ABC Blue Print
ABC Blue Print
ABC Blue Print
Financial Accounting
(GO LIVE on August 1st )
Mr. ABCLtd.
Project Sponsor
Document Control
Version: 1.0
Role Name of Person Signature Date
Prepared by
Reviewed by
Approved by
The information contained herein is proprietary to ABC, (ABCLtd.), and may not be used,
reproduced, or disclosed to others except as specially permitted in writing from ABC, (ABCLtd.).
The recipient of this document, by its retention and use, agrees to protect the same and the
information therein from loss, theft, and compromise.
July 31, 2007 Initial version prepared for ABC’s approval
The purpose of this document is to determine the business process requirements for the mySAP
ERP Implementation Project of ABCLtd. and to provide the required functions in SAP.
Intended Audience
This document is intended for the usage of ABCLtd. Finance and Controlling team, ABC SAP
consultants and employees of ABCLtd. involved with the Project.
Table of Contents
INTRODUCTION
ABCLimited (ABC) is in the business of XXXXXXXX and was founded 1998, having
consistently achieved high-growth rate and expanded globally. ABC has offices in USA,
Netherlands, Dubai, Qatar, Singapore and India. Headquartered in Hyderabad-India. ABC has set
the standard for quality services while evolving to meet the needs of emerging markets. ABC is
currently one of the largest exporter in the country.
ABC is currently running xxxxxx Accounting and limited other functions using Tally systems. ABC
has decided to implement ‘mySAP ERP’ 2005 (ECC 6.0) to meet ABC’s future requirements, to
enable its business processes and to integrate all the functional areas. The Project Mission Statement
is “Keeping focus always on internal and external customers, we will implement “SIMPLE & BEST”
practices to enhance efficiency and effectiveness in our business processes through SAP”.
This document of two sections the first section presents the business processes of Finance and
Controlling (FICO) module and second section presents Question and Answer database (Q&Adb) as
per Accelerated SAP (ASAP) methodology.
This Blueprint has been developed by documenting all input gathered from the business process
owners/core users by scheduling meetings and workshops. Accelerated SAP (ASAP) Question and
Answer Database (Q&A db) has been used extensively for this purpose. This document shows the
business requirements in detail, and serves as the basis for organization, configuration and
development activities.
Vision
1. To maintain the books of account as per the accounting standards and policies of the group by
proper record of transactions and to generate the financial statements, business and operation
information reports as are required by the various stake holders.
3. To close the books of account by 2nd business day of every month and submit the individual
financial statements 5th business day of every month
Stakeholders
Following are the major Stakeholders and the departments that shows interest:
STAKEHOLDER INTEREST
Accurate recording of all transactions that have financial
End user department
implications
Accounting of all transactions that have financial
Finance Department
implications
Efficient timely reporting for financial and controlling
Management
analyses
Internal controls are in compliance
Auditors Compliance of accounting standards
ABC has to maintain the books of accounts as per Indian GAAP as such requires one set of books of
accounts, as per Indian GAAP for the Financial year i.e. April to March to meet the Income tax
requirements.
Formats of MIS, reporting of financial statements and the reconciliation statements will be provided
by ABC.
The organization structure of ABC which is depicted in Figure 2.1 is the current organization
structure and is likely to change in future.
Managing Director
Chief Finance
Officer
Vice President
Finance
Executive Executive
Finance Finance
The purpose of this structure is to map the organizational entities of ABC in to SAP for recording
the financial accounting transactions. The following are defined as Company Codes.
Group ABC
Company
999999
9999
Chart of
Accounts
Legal
Company Code Company Code Company Code
Entity
1000 2000 3000
(ABC) (PQR) ( )
Planning
We have studied the planning requirements of the company and in our opinion, the budgeting
requirement spelt out by the company can be handled by way of planning in SAP. The planning
report that the company presently generates is at the profit center/profit center group level. Revenue
and expenditure planning can be handled at cost center/profit center level and we can meet the
requirements by way of planning at the profit center level. Planning for balance sheet items will be
done for those items supported by Profit center accounting.
Reports
Accounts Payable
9 Vendor Information Drilldown report Vice President Finance
System Analysis of vendors by due date, Manager Finance
currency and overdue items in group Senior Accountant
currency, if defined
10 Vendor balances in local Vendor account balances are Vice President Finance
currency displayed in the local currency Manager Finance
Senior Accountant
11 Vendor items due date Drill down report Vice President Finance
analysis for open items Manager Finance
Vendors due dates are split in Senior Accountant
terms of periods, for example, 0-
30,31-60,61-90 and are displayed in
local currency
12 List of vendor line items Line items of the vendor are Vice President Finance
displayed and balance per currency Manager Finance
are also displayed Senior Accountant
13 Vendor due date forecast Due date forecast for the vendors for Vice President Finance
two periods is displayed Manager Finance
Senior Accountant
Accounts Receivable
14 Customer Information Drilldown report Vice President Finance
System Manager Finance
Analysis of Customers by due Senior Accountant
date, currency and overdue items in
group currency, if defined
16 Customer items due date Drill down report Vice President Finance
analysis for open items Customers due dates are split Manager Finance
in terms of periods, for example, 0- Senior Accountant
30,31-60,61-90 and are displayed in
local currency
17 List of Customer line Line items of the Customer are Vice President Finance
items displayed and balance per currency Manager Finance
are also displayed Senior Accountant
18 Customer due date Due date forecast for the Customers Vice President Finance
forecast for two periods is displayed Manager Finance
Senior Accountant
Asset Accounting
19 Asset balances The balances of the asset for Vice President Finance
a given period are reported Manager Finance
The balances can be obtained Senior Accountant
on various parameters like asset
# Name of the report Purpose of the report Intended for
number, sub number, cost center etc.,
20 Inventory Lists List of assets as per the inventory list Vice President Finance
are displayed Manager Finance
Senior Accountant
21 Depreciation current year Depreciation for the current year is Vice President Finance
displayed Manager Finance
Senior Accountant
22 Simulation of Depreciation simulation for future Vice President Finance
depreciation years is displayed Manager Finance
Senior Accountant
Cost Center Accounting
23 Cost centers: Actual The planned figures and actual Vice President Finance
/Plan/Variance figures are displayed for all the cost Manager Finance
centers or for a given cost center /cost Senior Accountant
center group
24 Cost centers Actual figures for the four Vice President Finance
monthly/Quarterly / half quarters are displayed Manager Finance
yearly /yearly This report can be obtained in Senior Accountant
comparison different currency as well, if required
25 Cost center actual line For a given cost center range or group Vice President Finance
items the line items are displayed Manager Finance
Senior Accountant
Internal Orders
26 Orders: Actual The planned figures and actual Vice President Finance
/Plan/Variance figures are displayed for all the orders Manager Finance
or for a given order /order group Senior Accountant
27 Orders Quarterly Actual figures for the four quarters Vice President Finance
comparison are displayed Manager Finance
This report can be obtained in Senior Accountant
different currency as well, if required
28 Order actual line items For a given order range or group the Vice President Finance
line items are displayed Manager Finance
Senior Accountant
The business processes described above are proposed to be mapped in SAP to give a better value
addition to the company by way better functionality, thereby reducing time leads in various chore
business processes. The proposed SAP configuration will give the company a better M.I.S. which
will ease the company from wasting time in various manual calculations which hitherto the
company is used to, thereby the company is able to take a quick response to various issues and
quick decision making. The proposed configuration of various business processes of the company
are described in the foregoing sections of this document.
Company:
A company is an organizational unit in Accounting which represents a business organization
according to the requirements of commercial law in a particular country.
Consolidation functions in financial accounting are based on companies. A company can comprise
one or more company codes.
Company Code:
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 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.
The Proposed Company Code for M/s ABCLtd. India is: “1000”
Chart of Accounts:
Chart of Accounts is a classification scheme consisting of a group of general ledger (G/L) accounts.
A chart of accounts provides a framework for the recording of values to ensure an orderly rendering
of accounting data. The G/L accounts it contains are used by one or more company codes.
For each G/L account, the chart of accounts contains the account number, the account name, and
technical information.
Business Area:
A unit in an enterprise that groups product and market combinations as homogeneously as possible
for the purpose of developing unified business policy.
An organizational unit of financial accounting that represents a separate area of operations or
responsibilities within an organization and to which value changes recorded in Financial
Accounting can be allocated.
we can create financial statements for business areas, and we can use these statements for various
internal reporting purposes.
As ABC is running its business in 4 major geographical areas, the proposed Business areas are:
S.No. Name Business Area
1 Bangalore (India) 1010
2 Pitts Burgh (USA) 1020
3 Dubai 1030
4 Singapore 1040
Account Groups:
In order to organize and manage a large number of G/L accounts in a better way, they are arranged
in Account Groups. The accounts of an account group normally have similar business function, for
exp. We could have a account group for Cash Accounts, one for Expense Accounts, one for
Revenue Accounts, and one for Balance Sheet Accounts etc.
Further we can control the numbering and restrict the creation of the GL codes within the specified
number range.
As per the initial study of ABC business process we tend to create Account Groups relevant to
the organization present practices which are as below:
Retained Earnings Accounts proposed for ABC in “9999” Chart of Accounts are:
SL. No. Account Name Key G/L Account No.
1 P&L Account. “X” 01100001
2 P&L Appropriation Account. “Y” 01100002
Fiscal Year:
The fiscal year variant contains the number of posting periods in the fiscal year and the number of
special periods. We can define a maximum of 16 posting periods for each fiscal year in the
Controlling component (CO).
A fiscal year is divided into posting periods. Each posting period is defined by a start and a finish
date. Before we can post documents, we must define posting periods, which in turn define the fiscal
year.
In addition to the posting periods, we can also define special periods for year-end closing.
In case the financial accounting year is April to March we can use the standard fiscal year variant
V3 in SAP.
As per the Indian Income Tax Act, the legal reporting fiscal year for any companies in India is
April to March and being ABC located in India it is following Financial Accounting Year as
“April to March”, which is consisting of 12 normal periods and 4 special periods
ABC Fiscal Year Variant is: “V3” (April to March)
Posting Periods time intervals for various account types are created for variant 1000.
+ All Types
A Assets
D Debtors
K Creditors
M Material
S GL
ABC follows Document No. Ranges on year-dependent basis thus, the suggested Document
Number Ranges on year-dependent basis are high-lighted below.
As ABC requires differentiating the authorization's with in its employees, we intend to create 3
tolerance groups.
S.No. Tolerance Groups Description Employee Groups
Entry Level Only Parking (Amount No Limit)
1 XXXX
(PIS1)
Supervisory All Postings (Up to XXXX /-)
2 XXXX
(PIS2)
Top Management Full Authorization (Amount No Limit)
3 XXXX
(PIS3)
Exchange Rates:
Exchange rates are required to:
Translate foreign currency amounts when posting or clearing or to check an exchange rate
entered manually
Determine the gain and loss from exchange rate differences
Evaluate open items in foreign currency and the foreign currency balance sheet accounts
The exchange rates are defined by period ("valid from").The system uses the type M exchange rates
for foreign currency translation when posting and clearing documents. The exchange rates apply to
all company codes.
As ABC is having business across the globe, its payments / receipts are of different currencies,
we need to maintain currency translation for different currencies keeping INR (Indian Rupees)
as base currency.
We need to maintain Exchange Rates & its translations (“S” Selling,“B” Buying & “M”
Average) for the following currencies:
S.No. Description
4. USD (United States Dollar)
5. EUR (European Euro)
6. GBP (British Pound)
7. AED (United Arab Emirates Dirham)
8. SGD (Singapore Dollar)
We intend to control the exchange rate difference to the extent of 10% deviation from the rate
entered manually in the document header.
Description GL No.
Exchange Rate Gain 03001801
GL Accounts:
The central task of G/L accounting is to provide 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 is always complete and accurate
The GL code has two segments:-
6. The Chart of Accounts Segment – The Chart of Account segment is at client level. Any
company code wishing to use the GL code can extend it and create a company code view.
7. The Company Code Segment – A company intending to use the GL from chart of accounts
has to create the company code view so that it can post to the GL code.
ABC requires GL Accounts to be Created Centrally, which enables us to create both the chart of
accounts view as well as the company code view in one step. The GL's are here with attached in
the Annex 1.
Document Reversal:
Using the Reverse function, we can reverse local and global documents that have been posted to the
FI-SL System. we can only reverse FI-SL documents if all updated ledgers have line items.
Reversal may be a normal reversal or a negative reversal; in both the cases the system creates a
reversal document.
In case of Normal Reversal the system posts the transaction on the opposite side of the transaction
& can be posted or reversed on a later date.
Negative posting option decreases the transaction figures in the account posted to, ie. The system
updates on the same side with negative symbol, & can be posted or reversed on the same date.
We can calculate interest on the balance of those of the GL Accounts which are managed with open
item display by using the balance interest calculation function in the FI system. This function can be
used, for example, to double-check the interest calculated on your accounts by the bank.
When we calculate interest on G/L accounts, a graduated list is produced. We can also have the
balance interest calculation run logged by the system. The system will automatically calculate the
interest and post to the respective GL accounts, if required.
In ABC, the interest calculation on GL accounts will be for memorandum purposes only i.e. a report
will be generated giving the calculation of the interest but the same will not be posted using the
interest calculation program. Interest will be posted at the time of bank reconciliation and this report
will be used to cross-verify the interest charged by the bank.
Interest Calculation Types
In this activity, we create our interest indicators and specify that they are to be used for account
balance interest calculation.
The Proposed Interest Indicator are:
We intend to create one Financial Statement Version for ABC to suffice all its requirements,
which are here with attached in the Annex 2.
Accounts Payable:
The Accounts Payable application component records and administers accounting data for all
vendors. It is integrated with FI - GL module. The system automatically makes postings in response
to the operative transactions.
Postings made in Accounts Payable are simultaneously recorded in the General Ledger where
different G/L accounts are updated based on the transaction involved (payables and down payments,
for example). The system contains due date forecasts and other standard reports that we can use to
help monitor open items.
Balance confirmations, account statements, and other forms of reports will be configured to suit the
various requirements in business correspondence with vendors. There are balance lists, journals,
balance audit trails and other internal evaluations available for documenting transactions in
Accounts Payable.
Reconciliation Accounts:
We must specify / assign a reconciliation account in the master record so that all postings made to a
subsidiary ledger are also posted to the general ledger. When we post items to a subsidiary ledger,
the SAP system automatically posts the same data to the general ledger at the same time. Each
subsidiary ledger has one or more reconciliation accounts in the general ledger. These reconciliation
accounts ensure that the balance of G/L accounts is always zero. This means that we can draw up
financial statements at any time without having to transfer totals from the sub-ledgers to the general
ledger.
As per the initial study of ABC business process we tend to create Vendor Account Groups
relevant to the organization present practice which are as below:
A/c Group Description From No. To No. Recon Account. GL No.
STAF Staffing Services 010001 020000 Sundry Creditors – Staffing 01300601
CRCG Capital Goods Suppliers 020001 030000 Creditors for Capital Goods 01300801
CRPR Creditors for Purchases 030001 040000 Creditors for Purchases 01301001
CRSI Creditors Imports 040001 050000 Sundry Creditors - Imports 01301101
GENC General Contractors 050001 060000 Creditors for Expenses 01300901
PROC Prof. Contractors 060001 070000 Creditors for Expenses 01300901
ADTC Advt. Contractors 070001 080000 Creditors for Expenses 01300901
RENV Rental Vendors 080001 090000 Creditors for Expenses 01300901
OVSC OVS. Contractors 090001 100000 Creditors for Expenses 01300901
COMV Commission Vendors 100001 200000 Creditors for Expenses 01300901
UTIL Utility Vendors 200001 300000 Creditors for Expenses 01300901
HWSW Hard Ware & Soft Ware 300001 400000 Creditors for Expenses
Maint. Vendors 01300901
JOBP Job Portals 400001 500000 Creditors for Expenses 01300901
OTHV Other Vendors 500001 600000 Creditors for Expenses 01300901
SADV Staff Advances 600001 700000 Staff Advances 01301201
TADV Travel Advances 700001 800000 Travel Advances 01301301
OADV Other Advances 800001 900000 Other Advances 01301401
ABC follows Document No. Ranges on year-dependent basis thus, the suggested Document
Number Ranges on year-dependent basis are as below:
Vendor Tolerances:
Tolerances are used for dealing with differences in payment and residual items which can occur
during payment settlement. Specify the tolerances under one or more tolerance groups. Allocate a
tolerance group to each vendor via the master record.
The proposed vendor tolerances are:
Tolerance Group Description Amount Adj. Discount by
ABC : Vendor Tolerances Group 100 100
ABC has to pay, during their course of transactions, advance payments to the vendors. Advance
payments are known as down payments in SAP. Down payment request can be created & viewed
by the accounts payable person. After checking the purchase order terms, the down payment is
made by the accounts payable person.
The system posts the down payment transaction as a special general ledger transaction in the
vendor account. Hence, it will not appear in the regular balance but only in special general ledger
balance. Once, the down payment is cleared against an invoice, the balance is shifted from the
special general ledger balance to the regular vendor account balance.
The Proposed Down Payment Special G/L A/c No's for ABC to be created are:
Special Indicators Reconciliation Account No Recon. GL A/c No. Special G/L A/c No
A Sundry Creditors – Staffing 01300601 XXXXXX
A Creditors for Capital Goods 01300801 XXXXXX
A Creditors for Purchases 01301001 XXXXXX
A Creditors Imports 01301101 XXXXXX
A Creditors for Expenses 01300901 XXXXXX
A Staff Advances 01301201 XXXXXX
A Travel Advances 01301301 XXXXXX
A Other Advances 01301401 XXXXXX
Vendor Master:
Master data is created for each Vendor at Company Code level.
Vendor master is created centrally in financial accounting with their respective views. However,
vendors can be created only in financial accounting. For example, auditors, insurance Companies
etc. When it is created centrally, it has purchasing view and also accounting views. In cases, where
it is defined in financial accounting, the accounting views only are defined.
In case of central creation, materials management personnel will create the purchasing view of the
vendor and financial accounting personnel will create the accounting views for the same. The
accounting view consists of reconciliation account, method of payment, tolerance groups etc.
Vendor Master Data contains critical information on the vendor such as the Name & Address, Tax
Registration Numbers, Reconciliation Account, Payment Terms, Withholding Tax codes, Etc.
ABC requires Vendor Masters to be Created Centrally, though the purchasing view is not
applicable in the present scenario, we would like to keep the option open, thus we intend to
create the masters centrally, which enables us to create both the purchasing view as well as
the accounting views in one step. The Vendor Masters are here with attached in the Annex 3.
Bank Accounting:
In SAP, to simplify the bank reconciliation, the entries are not posted to main bank account directly.
Instead they are posted to clearing accounts depending upon the nature of transaction. Entries in the
clearing accounts would be cleared at the time of updating the bank statement and executing bank
reconciliation in SAP and corresponding entries would be posted in the main bank account based on
posting keys, posting rules, account symbols and account determination defined in customizing that
would ideally reflect the balance as per bank statement.
House Banks:
Each house bank of a company code is represented by a bank ID in the SAP system, every account
at a house bank by an account ID.
We use the bank ID and the account ID to specify bank details.
As per the initial study of ABC business process we tend to create House Banks relevant to
the organization present practice which are as below:
Check lots:
The pre-numbered checks are usually split into lots so that they can be printed or filled out at different locations.
A check number interval in the SAP System represents a lot of pre-numbered checks
Withholding tax:
A form of taxation deducted at the beginning of the payment flow. typically, an amount is withheld
and paid over or reported to the tax authorities on behalf of (as opposed to by) the person subject to
tax, the exception being self-withholding tax. If a withholding tax exemption is available,
withholding tax is not withheld.
The withholding tax country is needed for printing the withholding tax form. Standard is available
with SAP.
TDS:
When making Account Payable voucher SAP prompts for all TDS codes applicable for the supplier
– If the supplier is linked to Advance Payment TDS code and Normal Payment TDS code, both will
be prompted at the time of Account Payable creation and user needs to remove the Advance
payment TDS code
Rectification of AP Voucher: After TDS challan has been generated for the AP voucher, system
does not allow for any changes to the AP voucher
TDS Challan is generated Section wise; TDS Form 16 Serial Number will be common across
branches. TDS is applicable for Cash Payment voucher also.
Accounts Receivables:
The Accounts Receivable application component records and administers accounting data of all
customers. All postings in Accounts Receivable are also recorded directly in the different G/L
accounts depending on the transaction involved. The system contains a range of tools that we can
use to monitor open items, such as account analyses, due date lists, and a flexible dunning program.
Account Groups:
When we create a master record for a business partner, we must enter an account group. The
account group determines which screens and fields are necessary for entering master data.
How master record numbers are assigned (externally by us or internally by the system) and the
number range from which they are assigned.
As per the initial study of ABC business process we tend to create Customer Account Groups
relevant to the organization present practice which are as below:
Account Group Description From No To No
ONUS Onsite USA 010001 020000
ONUK Onsite UK 020001 030000
OFHY Offshore Hyderabad 030001 040000
DOSS Domestic Software Services 040001 050000
DORF Domestic RF Engineering 050001 060000
DOTC Domestic Telecom Suppliers 060001 070000
DOTP Domestic Teleprint 070001 080000
Reconciliation Accounts:
We must specify / assign a reconciliation account in the master record so that all postings made to a
subsidiary ledger are also posted to the general ledger. When we post items to a subsidiary ledger,
the SAP system automatically posts the same data to the general ledger at the same time. Each
subsidiary ledger has one or more reconciliation accounts in the general ledger. These reconciliation
accounts ensure that the balance of G/L accounts is always zero. This means that we can draw up
financial statements at any time without having to transfer totals from the sub-ledgers to the general
ledger.
ABC follows Document No. Ranges on year-dependent basis thus, the suggested Document
Number Ranges on year-dependent basis are as below:
Customer Tolerances:
we specify the tolerances for customers. These tolerances are used for dealing with differences in
payment and residual items which can occur during payment settlement. Specify the tolerances
under one or more tolerance groups. Allocate a tolerance group to each customer via the master
record. For each tolerance group, specify the following:
Customer Master:
Master data is created for each Customer at Company Code level.
Customer master is created centrally in financial accounting with their respective views. However,
Customer can be created only in financial accounting. For example, auditors, insurance Companies
etc. When it is created centrally, it has sales view and also accounting views. In cases, where it is
defined in financial accounting, the accounting views only are defined.
In case of central creation, sales personnel will create the sales view of the Customer and financial
accounting personnel will create the accounting views for the same. The accounting view consists
of reconciliation account, tolerance groups etc.
Customer Master data contains critical information on the Customer such as the Name & Address,
Tax Registration Numbers, Reconciliation Account, Payment Terms, Withholding Tax codes, Etc.
ABC requires Customer Masters to be Created Centrally, though the sales view is not
applicable in the present scenario, we would like to keep the option open, thus we intend to
create the masters centrally, which enables us to create both the sales view as well as the
accounting views in one step. The Customer Masters are here with attached in the Annex 5.
Dunning:
Dunning process will be used as a reminder for intimating the due date before and after. we can
send them as a payment reminder or a dunning notice to remind them of their outstanding debts.
The SAP System allows us to dun business partners automatically. The system duns the open items
from business partner accounts in which the overdue items create a debit balance. The dunning
program selects the overdue open items, determines the dunning level of the account in question,
and creates a dunning notice. It then saves the dunning data determined for the items and accounts
affected.
At present no atomized reminding system is in place. However, ABC would like use the standard
procedure in place in SAP. (By way of letter / mails / SMS etc., to the customer and to the
concerned sales officer / Regional head).
Cash Journal:
A double-entry compact journal managed in account form that records the postings for cash
transactions.
It is used to manage a company's cash transactions. The system automatically calculates and
displays the opening and closing balances, and the receipts and payments totals. We can run several
cash journals for each company code. We can also carry out postings to G/L accounts, as well as
vendor and customer accounts.
We have to define a number range interval for cash journal documents. Each document then
receives a unique number that does not clash with the G/L document number. The following
business transaction types can be posted in Cash Journal.
E (Expense)
R (Revenue)
B (Cash transfer cash journal to bank)
C (Cash transfer bank to cash journal)
D (Customers-incoming/outgoing payment)
K (Vendors-outgoing/incoming payment)
As the standard document types given by SAP does not contain a separate document type for
Cash Journal we propose to create a new Document Type “CJ” & accordingly No. Ranges are
also created for Cash Journal which are:
Asset Accounting:
The Asset Accounting (FI-AA) component is used for managing and supervising fixed assets with
the SAP System. In Financial Accounting, it serves as a subsidiary ledger to the General Ledger,
providing detailed information on transactions involving fixed assets.
The Asset Accounting component is intended for international use in many countries, irrespective
of the nature of the industry. This means, for example, that no country-specific valuation rules are
hard-coded in the system. We give this component its country-specific and company-specific
character with the settings we make in Customizing. To minimize the time and energy involved in
Customizing, country-specific defaults are provided in the standard system where possible.
As a result of the integration in the SAP System, Asset Accounting (FI-AA) transfers data directly
to and from other SAP components. For example, it is possible to post from the Materials
Management (MM) component directly to FI-AA. When an asset is purchased or produced in-
house, we can directly post the invoice receipt or goods receipt, or the withdrawal from the
warehouse, to assets in the Asset Accounting component. At the same time, we can pass on
depreciation and interest directly to the Financial Accounting (FI) and Controlling (CO)
components. From the Plant Maintenance (PM) component, we can settle maintenance activities
that require capitalization to assets.
Chart of Depreciation:
The chart of depreciation is a list of depreciation areas arranged according to business and legal
requirements. The chart of depreciation enables us to manage all rules for the valuation of assets in
a particular country or economic region.
We must assign a chart of depreciation to each company code that is defined in Asset Accounting.
SAP provides country-specific charts of depreciation with predefined depreciation areas. These
charts of depreciation serve only as a reference for creating your own charts of depreciation, and are
therefore not directly accessible in the SAP system. When creating a chart of depreciation, we have
to copy the reference chart of depreciation.
When we create a chart of depreciation, the system copies all of the depreciation areas in the
reference chart of depreciation. We have to delete any depreciation areas that we do not need in our
chart of depreciation.
The proposed Chart of Depreciation for the Company Code 1000 “9999”
(ABCLtd.) is:
Depreciation Areas:
You use depreciation areas to calculate different values in parallel for each fixed asset for different
purposes. For example, you may require different types of values for the balance sheet than for cost
accounting or tax purposes. You manage the depreciation terms and values necessary for this
valuation in the depreciation areas of each asset. Since the system allows you to define up to 99
depreciation areas, you can manage many different types of valuation (Customizing: Valuation).
Depreciation areas are grouped together, according to the requirements of a specific country or
economic area, into a chart of depreciation
Depreciation Areas:
Description Depreciation Area
Book depreciation 01
Depreciation as per Income Tax Act 1961 15
Cost-accounting depreciation 20
Consolidated balance sheet in local currency 30
Consolidated balance sheet in group currency 31
Book depreciation in group currency 32
Depreciation Keys:
Depreciation keys are defined at the level of the chart of depreciation. Therefore, they are available
in all company codes. With the help of the depreciation keys defined within a chart of depreciation,
you can set up the chart of depreciation with uniform depreciation terms based on the special rules
for valuation in an economic area (country, geographical region and so on).
The standard charts of depreciation in the ERP System contain depreciation keys that are predefined
to meet country-specific depreciation needs.
You can divide the duration of depreciation into several phases in the depreciation key. If you enter
a changeover method for one of these phases, the system changes over to the next phase as soon as
the event specified in the changeover method occurs. Then the system uses the type of depreciation
calculation that is specified for that next phase.
Calculation Methods:
The system uses calculation methods for the calculation of depreciation and imputed interest. You
assign calculation methods to depreciation keys. The calculation methods provide the parameters
for the depreciation calculation program.
The calculation of depreciation is controlled by the calculation methods, the control parameters that
are entered in depreciation keys.
Calculation Method Control Parameters
Multi-Level Method Validity date or period, levels, base value, calculation of percentage or
remaining useful life, reduction of base value
Period Control Method Period control for acquisition, subsequent acquisition, retirement, transfer
Account Determination:
One of the most important functions of the asset class is to establish the connection between the
asset master records and the corresponding accounts in the general ledger in Financial Accounting.
This connection is created by the account determination key in the asset class.
You define the account determinations for Asset Accounting (key and description). The key of an
account determination must be stored in the asset class asset class. In this way, the account
determination links an asset master record to the general ledger accounts to be posted for an
accounting transaction using the asset class.
You specify the general ledger accounts to be posted for the individual accounting transactions in
later implementation activities. You can specify various accounts for each depreciation area to be
simultaneously posted to.
Asset Class:
A system object used to group assets of similar kinds (such as buildings or machinery), primarily
for the purposes of account determination.
Asset classes are the most important means of structuring fixed assets. we can define an unlimited
number of asset classes in the system. We use the asset classes to structure your assets according to
the requirements of your enterprise. Asset classes apply in all company codes. The asset class
catalog, therefore, is relevant in all company codes in a client. The preceding is also true when the
company codes have different charts of depreciation and therefore different depreciation areas.
The most important control parameters are:
The number interval that the system should use for assigning asset main numbers in the
asset class
Asset Masters:
In the step "Master data", we can make the necessary system settings related to master data
maintenance in the FI-AA System. In addition, we can define evaluation groups and our own match
codes.
The asset master record contains all information relating to an asset that remains unchanged over a
long period of time:
● General master data
● Organizational allocations (usually time-dependent)
● Depreciation terms
We can also enter depreciation terms that are time-dependent (that is, valid for a fixed period of
time). Depreciation terms that can be time-dependent include the useful life, depreciation key, and
the scrap value.
The system stores all the values and transaction data separately on each individual asset master
record.
We can differentiate between different types of assets in the FI-AA component. The structure of the
master record is identical for all asset main numbers, asset sub numbers and group assets.
Therefore, the basic procedure for creating any of these objects is essentially the same.
The proposed Asset Masters with reference to Asset Class & other relevant data are given in the
Annexure 6:
CONTROLLING
Process Description
Definitions
Master Data
Master Data Maintenance
Cost Centre
Cost Centre Group
Cost Elements
Cost Element Groups
Activity Types
Internal Orders
Profit Center Master
Business Process
Budgeting
Cost Center Planning
Actual Postings
Distribution & Assessment Cycle
Period End Closing Activities
Profit Center Accounting
Profit Center Periodic Processing
Assigning additional B/S Accounts to Profit Center
Definitions:
Actual Cost:
An actual costing system determines the actual labour, material and overhead
expenditures for the period and assigns them directly to cost objects, The amount of
overhead applied, therefore, is always equal to the amount of overhead incurred.
Controlling area
The controlling area is the central organizational unit of the Controlling (CO)
component. You use the controlling area to carry out cost accounting.
Variance:
It is the difference between the estimated cost of an activity and the actual cost of that
activity.
Cost Center:
The Cost Center is used in system to analyze those expenses, which are recurring in
nature, and detailed analysis is required for such expenditure.
The Term Cost center means the specific area or individual department, Item where we
would like to capture our expenses based on the same the expenditure analysis can be
done.
Budget:
Approved cost structure for an action or project in a particular period of time.
These are the annual estimates decided with a view to control and monitor the
expenditure.
Integration:
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 flows 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 you to compare and reconcile the
values from Controlling and Financial Accounting.
ABC
Profit
Centers
ABC
Cost
Centers
A/c & Fin HR & Admn. Marketing Dev. / Serv. Com. / Pur.
Cost Element
Cost Elements are created for the purpose of recording costs in cost objects like, cost centers,
internal orders, production orders etc.,
Cost Elements are of two types, Primary and Secondary. Primary cost elements correspond to the
expenses and revenue accounts in the chart of accounts.
Secondary cost elements on the other hand occur within controlling module. Examples of secondary
costs are canteen costs, machine hour costs or labor hour costs. Secondary cost elements are further
divided in to assessment cost element, internal activity allocation, overhead cost element etc., and it
is necessary that before creating a secondary cost element, which category of cost element is to be
defined is to be known.
New cost elements can be created at any point of time. They have a validity period. It is important
that the validity period of the cost element is to be maintained from the beginning of the fiscal year
to avoid inconsistencies in planning and allocation cycles. System facilitates entering of the validity
period from the beginning of the fiscal year, even though the cost element is created during the
fiscal year.
Cost Elements are taken from the GL Masters created in FI configuration. The Account No’s
for the Cost Elements are same as GL Account No’s.
Cost Center:
Cost centers are areas of responsibility where costs are incurred and monitored. Care has to be taken
before creating a cost center as to whether it is really necessary to create the cost center and whether
the required costs can be captured there. If costs can not be captured, then obviously the creation of
a cost center becomes redundant.
Before creating a cost center, it is necessary that a hierarchy is created logically defining the cost
center groups, keeping in view the reporting requirements. The node under which the cost center is
to be created is to be decided before creating the cost center.
Cost Centers are created according to the departments such as Development & Services
HR & Admn, Marketing, Purchase & Accounts. Further sub departmental bifurcation is
taken as sub notes / cost centers. The detailed cost center hierarchy is given below.
ABC Cost Center Hierarchy Structure
9999
Controlling
Area
Cost Center
Hierarchy for
ABC INDIA
K P O - 1400
Admin.
Admn 2200
Other Services
- 1500
Front Off.
2210
Guest House
2220
Security
2230
Internal Order
Internal Orders are temporary cost objects, where costs are stored and settled later to other cost
objects like cost centers or internal orders etc.
There are various types of internal orders like overhead orders, capital investment orders etc.; it is
necessary that before creating an order, the type of order needs to be known.
Internal Orders can be statistical or real.
In case of statistical orders, the costs are simply captured and no further allocations can be made
from them. A box is to be checked, if the order is to be created as statistical order.
In case of real orders, further allocations can be done. In case of real orders, the settlement rule is to
be defined as to how the costs are to be transferred from this order to other objects like cost center
or another order etc., and in which proportions.
Stastical Orders are proposed for capturing the Telephone number wise cost incurred by
creating each Telephone number as an Internal Order. However the total costs are captured
in GL account for Telephone Expenses. Similarly Vehicle expenses for each vehicle by
creating Internal Order for each Vehicle number.
Profit Center:
Before creating a profit center, it is necessary that a hierarchy is created logically defining the profit
center groups, keeping in view the reporting requirements. The node under which the profit center
is to be created is to be decided before creating the profit center.
The proposed profit centers are created basing on the company’s main Services such as
Telecom, Embedded, Health Care, Manufacturing, Retail, technology, Banking & Finance
Services and Insurance(BFSI). The detailed cost center hierarchy is given below.
ABC Profit Center Hierarchy Structure:
9999
Controlling
Area
Profit Centers
Hierarchy for
ABC
India India
1000 2000
Start/End of the
process
Decision Box
System Process
S
M
Manual Process
General Ledger Master is created at Chart of Accounts Level and at Company Code Level. At Chart
of Accounts Level, it consists of the GL account number, Profit and Loss Account or Balance Sheet
Account, Description. At Company Code level, it consists of data pertaining to Account currency,
Open item management, line item display, field status etc.,
Start
General Ledger
S
Master does not exist
No
Create at Chart of
S
Accounts Level
Account required in
STOP No Company Code
Yes
Create at Company
S
Code Level
Yes
End
Vendor master is created centrally in materials management & financial accounting with their
respective views. However, vendors can be created only in financial accounting. For example,
auditors, insurance Companies etc. When it is created centrally, it has purchasing view and also
accounting views. In cases, where it is defined in financial accounting, the accounting views only
are defined.
In case of central creation, materials management personnel will create the purchasing view of the
vendor and financial accounting personnel will create the accounting views for the same. The
accounting view consists of reconciliation account, method of payment, tolerance groups etc.
It is necessary that the reconciliation account for the Vendor is correctly identified and defined in the
master data.
Start
Yes
Materials
Purchasing view Create vendor in that
management S No created?
S
account group
process
Yes
Create Accounting
Yes View
Create accounting
S
views
No
Vendor is created
Stop
Customer Master is created centrally in sales and distribution and financial accounting with their
respective views. However, they are created only in financial accounting as in the case of customers
for sale of assets, sale of scrap etc. When customer master is created centrally, it has sales view and
also accounting views. In cases, where it is defined in financial accounting, only the accounting
views are defined.
In case of separate creation, sales and distribution personnel will create the sales organization view
of the customer and financial accounting personnel will create the accounting views for the same.
The accounting view consists of reconciliation account, method of payment, tolerance groups etc.
It is necessary that the reconciliation account for the customer is correctly identified and defined in
the master data.
Start
Create
Decide the account
customer No M
group
centrally?
Yes
Yes Create
Yes Accounting
view?
Create accounting
S
views
No
Customer is
created
Stop
Assets are created under respective asset classes. When an asset is created under an asset class, the
default values pertaining to that class like, depreciation terms, useful life etc., are copied. The
depreciation terms, if required can be changed.
Start
Asset Master
Stop Yes
Exist?
No
End
Cost Elements are created for the purpose of recording costs in cost objects like, cost centers,
internal orders, production orders etc., Cost Elements are of two types, Primary and Secondary.
Primary cost elements correspond to the expenses and revenue accounts in the chart of accounts.
Secondary cost elements on the other hand occur within controlling module. Examples of secondary
costs are canteen costs, machine hour costs or labor hour costs. Secondary cost elements are further
divided in to assessment cost element, internal activity allocation, overhead cost element etc., and it
is necessary that before creating a secondary cost element, which category of cost element is to be
defined is to be known.
New cost elements can be created at any point of time. They have a validity period. It is important
that the validity period of the cost element is to be maintained from the beginning of the fiscal year
to avoid inconsistencies in planning and allocation cycles. System facilitates entering of the validity
period from the beginning of the fiscal year, even though the cost element is created during the
fiscal year.
Start
Yes
No
Create GL account in
S
chart of accounts
End
Cost centers are areas of responsibility where costs are incurred and monitored. Care has to be taken
before creating a cost center as to whether it is really necessary to create the cost center and whether
the required costs can be captured there. If costs can not be captured, then obviously the creation of
a cost center becomes redundant.
Before creating a cost center, it is necessary that a hierarchy is created logically defining the cost
center groups, keeping in view the reporting requirements. The node under which the cost center is
to be created is to be decided before creating the cost center.
Start
Cost Center is to be
S
created
Determine the
M
hierarchy node
Determine validity
M
period
End
Start
Profit Center is to be
S
created
Determine the
M
hierarchy node
Determine validity
M
period
End
Internal Orders are temporary cost objects, where costs are stored and settled later to other cost
objects like cost centers or internal orders etc. There are various types of internal orders like
overhead orders, capital investment orders etc.; it is necessary that before creating an order, the type
of order needs to be known. Internal Orders can be statistical or real.
In case of statistical orders, the costs are simply captured and no further allocations can be made
from them. A box is to be checked, if the order is to be created as statistical order.
In case of real orders, further allocations can be done. In case of real orders, the settlement rule is to
be defined as to how the costs are to be transferred from this order to other objects like cost center
or another order etc., and in which proportions.
Start
Internal order is to be
S
created
Statistical
No
order?
Yes
Define settlement
S
rule
Release internal
S
order
End
ABC requires recording of general ledger transactions. For this purpose GL sub component of
financial accounting module is used. The documents are entered in to the system and depending
on the work flow specifications and authorizations; the documents are parked and posted later.
Start
GL document
S
entered
No
Authorized person
accesses the S
parked document
Correct the
S No Accept?
document
Yes
No
Authorized person
accesses the S
parked document
End
Flow diagram for general ledger document parking and posting
ABC requires day to day accounting of the transactions that take place in the organization. This
application component is required for entering vendor invoices that arise in the accounts payable
module of financial accounting. Purchases are made directly and invoice is submitted to the
accounts Department.
The invoice is entered in the system by the data entry operator and parked. The Accountant or
Senior Accountant will check the transaction and either posts it or sends to the Finance Manager for
approval. It is posted at his end.
In case, where materials management is involved, the entering of the invoice is done in the logistics
invoice verification module of the materials management.
Start
Vendor invoice
S
entered
No
Authorized person
accesses the S
parked invoice
Yes
Authorized
person Authorized to
S No
accesses post?
the invoice
Yes
Post the
S
invoice
End
ABC has to pay, during their course of transactions, advance payments to the vendors. Advance
payments are known as down payments in SAP. Down payment request can be created & viewed
by the accounts payable person. After checking the purchase order terms, the down payment is
made by the accounts payable person.
The system posts the down payment transaction as a special general ledger transaction in the
vendor account. Hence, it will not appear in the regular balance but only in special general ledger
balance. Once, the down payment is cleared against an invoice, the balance is shifted from the
special general ledger balance to the regular vendor account balance.
Other than the conventional payment mode of cheque we also make the payments through use of
E-Payment, Bank Transfers, Cheques, and system should capture the no’s other identification
marks available in this mode of payment i.e., all possible modes of payment shall be configured
in the system.
At the time of document entry, the appropriate special general ledger indicator needs to be
chosen.
Start
Down payment
request from
S
Purchase
Department
Yes
Vendor Account
updated
End
ABC has to make payments to vendors during their course of transactions, vendors invoice due
date is checked and if it is due, then the payment process begins. Prior to making any payment,
down payments, if any are to be checked and cleared against the invoices. Payment can be made
then.
The payment can be full payment or part payment or residual payment. In case of full payment,
the system clears the open item. In case of part payment, the open item is not cleared and has to
be cleared manually subsequently, when the entire amount is paid. In case of residual payment,
the original invoice is cleared and the balance amount is created as fresh open item.
Availability of the funds is checked before making the payment. In case funds are not available,
after making the funds available, the payment has to be made.
Payments can be through automatic payment program or through post plus print option
transaction. In case of automatic payment program, the parameters have to be entered and the
system prints the checks for all the vendors who are due as per specified parameters. In both
cases, the checks are printed.
In case of post plus print option, the individual vendor has to be selected and payments are to be
made by selecting the required open items.
Start
Yes
Wait for
M No Funds exist?
funds
Yes
Clear the
Down payment
down S Yes
exists?
payment
No
Part
S No Full Payment?
payment
Yes
Vendor Paid
Document
generated
End
PO is raised in foreign currency and the GRIN / Invoice verification is carried at a certain
accounting rate of Forex and vendor liability is created. Along with the vendor liability based on the
customs exchange rate, , Freight and other applicable liabilities are created. The difference between
the vendor liability and the actual payment based on the forward rate / Mark to market rate is
accounted as Exchange Gain / Loss and vendor liability is adjusted accordingly. For foreign
currency payments other than material related TDS is applicable as per the DTAA and the nature of
transactions.
Start
Is foreign PO
No
approved ?
Yes
LC approved from
No M
banker
Yes
Book foreign
currency to pay on M
due date
Intimate import
M
details to banker
Payment intimation
M
from banker
Post entries S
End
TDS is deducted based on nature of transaction between the service provider and ABC. In general
TDS will be deducted at the prevailing tax rates. In certain cases individual transactions may not
fall in the applicable range but cumulatively during the year it may fall into the applicable range and
thus even if we don’t deduct in the first instance we have to deduct at a later date on a total value.
Further based on the concessional certificates obtained by the service providers we have to apply
different rates including zero. We have to file the quarterly e-returns and issue the required Form 16
and comply the statutory process.
Start
Is vendor
End No applicable for
TDS
Yes
Yes Is it advance
payment
No
Calculate TDS on
S
advance amount
Is it Invoice
booking
Yes
Wheather
down payment
exists
Yes
Calculate adjusted
TDS on invoice S
amount
Post entries S
Post entries S
End
Every month on due dates we check the payable amount from the ledger account (example CST
payable for AP) and adjust the input tax credit available if any and make the net payment to the
concern departments by passing necessary entries for adjustment and payments. The check is
submitted to the department along with the monthly returns. Input tax credit is available for all the
raw material procured with in the state and on capital goods based on the applicable laws. We have
to file the VAT returns wherever applicable and GST returns in states like TN and UP. CST returns
to be filed for all the states.
Start
Post adjustment
S
entries
End
We have service tax liability on certain services. Based on the services provided by the company
Invoices are generated with applicable service tax from the FI Module. The entire liability is to be
captured and adjusted against the service tax credit available and the net payment is to be made and
the returns are filed.
Start
Post adjustment
S
entries if nay
Service Tax
payments/Returns
nature wise as per S
the statutory
requirements
End
Start
Customer invoice
S
entered
No
Authorized person
accesses the S
parked invoice
Yes
Authorized
person
access the
S No Authorized to
invoice post?
Post the
S
invoice
End
ABC receives money from customers. After the receipt of payment, down payments, if any are
to be checked and cleared against the invoices. The payments are adjusted against the specific
invoices. The payments can be part payments or full payments. Some times, they are residual
payments also.
For example an invoice is for INR 10000. If the payment is received for INR 5000 then it can be
made as residual payment, so that the original invoice is cleared and the remaining balance INR
5000 is only displayed as outstanding.
In case if we treat the payment as part payment, than the system will show Invoice amount (INR
10000) & partial receipt (INR 5000) against the invoice both as open items? If customer pays
down payment to ABC, then the system shows the payment as down payment in customer
ledger.
When ever we receive one more payment, we have to make sure that down payment paid earlier
has to be knocked of against bills if the customer had provided the details later or bills have to be
knocked off on FIFO Basis.
Start
Payment
received from M
customer
Down Payment
No
exists?
Yes
Y
Yes
Enter payment S
Enter payment S
Enter residual
S
payment
Payment
Document Posted
End
Bank reconciliation can be done manually or through electronically. In manual bank reconciliation,
the hard copy of the bank statement is received and all the entries are entered manually in the
system. Then, in the system postings are made. If any corrections are to be made after this step, post
processing is to be made for correction of the entries in the system.
In case of electronic bank statement, the soft copy of the bank statement is received in Swift / Excel
format. This is uploaded in to the system and reconciliation entries are posted. If still errors exist,
then post processing is to be made for correction of the entries in the system.
Start
Receive bank
M
statement
Yes
Post entries S
Posted
Post process S No
correctly?
Yes
Bank reconciliation
S
completed
End
Collections received from customers in two ways. The first one is cheque or draft directly received
from customer and deposited into Bank. Second one is Customer directly depositing into our
specified bank account. Further entries are to be updated based on the CMS reports and the RTGS /
E-net receipts.
Start
Payment
received by M
bank
Yes
Down Payment
No
exists?
Yes
Y
Yes
Enter payment S
Enter payment S
Enter residual
S
payment
Payment
Document Posted
End
Flow diagram for customer incoming payment process (direct deposit into bank)
Cheque dishonor process
We will receive dishonor intimation from the bank. Depends on customer we will debit the charges
to customer account. While the cheque dishonor entry is passed it should reverse (in a way) the
original receipt entry for the aging purpose.
Start
Reversal of Entriy S
Bank Charges ? No
Yes
Post entries S
Intimate to customer M
End
Start
Yes Approved
No
Yes
Yes Approved No
Correct entries S
Yes
Deposit in Bank M
End
We will give imprest amounts to employees as advance for expenses. As and when they submit
expense bills, those will be posted in the system.
Start
Yes Approved
No
Yes
Approved No
Yes
Yes
Cash/Deposit in
M
Bank
Yes
End
We will receive Bills of Exchange documents from customers. At present we are not discounting
with bankers. In future we may go for bill discounting. The limit for the customer shall be
equivalent to the Letter of credit, in case of BEs against L/C. Date of submission of the bills of
exchange to the bank and the credit received from the bank to be capture in the system (like cheque
deposit date and cleared date). Bank charges to be captured and accounted accordingly.
Start
Be from customer M
Yes Discounting ? No
Submission of
M
documents
Yes
Posting entries S
oN
Collected by Bank
Yes
End
ABC has Hardware & Software imports and Software exports thus have an exposure for the price
fluctuations (procurement vs. sale price linked to the international CP price) and exchange
fluctuations. Thus deal with the forex hedging. Hedging operations for forex mainly depend upon
simple SWAPs and at time go for the options depending upon the market fluctuations.
As per the Indian GAAP, the difference on account of forex forward booking (actual liability and
remittance) and the liability / Asset created through the Purchase / Sale has to be accounted as
Exchange gain / loss.
Any gain/loss, if accounted for in SAP, will affect the entire stock of material available as on the
date of admission of gain/loss but this will not apportion the gain/loss only on the quantity on which
this transaction has occurred. The process of Hedging will be explained to capture the same in the
system for future reference and posting the necessary entries linking the hedging products opted by
the company.
Start
Calculate Gain S
Calculate Loss M
No Is it approved ?
Yes
Is stock available No
Yes
End
Debit/Credit notes
In case of Expenses to be reimbursed from the customers, company has to raise Debit Notes on the
Customers. The same way any excess billing made will be adjusted by raising Credit Notes on the
Customers
Inter company purchase and sale transactions are handled as any other sale/purchase transaction.
Each company will be a normal customer/vendor in the other company.
Advances in the nature of down payments against the normal sale/purchase will be handled in
the same vendor/customer account that is created for inter company transactions as above.
Advances in the nature of loan and other non sale/purchase transactions shall be handled
separately in different GL accounts (inter company accounts)
Inter company balances for sale/purchase transactions can be had from standard
vendor/customer reports available.
Balances in advance accounts (non sale/purchase) will remain as such unless they are knocked
off by passing a manual entry transferring the balance to the inter company vendor/customer
account. The system cannot prompt for transfer of any such balances.
Postings only within CO are not possible (throughput charges for recognizing expense at one
cost center and income at other center). We need to post a JV for the said charges and then
transfer the same to the respective cost/profit centers.
Financial statements can be drawn up individually for each of the company codes and the same
can be exported into an excel sheet and all inter company eliminations can be done at this stage.
In case of Import materials, Purchase orders will be processed and sent to the selected vendor with
all terms and conditions. First we have to make invoice verification for Customs and paying the
relevant duties. Then capturing excise invoice & posting the excise invoice will be performed.
Vendor payment will be processed with reference invoice by Financial Accounting. The exchange
rate can be manually fed at the time of making the Invoice.
All import purchase orders are to be raised in foreign currency (USD or EUR) but the transactions
are to be recorded in INR. Once the PO is raised, the finance department will book a forward
contract for the remittance (in USD or EUR) to be made against the purchases. The PO order
quantity has been covered by a forward contract and hence the exchange rate if fixed.
Fixed Deposits with Banks
The company operates fixed deposits of various values with several banks and this is used as a lien
while establishing Bank guarantees, for meeting the scheduled import payments or such other bank
instruments. At any given point of time, ABC will have about 3-4 deposits with various banks and
about 350-400 deposits in a year. Though the deposits made for a fixed period with a defined
maturity date these will be broken based on the business needs. Since ABC does not have a process
of recognizing revenue on account of automatic interest accrual on the FD’s, the system need not be
configured for calculation of interest on deposits automatically. However, ABC has requested for a
system to track all the deposits that are lying with various banks and they would also like to have
information regarding the date of maturity, interest rate applicable, duration of FD, FD instrument
number.
As on the date of maturity, a manual entry will be posted for recording the interest due on the
deposit. Detailed report can be made available for tracking details of all the deposits held by the
company with various banks with the additional field created and the interest earned on the said
deposits and TDS deducted by the respective banks.
Whenever we receive a Bank guarantee, we post the same through a transaction which is used to
record Bills of exchange. We would be recording all the BG’s received and we would also be
maintaining all the data relating to the BG received like details of customer, BG number date of BG
expiry etc., and the system can give details of all the BG’s received. On the date of expiry of the
BG, we may either require to extend the validity of the BG, have a new BG in place of the existing
one or can have the BG revoked all together. All these can be handled in the system. In case we
need to invoke the BG, we can have transactions recorded for BG amount realization also.
The above procedure holds good even for the BG’s that we issue to our vendors/ statutory
authorities.
ABC wants to maintain details of all the employees for the advances taken and such other
transactions which require an account of the employee. All transactions with the employee that are
not handled in the HR module are transacted through this employee vendor account. This employee
account will be created as a FI vendor (with a separate employee vendor account group) and all
transactions per employee can be tracked.
Salary Payments by Bank Transfer
ABC settles the salaries payments through UTI bank where in all the employees of the company are
holding the salary payments. At every month end a report will be generated for the net transfer of
salaries to all the employees and send the instruction to UTI in Hard and soft copy along with the
high value cheque to transfer the funds to the respective accounts. From the list for the net payment
the regular input entry in the FI module will be made.
Excise duty liability is settled based on the available CENVAT credit (Raw materials / capital
Goods) and the balance is met through PLA. At the end of the month the liability is first adjusted
against the CENVAT credit and the balance is paid through the prescribed challan in PLA. System
should generate the liability report for required PLA payment and pass the necessary month end
adjustment as part of closing with proper authorization.
Procurement of Assets:
We have a CAPEX procedure in place for procurement of all capital items. Note for approval is
floated with the necessary comparison and then a CAPEX no. is created which is the key for
releasing the Purchase orders. Till the asset is capitalized the associated procurements are captured
and assigned to the relevant AUC GL A/c before capitalizing the asset. CWIP would be ideally the
sum of all the CAPEX related GL A/cs. This procedure is one and the same for all Capital
Expenditure or any other one time procurement. Capex is approved based on authority levels
(financial and IRR parameters)
Capitalization or settlement of the asset happens after creating asset master from FI. However for
low value assets which are acquired without PO, the same will be handled in FI.
Start
Advance
No
payment ?
Yes
No Vendor exists ?
Create one
S
time vendor Yes
Post advance
S
payment entries
Verification of
invoices with the
S
note for approval
Post invoice entries
Post balance
S
payment entries
End
During the construction phase, all the assets are initially booked to the assets under construction
account (capital works in progress Account).After the completion of the construction and when the
assets are put to use the assets under construction need to be transferred to the assets account. This
transfer of assets from assets under construction to the assets is known as settlement in SAP. Before
making the settlement, it is to be clearly known, as to in which proportion the line items under
assets under construction are to be settled to the assets. Basing on this, the distribution rules are
defined and then assets can be settled.
Start
Form C2 to be
approved
M No End
Yes
Relevant
Create Assets S No
Assets created?
Yes
Define
Distribution
distribution S No
rules defined?
rules
Yes
Execute
S
Settlement
Assets Settled
End
Based on the agreement with the customers which contains monthly rental charges, maintanance
charges clause etc. We debit the customer’s account for rentals from the date ofoccupation on a
monthly / quarterly basis as per the agreement. It is understood that liability is accrued based on the
invoices raised .
Start
Is agreement
No
approved
Yes
Asset capitalized S
No
oN Yes
Is lease rental
Is it approved No to be chargable
?
Yes
Post entries
without lease S Post entries
S
tax with lease tax
Post entries S
End
Retirement of Assets
Board resolution / Management approval is necessary for retirement of assets. Retirement can be
through a customer, either with revenue or without revenue. It may be for net book value as well.
The customer may / may not exist in the accounts receivable module.
In case of retirement with revenue, the profit or loss on sale of assets is recorded automatically
by the system, even if it is partial or full retirement is made. The profit shall be recorded . In case
of retirement with net book value, no profit or loss sale of asset is triggered.
Every asset retirement should precede an asset retirement request to be maintained manually and
only upon the release of this notification should an asset retirement be done. While doing a
retirement, the notification number should necessarily be given.
Asset retirement can be done in many ways and if the asset is retired with revenue and with
customer, then a customer liability is created while retiring the asset and the system will take care of
all the background processing like calculating the net book value, loss/gain on sale of asset etc., if
needed, we can also enter an out put tax indicator to have the sales tax component added to the
transaction.
Asset retirement can happen by way of sale of an asset to a customer, sale without customer,
debiting customer account for loss of asset and also by way of scrapping. In case of scrapping, the
asset scrap will be without customer and this can also be with and without revenue. The process for
all the above transactions will be as per the flow chart depicted below.
Start
Asset is to be
S
retired
Yes
Form C2 to be
M No End
approved
Yes
Yes No
Retirement
No Partial
with revenue? Retirement?
No
Post book
S
Yes value
Yes
Profit/Loss Posted
Asset Retired
End
Normally no transfer of Asset will be happen, but the same is formalized through a sale of Asset
mode which is described above.
Impairment of Asset
Compliance with AS w.r.t the Cash flow estimation (net present value of the cash flows vis a vis the
net asset value) of the asset is to be considered before taking a decision. This has to be part of the
process.
Start
Asset to be
S
impaired
Yes
Approvved No End
Yes
Revaluate
M
Asset
Charge P&L S
End