Accounting Information System

LESSON SEVEN: THE ACCOUNTING CYCLE: Chart of Accounts

The Chart of Accounts is organized by drawers
and levels.
ü The organization of the chart of accounts
follows GAAP (Generally Accepted
Accounting Principles) in which there is a
separate “drawer” for accounts representing:
Assets, Liabilities, Equity (Capital and
Reserves), Revenues (Turnover), Cost of
Sales, Expenses (Operation Costs),
Financing (Non-Operating Income and
Expenditure), and Other Revenues and
Expenses (Taxation and Extraordinary
Items). These drawers, which have been
defined by SAP and cannot be changed,
organize your accounts by level in a logical
fashion appropriate to your financial
accounting and reporting processes.

Accounting Information System (AIS)

LESSON SEVEN: THE ACCOUNTING CYCLE: Chart of Accounts
BALANCE SHEET ACCOUNTS:
• The first 3 drawers: Assets,
Liabilities, Equity (Capital and
Reserves) hold the Balance
Sheet Accounts, such as the
Sales Tax account and the
Accounts Payable Account.
• The bookkeeping balance of
these accounts is kept from one
fiscal year to the next.
• The Balance Sheet Accounts –
reflect the monitory value of
the company - stock, assets,
etc.

Accounting Information System (AIS)

LESSON SEVEN: THE ACCOUNTING CYCLE: Chart of Accounts

PROFIT AND LOSS ACCOUNTS:

§ The last 5 drawers: Revenues (Turnover), Cost of
Sales, Expenses (Operation Costs), Financing
(Non-Operating Income and Expenditure), and
Other Revenues and Expenses (Taxation and
Extraordinary Items) hold the Profit and Loss
Accounts, such as the Income Accounts. Note
that in some localization, the lower drawers are
not all profit and loss account drawers.
§ The bookkeeping balance of these accounts has
to be cleared at the end of each fiscal year –
this is the Period End Closing process (will be
discussed in Unit 4: Financial Periods Process).
§ The Profit and Loss Accounts - reflect the
changes in the company value, such as: sell
stock – cost of goods sold, increase revenues.

Accounting Information System (AIS)

LESSON SEVEN: THE ACCOUNTING CYCLE: Chart of Accounts

REPORTS:

• The BALANCE SHEET - summarizes the

value of the business assets liabilities,
and owner’s equity accounts.
• The TRIAL BALANCE - details for each
account: beginning balance for a
particular period, all of the debits and
credits, and the ending balance.
• PROFIT AND LOSS STATEMENT – after
the end of the fiscal year, the balances
of the expense accounts will be
subtracted from the balances of the
revenue accounts to come up with the
profit or the loss for the fiscal year.

Accounting Information System (AIS)

LESSON SEVEN: THE ACCOUNTING CYCLE: Chart of Accounts

A CHART OF ACCOUNTS arranges a company's

general ledger accounts in a hierarchical structure.
ü The top level in the structure (level 1) consists of
sections or groups for different type of accounts
(assets, liabilities, capital and reserves, turnover,
and so on).
ü The number of account groups depends on the
localization that was selected when the company
was created and cannot be modified by the user

Accounting Information System (AIS)

LESSON SEVEN: THE ACCOUNTING CYCLE: Chart of Accounts
The system displays the section as a cabinet drawer
(see figure).
ü Each drawer has a section title, which you
cannot change. The system displays lower-level
titles in blue and normal active accounts in black.
ü Accounts that you have entered in the G/L
Account Determination (default accounts) are
displayed in green.
ü Levels 2 through 9 can contain either active
accounts or titles that combine several active
accounts. Level 10 only contains active accounts
ü Because only active accounts can be posted to in
SAP Business One, it is a good practice to have all
your active accounts at the same level.
ü In reports, a title account summarizes all the
balances of each active account below it.

Accounting Information System (AIS)

VIEWING CHART OF ACCOUNTS: To view existing Chart of Accounts:
Go to (1) Financials → (2) Chart of Accounts

Accounting Information System (AIS)

EDITING CHART OF ACCOUNTS:

To edit (add, modify, update) Chart of

Accounts

Go to (1) Financials → (2) Edit Chart

of Accounts
3. Tick the box beside the Chart of
Account drawer that you want to
edit
4. Click OK.

Accounting Information System (AIS)

EDITING CHART OF ACCOUNTS:

5. Click on Add Same Level Account

or Add Sub-level Account.
6. Input the necessary information
of the Account to be added.
7. Click OK.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Posting Periods

When you create a new company database, you create

the posting periods for the first fiscal year. Posting
periods split the fiscal year into sub-periods. Sub-
Periods are created automatically by SAP Business One
in the fiscal year. The available sub-periods are:

q Year (one sub-period)

q Quarters (four sub-periods)
q Months (twelve sub-periods)
q Days (any number of sub-periods)

Using this information, the system automatically

creates the corresponding number of posting periods.
You can change these periods, if necessary.

Accounting Information System (AIS)

The first posting period must
be defined at the time the
company database is created.
Afterwards, to set up new
posting periods, go to:

(1) Administration →
(2) System Initialization →
(3) Posting Periods.
4. On the lower right
corner of the Posting
Periods window, click
‘New Period’.
5. Input the necessary
information of the Period
to be added.
6. Click Add.
7. Click OK.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Journal Entry

In SAP Business One, a journal entry is

automatically posted from many
documents, such as A/R and A/P invoices.
Additionally, you can manually post a journal
entry directly to a G/L account or to a
business partner sub-ledger account.

All journal entries are posted to one file in SAP

Business One – the Journal Entries file. You
can set various defaults for journal entries.
You can also change some document settings
for an individual journal entry.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Journal Entry - HEADER
ü In automatic journal entries created by the documents in SAP Business One, the fields are filled
automatically from the document fields. In manual journal entries you set the values
ü The system automatically enters a number in the document header. This number is incremented
with every transaction. You can define numbering series for journal entries on the Document
Numbering screen, under the Administration → System initialization → Document Numbering.

The three dates in the header default to the current system date but you can change them:

POSTING DATE: This date determines the posting period and therefore the fiscal period for financial
reporting. You can post to an earlier or later date if the posting period is Unlocked for posting

DUE DATE: The date the transaction is due.

DOCUMENT DATE: The date used for tax reporting purposes.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Journal Entry – POSTING TOOLS
Ways of Posting Journal entry in SAP Business One:
ü Entering a manual journal entry.
ü From a journal voucher
ü Using a recurring postings
ü Using a posting template

To record Manual Journal entry (for non-routine transactions)

Go to (1) Financials → (2) Journal Entry
3. On the Remarks field, input a brief explanation for the Journal Entry being made.
4. On the G/L Account field, click the Pick List button.
5. List of Accounts window will open, select the Account affected by the Journal Entry being made.
6. Click Choose.
7. Input the amount on either the debit/credit side, depending on the nature of the transaction.
8. Add.
Note: Journal Entries created in this manner are not editable once added.

Accounting Information System (AIS)

Accounting Information System (AIS)
THE ACCOUNTING CYCLE: Journal Voucher
SAP Business One offers a two-stage procedure for creating
journal entries. You can create the journal entries as drafts first,
correct and post them later.
When the user is creating a journal voucher it is used for storing several
journal entry drafts. You can change journal voucher as long as they have
not been posted yet. Then, you can access the journal voucher, make any
necessary corrections, and post the entire journal voucher. You do not have
to post each journal entry individually. If you do want to post the
journal entries individually, however, you must create a separate journal
voucher for each journal entry draft

You can save an unbalanced journal vouchers

as long as it is in the draft mode.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Journal Voucher
To create, change and post journal vouchers, choose
(1) Financials → (2) Journal Vouchers → (3) Add Entry to New Voucher

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Journal Voucher
4. A Journal Voucher Entry window will appear, and the you can input the information just like in the
manner of a Manual Journal Entry. Click Add to Voucher.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Journal Voucher
5. Double click the Voucher if you want to edit it contents. You can also remove a journal voucher or delete
an entry from a journal voucher, as long as they have not been posted yet. Right-click the journal
voucher row, select Remove Journal Voucher.
6. Click Post Voucher

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Routine Transactions: Recurring Postings
SAP Business One features a recurring postings function for similar, fixed amount journal entries created on a
regular basis. Choose Financials → Recurring Postings to enter and maintain recurring postings.

RECURRING POSTINGS use a template that is stored with a code and a description. In this template, you define
(among other things) the frequency in which the journal entry is supposed to be created and until when the
recurring posting is valid. The possible entries in the Frequency field include:
Daily, Weekly, Monthly, Quarterly, Half-Yearly, Annually: You must also specify the next execution
date for these entries.
One time: Although a one-time recurring posting seems a bit odd, it serves a special purpose.
With this you can schedule a journal entry for a specific date.
Template: Journal entries that you need repeatedly but not on a regular basis can be created as this
type. You can access these templates from the manual journal entry. To do so, you must specify Recurring
Posting in the Template Type field
Not executed yet: If you do not need the recurring posting at present, you can turn it off with this entry

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Routine Transactions: Recurring Postings
In the Valid To field, you can enter a date until which the recurring posting is valid and will be executed by the
system.

ü The system duplicates the original recurring posting (instance 0) every time the execution date arrives. Once
you use this instance and add it to the system, it will be deleted.
ü You can display a list of all the recurring postings in the system. You can then adjust these postings and
confirm them. You can also configure the system so the execution list is displayed automatically in the
execution date as soon as you log on. Choose Administration → System Initialization → General
Settings and select the Display Recurring Postings on Execution indicator on at the the Services tab to
activate this service for your user.
ü You can add recurring postings to the cash flow, which appear in green in the report.
EXAMPLE: The company pays a 10,000 Repairs and Maintenance fee for its Office Building every 17th of
the month, for 1 year. Use the following information:
Code: RAME Description: Repairs and Maintenance Fee
Dr. Repairs and Renewals 10,000
Cr. Petty Cash 10,000

Accounting Information System (AIS)

To create the recurring
posting:

Go to (1) Financials →
(2) Recurring Postings
3. Input the code and
description
4. Input the recurring
Journal Entry
5. Set the frequency and
validity.
6. Click Add.

Accounting Information System (AIS)

The recurring posting will appear upon log-in on the specified day of the month. Select the recurring
posting and click Execute.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Routine Transactions: Posting Template

You can create posting templates for journal entries that have a very similar structure. These templates can
contain account numbers but you can also just specify an account description in a line item if you do not
yet know which exact account will be used for this line item.
ü Instead of fixed amounts, only percentages are entered here. These percentages indicate how the
total amount is distributed among the line items.

EXAMPLE: The posting template is stored under a code and with a description.
Choose (1) Financials → (2) Posting Templates to enter and maintain posting templates.
3. Input the following information
Code: PRE
Description: Allocation of Prepayments
Dr. Property Rent 70%
Dr. Premises Insurance 30%
Cr. Petty Cash 100%
4. Click Add.

Accounting Information System (AIS)

Accounting Information System (AIS)
5. When you enter a journal entry manually, choose Percentage in the Template Type field and enter the
template code in the Template field or press tab and choose it from a list.
6. Enter an amount in one of the line items and the template will allocate the amounts to the other lines
based on the percentage rate.

Accounting Information System (AIS)

 THE ACCOUNTING CYCLE: Financial Reports

Investors and financial analysts rely on financial data to analyze the performance of a company and
make predictions about its future direction of the company's stock price. One of the most important
resources of reliable and audited financial data is the annual report, which contains the firm's financial
statements.

The financial statements are used by investors, market analysts, and creditors to evaluate a company's
financial health and earnings potential.

Accounting Information System (AIS)

Go to (1) Financials >
(2) Financial Report >
(3) Financial >
(4) Trial Balance or
Balance Sheet or Profit
and Loss Statement.
5. Upon selecting the
report – Selection
Criteria window
appears, enter the
desired range dates.
6. Click OK.

Report will be generated. Analyze the report as you see fit.

Accounting Information System (AIS)

FINANCIAL STATEMENT ANALYSIS

TREND ANALYSIS

Trend analysis is also called time-series analysis. Trend analysis helps a firm's financial manager
determine how the firm is likely to perform over time, based on trends shown by past history.

• uses historical data from the firm's financial statements, along with forecasted data from the
company's pro forma, or forward-looking, financial statements, to assemble a longer-term view of its
financial activity and look for variations over time.
• One popular way of doing trend analysis is through financial ratio analysis. If you calculate
financial ratios for a business firm, you'll want to calculate at least two years of ratios to compare
side-by-side to provide any meaningful information.
• Trend analysis is even more powerful if you have and use several years of financial ratios. Some
firms also compare data to average ratios for their industry or competitors.

Accounting Information System (AIS)

FINANCIAL STATEMENT ANALYSIS

COMMON SIZE FINANCIAL STATEMENT ANALYSIS

Common-size financial statement analysis involves analyzing the balance sheet and income
statement using percentages. All income statement line items are stated as a percentage of sales. All
balance sheet line items are stated as a percentage of total assets

• This type of analysis enables the financial manager to view the income statement and balance sheet
in a percentage format, making it easier to interpret.
• As with financial ratio analysis, you can compare the common-size income statement from one
year to other years of data to see how your firm is doing. It is generally easier to make that
comparison using percentages rather than absolute numbers.
• Using percentages also makes it easier to compare two firms of very different sizes. Even if one
firm's three times larger than its competitor in sales terms, percentage-wise, it probably spends the
same proportions of expenses, for example.

Accounting Information System (AIS)

FINANCIAL STATEMENT ANALYSIS

BENCHMARKING

Benchmarking is also called industry analysis. Benchmarking involves comparing a company to other
companies in the same industry to see how one company is doing financially compared to others in the
industry

• This type of analysis is very useful to the financial manager as it helps them see if they have a
competitive advantage or spot inefficiencies relative to others in the same business
• Financial ratio analysis is often used for benchmarking. Financial ratios for individual, mainly
public companies, can be obtained from a number of sources. A few publications offer industry
average ratios, although they may require a paid subscription
• To do benchmarking, compare the ratios for one company to the ratios of other companies in
the same industry. Make sure that the industry average ratios are calculated in the same way the
ratios for your company are calculated when you perform benchmarking.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Period End Closing

At the end of a period

(month, quarter, or year),
you must transfer the
balances of the Profit and
Loss accounts to a retained
earnings account.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Period End Closing

Choose (1) Administration → (2)

Utilities → (3) Period-End Closing
to run Period-End Closing.

4. With the Period-End Closing

function, you can choose P&L
accounts and periods, and
specify a retained earnings and
period-end closing accounts.
5. When you execute the period-
end closing, the system
generates a list of proposals for
closing entries. You can accept
each proposal individually.

Accounting Information System (AIS)

THE ACCOUNTING CYCLE: Period End Closing

After you accept the proposals, the system transfers the account balances from the Expense and the
Revenue accounts to the Period-End Closing account on the same day (the last day of the period).
This sets the accounts balances to zero.

At the same time but with the first day of the following posting period as posting date, the system
transfers the balances form the Period-End Closing account to the Retained Earnings account (the
Period-End Closing is a clearing account).

Two transactions are created for each account and two journal entries are automatically created
to reflect those transactions

Now, the Retained Earnings account, which is a Balance Sheet account, contains the total brought
forward cumulated profit.
Journal Entries posted by the Period-End Closing Utility have the origin “BC”.

Accounting Information System (AIS)