Demo 1: G/L Account Determination and Control Accounts

G/L Account Determination:

In this demo we will review the G/L Account Determination window where default G/L accounts
are related to a specific business processes. Under Administration  Setup  Financials  I
choose G/L Account Determination.

The window is divided into four tabs. Each tab contains the definitions for G/L accounts related
to a specific business process: Sales, Purchasing, General, and Inventory.

On the Sales tab, two key accounts to define are the Revenue account and the Cash Discount
account.

When I choose a pre-defined Chart of Accounts template, most of the defaults are already
defined. I can change them if required.

On the Purchasing tab, we see the Bank Transfer account and the Expense account. These
accounts are used in automatic journal entries during the purchasing process.

In the General tab, I can define a default G/L account for the period end closing process.

In the Inventory tab, you define the default accounts for the perpetual inventory process.

When choosing a G/L account in the G/L Account Determination window it appears in green in
the Chart of Accounts (browse to a G/L account and show the green color in the chart of
accounts).

Whenever I add a document that posts a journal entry, A/R Invoice for example, the system
determines the G/L accounts to be used from the default accounts (Open an A/R Invoice and
browse to the automatic journal entry. Focus on the revenue account).
Control Accounts:

In the G/L Account Determination window you also define the Control Accounts: Accounts
Receivable for the Sales process, Accounts Payable for the Purchasing process (Go to
Administration  Setup  Financials  G/L Account Determination  view the Accounts
Receivable (domestic and foreign) and the Accounts Payable account (domestic and foreign) in
both tabs).

For these accounts you can only choose accounts defined as a control account in the Chart of
account (Browse to the Domestic Accounts Payable account in the chart of accounts and show
the control account checkbox).

Let us see how the system registers automatically vendor’s journal entries to the Accounts
Payable account.

Imagine you have just added an A/P Invoice received from one of your vendors (browse to an
existing A/P Invoice and open the automatic journal entry  focus on the vendor’s row).

I add the control account column to the Journal Entry display (use the Form Setting icon  Table
Format tab).

You can see that the system automatically register the document journal entry to the Business
Partner Master Data account as well as to the Accounts Payable account.

When I choose the linking arrow to open the control account and then the control account
balance (in the account balance window, uncheck the “Posting Date From” box to see all
transaction) I see that the Accounts Payable account accumulates all related vendors
transactions in its balance.

(Go back to the G/L Account Determination window)

In the G/L Account Determination window I can decide if I want to assign different control
accounts to different customers or vendors. (Under the Sales or Purchasing tab focus on the
“Permit Change of Control Accounts” box).

If the option is selected, I can assign control accounts to each customer or vendor in the
Business Partner Master Data window. (Choose Business Partners  Business Partner Master
Data  Accounting tab  General tab  Accounts Receivable/Accounts Payable field).

(Go back to the G/L Account Determination window  “Permit Change of Control Accounts”
box).

If this option is not selected, the control accounts defined in the G/L Account Determination
window are used for all customers and vendors.

I also have the ability to change the default control account in marketing documents. (Open a
new A/P Invoice  choose a vendor and an item). Under the Accounting tab, I can choose a
different control account (focus on the Control Account field).
If I work with several control accounts, the system allows me to display the business partner
balances separately for every control account. (Browse to the vendor chosen in the A/P Invoice
 open the linking arrow in the Account Balance field and choose the View by Control Account
button).

Let us see the effect of control accounts on the chart of accounts and the financial reports (open
the chart of accounts):

The Business Partner Master Data balances do not appear in the Chart of Accounts.

The receivable and payable control accounts accumulate the customers and vendors’
transactions in their balances (focus on the account receivables control accounts in the Assets
drawer and on the account payables control account in the Liabilities drawer).

This way, the Chart of Accounts presents the complete financial status of the company.

The same goes for the Financial Reports: Profit and Loss and the Balance Sheet.
(Before demo set up BP, item, pricing, need to have 10 in stock at 80, then do PO, then GRPO
as below with 10 at 100. Delivery is created during the demo.)

Demo 2: Default Unit Price and the Automatic Journal Entry Values

We will demonstrate how the default unit price is determined in the Goods Receipt PO and how
it affects the values of the automatic journal entry.

I open a Goods Receipt PO that the warehouse manager entered based on a Delivery he got
from the vendor.

(Make sure you issued a Goods Receipt PO, based on a Purchase order from a vendor called -
Coconut Devices, for 10 portable media players. The item has 3 prices: Purchasing Price List =
100, Reseller Price List = 110, Retail Price List = 120. The vendor default price list in the master
data record is the Purchasing Price List. Therefore, in the Purchase Order, and the Goods Receipt
PO the unit price for portable media player is 100. The vendor is tax free and don’t have any
discount defined).

The unit price in the Goods Receipt PO is 100 (focus on the unit price). Let us see how this price
is determined:

The default price list for this vendor is the purchasing price list (browse to the vendor master
record and show the pricelist). We have set the price for this item in the purchasing price list to
be 100 (go back to the Goods Receipt PO and browse to the item. Choose the Purchasing price
list and show the value. Go back to the Goods Receipt PO). When Joe entered the Purchase
order, the value from the Purchasing Price List defaulted into the order and “100” was set as the
unit price. Then when Joe entered the Goods Receipt PO, the price was copied from the
purchase order to the goods receipt PO.

Now let us look at the automatic journal entry created by the Goods receipt PO (browse to the
journal entry). A quantity of 10 was multiplied by the unit price of 100 and the total value of
1000 credited the clearing account and debited the inventory account. Remember that these
are the item inventory default accounts.

(Go back to the Goods Receipt PO, contents tab) When working with a perpetual inventory
system, the item cost value is calculated automatically, behind the scene, according to the
valuation method chosen for the item - Moving Average, FIFO, or Standard. In the portable
media player it is moving average (open the item master data and show the item cost value).
The previous stock value was 800 based on 10 items with a unit price of 80 each. When this
goods receipt PO was entered, the unit price of 100 in the Goods Receipt PO affected the
calculation of the item cost value. The item cost value after the Goods Receipt PO is set to 90.

Now let me show you the values of a Delivery I issue for one of our customers. (Open a delivery
and choose a customer that has the Reseller Price List defined for him). When I choose the
portable media player item for the customer a unit price of 110 appears (focus on the unit
price). This is because we defined the Reseller Price List as the default price list for this
customer. I enter a quantity of 4 and add the delivery.

I browse back to the delivery and I can see that the total value of the Delivery is 440.

Since we work with perpetual inventory, the delivery created an automatic journal entry. The
value of the journal entry linked to the Delivery is 360. That is, quantity of 4 items multiplied by
the Item cost value at that moment - 90.

When I create the invoice for the customer order, (create A/R invoice) we see that although the
item cost is 360, the customer is charged a price of 440 based on the customer’s price list.