SI0014

Computerized Accounting
Application II
Preparing Financial Statements

ACCOUNTING PROGRAM
Overview
• Discuss key steps to close G/L, including entering
and reversing accrual documents, analyzing the
GR/IR account, and running financial statements
• Introduce the Closing Cockpit, which will help
organize and track closing activities
• Explain the difference between cost of sales
accounting and period accounting
• Show how the functional area is used in cost of sales
accounting
• Discuss the basic functions of the new general ledger

2
Unit Objectives
After completing this unit, you’ll be able to:
• Complete accruals and deferrals
• Analyze the GR/IR clearing account
• Running financial statements
• Explain how cost‐of‐sales accounting is set up
• Explain the need and the role of the functional area
• Start the program that creates a profit and loss
statement based on cost‐of‐sales accounting
• List the main advantages offered by the New General
Ledger

3
Contents
• Financial Closing in the General Ledger
• Cost‐of‐Sales Accounting
• The New General Ledger (New G/L)

4
Financial Closing in the
General Ledger
Lesson Overview
• Discuss G/L closing with a short introduction to
the Closing Cockpit
• Entering accrual/deferral documents, regrouping
a GR/IR clearing account, and running financial
statements

6
Lesson Objectives
After completing this lesson, you’ll be able to:
• Complete accruals and deferrals
• Analyze the GR/IR clearing account
• Running financial statements

7
General Ledger Closing

8
General Ledger Closing
• At the start of the new fiscal year, the balance carry forward program is run
• This ensures that the balances of the G/L accounts are carried forward to the new
fiscal year
• The posting periods of the old fiscal year are then blocked and special
periods for closing entries are opened
• Technical reconciliation between transaction figures and documents guarantees that
documents are posted without any technical errors
• Foreign currency documents are then evaluated, accrual/deferral documents
are posted, and GR/IR clearing accounts are analyzed
• Following that, the respective accounts are updated
• If user wishes to create business area financial statements, user needs to
make adjustment postings for the business areas
• The balances of the business areas are then set to zero
• Note the information on balance sheet/P&L readjustment in the lesson “New G/L”
• The special periods can then be closed
• For documentation purposes, the balance audit trail is made and the
financial statements are created
• Additional reports are prepared for legal reporting purposes

9
Closing Cockpit

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Closing Cockpit
• The Closing Cockpit enables user to create a structured
interface for executing transactions and programs that form
part of complex processes, such as closing processes
• The structural layout supports processes within an
organizational structure, such as a company code, as well as
scenarios affecting multiple organizational structures
• The Closing Cockpit is particularly well suited when:
• Activities recur periodically
• More than one responsible party is involved
• The activities are performed within a process that has a fixed
chronological sequence or is determined by dependencies
• The activities need to be supported by a shared, uniform interface
for all involved
• The status of all periodic activities needs to be documented and
made transparent and available for all involved

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Closing Cockpit (Cont.)
• To support the closing process, the Closing Cockpit offers
the following options:
• Hierarchies to display the organizational objects involved in the
closing process
• A task list template based on the organizational structure
• Task lists that are derived from the task list template
• A list display in which all tasks to be managed or executed from
the respective task list are made available for processing or for
monitoring task progress, or a monitor that shows a graphical
representation of the critical paths as well as the processing
periods and processing sequence with their respective
dependencies
• Detailed information about the technical settings of tasks as well
as for analyzing background programs (spool, job log
information)
• Dependencies for displaying the conditions representing a
prerequisite for processing the individual tasks

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Accrual Engine
• Revenues and expenses, which were posted in a
specific posting period, often originate in a
different period
• For this reason, such revenues and expenses must be
accrued; that is, they must be divided over the
periods in which they are incurred
• There are two methods in the system for these
postings:
• Accruals
• Deferrals

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Accrual Engine (Cont.)
Accruals: Deferrals:

• Situation: The expense • Situation: The expense

or revenue belongs to or revenue was posted
the current period, in the current period
from an accounting (invoice
point of view, but is sent/received), but the
not posted until a later actual business
period, because the transaction, or part of
invoice has not yet it, is actually incurred
been sent or received in a future period
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Deferrals (Example)
• The figure shows an example of a deferral where
an expense invoice for € 120 is received at the
start of the year and posted in the first period
• However, the invoice covers an asset that is used
throughout the entire year (for example,
insurance)
• The expense must therefore be distributed over
all periods of the fiscal year equally

15
Using the Accrual Engine
(Example)
• Following on from the example in the previous figure, the
posting for the deferrals (shown in the previous figure) is
as follows:
• The invoice for 120 arrives in Accounts Payable in the first
period and is posted there
• The posting record is: Expense account to vendor account
• Using an opening posting, the entire amount is transferred from
the expense account to an account for invoice deferral items
• The posting record is: Prepayments and accrued income to expense
account
• During the period‐end closing, part of the amount gets posted
back to the expense account, i.e. prepayments and accrued
income get prorated
• Posting record: Expense account to prepayments and accrued income
• If the contract is terminated prematurely, the entire residual
amount is posted to an expense account
• Posting record: Expense account to prepayments and accrued income

16
Using the Accrual Engine
(Example)

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GR/IR Analysis

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GR/IR Analysis
• The GR/IR clearing account contains a list of all
goods and invoices received
• If, at the end of a period, the balance of this
account is not zero, there are either:
• Goods that were billed but not yet delivered
• Goods that were delivered but not yet invoiced
• When the books are closed, these balances need
to be listed as either an asset (goods billed but
not yet delivered account) or a liability (goods
delivered but not yet invoiced account) in the
financial statements

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GR/IR Analysis (Cont.)
• The GR/IR is analyzed using a special program
• Here, the balances are posted either to the account for “Goods billed
but not yet delivered” or to the account for “Goods delivered but not
yet invoiced”
• The postings are reversed on the first day of the next period, since
repostings during daily business would lead to erroneous figures
• A clearing posting is normally completed using a correction
account
• The GR/IR clearing account and its correction account are
sometimes just shown in the appendix of the financial statement
• The details of how this is handled varies by country
• In the United States, for example, there is a regulation prescribing
that goods received but not invoiced must be recorded
• There is no legal liability when invoices have been received but the
related goods have not been received

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Balance Audit Trail

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Balance Audit Trail
• Legislation generally stipulates that it must be possible to explain account
balances at any time for more than one fiscal year using the relevant
document items
• As long as all the related documents are still in the system, this should be no problem
• However, it is usually necessary to archive older documents and delete them
from the database in order to lessen the load on the system
• If user then wants to explain an account balance, user should start the balance audit
trail before user archives any documents
• This generates the compact journal for a period in the form of a list
• The balance audit trail displays the balance at the beginning of a period and
the changes to the account to the period end
• Alternatively, user can periodically generate an extract for accumulated
balance audit trail periodically and extract the balance list from here
• Once a year, the cumulative content of this balance audit trail can then be
optically archived or printed
• Once a year, the accumulated contents of this database structure can be
archived or printed out

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Preparing Financial Statements
for Period Accounting

23
Financial Statements
• To assist in creating financial statements, there are two
options available in the SAP system:
• Using an ABAP program
• Using the G/L account information system
• Both options allow user to do the following:
• Use various financial statement versions
• Create individual and total financial statements for company
codes
• Create individual and total financial statements for business
areas
• Create financial statements using the operating chart of accounts
• Create financial statements using the country‐specific chart of
accounts
• Create comparative financial statements for comparing two fiscal
years or for comparing plan and actual data

24
Financial Statements (Cont.)
• The primary goal of financial accounting is to report data needed to meet
legal and regulatory requirements
• This reporting takes the form of financial statements, including the balance
sheet and the profit and loss statement
• The specific accounts that need to be included in these statements are
determined by the nature and purpose of the requirements
• Financial statements can be generated for different organizational levels,
including one or more company codes and business areas
• Financial statements are created from financial statement versions
• A financial statement version is a hierarchical grouping of general ledger accounts that
must be included in the financial statements
• A company can define multiple financial statement versions, tailoring each
one to satisfy different reporting requirements
• Financial statements can be generated from either the operative chart of
accounts or the country‐specific chart of accounts
• These statements also specify additional characteristics such as currency,
format, and level of detail

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Financial Statement Version –
With Balance Sheet Accounts
• Figure below provides an example of a balance
sheet
• It is defined using a financial statement version that
includes relevant balance sheet accounts
• It is grouped into two major categories, assets and
liabilities/equity, which in turn are divided into
account groups such as short‐term assets (e.g. raw
materials and finished goods) and long‐term assets
(e.g. land and depreciation)

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Financial Statement Version –
With Balance Sheet Accounts

27
Financial Statement Version –
With Profit and Loss Accounts
• Figure below displays a profit and loss statement
• It is grouped into revenue accounts, expense
accounts, and cost of goods sold accounts

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Reporting

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Reporting
• To support legal reporting requirements,
currently several reports meet country‐specific
requirements
• There is a list of country‐specific reports for
completing VAT forms, support for the
consolidated EU report, and other reports for
additional legal reporting requirements (such as
a report for international trade as required by
German law)

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Lesson Summary
You should now be able to:
• Complete accruals and deferrals
• Analyze the GR/IR clearing account
• Running financial statements

31
Cost‐of‐Sales
Accounting
Lesson Overview
• Discuss the difference between period
accounting and cost of sales accounting
• Explain the organizational element functional
area

33
Lesson Objectives
After completing this lesson, you’ll be able to:
• Explain how cost‐of‐sales accounting is set up
• Explain the need and the role of the functional
area
• Start the program that creates a profit and loss
statement based on cost‐of‐sales accounting

34
Introduction
• Two basic methods for structuring profit and loss
statements are available:
• Period accounting: used primarily in Europe
• Cost‐of‐sales accounting: used primarily in United States
• Both methods result in the same net profit or loss for
the period
• The method used may be legally required or simply
based on business considerations
• For example, many European companies who used to use
period accounting are now switching to cost‐of‐sales
accounting because of more international investors

35
Period Accounting

36
Cost‐of‐Sales Accounting

37
Period vs Cost‐of‐Sales
Accounting
Period Accounting Cost‐of‐Sales Accounting

• In period accounting, the total • In cost‐of‐sales accounting, the

results for a period are cost of goods sold is subtracted
compared with the total costs from revenue to calculate the
of this period gross operating profit
• The total costs of production are • Unlike period accounting, in
deducted from the revenue
which the expenses are broken
• The overall costs for a period down by expense types, the
are listed according to expense expenses are listed according to
type their function within the
• Here, the balances are added on organization, such as
similar expense accounts (for manufacturing, sales,
example, different accounts for administration, research and
personnel accounts) development (R&D), and
• This breakdown distributes the production
expenses to the various • These functions are represented
production factors by functional areas

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Derivation of Functional Area

39
Derivation of Functional Area
• When cost‐of‐sales accounting is selected, an additional field, functional
area, is included in the coding block (that is, the list of all account
assignment objects) for the account
• An entry is made in this functional area field via:
• A manual entry in the field
• Automatic entry of the functional area through a substitution
• Automatic copying of the functional area entered from the master data of the P&L
account
• Automatic copying of the functional area entered from the master data of the CO cost
object
• The aforementioned order is also the order of priority for deriving the
functional area
• In other words, manual entries have the highest priority and data from the CO object
has the lowest priority
• The system should, however, be set up so that a manual entry is normally not
necessary, but rather that the functional area is derived from a substitution,
the CO cost object, or the P&L account
• A substitution rule based on a Cost Center is used most often
• This Cost Center was entered as an additional account assignment

40
Cost‐of‐Sales Accounting Ledger

41
Cost‐of‐Sales Accounting Ledger
• To create financial statements based on cost‐of‐sales accounting, the SAP
system needs transaction figures for the functional areas
• In the standard general ledger, however, transaction figures are kept for the
company code and business area only
• For this reason, a cost‐of‐sales accounting ledger has to be used so that transaction
figures for the functional areas can be kept as well
• Using a special financial statement report, these transaction figures can be
accessed and a profit and loss statement can be made based on cost‐of‐sales
accounting
• If additional transaction figures for existing or new account assignment
fields have to be managed, this can be simplified by using the Special ledger
• The following methods are provided for the management of additional
transaction figures:
• Extending the coding block.
• Using a customer‐defined ledger that contains additional transaction figures
• These figures can then be valuated with the tools of the special purpose ledger (Report
Painter, Report Writer)

42
Lesson Summary
You should now be able to:
• Explain how cost‐of‐sales accounting is set up
• Explain the need and the role of the functional
area
• Start the program that creates a profit and loss
statement based on cost‐of‐sales accounting

43
The New General
Ledger (New G/L)
Lesson Overview
• Discuss a brief summary of the main advantages
offered by new General Ledger Accounting in
mySAP ERP

45
Lesson Objectives
After completing this lesson, you’ll be able to:
• List the main advantages offered by the New
General Ledger

46
The New General Ledger (New
G/L)

47
The New General Ledger (New
G/L)
• An overview of the advantages of using the New
General Ledger can be obtained in OSS Note 756146
• Visit the courses AC210 (The New General Ledger (in
mySAP ERP)) and AC050 (Business Processes in
Financial & Management Accounting) to learn more
about the New General Ledger by attending an SAP
customer training course
• Existing customers can convert to the New General
Ledger for a project after they have upgraded their
system to mySAP ERP
• mySAP ERP 2005 offers migration tools for
transferring historical values to the New General
Ledger as standard

48
Advantages of the New General
Ledger – Overview

49
Advantages of the New General
Ledger – Overview
• A brief explanation of the New General Ledger
could go as follows:
• The New General Ledger contains functions that
merge the Classic General Ledger and the Special
Ledger
• The “interfaces” for creating and posting data are
virtually identical for the user, in spite of all the
new features that have been mentioned

50
Advantages in Detail – Extended
Data Structure

51
Advantages in Detail – Extended
Data Structure
• The Functional Area field is now stored in the General Ledger too
• This means user is no longer obliged to activate the cost of sales ledger 0F to create a
profit and loss statement after cost‐of‐sales accounting
• The Profit Center field (and the Partner Profit Center field) is also included
in the General Ledger
• User can thus use the General Ledger to run management analyses
• With mySAP ERP Central Component, user can map an extremely simplified
version of Management Accounting (=> “CO light”) in the General Ledger
• The objects available are cost centers and (primary) cost elements
• The new entity (characteristic/category) available is the Segment field
• User can use this to carry out segment reporting
• The table structure in the New General Ledger can be flexibly extended
• This means that customer fields can be included and their totals updated
• Standard reports are available for all the purposes listed above

52
Advantages in Detail – Document
Splitting (Online Split) I

53
Advantages in Detail – Extended
Data Structure
• Both the display and the input for the financial
document are identical to the previous release
• An input tax of 16% is taken as the norm
• SAP currently supports derivation of the segment
from the profit center
• The profit center can in turn be derived from, for
example, a cost center, a CO internal order, or a
project

54
Advantages in Detail – Document
Splitting (Online Split) II

55
Advantages in Detail – Document
Splitting (Online Split) II
• User has to activate document splitting to ensure uniform splitting of
the segment characteristic (or any other entity)
• Uniform segmentation means that for each document, a “zero balance
position” is achieved for the entity involved
• As well as the split, the illustration also clearly shows how the
segment entity is inherited by the accounts payable and tax items in
the document
• The online split (and inheritance) dispenses with the need for the
period‐end closing activities “balance sheet adjustment” (=>
SAPF180) and “profit and loss adjustment” (=> SAPF181)
• Document splitting also works for “follow‐on processes” such as
payment, for example
• Cash discounts paid or received are distributed among the entities in
relation to the amount of the original expense postings (in the case of an
original vendor invoice)
• Customer invoices for which the revenues are distributed among
various entities are handled in the same way

56
Advantages in Detail – Real‐
Time Integration CO‐FI

57
Advantages in Detail – Document
Splitting (Online Split) II
• The previous slide shows the real‐time integration of CO ‐> FI using the
functional area characteristic or criterion as an example
• However, user can also define real‐time integration for the criteria company
code, business area, profit center, segment, fund, and receivable
• The selection is not an “either/or decision” – user can activate the real‐time
integration for all these attributes at the same time
• Special features of the Financial Accounting document (=> 2b.):
• It is posted in real time (per document)
• User no longer needs a reconciliation (=> [only] in summary for each expense account/cost
element) using the reconciliation ledger in the cost element invoice using transaction KALC
• It is a document that does not require clearing accounts
• Clearing accounts are still required in mySAP ERP for cross‐company code transactions, for
example
• On the Financial Accounting document created in real time, user can switch from the
Management Accounting document (=> 2./2a.) and vice versa – purpose: to trace the
accounting documents
• The CO ‐> FI real‐time integration documents can be logged and analyzed
with a trace

58
Advantages in Detail – Parallel
Accounting

59
Advantages in Detail – Parallel
Accounting
• One ledger in the New General Ledger has the role of “leading” ledger
• This ledger is generally used to model the group accounting requirements
• For parallel accounting, other ledgers can be used in the New General Ledger
in addition to the leading ledger
• In mySAP ERP, this is referred to as the Ledger Solution in the New General Ledger
• These are not the same ledgers as those in the Special Ledger component in Release
R/3 Enterprise
• Parallel accounting can still be modeled using additional accounts (=>
Accounts Solution)
• In this case, there is only one ledger (the leading ledger) in the General Ledger
• The ledger solution (in the New General Ledger) and the account solution
should be seen as equally valid for mySAP ERP for now – please also read
Note 779251 in this regard
• User can also continue to use display options from earlier releases, such as
the SL solution or the company code solution, if user already sets them up
before mySAP ERP
• However, there is no corresponding extensibility!

60
Lesson Summary
You should now be able to:
• List the main advantages offered by the New
General Ledger

61
Unit Summary
You should now be able to:
• Complete accruals and deferrals
• Analyze the GR/IR clearing account
• Running financial statements
• Explain how cost‐of‐sales accounting is set up
• Explain the need and the role of the functional area
• Start the program that creates a profit and loss
statement based on cost‐of‐sales accounting
• List the main advantages offered by the New General
Ledger

62
Test Your Knowledge
1.The tool that allows you to organize your closing
activities is the ____________________.
2.If there is a credit balance in the GR/IR account
when the books are to be closed, the Regroup GR/IR
program moves that balance to an account called
____________________.
3.In most cases, the functional area is derived from the
cost center entered in a transaction.
o True
o False
4.In ____________________ the cost of goods sold is
subtracted from revenue to calculate the gross
operating profit.
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