BPI S4 Ch03-Financial Accounting - Brief

Business Process Integration with SAP ERP
Chapter 3
Introduction to Accounting
Magal and Word Business Process Integration w/ SAP ERP | © 2020

Learning Objectives
 Financial vs. Management accounting

 Organizational data
 Master data
 Processes
 Reporting
Magal and Word Business Process Integration w/ SAP ERP | © 2020 Epistemy Press All rights reserved. / Page 2
Accounting Categories
Learning Objectives
 Financial vs. Management accounting 

 Organizational data
 Master data
 Processes
 Reporting
Organizational Levels
 Client
 Company code
Company Code
 Highest organizational level for financial reporting (external, legal

reporting)
 Four-digit alphanumeric field
 Smallest entity that supports a full set of books
 General ledger, journals, etc.
 At least one CC is required; can have more than one
Multiple Company Codes
One for each legal entity One for each country

 Buick  GBI USA
 Cadillac  GBI Germany
 Oldsmobile
 GBI Australia
 Chevrolet
 Consolidate to the “parent”
 Hummer
company code level
 Saturn
 Saab
 GMC
Learning Objectives

 Organizational data 
 Master data
 Processes
 Reporting
Master Data
 Chart of Accounts
 General Ledger Accounts
 Balance sheet accounts
 Income statement accounts
 Reconciliation accounts
 Subsidiary ledgers (sub ledgers)

 AR(customers)
 AP (vendors)
 Assets
Chart of Accounts
 An orderly definition of accounts in the general ledger

 Three types of chart of accounts:
 Operative COA
 Country-specific COA
 Group COA
 Multiple charts of accounts exist

 US (CAUS) , Germany (GKR), Canada (CANA)
 Country specific to meet reporting requirements
Demo: Show list of CoA
General Ledger Accounts
 G/L accounts are master data

 Recording of all accounting-relevant business transactions occurs in
a G/L account
 Data in the general ledger accounts are segmented by
organizational level
 General ledger = COA data + Company code data
General Ledger Accounts
Demo: Segments of GL accounts;

account group; field status group;
total only
Balance Sheet and Profit and Loss Accounts
Financial Statements – Income Statement
 A company’s financial position  Net income is the difference

over a specified period. between revenue and
expenses
 Includes the company’s
revenue, expenses, and net
income. Global Bike Incorporated
Income Statement
For the Year Ending December 31, 20X9
Sales Revenues $ 35,500,000

Cost of Good Sold $ 24,555,000
Gross Margin $ 10,945,000
Selling, General and Administrative $ 10,300,000
Depreciation Expense $ 45,000
Other Operating Expense $ -
Net Interest Expense $ -
Pretax Income $ -
Income Tax Expense $ 100,000
Net Income $ 500,000
Dividends $ 50,000
Financial Statements – Balance Sheet
 A snapshot of a company’s financial position at a point in time.
 The balance sheet includes assets, liabilities, and owner’s equity.
 Assets = Liabilities + Owner’s Equity

Global Bike Incorporated
Balance Sheets
For the Years Ending December 31, 20X9 and 20X8
20X9 20X8 20X9 20X8

Assets Liabilities
Current Assets: Current Liabilities:
Cash $ 1,200,000 $ 800,000 Accounts Payable $ 2,220,000 $ 2,180,000
Accounts Receivable $ 450,000 $ 420,000 Accrued wages $ 500,000 $ 500,000
Inventory $ 500,000 $ 400,000 Taxes Payable $ 45,000 $ 45,000
Prepaid Rent $ 15,000 $ 10,000
Total Current Assets $ 2,165,000 $ 1,630,000 Total Current Liabilities $ 2,765,000 $ 2,725,000
Property, Plant and Equipment
Land and Building $ 3,000,000 $ 3,000,000 Notes Payable $ 1,950,000 $ 1,800,000
Equipment $ 1,150,000 $ 1,000,000 Total Liabilities $ 4,715,000 $ 4,525,000
Total PPE $ 4,150,000 $ 4,000,000
Less Accumulated Depreciation $ (1,045,000) $ (1,000,000) Equity
Property, Plant and Equipment, Net $ 3,105,000 $ 3,000,000 Total Equity $ 555,000 $ 105,000
Long Term Investments $ - $ -
Other Assets Total liabilities and equity $ 5,270,000 $ 4,630,000
Total Assets $ 5,270,000 $ 4,630,000
Sub-Ledger and Recon Accounts
Subsidiary or sub-ledgers Reconciliation accounts

 Are not part of the general  Are general ledger accounts
ledger.  Consolidate data in sub-
 Used to separate accounting ledger

 Cannot be posted to directly
for customers, vendors, and
assets  Maintain the sum of the
postings in corresponding
sub-ledgers
 Are specified in the definition
of the sub-ledger
Sub ledger Reconciliation
account account
Customer Accounts
Receivable
Vendor Accounts Payable
Demo: Relationship between
Asset (specific) Assets
subledger and reconciliation account
Learning Objectives

 Master data 
 Processes
 Reporting
Key Financial Acounting Processes
 Recording of value flows ($$) as a result of other processes and

transactions
 General Ledger Accounting
 G/L postings for rent, utilities, wages, etc.
 Accounts Payable Accounting

 Part of the procurement process
 Accounts Receivable Accounting

 Part of the fulfillment process
 Asset Accounting
 Acquisition, depreciation, retirement
General Ledger Accounting
 Concerned with recording the financial impact of all process steps

performed within the organization
 Double-entry accounting is used for every transaction
 Accounts are divided into balance sheet accounts and income
(profit and loss) statement accounts
Debits and Credits
Posting Example 1: Investment in a Company
Demo: Posting
Posting Example 2: Purchase of Supplies With
Cash
Demo: To illustrate controlling object
Concepts in Management Accounting
 A key function of CO is to manage and allocate costs

 Most of the data used in management accounting are derived from
financial accounting
 Companies incur these costs as they carry out various business
processes such as fulfillment and production
 Costs are transferred to management accounting
 Allocated to various “receivers” in CO:
 Example: Cost centers
Cost Center
 Master data in controlling

 Location where costs are incurred
 Department, individuals, special projects
 Cost bucket used to accumulate costs

 Accumulated costs are then “charged” or reallocated to other cost
centers – CO process
 Many processes have “orders”
 Purchase orders, Production orders, Sales orders
 Expenses can be charged to these orders
 Collectively objects that can absorb costs are called controlling

objects
Flow of Data from FI to CO
Financial accounting (FI) Controlling (CO)
Primary cost element (PCE)

Supplies Expense Bank Account
Debit Credit Debit Credit
500 500
Debit Credit
 Two-sided entries
 One-sided entries when
500 receiving data from FI
 CO impact when an expense (or sending data to FI)
or revenue account has a Cost Center
PCE associated with it.

Demo: Post supplies expenses with
cost center
Periodic Allocation - Distribution
Financial Accounting (FI) Controlling (CO)
Supplies Expense Bank Account

5000 (PCE)
5000 1000
Department A
10 employees (20%)
Debit Credit
2000
5000 5000
Department B
20 employees (40%)
NAAD1000:
Administrative
Costs
Primary Cost Element (PCE)

2000
Department C
20 employees (40%)
Periodic Allocation - Assessment
Financial Accounting (FI) Controlling (CO)

Bank Account
Debit Credit
600
1000
2000 Department A
Electricity Expense 10 employees (20%)
1000
1200
2000 3000
Water Expense 1000
Debit Credit
Department B
20 employees (40%)
2000
NAAD1000:
Administrative
Primary Cost Elements (PCE) Costs
1200
Secondary Cost Element (SCE) Department C

20 employees (40%)
Posting Example 3: Purchase of Supplies On
Credit
Accounts Payable Accounting
 Concerned with vendors

 Involve sub-ledgers to track money owed to individual vendors:
vendor master
 Involve reconciliation accounts: Accounts payable-reconciliation
 Recall the non-reconciliation AP account (payables-miscellaneous)
 Involve GR/IR account (discussed in procurement chapter)
Accounts Payable Accounting
Accounts Receivable Accounting
 Concerned with customers

 Involves sub-ledger accounts: customer master
 Involves reconciliations accounts: Accounts receivable –
reconciliation
 Non reconciliation AR accounts also exist (Misce AR)
Accounts Receivable Accounting
Learning Objectives

 Master data 
 Processes 
 Reporting
Integration of Financial Accounting with Other
Processes
Learning Objectives

 Master data 
 Processes 
 Reporting
Learning Objectives

 Master data 
 Processes 
 Reporting
Reporting
 Financial reporting is broadly divided into two categories:

 Displaying account information
 Generating financial statements
Account Information
 Account information can be displayed at three levels:

 Balance
 Line item
 Original FI document
Account Information
Demo: Review account information
Financial Statements
 Three types
 Balance Sheet
 Income Statement
 Statement of cash flows
 Required for external reporting

 Quarterly filings with the SEC?
 Accuracy is critical – SOX compliance

 Certified by CEO and CFO
Financial Statement Version with Balance
Sheet Accounts
Financial Statement Version with Profit and
Loss Accounts

BPI S4 Ch03-Financial Accounting - Brief

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Business Process Integration with SAP ERP

Magal and Word Business Process Integration w/ SAP ERP | © 2020

 Financial vs. Management accounting

 Financial vs. Management accounting 

 Highest organizational level for financial reporting (external, legal

One for each legal entity One for each country

 Financial vs. Management accounting 

 Subsidiary ledgers (sub ledgers)

 An orderly definition of accounts in the general ledger

 Multiple charts of accounts exist

Demo: Show list of CoA

 G/L accounts are master data

Demo: Segments of GL accounts;

 A company’s financial position  Net income is the difference

Sales Revenues $ 35,500,000

 A snapshot of a company’s financial position at a point in time.

 The balance sheet includes assets, liabilities, and owner’s equity.

 Assets = Liabilities + Owner’s Equity

20X9 20X8 20X9 20X8

Subsidiary or sub-ledgers Reconciliation accounts

 Used to separate accounting ledger

 Financial vs. Management accounting 

 Recording of value flows ($$) as a result of other processes and

 Accounts Payable Accounting

 Accounts Receivable Accounting

 Concerned with recording the financial impact of all process steps

Demo: To illustrate controlling object

 A key function of CO is to manage and allocate costs

 Master data in controlling

 Cost bucket used to accumulate costs

 Collectively objects that can absorb costs are called controlling

Financial accounting (FI) Controlling (CO)

Primary cost element (PCE)

PCE associated with it.

Financial Accounting (FI) Controlling (CO)

Supplies Expense Bank Account

Primary Cost Element (PCE)

Financial Accounting (FI) Controlling (CO)

Secondary Cost Element (SCE) Department C

 Concerned with vendors

 Involve GR/IR account (discussed in procurement chapter)

 Concerned with customers

 Financial vs. Management accounting 

 Financial vs. Management accounting 

 Financial vs. Management accounting 

 Financial reporting is broadly divided into two categories:

 Account information can be displayed at three levels:

Demo: Review account information

 Required for external reporting

 Accuracy is critical – SOX compliance

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