Financial Accounting and Controlling (FI and CO) in SAP R/3.
In the SAP system, accounting and controlling exist as separate but highly related elements. Financial Accounting accomplishes the necessary processing and recording of accounting transactions along with the creation of financial statements and other reports for external users (e.g., individuals and entities outside of the company such as shareholders, government agencies, trade associations, etc.). Financial accounting is thus referred to in many instances as “external accounting” and as such must follow Generally Accepted Accounting Principles (GAAP) and external regulatory requirements. Controlling, on the other hand, takes care of the internal management uses of accounting information. Controlling provides the company with information for management decision-making. It facilitates coordination, monitoring and optimization of all processes in an organization. This involves recording both the consumption of production factors and the services provided by an organization. The major activity of Controlling involves the assignment of costs to products and to cost centers to permit cost and profitability analysis. Although Financial Accounting (FI) and Controlling (CO) are independent components in the SAP system, data flow between the two components on a regular basis. Therefore, all data relevant to costs automatically flow from Financial Accounting to Controlling.
Financial Accounting (FI).
In carrying out its external accounting function, Financial Accounting involves basically three accounting functions: General Ledger Accounting, Accounts Receivable processing, and Accounts Payable processing. General Ledger Accounting provides a comprehensive picture for external accounting and accounts. Recording all business transactions (primary postings as well as settlements from internal accounting) in a software system that is fully integrated with all the other operational areas of a company ensures that the accounting data are always complete and accurate. General ledger accounting is the heart of financial accounting. Each accounting transaction (as defined under Generally Accepted Accounting Principles) is recorded directly or indirectly in the general ledger. The general ledger contains accounts that represent the detail for the major accounting classifications of assets, liabilities, equity, revenue, and expenses. The general ledger reflects the balance among these various accounts. The account balance data for the various accounts in the general ledger are the input for the company’s financial statements. Accounts Receivable processing records and administers accounting data of all customers. It is also an integral part of sales logistics and management. All sales (assuming they are on credit) must be recorded and tracked for receipt of payment by customer. All postings in Accounts Receivable are also recorded directly in the General Ledger. Different G/L accounts are updated depending on the transaction involved (for
example, receivables, down payments, and bills of exchange). The system contains a range of tools used to monitor open items such as account analyses, alarm reports, due date lists, and a flexible dunning program. The correspondence linked to these tools can be individually formulated to suit company requirements. This is also the case for payment notices, balance confirmations, account statements, and interest calculations. Incoming payments can be assigned to due receivables using screen functions or by electronic means such as EDI and data telecommunication. Accounts Receivable is not merely one of the branches of accounting that forms the basis of adequate and orderly accounting. It also provides the data required for effective credit management (as a result of its close integration with the Sales Logistics) as well as important information for the optimization of liquidity planning through its link to Cash Management. Accounts Payable processing records and administers accounting data for all vendors. It is also an integral part of the purchasing logistics and management. Deliveries and invoices are managed according to vendors. The system automatically makes postings in response to the operative transactions. In the same way, the system supplies the Cash Management application component with figures from invoices in order to optimize liquidity planning. Payables are paid with a payment program. The payment program supports all standard payment methods (such as checks and transfers) in printed form as well as in electronic form (data medium exchange on disk and electronic data interchange). This program also covers country-specific payment methods.
Organizational Structure in Financial Accounting
COMPANY CODE: The company code is the smallest organizational unit for which a complete self-contained set of accounts can be drawn up for purposes of external reporting. This includes the entry of all transactions that must be posted and the creation of all items for legal individual financial statements, such as the balance sheet and the profit and loss statement. It also involves recording all relevant transactions and generating all supporting documents for financial statements such as balance sheets and profit and loss statements. A company code can, for example, be a company or subsidiary. All data those are valid for a particular company code, as well as for the plants and storage locations assigned to it, are stored at company code level. This includes, for example, accounting data and costing data if valuation is at company code level. Before the Accounts Receivable, Accounts Payable, and General Ledger application Components of SAP can be used; a company code must be created as a minimum structure. More than one company code can be set up per client, enabling accounting for several separate companies simultaneously. At least one company code must be created. A legally independent company is normally represented by one company code in the R/3 System. The definition of the company code, however, also states that it represents a dependent operating unit according to commercial law. This is necessary if this operating unit is based in another country and therefore has to meet the currency and tax-based requirements of this country.
In Financial Accounting, business transactions are always entered, saved and processed at company code level. Likewise, accounts are also always managed at company code level. Further levels can be created by using internal organizational structures. All companyspecific specifications such as how payment transactions are to be carried out are made at company code level. Customer and vendor master records have a company code area, which contains data that are only relevant to one company code. This includes, for example, data representing the business relations between the company code and a customer or vendor. The terms of payment that apply to each customer or vendor are assigned in the company code area of the master record.
CREDIT CONTROL AREA: The credit control area is an organizational unit that represents the area where customer credit is awarded and monitored. Credit and risk management takes place in this area. A credit control area can serve one or more company codes, but it is not possible to divide a company code into several credit control areas.
Master Data in Financial Accounting
CUSTOMER MASTER RECORD: Both Financial Accounting and Sales Logistics use customer master records. By storing customer master data centrally, it can be accessed throughout the organization and avoid the need to enter the same information twice. Maintaining the customer data centrally also avoids inconsistencies. If the address of a customer changes, for example, this change will only have to be entered once and the accounting and sales departments will always have up-to-date information. The customer master record links primarily to the Accounts Receivable function within Financial Accounting. By definition an account receivable is an amount owed by a customer. The customer master data record is necessary, therefore, not only to make the sale but to also process the collection of the customer’s payment and recording that payment in accounts receivable. VENDOR MASTER DATA: Both Procurement Logistics and Financial Accounting use vendor master records. Storing the vendor data centrally allows access where needed throughout the organization without duplication of data. Central storage also avoids inconsistencies in data that is duplicated in numerous locations. Vendor master data are necessary in Procurement Logistics in order to obtain needed materials and services from the appropriate vendor. Vendor master data are also needed in the Accounts Payable function of Financial Accounting so that the liability to vendor can be recorded, the payment rendered, and the liability cleared. GENERAL LEDGER: Essentially, the general ledger serves as a complete record of all business transactions. It is the centralized, up-to-date reference for the rendering of accounts. The main task of G/L accounting is the overall presentation of Financial
Accounting. Transactions are recorded in and reports are generated from the general ledger based on accounts. An account is a structure which records value transactions within an accounting unit (in this case a company code) as an element from a value grouping such as assets, liabilities, revenues, etc. The account contains transaction figures, which reflect the changes to the values in a summarized form per company code. The accounts are listed in a chart of accounts. The chart of accounts is a list of all G/L account master records that are used in one or several company codes. For every G/L account master record, the chart of accounts contains the account number, the account name and controlling information. Generally a company code utilizes one of the master charts of account that come with the SAP system. Accounts can be added to that master as the company so desires. Accounts in the general ledger are classified as assets, liabilities, equity, revenues, and expenses. ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER: The Accounts Receivable Subsidiary Ledger is set up to account for the values from business transactions with customers. The accounts receivable ledger records values at company code level. When a sale is made to a customer (as processed and recorded in Sales Logistics), an entry is made in the accounts receivable ledger under that customer number indicating that there is an amount owed by that customer to the company. The accounts contained within the accounts receivable ledger are the entire customer numbers created in the company code. The sum of all amounts owed to those customers (i.e., the sum of the account amounts in the ledger) is the total amount owed by customers to the company. When a payment is received from a customer, the customer account in the accounts receivable ledger is reduced by the amount of the payment. Therefore, in transaction processing, sales to customers are recorded by customer number and payments received from customers are recorded by customer number. ACCOUNTS PAYABLE SUBSIDIARY LEDGER: The Accounts Payable Subsidiary Ledger accounts for the values of business transactions with vendors. The accounts payable ledger records values at company code level. When a purchase is made and goods are received from a vendor (as processed and recorded in Procurement Logistics), an entry is made in the accounts payable ledger under that vendor number, indicating that there is an amount owed to that vendor for the goods. For each vendor there is a subledger account to which all amounts concerning this vendor are posted. A posting to the vendor account is not the same as a payment. For example, payment is only executed when the Financial Accounting department posts the vendor's payment to a bank account, for example. The accounts contained within the accounts payable ledger are all the vendor numbers created in the company code. The sum of all amounts owed to those vendors (i.e., the sum of the account amounts in the ledger) is the total amount owed by the company to all of its vendors. When a payment is made to a vendor, the vendor account in the accounts payable ledger is reduced by the amount of the payment. Therefore, in transaction processing, purchases from vendors are recorded by vendor number and payments made to vendors are recorded by vendor number.
RECONCILIATION ACCOUNTS: Transactions with customers are posted to customer accounts in the accounts receivable subsidiary ledger, which carry a unique customer number for each customer. Transactions with vendors are posted to vendor accounts in the accounts payable subsidiary ledger, which carry a unique vendor number for each vendor. The customer subsidiary ledger contains all of the customer accounts (and numbers), while the vendor subsidiary ledger contains all vendor accounts (and numbers). However, vendor and customer numbers are not part of the general ledger set of accounts, even though that ledger contains an account both for accounts receivable and for accounts payable. In order for the general ledger accounts for receivables and for payables to reflect the total of the accounts in the respective subsidiary ledgers, a linkage between the subsidiary ledgers and their respective general ledger accounts is created. The Accounts Payable Subsidiary Ledger and the General Ledger are related through the general ledger reconciliation account for accounts payable. The Accounts Receivable Subsidiary Ledger and the General Ledger are related through the general ledger reconciliation account for accounts receivable. Each of these general ledger reconciliation accounts is automatically updated when transactions are recorded in their respective associated subsidiary ledgers. This ensures that the developments in the subsidiary ledgers accounts are accurately reflected in the general ledger. Therefore, in the general ledger the amount shown for Accounts Payable is the total of all of the individual vendor accounts in the accounts payable subsidiary ledger. THE GR/IR CLEARING ACCOUNT: In the business world, ordered materials may arrive either before or after the invoice for the goods is received from the vendor. If the goods are received prior to invoice receipt, the company would not want to delay entry of the goods into the material management system simply because no invoice had yet been received. To do so might delay production or other activities that are material dependent. However, since the invoice for these materials has yet to be received and the exact amount of the obligation determined, the company would not want to enter an assumed amount into the accounting system. The use of a GR/IR (goods receipt/invoice receipt) clearing account allows the organization to record the receipt of the materials and enter the materials into the materials management system but “suspend” the amount owed until the actual invoice is received. Thus, the GR/IR account functions like a traditional “suspense” account. The GR/IR clearing account is an intermediate account between the warehouse stock account and the vendor account. At goods receipt, the cost of the goods is posted to the inventory stock account and the net invoice amount expected is posted to the GR/IR clearing account. When the invoice is received, the posting in the GR/IR account is then cleared by an offsetting entry to the vendor account
Transaction Processing in Financial Accounting
The transactions processed in Financial Accounting generally originate in some other part of the system. For example, recording and processing accounts receivable originates in Sales Logistics. The element of accounts receivable that originates within Financial Accounting is the recording of the receipt of the payment from the customer for that receivable. Transaction processing in Financial Accounting can generally be described as recording and reporting the results of events that occur elsewhere in the system. For this reason, Financial Accounting transactions can be described as data transactions as opposed to the physical transactions that occur in sales, procurement, and production. The following graphic illustrates this flow of data transactions into Financial Accounting.
Many of the data transactions involved in Financial Accounting involve the payment of invoices or the receipt of payments from customers. However, payments for invoices involving purchased goods must be approved by the invoice verification process in Procurement Logistics before payment can be authorized. Customers are billed as the final step in the Sales Logistics. Financial Accounting processes the payments from customers that are received as the result of the billing invoices from Sales Logistics.
Controlling involves the “internal’ accounting system used within the organization for management decision making. The information produced within Controlling is intended solely for internal use only. Controlling facilitates coordination, monitoring and optimization of all processes in an organization. This involves recording both the consumption of production factors and the services provided by an organization. The consumption of product factors and services provided are encompassed in the “costs” of those items. Although such costs are tracked in the Financial Accounting system, that tracking is primarily aimed at determining the value of ending inventory for the balance sheet and the cost of goods sold for the income statement for external reporting purposes. Therefore, these costs are not very useful for management decision-making such as the minimum sales price for the product, which customers or distribution channels are most profitable, whether overhead costs under or out of control, etc. Controlling meets the information requirement for such considerations. Unlike Financial Accounting, Controlling is not governed by outside sets of rules such as GAAP. As well as documenting actual events in terms of costs, the main task of Controlling is planning. Controlling allows the determination of variances by comparing actual data with plan data. These variance calculations enable the company to control business flows. Income statements such as contribution margin accounting (not permitted for external reporting) are used to control the cost efficiency of individual areas of an organization, as well as the entire organization. Controlling (CO) and Financial Accounting (FI) are independent components in the SAP system. The data flow between the two components takes place on a regular basis. Therefore, all data relevant to costs flow automatically to Controlling from Financial Accounting. At the same time, the system assigns the costs and revenues to different CO account assignment objects such as cost centers, business processes, projects or orders. The relevant accounts in Financial Accounting are managed in Controlling as cost elements or revenue elements. This enables the reconciliation of the values from Controlling and Financial Accounting. Within Controlling there are a number of features that provide different information sets for management decisions. Cost center accounting is used for the source-related assignment of overhead costs to the location in which they occurred. Activity-based costing can be used to analyze cross-departmental business processes in order to optimize overall organizational goals and to prioritize business flows. Internal orders are used to collect and control costs according to the job that incurred them. Product cost controlling calculates the costs that occur during manufacture of a product, or provision of a service; it enables the company to calculate the minimum price at which to profitably market a product. Profitability analysis within Controlling analyzes the profit or loss of an organization by individual market segments. The system allocates the corresponding costs to the revenues for each market segment. Profitability Analysis provides a basis for decision-making, for
example, for price determination, customer selection, conditioning, and for selection of the distribution channel. Profit center accounting evaluates the profit or loss of individual, independent areas within an organization. These areas are responsible for their costs and revenues. Profit Center Accounting is a statistical accounting component of the SAP system that occurs on a statistical basis at the same time as “true” accounting. In addition to costs and revenues, the system can display key figures, such as Return on investment, working capital or cash flow on a profit center.
Organizational Structure in Controlling
CONTROLLING AREA: Controlling uses the company code in a manner similar to its use in Financial Accounting. In controlling a second structure element, the controlling area, is linked to the company code in order to allow greater tracking and analysis of data than in Financial Accounting. A controlling area is an organizational unit that represents a closed system used for cost accounting. A controlling area may contain one or more company codes which can operate in different currencies, if required. The company codes within a controlling area must all use the same operational chart of accounts. All internal allocation transactions refer only to objects from the same controlling area. Internal business transactions are portrayed in the controlling area. Primary costs are transferred from external accounting and classified according to managerial accounting perspectives. If the primary costs are direct costs (e.g., direct material or direct labor), then they are assigned directly to cost objects such as production orders or sales orders. If primary costs are overhead costs, then they are assigned to cost centers or overhead cost orders. The system then allocates the costs using internal allocation techniques based on their source. When master data are created, the system always assigns the Controlling objects to a controlling area and a company code. PROFIT CENTERS: A profit center is an organizational unit in controlling that reflects a management-oriented structure of the organization for the purpose of internal control. Management can analyze operating results for profit centers using either the cost-of-sales or the period accounting approach. By calculating the fixed capital, too, profit centers can be analyzed as investment centers. In profitability accounting at the profit center level, all costs and revenues from the profit relevant logistic activities and other allocations are transferred as statistical postings to the relevant profit centers. Every profit center is assigned to the organizational unit Controlling Area. This assignment is necessary because Profit Center Accounting displays values in general ledger accounts. The system transfers all the data to Profit Center Accounting together with the general ledger account to which the data was originally posted.
COST CENTERS: A cost center is an organizational unit within a controlling area that represents a defined location of cost incurrence. A cost center can be defined based on functional requirements (e.g., accounting, plant security, company cafeteria, etc.), allocation criteria (how costs are allocate to the unit such as by headcount of employees, square feet, etc.), physical location (e.g., the northern sales office, the southern sales office, etc.), or responsibility for costs. Cost centers are used for differentiated assignment of overhead costs to organizational activities, based on utilization of the relevant areas (cost determination function) and for differentiated controlling of costs arising in an organization (cost controlling function). Overhead costs are “collected” in a cost center and then allocated to the organizational units or functions that “use” the services provided by that cost center. Cost centers can be collected into groups according to various criteria. Those groups can be used to build cost center hierarchies, which summarize the decision-making, responsibility, and control areas according to the particular requirements of the organization. The individual cost centers form the lowest hierarchical level. For example, the vice president in charge of sales may have four regional sales cost centers that report directly to him/her. Each regional sales cost center may have numerous area sales cost centers within the region; each area sales cost center may have numerous local sales office cost centers within its area. Linking these various cost centers together would allow tracking and analysis of operations and costs throughout the overall sales organization, by region only, by area only, or by individual sales office. There must be at least one group that contains all cost centers and represents the entire business organization. This cost center group is described as the standard hierarchy. The user can assign additional cost center groups to the standard hierarchy if needed.
Any number of alternative groups of cost centers can be created. Groups can be structured, for example, by organizational and/or functional viewpoints. Cost center groups enable the user to perform evaluations for each decision-making, responsibility, or control area. These groups also support the processes during planning and internal allocations. Following the sales organization example, assume that each local sales office sells a particular line of the company’s products. Sales offices selling product line A could be grouped together in an alternative hierarchy along with all other local sales offices that sell the same product line regardless of the area or region. In this way, operations and cost could not only be followed by geographical location (under the standard hierarchy) but also by product line. Users can assign each cost center to only one group within the standard hierarchy, but to as many alternative groups as required. This allows for the information related to each cost center to be “sliced and diced” any way management desires.
Master Data in Controlling
The major master data in Controlling involves cost elements that classify an organization’s valuated consumption of production factors within a controlling area. A cost element corresponds to a cost-relevant item in the chart of accounts. Cost elements document which costs (differentiated by category) are incurred within a settlement period, and the amount. They provide information concerning the value flow and the value consumption within the organization. The system distinguishes between two types of cost elements: primary costs and secondary costs. PRIMARY COSTS: A primary cost element is a cost item in the chart of accounts for which a corresponding general ledger (G/L) account exists in Financial Accounting (FI). The user can only create the cost element in Controlling if it has first been defined as a G/L account in the chart of accounts and created as an account in Financial Accounting. The SAP System verifies that a corresponding account exists in Financial Accounting. Examples of primary cost elements include material costs, personnel costs, and energy costs. Primary costs arise through the consumption of goods and services that originate from outside the company such as the cost of items purchased from vendors, employee salaries and wages, purchased services, costs of fixed assets (i.e., depreciation), etc. These costs are recorded as expenses in the appropriate accounts in the General Ledger in Financial Accounting. A link must be created in order for an item recorded as an expense in Financial Accounting to be treated as a primary cost in Controlling. Because a primary cost has a matching expense account in Financial Accounting, a posting to an expense account therefore results in a cost that can be traced directly to a particular cost object in Controlling. For example, the costs for an external activity provided by a supplier can be allocated directly to a cost object in Controlling. This requires the incoming invoice to be assigned to the cost object. When the incoming invoice is entered in Financial Accounting (FI), the amount is immediately allocated to the cost object in Controlling as well as being recorded in the appropriate general ledger expense account in Financial Accounting. An example of a primary cost is a direct materials cost. When a raw material is withdrawn from inventory to be used in manufacturing a finished product, a posting is generated to an expense account in Financial Accounting. The relevant expense account in Financial Accounting is the Raw Materials Consumption expense. The withdrawal (a goods issue) is entered in the application component Production Logistics (i.e., Materials Management - MM). Such goods movements in Production Logistics automatically generate postings in Financial Accounting. For raw materials, the system debits Consumption of Raw Materials and credits Raw Materials. The direct materials costs are allocated to the cost object. The amount allocated is the same as the expense posted in FI. SECONDARY COSTS: Secondary costs are cost elements that represent the activity values produced during internal cost allocations. For example, the expenses accumulated in the operation of the company’s data processing center are collected and then allocated
as secondary costs to the various internal organizational units that use the center. Therefore, secondary costs do not “originate” (in that they do not represent transactions with outside parties) but are “created” from internal allocations. Secondary cost elements can only be created and administered in Controlling. They portray internal value flows such as those found in internal activity allocation, overhead calculations and settlement transactions. When a secondary cost element is created, the SAP System verifies that a corresponding account exists in Financial Accounting. If one exists, it cannot be created as a secondary cost element in Controlling. A secondary cost does not have a matching expense account in Financial Accounting. Secondary costs are therefore valuated consumptions of internal activities (activities performed inside the company rather than purchased from outside.) Secondary costs are overhead costs.
Transaction Processing in Controlling
Like Financial Accounting, the transactions in Controlling can be described as data transactions. In the most basic format, Controlling transactions involve the assignment of costs to various cost objects such as products, cost centers, orders, etc. through an allocation process. ALLOCATION: You can periodically allocate amounts and quantities from sender objects to receiver objects using allocations. The two main types of allocations are assessments and distributions. Both plan and actual data can be allocated. Allocation is carried out using the allocation cycle function. Allocation rules are used to determine how amounts and quantities should be allocated from sender object to receiver object. It is possible to assess/distribute amounts and quantities according to a number of criteria that can be specified within the allocation rules. DISTRIBUTION: A distribution allocation is used to allocate the primary costs of a cost center. In a distribution, the original cost element (the primary cost element) is retained. In addition, sender and receiver information (for example, the identities of the sender and receiver cost center/business process) is documented using line items in the CO document. A distribution is accomplished periodically (monthly, for example) in order to transfer the primary cost from a cost center where it has been collected to the cost centers that are consuming that primary cost. When the distribution is complete, the amount of the primary cost of the item being distributed by the cost center may be zero (if the entire amount is distributed) or reduced to only the amount of the cost consumed by that cost center. For example, assume that an office building is rented for $10,000 per month. The invoice for the monthly rental is received and recorded in Financial Accounting in the rent expense account. This account has been linked to Controlling as a primary cost element and as such requires a cost object to which it must be charged. For administrative simplicity, assume the company has set up the accounting department as the cost center to receive the entire amount of the rent cost in Controlling even though the accounting
department occupies only part of the building. Also housed in the building are human resources, corporate sales, various vice presidents’ offices, and data processing. At the end of the month or at some other predetermined time, the rent cost charged to accounting must be allocated to all of the occupants of the building through a distribution. A distribution has been chosen for this allocation so that each receiving department will show a rent cost in its operating reports. This may have been decided so that if a department increases its share of the space in the building, it would be charged an increased rent cost. The distribution, therefore, has been set up based on the number of square feet occupied by a department as a percentage of the total square feet occupied by all departments. The table below indicates the various percentages of the total building space occupied by the departments.
Accounting Human Resources Corporate Sales Vice Presidents Data Processing
15% 10% 20% 30% 25%
When the distribution is executed by the system, Accounting will receive an allocation of $1,500, Human Resources $1,000, Corporate Sales $2,000, Vice Presidents $3,000, and Data Processing $2,500. Each of these units will display this amount in the Rent Distribution line on its operating reports. In this way, each unit knows exactly how much it is charged for rent and that the charge is transferred from the Accounting department. For accounting, the entire $10,000 will be eliminated from its Rent Cost collection account (resulting in $0 in that account) but it will indicate a distribution of Rent of $1,500. Distributions can be based on square footage, employee headcount, number of telephones, or other criteria found to be meaningful by management. These various criteria are known as statistical key figures. These statistical key figures can be fixed value (for which the values are carried forward from one period to the next) or total value (for which the values must be recorded for each period independently). Fixed values are used for elements that remain relatively stable from period to period such as square feet occupied in a building. Total values are appropriate for items that fluctuate from period to period such as employee headcount. ASSESSMENTS: An assessment is an additional way through which costs are allocated. Assessment is a method of internal cost allocation by which the company allocates (Transfers) the costs of a sender cost center to receiver CO objects (orders, other cost centers, etc.) under an assessment cost element. The method works according to the keys defined by the user. Unlike Distribution, where only primary costs can be allocated, an assessment is a method of allocating both primary and secondary costs. In Assessment the original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost
elements. The original cost elements are not recorded in the receivers’ accounts but are recorded as an assessment from the sender cost center. Also, sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document. Allocation through assessment is useful when the composition of the incoming costs is unimportant to the receiver. For example, the assessment of cafeteria costs to a cost center need not be itemized in the receiving cost center’s records. Assume a company operates a subsidized cafeteria. The cafeteria incurs expenses for food, wages, electricity, etc. during operations. The cafeteria may also receive secondary cost charges such as maintenance, electricity, rent occupancy, etc. The amount of total cafeteria expenses not covered by revenue from food sales is to be charged to the cost centers whose employees use the cafeteria. Assessment will accomplish the allocation of both these expenses (primary costs) and secondary costs to other cost centers in the company. The company can assess the costs from the cost center "Cafeteria" to receiver cost centers in proportion to the statistical key figure "Employees" for each cost center. Receiver cost center I has 10 employees, while receiver cost center II has 90. In this case, the system would assess 10% of the costs from the cost center "Cafeteria" to receiver cost center I and 90% to receiver cost center II. The credit entered in the sender cost center "Cafeteria" and the debits entered in the receiver cost centers are all assigned by the assessment cost element. Depending on the system settings, the system can assess all the costs of the sender cost center "Cafeteria" or only part of those costs. Under Assessment, the receiving cost centers or other objects receive the amount assessed with only a general description of what is being assessed. For example, the receiver cost centers in the example above will receive their assessment as “Cafeteria Assessment’ with no indication of the nature of the expenses within the cafeteria.
Accounting and Controlling Master Data and Transaction Consideration:
Although the SAP system has numerous charts of accounts that can be used by a company, there may be a need to add general ledger accounts. This is described as the manual creation of a general ledger account and results in a master record for the general ledger account being added to the chart of accounts and the general ledger system. If the company has determined to use a subsidiary ledger due to a large volume of transactions of a particular type, the reconciliation account (control account) for the particular specific type of subsidiary ledger must be added to the chart of accounts (as a master record for a general ledger account). The company may decide to add a goods receipt/invoice receipt (GR/IR) to the general ledger in order to expedite invoice verification and the receipt of goods from vendors. The company makes a business decision on this issue weighing the internal control aspects and the operational necessities in order to reach this decision. The company may decide to add profit and loss accounts (P&L accounts) to the general ledger in order to differentiate both expenses or revenues in a manner that is more detailed or descriptive than those the accounts provided by the system. For example, the company may wish to set up its own rent expense account in order to track rent charges from a particular vendor or for a particular rental. The company may also wish to track revenues from different sources in a more detailed manner than the revenue accounts delivered with the system. If the company decides to use cost allocation in Controlling, it must create accounts for primary cost elements that link Accounting to Controlling automatically. If vendor master records have not been created in one of the logistics areas or if the accounting views need to be added to such records that already exist, vendor records may be created in the accounting area or the accounting views added to the existing vendor records. As the company acquires products and services, the invoice or the events surrounding that transaction must be recorded to properly record the assets, expense, cash disbursements, and/or accounts payable involved. Entering these transactions provides a record of these events and also records the obligations to make payment if the transaction involved a credit purchase. If the event is initiated by a purchase made by check, the recording of the event involves the entry of the document to create the record of the transaction. If the event involves the direct receipt of a vendor invoice by accounting (as opposed to coming through logistics vendor invoice verification), the vendor invoice must be “posted” in the accounting system so that the liability is recorded and can be paid at a later date.
Amounts owed to vendors are contained in accounts payable until actual payment is made. An outgoing payment must be posted to clear the vendor invoice that is recorded in accounts payable. This posting clears the liability and decreases the cash available to the company. In cases where a customer owes the company for purchases made in the past, the specifics of that transaction are contained in accounts receivable. This account generally arises due to activities in sales logistics. The customer’s payment for the items, however, is processed in Accounting. This requires a receipt of payment from the customer. This receipt clears the receivable from the customer for the amount remitted. In cases where the company has made the business decision to allocate costs to cost centers, either a distribution cycle or an assessment cycle must be created. Either involves, of course, the cost centers from which and to which the charge is to be made. Each of these cycles must contain the “tracing factor” or basis on which the distribution or assessment is to be made (e.g., headcount, square feet, etc.). The company must make a business decision to allocate by a distribution (where costs retain their nature as they are allocated) or by an assessment (where the costs “lose” their identity and are simply charged as a lump-sum assessment).