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Accounting in the SAP System 1Chapter 1

Accounting in the SAP SystemStructural ChangesGlobalization and diversification today force structural changes in organizations

throughout the world, making economic processes more complex. These processesare also made more dynamic through product and process innovation and use of the information highway. All of this requires more coordination and control withincreasingly shorter response times. Timely decisions must be based on acontinuous supply of current information.

The SAP R/3 System provides an integrated solution that includes businessapplications for all company areas.

Management ToolThe accounting system with its various sub-units is a critical part of this solution.By integrating the various aspects of accounting with each other and with logisticsand human resources applications, they become a management tool for all companydepartments. Interfaces with the logistics chain from procurement to sales allowthe optimization of operational processes. The efficiency of this kind of solution isincreased by including cross-company business processes with customers,suppliers, or financial institutions.

Decision-BasedBesides providing accounting data, the accounting system must concentrateprimarily on processing operational data for strategic company decisions.Documentation and administration functions are generally performedautomatically and in the background.

This process is not limited by the size of a company. Organizations ranging froma small sales office to an international corporate group can use these functions,which are designed to meet the needs of different industries and countries.

Preconfigured systems are available for the various industries, such as systemswith specific charts of accounts.

International ApplicationsFor international companies, the R/3 System offers flexible software that can beused in different countries. The system meets the needs of the major industrialnations of the world with its multilingual approach, flexible currency handling,and country-specific functions for taxes, reporting, and payment transactions. TheR/3 System provides all the necessary functions for developing a uniformaccounting system that can be consolidated across international borders.

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Fig. 1-1: Accounting Structure

Financial Accounting The R/3 Accounting System consists of several components:

u Financial Accounting (FI) includes:

r G/L Accounting

r Accounts Payable and Accounts Receivable

r Asset Accounting

Treasury u Treasury (TR) includes:

r Cash Management

r Treasury Management (cash, stocks, bonds, and derivatives)

r Market Risk Management

Controlling u Enterprise Controlling includes:

r EIS (Executive Information System)

r Profit Center Accounting

r Legal Consolidation

r Planning

u Profitability and Sales Accounting includes:

r Profitability Analysis

u Product Cost Controlling includes:

r Product Cost Planning

r Cost Object Controlling

u Overhead Cost Controlling includes

r Cost centers

r Internal orders

r Activity-Based Costing

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Investment Managementuuuuu Investment Management  (IM): Allows company-wide planning of capitalinvestment programs and control of individual capital investment measures.

Project Managementuuuuu Project Management: Allows efficient planning, cost-sensitive control, andtarget-oriented implementation of projects with comprehensive integrationwith Controlling and Logistics.

These components provide the basis for performing operational transactions andmeet the requirements of decision-based reporting for each application area.

Financial AccountingModern, effective financial accounting must satisfy both internal and externalaccounting requirements.

External accounting requirements are directed toward accounting disclosures andproviding information to shareholders, creditors, the work force, and public.Efficient corporate controlling must also contain controlling and planning functions.

ProprietyAccounting disclosure requirements are defined by the appropriate regulatory body, be it public or private. Accounting must adhere to statutory and internationalrequirements. The R/3 System meets both US accounting requirements (US-GAAP)and international accounting requirements (IAS), as well as the legal requirementsof over 40 industrialized nations. The FI application component guarantees thatthese regulations are met, which is an essential requirement for the system’s

international use.

IntegrationR/3’s integrated systems ensure that accounting data is automatically updated.Business processes that occur within logistics, such as goods receipts andshipments, trigger automatic postings, taking into account fiscal and corporatelaw restrictions.

Increasingly, data exchange with business partners (such as customers, vendors, banks, insurance companies, or credit agencies) takes place electronically. Acquiringinformation is an important part of every business.

Clearly structured reference data and protocols permit automatic processing, evenwith incomplete information (for example, processing final payments). As a result,only exceptions need to be processed manually.

The availability of a number of accounting-related functions that can be called upvia the Internet (such as creating or changing master data, or displaying accounts)ensures that the R/3 System is effectively integrated in the global market of theInternet.

The SAP R/3 Workflow function helps to define periodically recurring tasks, assignthem to the appropriate areas, and ensure deadlines are met.

Document PrincipleAll business transactions are recorded in the R/3 System according to the documentprinciple. This permits a seamless audit trail from the balance sheet to the individualdocuments themselves. Immediately after posting, you can process accountdisplays, totals, and account balances on the screen, as well as analyses of thefinancial statement.

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Documentation Complete documentation is also an essential element of a comprehensive andintegrated accounting system. Only complete verification of all businesstransactions guarantees ongoing, up-to-date supervision of all operative andstrategic levels of your organization. The FI component ensures that yourmanagement accounting departments are provided with the relevant informationas it occurs.

Fig. 1-2: Integration of Business Processes

Financial Accounting consists of several components:

u G/L Accounting

u Accounts Payable

u Accounts Receivable

u Asset Accounting

Chart of Accounts The G/L accounting function uses a chart of accounts that can be used by individualcompanies or entire corporate groups. If the system has to meet both companyrequirements and national stipulations, you can use parallel charts of accounts.SAP’s sample charts of accounts make it easier for you to decide how to implementthis feature. In addition, you can customize these charts of accounts.

Currencies To satisfy national statutory requirements, the system allows you use up to threeparallel currencies in the ledgers of foreign subsidiaries (in countries with highinflation, for example). Every business transaction is recorded at historical valuefrom local, corporate group, and hard currency perspective. SAP’s R/3 Systemalso enables you to comply with European Monetary Union requirements when

converting from the local currency and during the dual currency phase.

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The system provides automatic functions that evaluate foreign currency, reclassifyinformation, and list receivables and payables according to due date. This helpsyou prepare annual and monthly closings.

Financial StatementThe FI component allows you to maintain different financial statement versions.This enables you to create different types of financial statement (such as a list of 

 balances or a funds flow analysis), or financial statements for different purposes(for a key date, or for year-end closing, for example). The system thus permits youto provide various outside parties, such as banks or the press, with appropriateinformation about the current state of affairs in your company.

Posting-relevant business transactions in logistics and human resources also need

to be complete and up-to-date. Postings in logistics are automatically updated inFinancial Accounting and, if necessary, in Controlling. This ensures that goodsmovements in logistics (goods received or goods sold, for example) are alwaysreflected in accounting. Large volumes of data, from billing documents or payroll,for example, are usually transferred periodically to accounting.

SubledgersBesides integrating logistics with accounting functions, it is also essential to linksubledgers with the general ledger. Every transaction involving the subledgeraccounts for customers and vendors, or the asset accounts, is immediately reflectedin the assigned balance sheet account in the general ledger. As a result, subledgersare always reconciled with the general ledger.

Consolidated FinancialStatements

Consolidated financial statements are becoming more important compared toindividual financial statements. Being able to choose between alternative valuation

methods enables your organization to pursue an individual balance sheet policy.A consolidated balance sheet is not merely the sum of the individual balance sheets.Rather, the consolidated balance sheet reflects reclassifications, revaluations, andthe consolidation of equity, receivables, payables, profits, and sales revenues.

ConsolidationThese functions are found in the SAP R/3 FI Consolidation component. Throughintegration of the Financial and Asset Accounting systems, data is directlytransferred from individual financial statements. This substantially simplifies theconsolidation process and reduces the transfer errors that frequently arise whendifferent software is used in conjunction with the main system.

Along with consolidated financial statements as required by law, the system allowsyou to perform more frequent closings and consolidations based on plan values.Moreover, you can define and represent statements from various business

perspectives.

Accounts ReceivableThe FI Accounts Receivable component is responsible for monitoring andcontrolling customer accounts within the R/3 System’s Financial Accountingcomponent.

Account analyses, alarm reports, due date lists, and a flexible dunning system allmake it easier to keep track of open items. Associated correspondence can beadapted to the needs of each firm. This also applies to payment notices, balanceconfirmations, and account statements.

Incoming payments can be assigned to due receivables using either the conveniententry functions or automatic data transfer. The payment program automates thedebit memo process as well as payments.

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Interfaces to both Sales and Distribution and Cash Management, as well ascustomer-specific perspectives in the financial statements, link the financial andmanagement accounting aspects of a transaction. Consequently, creditmanagement, liquidity planning, and contribution margin accounting are alwaysprovided with current and reconciled information.

Accounts Payable The R/3 System’s FI Accounts Payable component manages accounting data forall vendors. It is also an integral component of the acquisition process. It serves asan important information source for the purchasing department regarding delivery,invoicing, and payment values.

Payments are made so that maximum advantage is taken of available discounts,

using either standard written forms or electronic means (such as EDIFACT or EDI).The system supports all international methods of payment. To track open items,the system provides account analyses, due date forecasts, and risk assessments(for foreign currencies, for example).

Balance audit trails, account balances, and journals document transactions inAccounts Payable.

Asset Accounting New features have been added to the R/3 Asset Accounting component. Theyreflect the changing demands made on asset management, which include:

u Increased production automation

u Rising demands on quality

u More complex assets and growing legislative requirements

The R/3 System’s Asset Accounting component covers the legal reporting andvaluation requirements of all major industrialized nations. Acquisitions,retirements, intracompany transfers, depreciations, and writeups are entered,calculated, and processed. Besides the legal requirements regarding asset valuation,you can define as many depreciation and valuation methods as you need forControlling.

The system provides flexibility when creating individual value areas to calculateand represent depreciation, imputed interest, insurable values, and subsidies. Thereporting function allows you to perform internal analyses of key figures andranking lists for significant objects that go beyond obligatory reportingrequirements. User-defined simulations of valuation parameters assist inoptimizing your business planning. The simulation function provides a variable

preview of the future, using both realized and planned investments.Special Purpose Ledger The Special Purpose Ledger component provides you with the means to produce

special calculations specific to your needs. A special purpose ledger is an additionalgeneral ledger that has been expanded to include various dimensions fromadditional account assignments (such as cost center or product). It maintains andanalyzes figures to meet the reporting wishes of the individual firm. All customer-specific ledgers come with validation and derivation features. You can performplanning, assessment, and currency conversion calculations for each ledger. Theledgers are automatically updated whenever business transactions take place. Datacollected at a more detailed level is stored in summarized form using a rollupfunction.

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Accounting in SAP Solution MapsThe SAP Solution Maps are designed to serve as a tool for visualizing, planning,and implementing comprehensive industry-specific information technologysolutions. They achieve this by:

u Documenting the major processes and functions within an industry that requireinformation technology support (including all accounting functions)

u Identifying the SAP and SAP partner products that provide this support

u Describing the availability of these products

IndustriesSAP currently provides Solution Maps for 19 different industries. Each SolutionMap describes both industry-specific functions (such as production and logisticsin the chemical industry) and more generic processes (such as Controlling andHuman Resources Management) that are used in all industries. Accordingly,accounting is a component of all SAP Industry Solutions.

SAP Solution Maps are broken down into two levels to depict these processes -one level that serves as an overview, and a second, more detailed level showing asection of the overview.

Level I gives a broad picture of the major processes within each industry. Theseare divided up into different categories that represent the critical processes for anindustry. The processes from accounting and its sub-components are an integralpart of the Industry Solution Maps and are found in the categories ”EnterpriseManagement” and ”Business Support”.

Level I of the SAP Chemicals Solution Map, for example, looks as follows:

Fig. 1-3: SAP Chemical Solution Map, level I

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Enterprise Management Once the major processes of an industry have been identified, it is then necessaryto break this down into more detail to see which SAP and SAP partner productssupport the individual processes, and to what extent they are available. Thisinformation can be seen on level II of a Solution Map.

In the case of accounting:

u General Ledger Accounting is found under ”Financial Accounting” in the levelII view of ”Enterprise Management”, for example.

u Overhead Cost Management is found under ”Managerial Accounting” in”Enterprise Management”.

u Treasury is listed as a separate process in level II of ”Business Support”.

Level II of the SAP Chemicals Solution Map for Enterprise Management looks asfollows:

Fig. 1-4: Level II of Enterprise Management in the SAP Chemicals Solution Map

Next to each function is a symbol that indicates to what extent SAP and SAP partnerproducts meet the functional requirements of the relevant area. The reference in

 brackets indicates which partner products or interfaces are necessary to supportthe listed functions. For more information about SAP Solution Maps, we inviteyou to visit our Website http://www.sap.com/solutionmaps.

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The SAP Solution Maps describe the functions of the SAP industry solutions, butthey can also be useful in other respects during implementation. The SAP ServicesMaps and SAP Business Technology Maps describe the services provided by SAPto help you go live with your system or to support production operation. Theyalso contain information about the technological infrastructure at SAP:

SAP Services Mapu The SAP Services Map identifies key areas where SAP and SAP partners candeliver services that add value to an IT solution life cycle, from evaluation andimplementation to operations and continuous improvement. It encompasses

 both business and technology elements, including general project management, business process mapping, knowledge transfer, and technical management,as well as support and help. Such service provisions are a key success factor in

ensuring that an implementation is on time and within budget, with highavailability of systems operations and continuous business improvements.

SAP Business Technologyu The SAP Business Technology Map describes the technology requirements tomanage the life cycle of a comprehensive IT solution. It details all methodsand processes as well as best practices and includes information about SAPproducts and SAP partner products. SAP Business Technology together withSAP partner products form the technological basis of all SAP solutions. Theysupport the implementation of the solution and ensure reliable, secure, andcost-effective operation as well as continuous improvement.

For more information about SAP Services and SAP Business Technology Maps,visit our Websites under: http://www.sap.com/services/ and http://www.sap.com/technology/