. The payment program supports all
standard payment methods (such as checks and transfers) in printed form as
well as in electronic form (data medium exchange on disk and electronic data
interchange). This program also covers country-specific payment methods.
You can design balance confirmations, account statements, and other forms of
reports to suit your requirements in business correspondence with vendors.
There are balance lists, journals, balance audit trails, and other internal
evaluations available for documenting transactions in Accounts Payable.
SAP FI –Accounts Receivable
The Accounts Receivable application component records and manages
accounting data of all customers. It is also an integral part of sales management
All postings in Accounts Receivable are also recorded directly in the General
Ledger. Different G/L accounts are updated depending on the transaction
involved (for example, receivables, down payments, and bills of exchange). The
system contains a range of tools that you can use to monitor open items, such as
account analyses, alarm reports, due date lists, and a flexible dunning program.
The correspondence linked to these tools can be individually formulated to suit
your requirements. This is also the case for payment notices, balance
confirmations, account statements, and interest calculations. Incoming payments
can be assigned to due receivables using user-friendly screen functions or by
electronic means, such as EDI.
The payment program can automatically carry out direct debiting and down
payments.
There are a range of tools available for documenting the transactions that occur
in Accounts Receivable, including balance lists, journals, balance audit trails,
and other standard reports. When drawing up financial statements, the items in
foreign currency are revalued, customers who are also vendors are listed, and
the balances on the accounts are sorted by remaining life.
Accounts Receivable is not merely one of the branches of accounting that forms
the basis of adequate and orderly accounting. It also provides the data required
for effective credit management, (as a result of its close integration with the
Sales and Distribution component), as well as important information for the
optimization of liquidity planning, (through its link to Cash Management).
SAP FI- BANK ACCOUNTING
SAP Bank Accounting is a sub component under FI module. It deals with all the
transactions done through bank. This component is used to handle accounting
transactions that you process with your bank. It includes the management of
bank master data, cash balance management (check and bill of exchange
management), and the creation and processing of incoming and outgoing
payments. It is possible to freely define all country-specific characteristics, such
as the specifications for manual and electronic payment procedures, payment
forms, or data media.
In a company most of the transactions occuring through banks only. So we can
say it is one the important component for SAP financial accounting system. It
deals with all the incoming and outgoing transactions, balance management and
bank transaction master data. We can create and process any type of bank
transactions using Bank accounting component.
SAP has a dedicated solution to handling of bank accounts. This component is
used to handle accounting transactions that you process with your bank as well
as with the banks of customer
 Management of Bank Master data for your company’s bank.
 Keeps Bank Master data for the customer of your Company.
 Keeps Bank Master data for the vendors of your company.
 Cash balance management ( Check and bills of exchange management).
 Creation and process of incoming payments.
 Creation and process of outgoing payments.
 Handles Accounting transactions that you process with your bank.
 CHAPTER-7
FINANCIAL ACCOUNTING

Financial accounting is process of preparing financial statements that company

used to show their financial performance and position to people outside the
company including investors, creditors, suppliers and customers.
This is one of the most important distinction from the managerial accounting,
which by contrast, involves preparing detailed reports and forecast for managers
inside the company.
Companies issued financial statements on routine schedule. The statements are
considered external because it is given to the people outside the company, with
the primary recipients being owners/stock holders as well as certain leaders. If
corporation stock is publicly traded however its financial statements tend to be
widely circulated, and information will likely reach secondary recipients such as
competitions, employees, labour organisations, and investment analysis.
It is important to point out that the purpose of financial accounting is not to
report the value of a company rather, its purpose is to provide enough
information to the others to access the value of a company for themselves.
Most companies put together quarterly and annually financial statements, which
they make available to shareholders and investing public. There are 4 basic
financial statements used in corporate world to show the financial performance:
 The Income statement: It is also called profit and loss statement covers a
specific period of time. On an income statement revenue – expenses = net
income. In accordance with generally accepted accounting principal
(GAAP), revenue always recorded in the period of sale of the goods and
services, which may not be the same period when cash is actually
received.
 The balance sheet: It is the statement of assets and liabilities at the end of
the financial year. In other word balance sheet is a financial snapshot at
 specific point of time. On the balance sheet assets = liabilities +
stockholders equity. Stockholders equity are the amount of financing
provide by the operations (retained earning not distributed under the
stockholders) and by the stockholders who reinvest through the
contributed capital.
 The cashflow statement: It show the actual flow of cash into and out of
company over a fixed period of time, in contrast to the net income on the
income statement, which is non cash number. A cash flow statement
shows cash flows from operating activities, investing activities, and
financing activities.
 The statement of retained earnings: it covers a specific period of time and
shows the dividends pay into earnings to shareholders and the earning
kept by the company.
Income statement
The income statement is one of the company’s core financial statement that
shows their profit and loss at the period of the time, the profit or loss is
determining by taking all revenues and subtracting all expenses from both
operating and non-operating activities. The income statement is one of the three
statements used in both corporate finance and accounting. The statement
displays the company’s revenue, cost, gross profit, selling and administrative
expenses, taxes paid, and net profit in a logical manner.
This statement is divided into time period that logically follow the company’s
operations. The most common periodic division is monthly, although certain
companies may use 13 period cycle. These periodic statements are aggregated
into total values for quarterly and annual results.
This statement is a great place to begin the financial model, as it requires the
least amount of information from the balance sheet and cash flow statement.
Thus in terms of information the income statement is a predecessor to the other
two core statements.
There are some of the components of income statement:
 Revenue/Sales: Sales and revenues are the amount revenue which is
earned by the operations of company. This value will be gross of the costs
associated with creating the goods sold or in providing services. Some
companies have multiple revenue streams that added to a total revenue
line.
 Cost of goods sold (COGS): It is the line item that aggregates the direct
cost associated with the selling products to generate revenue. This line
 item is also called cost of sales if the company in a service business.
Direct cost can include labour, parts, materials, and an allocation of other
expenses such as depreciation.
 Gross profit: It is calculated by subtracting COGS from the sales revenue.
 Marketing, Advertising and Promotion expenses: most of the companies
have expenses related to marketing, advertising and promotion expenses.
These are regarded as selling cost of goods.
 General and administrative expenses: these expenses include the selling,
general, and administrative that contains all the other indirect costs
associated with running the business. This includes salaries and wages,
rent and office expenses, insurance, travelling expenses, and sometimes
depreciation and amortization along with other operational expenses.
 EBITDA: EBITDA while not presents in all income statements, stands for
expenses before tax, depreciation and amortization. It is calculated by
subtracting SG&A expenses.
 Depreciation & amortization expenses: These are the non-cash expenses
that are created by the accountants to spread out the cost of capital assets
such as property, plant and equipment.
 Operating income: It represents what earn through the operating activities
of business. In other word it is the profit before any non-operating income,
non-operating expenses, interest or taxes are subtracted from revenue.
EBIT is a term commonly used for finance and stands for earning before
interest and tax.
 Interest: It is commonly used for companies to split out the interest
expenses and interest incomes as separate line item in the income
statement. It is done to able to reconcile the difference between EBIT and
EBT.
 Other expense: It includes expenses like research and development
expenses, stock based compensation expenses, impairment charges
foreign exchange impacts, profit and loss on sale of investment and many
more expenses.
 EBT (Pre-tax income): EBT stands for earning before tax and also called
pre-tax income and is found by subtracting interest expenses from
operating income. This is the final subtotal before arriving the net income.
 Income taxes: Income taxes refer to relevant taxes charged on pre-tax
income. The total tax expenses can consists of both current taxes and
future taxes.
 Net income: It is calculated by deducting income taxes from pre tax
income. This is the amount that flows into retained earnings on the
balance sheet, after deduction for any dividends.

FORMAT OF INCOME STATEMENT

Particulars Base Current yr.
yr. (Rs.)
(Rs.)
Revenue
Other income
Work in progress
TOTAL
Expenses
Raw material consumed
Employees benefit expenses
Depreciation and amortization expenses
Impairment of property, Plant and equipment, Intangible
assets
Other expenses
Adjustment for expenses capitalised
Operating profit
Finance expenses
Shares of profit associates
Profit/Loss on sale of tangible assets and intangible assets and
financial assets
Fair value gain/loss on held for trading financial
assets/liabilities
Fair value gain/loss on investment property
Exchange fluctuation gain/loss
Profit before tax
Income tax expenses
Profit for the year from continuing operations
Profit (loss) for the year from discontinued operations
Profit for the year
Other comprehensive income:
Exchange differences in translating foreign operations
Gain (loss) on fair values changes in available for sale
financial instruments
Gain (loss) fair value changes in cash flow hedges
Gain on revolution o property, plant and equipment
Actuarial gain (loss) on defined benefit pension plans
Share of other comprehensive income of associates
Income tax relating to items pf other comprehensive income
Other comprehensive income net of tax
Profit attribute to :
Owners of entity
Non-controlling interest
Total comprehensive income attributable to:
Owners of entity
Non-controlling interest
Earning per share
Basic
 Diluted

Cash flow statement

In financial accounting, a cash flow statement also known as statement of cash
flows, it is a financial statement that shows how change in balance sheet accounts
and income effect cash and cash equivalent and breaks the analysis down to
operating, investing, and financing activities. Essentially, the cash flow statement
is concerned with the flow of cash in and out of the business. As an analytical
tool, the statement of cash flow is used in determining the short-term viability of
company, particularly its ability to pay bills. International accounting standard
that deals with the cash flow statements.
People and group interested in cash flow statements include:
 Accounting personnel, who need to know whether the organization will be
able to cover payroll and other immediate expenses.
 Potential lenders and creditors, who want to clear the picture of a company’s
ability to repay.
 Investors, who need to judge whether the company is financially sound.
 Employees or contractors, who need to know whether the company is able
to afford their compensation.
 Company directors, who are responsible for governance of the company
and are responsible for ensuring the company does not trade while
insolvent.
 Shareholders of business.
Classification of activities
Cash flow activities are to be classified into three categories: this is done
separately the cash flow generated used by the activities, thereby helping to
assess the impact of these activities on the financial position and cash and cash
equivalents of an enterprise.
 Operating activities: These are the activities that are comprise of the
primary/ main activities of enterprise during an accounting year. For
 example, for a garment manufacturing company, operating activities
include procurement of raw materials, sale of garments, incurrence of
manufacturing expenses, etc. These are the principal revenue generating
activities of the enterprise.
Profit before tax as presented in the income statement could be used as a
starting point to calculate the cash flows from operating activities.
Cash inflows operating activities:
a) Cash receipts from sale of goods and services.
b) Cash receipts from fees, royalties, commissions and other revenues.
Cash outflows operating activities:
a) Cash payment to suppliers of goods and services.
b) Cash payments of income taxes unless they can be specifically
identified with financing and investing activities.
Following adjustments are required to be made to the profit before tax to
arrive at the cash flow from operations:
a) Elimination of non-cash expenses.
b) Removal of expenses to be classified else where in the cashflow
statement.
c) Removal of income presented elsewhere in the cashflow statement.
d) Elimination of non-cash income.
 Investing activities: It includes the movement of cash owing to purchase
and sale of assets. It relates to sale and purchase of long-term assets of
fixed assets such as machinery, furniture land and building etc.
Cash outflows from investing activities:
a) Cash payments to acquire fixed assets including intangible and
capitalised R&D.
b) Cash advances and loans made to third party (other than advances and
loans made by financial enterprise wherein it is operating activities)
c) Cash payments to acquire shares, warrants or debt instruments of other
enterprise other than the instruments that held for a trading purpose.
Cash inflows from investing activities:
a) Cash receipts for sale of fixed assets including intangible.
b) Cash receipts from the repayment of advances or loans made to third
parties.
c) Dividend received from investment in other enterprise.
 Financing activities: It includes financing activities related to long term
funds or capital of an enterprise. Financing activities are activities that
 results in change in the size and composition of the owner’s capital and
borrowings of the enterprise e.g. cash proceeds from issue of equity
shares, debentures, raising long term loans, repayment of bank loans etc
Cash inflows from financing activities:
a) Cash proceeds from issuing shares.
b) Cash proceeds from issuing debentures, loans, bonds and other
short/long term borrowings.
Cash outflows from financing activities:
a) Cash repayments of amount borrowed.
b) Interest paid on debentures and long-term loans and advances.
c) Dividend paid on equity.
Main heads of cash flow statement
Cash flow statement (main heads only)
A) Cash flow from operating activities XXX
B) Cash flow from investing activities XXX
C) Cash flow from financing activities XXX
Net increase or decrease in cash and cash equivalent (A+B+C) + cash
and cash equivalent at the beginning XXX= cash and cash equivalent
at the end.

Methods of preparing Cashflow

Operating activities are the main source of revenues and expenditures, thereby
cash flow from the same needs to be ascertained. It can be reported through two
ways.
Direct method that discloses the major classes of gross cash receipts and cash
payments.
Indirect method that has the net profit or loss adjusted for effect of
 Transaction of non-cash nature.
 Any deferral or accruals of past/future operating cash receipts.
 Items of income or expenses associated investing or financing cashflows.
Mostly companies used to prepare cashflow by indirect method because it
provide more accuracy then the direct method.

Format of Cash flow

 PARTICULARS AMOUNT AMOUNT
RS. RS
Cash flow from operating activities
(+) cash receipts from customers
(-) cash paid to suppliers
Cash generated from operations
(-) income tax
Cash flow before extra-ordinary items
(+) extra ordinary items
Net cash flow from operating activities

Cash flow from investing activities

(+) sale of fixed assets
(+) sale of investment
(+) interest received
(+) dividend received
(-) purchase of fixed assets
(-) purchase of investment
Net cashflow from investing activities

Cash flows from financial activities

(+) proceeds from issue of shares
(+) proceeds from issue of debt
(+) proceeds from borrowings
(-) redemption of debt
(-) repayment of borrowings
(-) dividend paid
(-) interest paid
Net cashflow from financing activities

Net increase/decrease in cash

Cash at the beginning of period
Cash at the end of period

Balance sheet
The balance sheet is also a financial statement used by accountants and business
owner’s in order to get to know about the financial status of organisation. The
financial statements are statement of cash flow, income statement, and
statement of shareholders. The balance sheet is also refer as the statement of
financial position. The balance sheet presents the company financial position at
the end of the specific date. Some describes balance sheet as a snapshot of
company’s financial position at a point in time.
There are some major components of balance sheet:
 Assets
 Liabilities
 Owner’s equity
Assets: assets are the thing that the company owns. They are the resources of
the company that have been acquired through transactions, and have future
economic value that can be measured and express in form of money. Assets also
includes costs paid in advance that have not yet expired, such as prepaid
advertising expenses, prepaid insurance, prepaid legal fees etc. Examples of
accounting assets that has been recorded as assets in balance sheet are:
a) Cash
b) Petty cash
c) Temporary investment
d) Accounts receivable
e) Inventory
f) Supplies
g) Prepaid insurance
h) Land
i) Land improvements
j) Building
k) Equipment
l) Goodwill
Usually asset accounts will have debit balances. Contra assets are assets with
credit balance. These are:
a) Allowance for doubtful accounts
b) Depreciation on land and building
c) Depreciation of equipment and machines
d) Accumulated depeltion
Classification of assets in balance sheet
Accountants usually prepare classified balance sheet. It means that the balance
sheet accounts are presented in a distinct grouping and categories or
classifications. The assets classifications and their order of appearance on the
balance sheet are:
a) Current assets
b) Investments
c) Property, plant and equipment
d) Intangible assets
e) Other assets