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KIRLOSKAR BROTHERS LIMITED

MM - FI Integration
Training document

[This training document contains the details of integration between MM & FI Modules of
SAP at various points of transaction. The user should be familiar with the Materials
transactions before proceeding to read this document. This is internal training document
of Kirloskar Brothers Limited]
Index
Sr. No. Subject Page Number

1. Basics of Accounting 3

2. Introduction to Material Valuation 11

3. Overview of Material Valuation transactions 15

4. Automatic FI postings at Goods Receipt 20

5. Excise Entries at GRN 36

6. FI Entries at Material Issue 38

7. FI Entries at Invoice booking 40

8. Assignment 42

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 2


Objective

 After studying the document, you will be able to understand –

 Basics of Financial Management


 How finance links to Material Management
 Effects of actions by Materials Management on Finance.

 The target audience for this document is –

 Buyers in Purchasing department


 Stores In-Charge
 Senior Managers in Materials department

 Pre-requisites for target audience –

 Thorough knowledge of Purchase transactions


 Thorough knowledge of Inventory transactions
 Basic knowledge of Excise

Hint:

– Example

– Information

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 3


Basics of Accounting
A] Fundamentals of Accounting – Accounting is the systematic process of
measuring the economic activity of a business to provide useful information to those
who make economic decisions (internal or external parties of an enterprise). It record
all economic transactions (usually, but not always, involves money) in a systematic &
generally accepted way. The transaction records are organized & presented in
certain form of reports. The most used reports are Balance Sheet and Profit & Loss
Account.

Following are the fundamentals of Accounting: –

1) Accrual basis – Effects of transactions takes place when they occur and not
when cash is paid.

2) Going concern – Accounts are prepared based on the assumption that an


enterprise will continue its operations in the foreseeable future. The value of
assets and liabilities is stated at historical cost and not on the assumption that
the enterprise will be liquidated.

3) Consistency – Accounting policies are followed consistently from year to year,


so that accounts are comparable. Change in accounting polices are made only in
exceptional circumstances.

B] Rules of accounting – Business Transactions having monetary implications:


Every debit has an equal corresponding credit.

Following are the three types of accounts –

1) Personal Account – This is the account of persons. For example – Accounts of


Vendor, Customer are personal accounts. Rule applied for this type of account
are „Debit the receiver & credit the giver‟.

For example – When a payment is made to a Vendor for supplying


material, the entry is made as below –

Debit – Vendor INR 1, 00,000 / -

Credit – Bank Account INR 1, 00,000 / -

2) Real Account – These are the accounts of properties. For example – Cash,
Inventory, Machinery. Rule applied for this type of account is „Debit what comes
in & Credit what goes out‟.

For example – When a material is received to inventory after GRN against


Purchase Order, following entries are posted –

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 4


Debit – Inventory Raw Material INR 1, 00,000 / -

Credit – GR / IR Clearing Account INR 1, 00,000 / -

3) Nominal Account – These are the accounts of income & expenditure. For
example – Travelling expenses, Colony Expenses, Rent received from land. Rule
applied for this type of account is „Debit Expenses & Credit Incomes‟.

For example – When Travel expenses for an employee are booked,


following are the FI postings –

Debit – Travel expenses INR 250 / -

Credit – Bank Account INR 250 / -

These rules can be applied interchangeably between the different types of accounts
depending on the business transaction.

C] Terminology used in Accounting –


1) Financial Statements –

At the end of every period, a business entity prepares Balance Sheet and Profit &
Loss Account. Balance sheet shows the financial position of the entity on a given
date in the terms of its Assets & Liabilities. Balance sheet is prepared as on date
(For example – Balance sheet as on 31–March–2008). Income statement (Profit
and Loss Account) shows the results in terms of excess of Income over
Expenditure. Profit & Loss statement is for the period „From (for example
01.04.2007) To (for example 31.03.2008)‟. It consists accounting for Real &
nominal accounts. Funds flow statement (or Cash Flow statement as it is
popularly called) shows the movement of funds during a given period i.e. where
FUNDS came from and How they were applied. Cash flow statement is for the
year ended (For example – Year ended on 31–March–2008). For example – Net
cash flows from operating activities / investing activities / financing activities.

2) Assets – Assets are valuable resources that a firm owns or controls, such as
Cash, Bank Account, Inventory, Account Receivable, Fixed Asset and Intangible
Asset.

Assets are of two types – Fixed Assets & Current Assets

a.) Fixed Assets: Assets which are held for a long period of time usually for
production of the goods sold by the company
E.g.: Plant and Machinery, Building, Land, Furniture, Equipment

b.) Current Assets: These are short term assets which get converted into cash
during the operating cycle of the firm
E.g.: Inventories, Debtors, Cash and Bank

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 5


3) Depreciation – Depreciation is the amount of wear and tear of an asset due to
use, efflux of time and obsolescence. Companies are required to provide
depreciation as per the requirements of Companies Act, 1956. It is provided to
reflect the true value of assets. Depreciation also creates a fund for replacement
as it prevents distribution of profits. It is an expense charged to Profit and Loss
Account. There are two widely used methods of depreciation:
– Straight Line method
– Written down value Method

4) Liabilities – Liability is what company owes. These are the obligations of the
business to convey something of value in the future such as – Account Payable,
Notes Payable. Liabilities are of types – Long Term Liabilities, Current Liabilities,
Equity capital.

a.) Long term liabilities are the liabilities maturing beyond a year. E.g.: Term
loans, Debentures, Bonds.

b.) Current Liabilities are the liabilities maturing within a year. E.g.: Creditors,
Cash credit, bills discounted.

c.) Equity Capital is grouped under Liabilities because it is repayable to


Shareholders, the owners of the Company. This is because a business and
its owners are TWO separate legal entities independent of each other.

5) Profit & Loss Statement – A Profit and Loss statement shows the results of
operations of the business concern for the year. It summarises the earnings
generated by an enterprise during a specific period of time. It also comprises of a
statement of all expenses during a period of time (financial year). It contains at
least two major sections: Revenue & expenses.

Revenues are inflows of assets from providing Goods & Services to Customers
such as Sales to Customer / Gain from foreign currency transactions. Income
includes sales, income on investments, miscellaneous income, etc.

Expenses are costs incurred to generate revenues. Expenditure includes cost of


material consumed or sold, general, administrative and selling expenses,
employee costs, depreciation, tax expenses etc. Following are the types of
expenditures – Revenue Expenditure / Capital Expenditure.

a.) Revenue expenditure: Expenditure incurred for manufacture/sale of the


products and for carrying out the day to day activities is Revenue
expenditure. The examples of capital expenditure are – Purchase of
materials, payment of salaries, administrative expenses are Revenue in
nature

b.) Capital expenditure: Expenditure incurred to acquire a long term benefit;


through the acquisition of assets. The examples of capital expenditure are –
Acquisition of assets, development of SAP system, is capital expenditure

The difference between revenue & expense is profit (or loss if the expenses are
greater than revenues).

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 6


6) Cash Flow – Cash Flow statement shows how funds came into the company
and how they were applied. Broadly it shows Cash Flow from operating activities,
cash flow from financing activities and cash flow from Investing activities.

7) Balance Sheet – The balance sheet shows an enterprise‟s assets, liabilities &
equity at a specific time (such as balance sheet as on 31st March). It is described
sometimes as a snapshot of a business in financial terms.

8) Equity – Equity refers to owners‟ interest in business such as Capital Stock,


Retained Earning, Current year net profit / loss.

9) Relationship between balance sheet & profit & loss account – Balance sheet
& Profit & Loss statement are based on same underlying transaction information,
but they present different views of an enterprise. They are not alternative to each
other but are complement to each other.

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 7


D] Formats for financial documents –
1) Cash Flow Statement

Cash flow statement Amount (in Rs)


A Cash flow from operating activities
Net Profit
Depreciation
Inventory
Increase in Payables
Increase in Receivables
Current Liability
Net cash flow from operating activities
B Cash flow from investing activities
Purchase of assets
Net Cash flow from investing activities
C Cash flow from financing activities
Equity
Net Cash flow from financing activities
Net cash flow during the period
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year

1) BALANCE SHEET as on 31st March

LIABILITIES (Rs.) ASSETS (Rs.)

SHARE CAPITAL FIXED ASSETS

Authorized 1. Goodwill
..... Shares of Rs....... each 2. Land
Issued 3. Buildings
..... Shares of Rs....... each 4. Leaseholds
Subscribed
5. Railway Sidings
..... Shares of Rs....... each
6. Plant and Machinery
Rs. .... per share called up
Less: Unpaid calls 7. Furniture and Fittings
Add: Forfeited shares 8. Development of
Property
RESERVES AND SURPLUS 9. Patents, trademarks
and designs
10. Livestock
1. Capital Reserves
11. Vehicles etc.
2. Capital Redemption
Reserve
3. Share Premium Account INVESTMENTS
4. Other Reserves
Less: Debit balance in 1. Investments in Govt.
profit and loss account, or Trust Securities
if any 2. Investments in shares,
5. Balance in the profit debentures or bonds
and loss accounts after 3. Immovable properties
providing for proposed 4. Investments in the

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 8


allocation namely capital of partnership
Dividend Bonus or firms
Reserves 5. Balance of unutilized
6. Proposed additions to monies raised by Issue
Reserves
CURRENT ASSETS, LOANS
SECURED LOANS & ADVANCES

1. Debentures A. Current Assets


2. Loans and Advances 1.Interest accrued
from Banks on investments
3. Loans and Advances 2.Stores and spare
from Subsidiaries parts
4. Other Loans and 3.Loose tools
Advances 4. Stock-in-trade
5. Works-in-
UNSECURED LOANS progress
6. Sundry debtors :
1. Fixed Deposits a. Debts
2. Loans and Advances outstanding
from Subsidiaries for a period
3. Short-term Loans and exceeding 6
Advances: months
a. from Banks b.Other debts
b. from others Less:
4. Other Loans and Provision
Advances 7.
a. from Banks a. Cash
b. from others balance on
hand
CURRENT LIABILITIES &
b. Bank
PROVISIONS balances
B. Loans and Advances
A. Current Liabilities
1. Acceptances 8. Advances and
Loans
2. Sundry Creditors
a. To
i. Total subsidiaries
outstanding
dues of small
b. To
partnership
scale industrial
firms in
undertaking(s)
which the
.
co./its
ii. Total
subsidiary is
outstanding
a partner
dues of
9. Bills of Exchange
creditors other
than small 10. Advances
scale industrial recoverable in
undertaking(s) cash or in kind or
. for value to be

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 9


3. Subsidiary received; e.g.,
companies Rates, Taxes,
4. Advance Insurance, etc.
payments and 11. Balances with
unexpired Customs, Port
discounts Trust, etc. (where
5. Unclaimed payable on
Dividends demand).
6. Other Liabilities
(if any)
7. Interest accrued MISCELLANEOUS
but not due on EXPENDITURE
loans (to the extent not written
B. Provisions off or adjusted)

8. Provision for 1. Preliminary Expenses


Taxation 2. Expenses including
9. Proposed commission/ brokerage
Dividends on underwriting or
subscription of shares
10. For
or debentures
contingencies
3. Discount allowed on
11. For Provident
issue of shares or
Fund Scheme
debentures
12. For Insurance,
4. Interest paid out of
pension and
capital during
similar staff
construction
benefit schemes
5. Development
13. Other provisions
expenditure not
adjusted
6. Other items (Specifying
nature)

PROFIT AND LOSS


ACCOUNT
(Debit Balance)
Total Total

2) PROFIT & LOSS ACCOUNT For the period ending 01st April to 31st March

Expenditure Particulars Rs. Income Particulars Rs.


1. Consumption of stores and 1. Sales
spare parts 2. Income from investments
2. Power and fuel 3. Other income
3. Rent 4. Miscellaneous income
4. Repairs to building 5. Net Loss
5. Repairs to machinery
6. Commission paid
7. Depreciation

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8. Interest on debentures
9. Income tax
10. Net income

TOTAL XXX TOTAL XXX

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 11


Introduction to Material Valuation
The valuation area is the organizational level at which the material is valuated. Plant and
company code are two possible valuation areas in the SAP system. When stock is
valuated at plant level, you can valuate a material in different plants at different prices.
When you valuate stock 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). Valuation at plant level is
mandatory if you want to use either of the Production Planning or Product Cost
Accounting components. In our case, we have valuated all the materials at plant level.
Hence, we can maintain the different valuation for the material at different plants. We
have maintained the valuation of material at plant level.

Terminologies required to be known for FI / MM Integration & Inventory Management –

1) Chart of Accounts – This is a list of all G/L accounts used by one or several
company codes. For each G/L account, the chart of accounts contains the account
number, account name, and the information that controls how an account functions
and how a G/L account is created in a company code. The chart of account is
assigned to the company code. This chart of account is the operating chart of
accounts & is used for daily postings in this company code. The chart of account can
be extended to other company codes.

The chart of account used for FI postings for our company is KBL.

2) Valuation Area – The valuation of the material can be done under one of the
following areas – a) Company Level or b) Plant Level. When the Company code is
set as the Valuation area, the valuation price of the material is same in all plants of
the company code. We have set the Plant level as Valuation area for all the
materials. This is because we are using Production Planning & Costing application
components.

Same material if received at 1110 plant can be valuated differently (For


example at different Value / different Valuation Class) than if it is received in plant
2510.

3) Valuation Class – It is the key for account determination that enables a


differentiation for G/L account assignment depending upon material. The materials
are assigned to valuation class for each valuation area (in our case plant) in the
accounting view. The assignments of allowed valuation class to the material type
(indirectly) are used to enter restrictions. That means the user can select only
allowed valuation classes for a material type. The valuation class is a key for
grouping materials that have the same account determination. If different accounts
are to be posted according to the valuation class in a transaction, the account
determination for this transaction is to be set dependent upon the valuation class.
This means different G/L accounts can be posted for same material for different
transactions. The allowed valuation class depends upon material type. More than
one material type can be allowed for a valuation class. The reference between the
valuation class & material type can be established by the account category

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 12


reference. The account category reference is a compilation of valuation classes. A
material type is assigned to only one account category reference. G/L account
determination can be uniformly defined for all material type belonging to a material
type.

The valuation class for BEARING can be selected as „DOM_RM‟ (Domestics


Raw Material) if the same is procured from Domestic Market. The inventory will be
maintained as Domestic Raw material inventory. The valuation class will be
„IMP_RM‟ (Imported Raw Material) if the material is imported & the inventory will be
maintained as Imported Raw material Inventory.

4) General Ledger (G/L) Account – The central task of G/L accounting is to provide a
comprehensive picture for external & accounts.

The General Ledger for Domestic Inventory of Raw material is „230120‟


(Inventory – Other Raw Material).

5) Cost Center – Organizational unit within a controlling area that represents a clearly
delimited location where costs occur. You can make organizational divisions on the
basis of functional, settlement-related, activity-related, spatial, and/or responsibility-
related standpoints. Cost centers are grouped together into decision, control &
responsibility unit. The activity types are assigned to the cost center.

The Cost Center for Foundry Maintenance department of SBG – IP is


„11011710‟. The costs incurred for the department Foundry Maintenance will be
posted to this cost center.

6) Profit Center – A profit center is an organizational unit in accounting that reflects a


management-oriented structure of the organization for the purpose of internal
control. You can analyze operating results for profit centers using either the cost-of-
sales or the period accounting approach. By calculating the fixed capital as well, you
can use your profit centers as investment centers. Profit center Accounting at the
profit center level is based on costs and revenues. These are assigned statistically
by multiple parallel updating to all logistical activities and other allocations of
relevance for a profit center.

Transactions in inventory management that affect the accounting are –

i) Purchasing – Goods Receipt against Purchase Order / without PO, Stock


transfer from one plant to other plant (against Stock Transfer Purchase Order),
Invoice Receipt and GR for Subcontract PO.

ii) Production – Goods Issue to Production Order, Goods Receipt from Production
Order.

iii) Other – Transfer material to material, Goods Issue to Cost Center, Sales Order,
Asset, Scrapping, Physical Inventory Difference posting.

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 13


These transactions can change the valuation price of material depending upon price
control (For example – V for moving average price for externally procured material / S for
Standard price for in-house produced material.).

Posting in Invoice Verification can also affect Material Valuation.

Valuation of Goods Movement –

i) Initial Entry of Stock Balances – Receipts are valuated at current material price of
using another material price specified externally.
ii) Goods Receipt for Purchase Order – Receipts are valuated at the Purchase order
price (Goods Receipt before Invoice Receipt).
iii) Goods Issue – Issues are valuated at current material price.

For materials to be valuated the accounting data for each valuation area (which is plant
in our case) is maintained in the accounting view of material master for every plant in
which the material is maintained.

Material valuation depends upon the price control procedure set in the material master
as below –

i) Moving Average price (V) – The moving average price procedure is used for
externally procured material. The Goods Receipt from Purchase Order is posted at
Purchase Order price (Quantity X Purchase Order Price). The system modifies the
material price in the material master according to delivered price. The system
automatically calculates the goods issue by dividing total value by total stock value
(that means current price of material). Differences between purchase order price and
the invoices are posted directly to the relevant stock account if there is sufficient
stock coverage. If sufficient stock of material is not available, then the difference (for
balance quantity which is not in stock) is posted to the “Expenses / revenue from
price difference”. The data used for cost accounting / controlling purpose therefore
contains fluctuations. The price can be changed if required, generally at the end of
the period. This causes the system to revaluate the total stock for the valuation area.

In our company, „Bearings‟ are procured from Vendor. Hence the material
master data of the bearings will have „Moving Average Price‟ control in accounting
view.

ii) Standard Price (S) – The standard price procedure is used for in-house produced
material. The system calculates all stock postings at price defined in the material
master. Variances are posted to account “Expenses / revenue from price difference”.
Exact values are available for cost accounting / controlling purpose. The material
price can be changed if required at the end of period. This causes the system to
revaluate the total stock in the valuation area. All goods issues (such as issue to
production order) are valuated at same standard price. This allows better analysis of
the cost of production orders. A receipt from Production Order is posted at standard
price.

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 14


Pumps are in-house manufactured in our company; hence the material master
data of all pumps will have „Standard Price Control‟ in accounting view.

Valuation Area details –

Valuation Area

Company
Plant Plant
Code level
valuation
is set-up
in KBL

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 15


Overview of transactions involved in Material Valuation

Requirement determined
through Material Requirement
Planning

External Procurement Internal Procurement


Purchasing Production

Invoice Receipt Master Data


Goods Receipt  Material
Invoice Verification Master
 Vendor
 G/L
Account
Transfer
Goods  Storage
Issue Posting Location
 Plant

Internal & External Accounting

Following are the steps involved in Purchasing, which are important from material
valuation / financial point of view –

Sr. Effect on Materials Management


Step Description Effect from Finance point
No. point
Vendor is ordered to supply material Commitment is done with the
Purchase Order is / provide service as per agreed vendor to pay if he supplies
1
created. terms & conditions material / provides service as
per agreed terms
Purchase Order is Management approval is given for Management approval is given
2
approved agreed terms & conditions for the financial commitment
Stock of material (Inventory) Asset (Inventory) is increased.
Material is supplied increases if material is Inventoried. GR / IR clearing account is
by the vendor & Consumption to cost object is credited (which is ultimately
3
GRN is posted for booked if the purchase order is the liability to pay money to
the same account assigned. the vendor as per agreed
terms

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 16


Consumption of service is booked to GR / IR clearing account is
Service is provided
the respective cost object (For credited (which is ultimately
by the vendor &
4 example – Cost Center) the liability to pay money to
service entry sheet
the vendor as per agreed
is created
terms.
Vendor‟s invoice is checked against Vendor account is credited &
Invoice of the the terms & conditions of the GR / IR Clearing account is
5 vendor is booked in Purchase Order and booked in debited. (The effective entry is
the system system so that the vendor can be „Credit Vendor Account –
paid on right time. Debit Inventory‟)
Payment is done to Liability of the Purchasing Debit Vendor Account / Credit
6
the vendor organization ends. Bank Account.

Following are the steps involved in material movement, which are important from financial point
of view –

Sr. Effect from Materials Effect from Financial point of


Transaction
No. Management point view
Inventory (which is our asset) is
Stock of material (Inventory)
increased. GR / IR clearing
Goods Receipt is increases if material is
account is credited (which is
1 posted for standard Inventoried. Consumption to
ultimately the liability to pay
bought out material cost object is booked if the PO is
money to the vendor as per
account assigned.
agreed terms).
Asset (Inventory) of semi-
finished material ordered on
vendor is increased. Asset
Stock of the semi-finished
(Inventory) of raw material
Goods Receipt material (which was ordered on
provided to vendor is consumed
2 posted for sub- vendor) increases. Consumption
to manufacture ordered material.
contracting material of the BOM material (provided to
GR / IR clearing account is
vendor is booked)
credited (which is ultimately the
liability to pay money to the
vendor as per agreed terms.
Goods Receipt Material delivered to customer Cost of Goods sold to customer
3 posted for Traded directly from Vendor (Third Party is booked.
Material Transaction)
Material value is booked against
Goods Issue is
the respective cost object
4 posted to Production Stock of the material decreases
(Production Order or Cost
Order / Cost Center
Center) as consumption
Components Material provided to vendor for No financial entry. The inventory
5 transferred to Sub- processing & supplying back the is shown as „Stock provided to
Contractor processed goods Vendor‟.
Finished Goods / Traded Goods Cost of Goods sold to customer
Material delivered to
6 delivered to customer. Own is booked.
Customer
inventory is reduced

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 17


Automatic posting of material for Goods Movement

Valuation

Storage

Valuated
Inventory
posted in Store

Goods Issue

Goods Receipt at
manufacturing plant
To SD To Production Order
Delivery / Cost Center
Consumption
of material
posted
directly to
consumption
account
Cost of Consumption
Goods Sold

Material cost Goods Receipt of Trading


posted to Material against Third Party
Cost of
Goods Sold
Purchase Order
account

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 18


MM transactions for which you can configure the automatic posting facility occur within
the areas of Inventory Management, Invoice Verification, and Material Valuation. The
company code is assigned to the chart of account in FI (Finance module). In
transactions within the MM application, the valuation area is hidden, which is determined
to same as plant through system settings. The General Ledger accounts are determined
automatically depending upon the plant, material master data & the transaction of
material posting (For example – Goods Receipt, Goods Issue, Transfer posting). If a
material is subject to split valuation, you can valuate partial stocks of this material at
different prices and manage those using separate accounts. For example – Imported
Bearings can be accounted in separate account (IMP_RM – Imported Raw material)
& Bearing procured from domestic vendor can be accounted in separate account
(DOM_RM – Domestic Raw Material). The posting transactions for the transactions
in Inventory Management & Invoice Management that are relevant for accounting
are fixed. Posting records are assigned to event movement type in Inventory
Management & each transaction in Invoice Posting. These postings are generalized
in a value string (posting rule). Instead of fixed G/L account numbers, these contain
keys for respective posting transaction (such as BSX for a stock posting). The G/L
account numbers are determined from these keys & posting transactions.
In brief, following are the summarized data for influencing factors for account posting

Company Chart of Account


Organizational Code
Structure Valuation Grouping
Plant Code

Accounting data Valuation


for valuation area Class

Material Material Type

Value /
Quantity update

Value Transaction
String Key
Business
Transaction
Goods Movement /
Invoice Account
Verification Grouping

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 19


Material Price Change –

Material price can be changed for an individual material in a valuation area (plant) with
immediate effect or activate the price changes for selected materials after maintaining
the future prices in material master accounting view. Material credits / debits cause a
price change in case of material subject to price control V or posting to price difference
account in case of materials having price control S (Depending upon stock position).
Changing the material price involves accounting transaction (& not the material master
change) in which total stock of the plant is revaluated.

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 20


Automatic FI postings at Goods Receipt
Following automatic postings are done in the system, when the Goods Receipt against
Purchase Order are posted –

A] Accounting (FI) Entries posted at the time of GRN –

a) Raw Material posted to Inventory after posting of GRN –

A Purchase Order is raised on Vendor for a raw material which is to be used for
production of an in-house manufactured material, depending upon the requirement
generated from MRP. When you post a GRN for raw material against Purchase
Order, the material is placed in a storage location in the plant. The inventory of the
received material is increased by first entry. The second entry will increase the
clearing account by equivalent amount. An accounting document is also posted
along with the GRN. The inventory of imported raw material & raw material procured
from domestic vendor is kept separate. The process flow is as below –

Raw Material

Without
Purchase account
Order assignment

GRN To Store
Quantity

To
GRN Inventory
Value

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 21


The FI entries posted at GRN are as below –

Posting G/L Business Account Amount in Text of


Item Currency
Key Account Area Text INR Material
Respective (Quantity of INR (for
Business material X domestic
Account of Material
Area, Raw Purchase Purchase) /
Raw master
10 Debit where the material Order Price) Other
material short
material is Inventory + Freight Currency (For
Inventory text
received Charges Imported
material)
Respective (Quantity of INR (for
Business Material X domestic
Material
Account of Area, GR / IR Purchase Purchase) /
master
20 Credit GR / IR where the Clearing Order Price) Other
short
Clearing material is Account Currency (For
text
received Imported
material)
Respective Freight INR (for
Business amount to domestic
Account of Area, be paid to Purchase) /
Freight
30 Credit Freight where the vendor Other
Clearing
Clearing material is Currency (For
received Imported
material)

Example of Accounting Entries for Raw material posted to inventory –

Posting Business Account Amt. in


Item Account Curr. Text
Key Area Short Text Local Curr.
Inventory –
Debit BRG 6305 SKF
1 230120 BA01 Other Raw 5100.00 INR
(89) OR EQ
Material
Credit GR / IR BRG 6305 SKF
2 130100 BA01 5000.00 - INR
(96) Clearing OR EQ
Freight
Credit BRG 6305 SKF
3 130110 BA01 Clearing 100.00 - INR
(50) OR EQ
Inland

b) Material posted to consumption account after posting of GRN –

Following are main account assignment categories (AAC) –

AAC Description Required Account Assignment Data


A Asset Main Asset Number & Sub-Number
K Cost Center Cost Center & G/L Account Number
Q Project WBS Element Number of the Project
E Sale Order Sale Order Number & Line Number of the Sale Order

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 22


Account assignment field in the Purchase Order determines how the accounting general
ledgers accounts will be posted in the case of goods receipt (if the GR Non-Valuated
indicator was not set in the PO) or while Invoice booking (if GR Non-valuated indicator
was set in PO). If the GR non-valuated indicator was maintained in PO, then no
accounting entries are posted at GRN posting. It determines the G/L account for debit
entry in the accounting journal for GR or IR transaction. Account assignment in the PO
can be adopted from the PR from which it has been created. The process flow is as
below –

Raw Material /
Non Valuated
Material

With account
Purchase assignment
Order

To Store (Raw
Material) or
GRN To Consumption
Quantity (Non-valuated
material)

GRN
Value Consumption
Account

i) Purchase Order with account assignment A (Asset) –

We use account assignment A to order a fixed asset item. A Fixed asset is a long
lived asset which is not expected to be fully consumed within one year period or to
be converted into cash within that period, such as: property, plant, equipment etc.
For PO / PR with account assignment A, we need additional data to be entered as
Asset Number. Asset number is a code to identify a single fixed asset. It must be
generated first before we can create a PO or PR item with A as account assignment.
Asset number is created in FI / CO module. Asset number is linked with a Fixed G/L
Account in the company‟s balance sheet. The G/L account is a reconciliation account
that means that it reconciles several asset numbers.

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 23


For Purchase Order with account assignment A (Asset), the entry in FI G/L Account
at the time of posting GRN is as below –

Posting G/L Business AccountAmount in Text of


Item Currency
Key Account Area Text INR Material
Respective (Quantity of INR (for
Business Asset Asset X domestic Material
Account of Area, where Number & Purchase Purchase) / master
10 Debit
Asset the Asset is Sub Order Price) Other Currency short
received Number + Freight (For Imported text
Charges material)
Respective (Quantity of INR (for
Business Asset X domestic Material
Account of GR / IR
Area, where Purchase Purchase) / master
20 Credit GR / IR Clearing
the asset is Order Price) Other Currency short
Clearing Account
received (For Imported text
material)
Respective Freight INR (for
Business amount to domestic
Account of
Area, where Freight be paid to Purchase) /
30 Credit Freight
the asset is Clearing vendor Other Currency
Clearing
received (For Imported
material)

Example of accounting entries for asset posted –

Posting Business Account Amt. in


Item Account Cur. Text
Key Area Short Text Local Cur.
Asset Number IM-314/318/325
Debit 000021000780 MOUNTING
1 211450 BA05 36500.00 INR
(70) Sub Number CASING
0000
GR / IR IM-314/318/325
Credit
2 130100 BA05 Clearing 36050.00 - INR MOUNTING
(96)
CASING
Freight IM-314/318/325
Credit
3 130110 BA05 Clearing 450.00 - INR MOUNTING
(50)
Inland CASING

ii) Purchase Order with account assignment K (Cost Center) –

We use account assignment K (Cost Center) to order an expense item (material or


service). An expense item in PO is an item that is expected to be fully consumed
immediately after Goods Receipt is posted such as consumable material & services.
With account assignment K, we need to determine following two additional data to be
entered in the PO –

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 24


- General Ledger (G/L) Account Number: We have to determine the expense G/L
account number that will be posted when we do Goods Receipt or Service Entry
Sheet (if the GR Non-Valuated indicator was not set in the PO) or while Invoice
booking (if GR Non-valuated indicator was set in PO).
- Cost Center: Cost center determines which department or group in the company
that will be charged the expenses occurred when we do GR or Invoice

For Purchase Order with account assignment K, the entry in FI G/L Account at the time
of posting GRN is as below –

Posting G/L Business Account Amount in Text of


Item Currency
Key Account Area Text INR Material
Respective Cost (Quantity of INR (for Material
Business Center Material X domestic master
Account of
Area, where account Purchase Purchase) / short
10 Debit cost
the Material Order Price) Other Currency text /
center
/ Service is + Freight (For Imported Service
received Charges material) Text
Respective GR / IR (Quantity of INR (for Material
Business Clearing Material X domestic master
Account of
Area, where Account Purchase Purchase) / short
20 Credit GR / IR
the material Order Price) Other Currency text /
Clearing
/ service is (For Imported Service
received material) Text
Respective Freight Freight INR (for
Business Clearing amount to domestic
Account of
Area, where be paid to Purchase) /
30 Credit Freight
the material vendor Other Currency
Clearing
is received (For Imported
material)

Example of accounting entry for Account Assignment as Cost Center –

Posting Business Account Short Amt. in Local


Item Account Cur. Text
Key Area Text Cur.
Debit Legal Exp &
1 416340 BA08 42000.00 INR Visit Charges
(81) Consult Fees
Credit GR / IR
2 130100 BA08 42000.00 - INR Visit Charges
(96) Clearing

iii) Purchase Order with account assignment as Q (Project) –

Purchase Order with account assignment Q are raised for material required for a Project
being / to be executed by the enterprise. For this account assignment, we need to define
the additional data WBS (Work Breakdown Structure) to be entered in the detailed
account assignment screen. The WBS element is the small element in which the
material / service to be procured is planned & budgeted. We can procure following type
of materials against the Project account assignment – Raw / Semi Finished material (to
be inventoried), Traded Material. When we procure a raw material (to be inventoried)

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 25


against the account assignment as Project (Q), then the accounting entries posted are
as below –

Posting G/L Business Account Amount in Text of


Item Currency
Key Account Area Text INR Material
Respective (Quantity of INR (for Material
Business Material X domestic master
Account of Area, where Inventory Purchase Purchase) / short
10 Debit
Inventory the Material account Order Price) Other Currency text /
/ Service is + Freight (For Imported Service
received Charges material) Text
Respective (Quantity of INR (for Material
Business Material X domestic master
Account of GR / IR
Area, where Purchase Purchase) / short
20 Credit GR / IR Clearing
the material Order Price) Other Currency text /
Clearing Account
/ service is (For Imported Service
received material) Text
Respective Freight INR (for
Business amount to domestic
Account of
Area, where Freight be paid to Purchase) /
30 Credit Freight
the material Clearing vendor Other Currency
Clearing
is received (For Imported
material)

Following is the example of the accounting entries –

Posting Business Account Amt. in


Item Account Cur. Text
Key Area Short Text Local Cur.
Debit Inventory – MS Flange Dia.
1 233040 BA02 610806.00 INR
(81) Other Resale 1500 mm
Credit GR / IR MS Flange Dia.
2 130100 BA02 610806.00 - INR
(96) Clearing 1500 mm
When we post the GRN for traded material for the PO with Project account assignment,
following accounting entries are posted –

Posting G/L Business Account Amount in Text of


Item Currency
Key Account Area Text INR Material
Respective (Quantity of INR (for Material
Account of
Business Material X domestic master
Cost of
Area, where COGS Purchase Purchase) / short
10 Debit Goods
the Material account Order Price) Other Currency text /
Sold
/ Service is + Freight (For Imported Service
(COGS)
received Charges material) Text
Respective (Quantity of INR (for Material
Account of GR / IR
Business Material X domestic master
20 Credit GR / IR Clearing
Area, where Purchase Purchase) / short
Clearing Account
the material Order Price) Other Currency text /

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 26


/ service is (For Imported Service
received material) Text
INR (for
Respective
Freight domestic
Account of Business
Freight amount to Purchase) /
30 Credit Freight Area, where
Clearing be paid to Other Currency
Clearing the material
vendor (For Imported
is received
material)

Example of the accounting entry is as below –


Posting Business Account Short Amt. in
Item Account Cur. Text
Key Area Text Local Cur.
Debit COGS – Other LTAL PVC
1 410920 BA02 183401.00 INR
(81) Resale Article ArmPVCSH Cable
Credit GR / IR LTAL PVC
2 130100 BA02 183401.00 - INR
(96) Clearing ArmPVCSH Cable

iv) Purchase Order with account assignment as E (Sale Order) –

Purchase Orders with account assignment E (Sale Order) are raised for a material
required for Sale Order either for in-house manufactured material or Traded Goods.
Depending upon the scenario the item category will change (Blank for Standard
procured material) or S (Traded material). In this case after posting GRN, the
accounting entries posted will be same as that indicated in scenario Purchase Order
with account assignment as Q (Project).
Accounting Entries after GRN for Inventory Material –
Posting G/L Business Account Amount in Text of
Item Currency
Key Account Area Text INR Material
Respective (Quantity of INR (for Material
Business Material X domestic master
Account of Area, where Inventory Purchase Purchase) / short
10 Debit
Inventory the Material account Order Price) Other Currency text /
/ Service is + Freight (For Imported Service
received Charges material) Text
Respective (Quantity of INR (for Material
Business Material X domestic master
Account of GR / IR
Area, where Purchase Purchase) / short
20 Credit GR / IR Clearing
the material Order Price) Other Currency text /
Clearing Account
/ service is (For Imported Service
received material) Text
Respective Freight INR (for
Business amount to domestic
Account of
Area, where Freight be paid to Purchase) /
30 Credit Freight
the material Clearing vendor Other Currency
Clearing
is received (For Imported
material)

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 27


Following is the example of above point –

Posting Business Account Amt. in


Item Account Cur. Text
Key Area Short Text Local Cur.
Inventory –
Debit Motor Alstom 22
1 233070 BA01 Traded 25830.00 INR
(81) KW / 4 Pole
Electric Motor
Credit GR / IR Motor Alstom 22
2 130100 BA01 25830.00 - INR
(96) Clearing KW / 4 Pole

When we post GRN for traded goods, following accounting entries are posted –

Posting G/L Business Account Amount in Text of


Item Currency
Key Account Area Text INR Material
Account of Respective COGS (Quantity of INR (for Material
Cost of Business account / Material X domestic master
Goods Area, where General Purchase Purchase) / short
10 Debit Sold the Material Expenses Order Price) Other Currency text /
(COGS) / / Service is Account + Freight (For Imported Service
General received Charges material) Text
Expenses
Account of Respective GR / IR (Quantity of INR (for Material
GR / IR Business Clearing Material X domestic master
Clearing Area, where Account Purchase Purchase) / short
20 Credit
the material Order Price) Other Currency text /
/ service is (For Imported Service
received material) Text
Account of Respective Freight Freight INR (for
Freight Business Clearing amount to domestic
Clearing Area, where be paid to Purchase) /
30 Credit
the material vendor Other Currency
is received (For Imported
material)

Following is the example of above point –

Posting Business Account Amt. in


Item Account Cur. Text
Key Area Short Text Local Cur.
Debit General 562580.00 KOEL 85 HP / 1800
1 416320 BA01 INR
(81) Expenses RPM Engine
Credit GR / IR 562580.00 - KOEL 85 HP / 1800
2 130100 BA01 INR
(96) Clearing RPM Engine

c) Sub-Contracting Purchase Order – In the sub–Contracting Purchase Order, semi–


finished material is ordered on the Sub-Contractor & the components are given to
Sub–Contractor for processing. When the processed semi-finished material is
received from the sub-contractor, the consumption of the components is booked
against the received material. The process flow is as below –

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 28


Semi – Finished BOM of Semi–
Material Finished
Material

Sub – With / without


Contracting account
Purchase Order assignment

No accounting
Components in entry. Stock of
BOM provided to material
Transfer of provided to
material to Sub Vendor for
processing vendor is
– Contractor updated

GRN of Inventory of Semi- Stock of material


processed Finished material provided to
material is updated Vendor is
(Quantity) consumed

Inventory of Semi-
Finished material
= Processing
GRN Value Charges + Value
of BOM
Components

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 29


Following FI entries are posted during above process –

Posting G/L Business Account Text of


Item Amount in INR Currency
Key Account Area Text Material
(Quantity of
Semi-finished
Material
Inventory Respective material X
Inventory master
account of Business Processing INR (for
– Semi- short text
10 Debit Semi- Area, where Charges) + domestic
Finished of
finished the Material (Inventory Purchase)
Goods received
material is received Value of
material
Components
provided)
(Quantity of
Semi-finished Material
Respective
Change of Change of material X master
Business INR (for
Stock Stock Processing short text
20 Credit Area, where domestic
from Sub- from Sub- Charges) + of
the Material Purchase)
Contract Contract (Value of received
is received
Components material
provided)
Inventory Inventory Material
Respective
of of master
Business INR (for
Compone Compone Inventory Value short text
30 Credit Area, where domestic
nts with nts with of Components of
the Material Purchase)
Sub- Sub- componen
is received
Contractor Contractor ts
Material
Respective
Inventory Inventory master
Business INR (for
of own of own Inventory Value short text
40 Debit Area, where domestic
Compone Compone of Components of
the Material Purchase)
nts nts componen
is received
ts
Material
Respective
master
Processin Business Processin INR (for
Inventory Value short text
50 Debit g Charges Area, where g Charges domestic
of Components of
Other the Material Other Purchase)
received
is received
material
Processing
Charges to be Material
Respective
paid to Vendor master
Business GR / IR INR (for
GR / IR (Quantity of short text
60 Credit Area, where Clearing domestic
Clearing Ordered of
the Material Charges Purchase)
material X received
is received
Processing material
Charges Rate)

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 30


Following is the example of the above transaction –

Posting Business Account Short Amt. in


Item Account Cur. Text
Key Area Text Local Cur.
Debit Inventory Semi- BRG. Housing 25
1 235010 BA01 3150.00 INR
(81) Finished Goods / 13
Change Stock
Credit Semi-Finished BRG. Housing 25
2 400040 BA01 3150.00 - INR
(91) from Sub- / 13
Contractor
Inventory of Bearing Housing
Credit
3 235040 BA01 semi-finished CI 2852.00 - INR (Kanban 30 Qty /
(99)
Castings Bin)
Change Stock Bearing Housing
Debit
4 400040 BA01 Castings for 2852.00 INR (Kanban 30 Qty /
(81)
Sub-Contract Bin)
Credit BRG. Housing 25
5 130100 BA01 GR / IR Clearing 298.00 - INR
(96) / 13
Debit Processing BRG. Housing 25
6 411450 BA01 298.00 INR
(86) Charges Other / 13

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 31


d) Import Purchase Order –

If a raw material is to be imported, the material should have the relevant valuation class
(Imported Raw Material). The PO consists of additional customs & delivery costs to be
paid. The invoice of planned delivery cost (to be paid to clearing agent) is booked first
when the material arrives in the Port (For example – Mumbai JNPT Port). After material
is cleared from port & received in Plant, GRN is posted. Then the customs duty is also
inventorised along with the basic price of material & freight charges. After the booking of
this invoice, GRN is posted when the imported material actually arrives in the plant. The
process flow is as below –

Raw Valuation class


material – Imported
Raw Material

Import
Purchase With / without
Order on account
Overseas assignment
Vendor

Planned Customs duties,


delivery cost Freight Charges
invoice of etc. of Clearing
Import PO is Agent are
booked when invoiced
the material
arrives at Port

GRN is Quantity of
posted when Imported
material Material is
arrives at updated
Plant
(Quantity)

Basic Value of
GRN Value Material +
Planned Delivery
Costs + Customs
Duty

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 32


Following are the FI entries posted, when the GRN is posted –

Posting Amount in
Item G/L Account Business Area Account Text Currency
Key INR
Inventory Quantity of
Business Area Inventory –
Debit account of Material X
1 where the material Imported Raw INR
(89) Imported Raw Basic Price
has been received Material
Material of material
Quantity of
GR / IR Business Area
Credit GR / IR Material X
2 Clearing where the material INR
(96) Clearing Basic Price
Account has been received
of material
Freight Basic
Business Area Freight Clearing
Credit Clearing Customs
3 where the material – Import (Basic INR
(96) (Imported) Duty
has been received Customs Duty)
Account Amount
Ecess
Freight Freight Clearing
Business Area amount on
Credit Clearing – Import (Ecess
4 where the material Basic INR
(96) (Imported) on Basic
has been received Customs
Account Customs Duty)
Duty
S&H Ecess
Freight Freight Clearing
Business Area amount on
Credit Clearing – Import (S&H
5 where the material Basic INR
(96) (Imported) Ecess on Basic
has been received Customs
Account Customs Duty)
Duty
Business Area CVD
Credit CVD Clearing
6 where the material CVD Clearing Amount INR
(50) Account
has been received
Business Area Ecess on
Credit CVD Clearing
7 where the material CVD Clearing CVD INR
(50) Account
has been received
Business Area S&H Ecess
Credit CVD Clearing
8 where the material CVD Clearing of CVD INR
(50) Account
has been received

Following is the example of the FI entries of imported material –

Posting Business Amount in


Item G/L Account Account Text Currency
Key Area INR
Debit Inventory – Imported
1 230110 BA01 15518.00 INR
(89) Raw Material
Credit GR / IR Clearing
2 130100 BA01 11515.00 - INR
(96)
Credit Freight Clearing – Import
3 130120 BA01 1744.00 - INR
(96)
Credit Freight Clearing – Import
4 130120 BA01 34.00 - INR
(96)
5 Credit 130120 BA01 Freight Clearing – Import 17.00 - INR

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 33


(96)
Credit CVD Clearing
6 130130 BA01 2145.00 - INR
(50)
Credit CVD Clearing
7 130130 BA01 42.00 - INR
(50)
Credit CVD Clearing
8 130130 BA01 21.00 - INR
(50)

e) Stock Transport Purchase Order –

In a stock transport Purchase Order cycle, material is transferred from one plant of the
same company code to another plant. A stock transport purchase order is raised by the
receiving plant on supplying plant as vendor. When the material is ready, the supplying
plant delivers the material to the receiving plant along with commercial proforma invoice
& excise invoice and the receiving plant posts GRN when the material is received. In this
case the FI entries are posted when Goods Issue is done against the delivery note as
Inventory transfer from supplying plant to receiving plant. Following are the FI entries
posted when Goods Issue is posted –

Posting G/L Business Account Amount


Item Currency Plant
Key Account Area Text in INR
Business
Plant from
Area from
Inventory Inventory of Inventory where
10 Credit where INR
Account Material Amount material is
material is
issued
issued
Business
Plant where
Inventory Area where Inventory of Inventory
20 Debit INR material is
Account material is material Amount
received
received

Example of above transaction is as below –

Posting G/L Business Amount in


Item Account Text Curr. Plant
Key Account Area INR
10 Credit (99) 232080 BA05 Inventory of Spares 4302.50 - INR 2530
20 Debit (89) 232080 BA05 Inventory of Spares 4302.50 INR 9010

f) Service Purchase Order –

When a Service Purchase Order (Item Category – D) is raised on a service providing


vendor, the account assignment field becomes mandatory. This is because the service
can not be stored in the way a material can be stored in inventory. Hence the
consumption of service is to be posted to some account assignment, either to Cost
Center or Sale Order or Project. When the service provider completes the required
service, the service entry sheet is posted to indicate that the required service has been
delivered by the vendor. When the Service Entry Sheet is accepted, a GRN is

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 34


automatically posted by the system (which is based on the accepted service entry
sheet). Following is the flow chart for Service Purchase Order –

Service Required for


Project / Cost
Center / Sale Order

Purchase Order with


Item Category D
(Service) & required
account assignment
(Q / K / E) is raised.

Account assignment
data such as Project
or WBS Definition /
Cost Center Number
/ Sale Order Number
is maintained.

Service Entry sheet


is created &
accepted after
service is completed
by Vendor. GRN is
posted automatically
by system.

Consumption of the
service is posted to
the cost object
maintained in
account assignment
field.

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 35


Following are the FI postings at the time of accepting Service Entry Sheet –

Posting Business Account Amount


Item G/L Account Currency Text
Key Area Text in INR
Business
Area from Service
Consumption Process
10 Debit where Charges INR Service Text
Account Charges
Service is Amount
delivered
Business
GR / IR Area Service
GR / IR
20 Credit Clearing where Charges INR Service Text
Clearing
Account service is Amount
delivered

Following is the example of above transaction –

Posting G/L Business Amount in


Item Account Text Curr. Text
Key Account Area INR
Process Charges 3847.80 Service
10 Debit (81) 411420 BA02 INR
- Foundry Charges
GR / IR Clearing 3847.80 - Service
20 Debit (96) 130100 BA02 INR
Charges

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 36


Excise entries at GRN

When we procure an excisable material the entries in the excise registers are updated
when the GRN for the material is posted. The Modvat benefit of the excise paid to the
vendor can be taken for payment of excise duty on finished material (when sold) which
we manufacture by using the raw material which the vendor has supplied. For material
not used in manufacturing of finished material or for traded material, the excise paid is
inventoried (that means the excise amount is added to the material inventory value.)
Following are the entries posted for excise registers when the excisable material is
received against GRN –

a) Modvatable Excise Item –

Posting Business Account Short Amount in


Item Account Currency
Key Area Text Loc Curr.
Business Area
Debit Excise where the Basic Excise
1 Cenvat Input P F INR
(40) Cenvat material is Duty amount
received
Business Area
ECS
Debit where the
2 Cenvat Cenvat ED Cess ECS Amount INR
(40) material is
Amount
received
S&H Business Area
Debit ECS where the Cenvat S&H S&H ECS
3 INR
(40) Cenvat material is Ces-1% Amount
Account received
Business Area Amount
Modvat
Credit where the Modvat Clearing equivalent to
4 Clearing INR
(50) material is Account amount in 1 +
Account
received 2+3

Example of Modvatable excise entries is as below –

Posting Business Account Short Amount in


Item Account Currency
Key Area Text Loc Curr.
1 Debit (40) 244030 BA01 Cenvat Input P F 3629.00 INR
2 Debit (40) 244031 BA01 Cenvat ED Cess 73.00 INR
Cenvat S&H
3 Debit (40) 244034 BA01 36.00 INR
Ces-1%
Modvat Clearing
4 Credit (50) 130150 BA01 3738.00 - INR
Account

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 37


b) Trading excisable material received against GRN –

Posting Business Account Short Amount in


Item Account Currency
Key Area Text Loc Curr.
Business Area Basic Value of
where the material +
material is Basic Excise
COGS –
Debit received COGS – Trading Duty + Ecess
1 Trading INR
(81) Material Value + S&H
Material
Ecess Value +
VAT / CST (as
applicable)
Business Area Basic Value of
where the material +
material is Basic Excise
ECS
Credit received Duty + Ecess
2 Cenvat GR / IR Clearing INR
(96) Value + S&H
Amount
Ecess Value +
VAT / CST (as
applicable)

Example of Excise duty inventorised -

Posting Business Account Short Amount in Loc


Item Account Currency
Key Area Text Curr.
COGS – Trading
1 Debit (81) 410910 BA01 4,331,083.00 INR
Motor
2 Credit (96) 130100 BA01 GR / IR Clearing 4,331,083.00 - INR

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 38


FI entries at Material Consumption
When a material is issued to a consumption account (For example – Consumption to
Production Order / Cost Center), the inventory reduces & consumption is booked for the
cost object. Following are the FI entries posted when material consumption is posted.

1) Material consumption posted to cost center –

Posting Account Amount in Loc


Item Account Business Area Curr.
Key Short Text Curr.
Business Area Price of
Credit Inventory Inventory of
1 where the material Material X INR
(99) Account Material
is stocked Quantity posted
Business Area Price of
Debit Consumption Inventory
2 where the material Material X INR
(81) of Material Consumption
is consumed Quantity posted

Following is the example of material consumed to Cost Center –

Posting Business Account Short Amount in


Item Account Currency
Key Area Text Loc Curr.
Credit Inventory – Other
1 231020 BA05 155.00 - INR
(99) Raw material
Debit Consumption –
2 400240 BA05 155.00 INR
(81) Other Raw Material

2) Material consumption posted to Production Order –

Posting Account Amount in Loc


Item Account Business Area Curr.
Key Short Text Curr.
Business Area Price of
Credit Inventory Inventory of
1 where the material Material X INR
(99) Account Material
is stocked Quantity posted
Business Area Price of
Debit Consumption Inventory
2 where the material Material X INR
(81) of Material Consumption
is consumed Quantity posted

Following is the example of material consumed to Production Order –


Posting Business Amount in
Item Account Account Short Text Curr.
Key Area Loc Curr.
Credit Inventory – Semi
1 235010 BA01 3341.00 - INR
(99) Finished Goods
Debit Consumption – Semi
2 400290 BA01 3341.00 INR
(81) Finished Goods

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 39


3) Consumption of Stock provided to Sub – Contractor for processing of finished
material when GRN of processed material is posted –

In a sub – contracting purchase order, a semi finished material is ordered on the sub
– contractor & components are provided to the sub – contractor for processing the
ordered material. When the GRN for ordered material is posted, the consumption of
ordered material is posted against the ordered material & the concerned FI entries
are posted.

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 40


FI postings at Invoice booking

When an Invoice for Vendor is booked in the system for material supplied by the vendor
against a Purchase Order, the vendor is credited with the invoice amount & the GR / IR
clearing account is debited (this account was credited when the Goods Receipt was
posted). If the GR based Invoice (GR based IV) is marked in PO, then system does not
allow to post the invoice unless the GRN is posted in the system. That also means
invoice posting is possible only for the items for which the GRN is booked. The invoice
may refer to a Purchase Order / Scheduling Agreement & based in GRN / Service Entry
Sheet quantity not yet invoiced. If required you can simulate the entries before actually
posting the Invoice. After invoice is booked, the Purchase Order history is updated.
Based on the clear booked invoice, payment can be made to the vendor either through
automatic payment run or manually. The invoice may be blocked for automatic payment
to vendor due to following reasons – Quantity Variance, Price Variance, Quality
Inspection, Manual block, date variance and Amount variance. The process flow is as
below –

Purchase Order
for Material /
Service

GRN for Material /


Service Entry Sheet
for Services
performed

Purchase G/L
Order History MM Account
Invoice
Document Assets
Delivery
Costs
Invoice
Verification FI Invoice Cost
Material Document Center
Master
Project
Further
Vendor Document
Master Sale
Order

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 41


Following entries are posted when an invoice for vendor is posted in the system.
Posting Account Amount in Loc
Item Account Business Area Curr.
Key Short Text Curr.
Credit Vendor Business Area Vendor Amount to be
1 INR
(31) Account Number paid to Vendor
Debit GR / IR Business Area GR / IR GR / IR Clearing
2 INR
(86) Clearing Clearing Amount
MODVAT Business Area MODVAT
Debit Modvat
3 Clearing from where Clearing Amount INR
(40) Clearing
Account payment is made – B. Excise Duty
MODVAT Business Area MODVAT
Debit Modvat
4 Clearing from where Clearing Amount INR
(40) Clearing
Account payment is made – ECS Amount
MODVAT Business Area MODVAT
Debit Modvat
5 Clearing from where Clearing Amount INR
(40) Clearing
Account payment is made – S&H ECS Amt.
VAT RM Business Area
Debit VAT RM VAT Amount to
6 Deductible from where INR
(40) Deductible be paid to Vendor
Amount payment is made
Example of above is transaction is as below –
Posting Business Amount in
Item Account Account Short Text Curr.
Key Area Loc Curr.
1 Credit (31) 300664 BA02 WalchandNagar Industries 135900.00 - INR
2 Debit (86) 130100 BA02 GR / IR Clearing 100000.00 INR
3 Debit (40) 130150 Modvat Clearing 16000.00 INR
4 Debit (40) 130150 Modvat Clearing 3200.00 INR
5 Debit (40) 130150 Modvat Clearing 1600.00 INR
6 Debit (40) 245039 BA02 VAT RM Deductible 15100.00 INR
The diagrammatic view of above example is as below –

Purchase Order : 100 PC at INR 1000


GRN for this PO : 100 PC
Invoice : 100 PC at INR 1000

Goods Invoice
Receipt Receipt

Stock Account 100000 +


GR / IR Account 100000 – 100000 +
Modvat clearing 20800 – 20800 +
VAT 15100 +
Vendor 135900 –

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 42


Assignment

Topic: MM – FI Integration

At the conclusion of this exercise, you will be able to:

 Explain the FI entries when a GRN is posted.


 Understand the FI entries when consumption of a material is
posted
 Simulate the FI entries at the time of Invoice booking

1) What account types will be used for following –

a) Salary payment to Employee


b) Procurement of Machinery
c) Expenses booked for Cost Center

2) What is meaning of –

a) Profit & Loss Statement


b) Balance Sheet
c) Cash Flow statement

3) State whether following entries will go to Balance Sheet or to Profit & Loss
statement –

a) GRN for Raw material posted to store


b) Invoice for receipt of above material posted (payment yet to be made)
c) Material Consumed to Production Order
d) Payment received from customer for material already supplied

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 43


4) For which material type following price control should be maintained & why?

a) Moving Price Control


b) Standard Price Control

5) Explain the effect on FI entry at following instances –

a) Purchase Order for Sub-Contracting raised


b) BOM components required for above Purchase Order transferred to Sub-
Contractor
c) Ordered material received from the Sub-Contractor
d) Invoice for above Purchase Order booked

6) What is the effect on FI for following inventory transactions –

a) Material consumption posted to Production Order


b) Material consumption posted to Cost Center
c) Material delivered to Customer

7) What FI entries will be posted at the time of posting following transactions?

a) Purchase Order for Raw material „12550022‟ (Gland) raised on M/s Vishal
Foundry, as per following details –
Quantity 100 PC at INR 37.50/- per PC,
Freight – 1% (To be inventorised)
Excise 14%, Ecess 2%, S&H Ecess 1% (Set-Off to be taken)
VAT – 12.5%
b) GRN for above material for quantity 64 PC posted as per Delivery Challan
cum Commercial Invoice Number 346 & Excise Invoice Number 238 from
Vendor along with freight & Excise conditions.
c) Invoice for above Purchase Order booked in system.

8) A Sub-Contracting Purchase Order is raised on M/s Nitin Engineering Works for


material „S2006242‟ (Driving Unit) for Quantity 50. As material in above example
No. 7 [„12550022‟ (Gland)] is maintained in BOM of ordered material, the same
is sent to the sub-contractor for processing along with following components –
02304010 – Ball Bearing (Price – INR 74, Quantity required – 50 PC)
14000011 – Bearing Housing (Price – INR 689, Quantity required – 50 PC).

What entries will be posted at the time of booking GRN for above PO?

Train. Doc. KBL/CIC/SAP/ MM/12/MM-FI Integration Page 44