Chapter 2: Enterprise information

system components

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 Client-Server Architecture
 These layers are the presentation layer, application layer, and
data layer

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 Service-Oriented Architecture
 Link, or integrate of many different client-server systems
together in new and valuable ways. These new technologies
are collectively labeled service-oriented architecture, or SOA
 In essence, SOA enables companies to build composite
applications on top of their existing three-tier client-server
applications without changing the underlying applications

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 SAP ERP modules

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 DATA IN AN ENTERPRISE SYSTEM
 Data in an ERP system are used to represent the physical system in
which process steps such as creating a purchase order and
receiving goods are carried out. These steps generate data, which
represent the outcomes of the steps.
 There are three types of data in an ERP system:
 Organizational data (company’s structure),
 Master data (describes the key entities associated to the
organization. Examples include customers, materials, and
vendors)
 Transaction data (is data associated with the execution of specific a
activity or task)

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 ORGANIZATIONAL DATA
 Organizational data are used to represent the structure of an
enterprise.
 Examples of organizational structure are companies,
subsidiaries, factories, warehouses, storage areas, and sales
regions.
 Note that the terms organizational data, organizational
levels, and organizational elements are often used
interchangeably, depending on the context
 Three organizational data elements: client, company
code, and plant.

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 Client and Company Code
 A client is the highest organizational level in SAP ERP. It
represents an enterprise consisting of many companies or
subsidiaries. Each company within the enterprise is
represented by a company code. Each company code
represents a separate legal entity.

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 Plant
 A plant is an organizational element that performs multiple
functions and is relevant to several processes. It is essentially
a facility in which the following functions are performed:
 • Products and services are created.
 • Materials are stored and used for distribution.
 Production planning is carried out.
 • Service or maintenance is performed

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 MASTER DATA
 Master data represent entities associated with various processes. For example, processes
involve buying materials from vendors and selling materials to customers.
 For example, customers, vendors, and materials are represented in an ERP system using
master data.
 The most commonly used master data in an organization is the material master
 Factors in Master data determines the type of data : Material Master; Material Types;
Material Groups (similar characteristics); Organizational Level.
 For example of Organizational Level , GBI may choose not to ship bikes to customers
from its Dallas plant. Rather, it sends the bikes to its two distribution centers (Miami or
San Diego), which then ship them to customers. In this case, sales-related data for the
bikes are included in the material master’s definition for the Miami and San Diego plants
but not for the Dallas plant.

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 Categories of material master data

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 Material master data
 Materials are categorized into different material types based
on the way they are used in the firm’s operations.
 The four most common material types are:
 Raw materials.
 Semifinished goods
 Finished goods
 Trading goods.

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 OUTLINE
 ERP components
 Introduction of ERP
 Financial Accounting
 Procurement Process (Buy)
 The Fulfillment Process (Sell)

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ERP components

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 ERP components
 Material planning  Asset management
 Procurement  Customer service
 Production  Human capital
 Fulfillment management
 Inventory and warehouse  Program and project
management management
 Financial accounting  Life cycle data
 Management accounting
management

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A Procurement Process

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A Production Process

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A Fulfillment Process

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Inventory and Warehouse Management
Process

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An Asset Management Process

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A Customer Service Process

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A Project Management Process

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 Financial Accounting

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 Learning Objectives
1. Explain the differences between financial accounting and
management accounting.
2. Describe the organizational data related to financial
accounting.
3. Discuss and analyze the key types of master data involved
with financial accounting.
4. Execute key processes in financial accounting.
6. Identify key integration points between financial
accounting and other processes.
7. Prepare reports in financial accounting.

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 Accounting Categories
 The accounting process is divided into two major categories:
 Financial accounting (FI)
 Management accounting (CO)
 In general, BRANCHES OF ACCOUNTING as:

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 1. A CONCEPTUAL FRAMEWORK OF
FINANCIAL ACCOUNTING
 An Information system should be mentioned in:
 Organizational data (organizational structure of the
company- rarely change)
 Master data (Master data describes the key entities associated
to the organization. Examples include customers, materials, and
vendors. Master data changes infrequently)
 Key concepts
 Process
 Reporting

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Key Financial Accounting Processes
 General ledger accounting
 Accounts receivable accounting
 Accounts payable accounting
 Asset accounting
 Bank ledger accounting

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 1. Organizational Levels
 Client
 Company code
 Business area

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 Client
 Highest organizational level
 Only one client per enterprise
 Can have one or multiple company codes

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 Company Code
 Highest organizational level for financial reporting (external,
legal reporting)
 Four-digit alphanumeric field
 Smallest entity that supports a full set of books
 General ledger, journals, etc.
 At least one CC is required; can have more than one

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 Business Areas
 Internal division to generate financial statements
 GM
 Cars (Sedans)
 Cars (Sports)
 Pick-up
 SUV
 Minivan
 Across Company Codes

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 2. Master Data
 Chart of Accounts
 General Ledger Accounts
 Balance sheet accounts
 Income statement accounts
 Reconciliation accounts
 Subsidiary ledgers (sub ledgers)
 AR(customers)
 AP (vendors)
 Assets

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 Chart of Accounts
 An orderly definition of accounts in the general ledger
Difference between
 Three types of chart of accounts: Operative COA/group
COA/country COA?
 Operative COA
 Country-specific COA
 Group COA
 Multiple charts of accounts exist
 US (CAUS) , Germany (GKR), Canada (CANA)
 Country specific to meet reporting requirements
 International Chart (INT)

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 Chart of Accounts
 A chart of account can be used by multiple company codes
 Different GM companies (Buick, Cadillac, Oldsmobile) can use
the same (US) chart of accounts
 Saab will use the German chart of accounts
 A company must use at least one chart of account
 Can use more than one chart of account to create alternate
ledgers

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 General Ledger Accounts
 G/L accounts are master data
 Recording of all accounting-relevant business transactions
occurs in a G/L account
 Data in the general ledger accounts are segmented by
organizational level
 Chart of account segment
 Company code segment
 General ledger = COA data + Company code data

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 3. Key Concepts
 Key concepts to financial accounting are:
 Accounting document
 Parallel accounting
 Concepts in Management Accounting

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 Document Type
 Two-digit code that identifies the process that generated the
document
 Financial accounting document (FI)
 Customer invoice (DR)
 Customer payment(DZ)
 Goods issue (WA)
 Goods receipt (WE).
 Determines the document number range and the account
type that can be posted to

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 Account Type
 Customer(D)
 Vendor (K)
 Asset (A)
 Material (M)
 General ledger accounts (S)

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2. Concepts in Management Accounting (second major
in Accounting process)
- CO-Cost management
 Most of the data used in management accounting are derived
from financial accounting
 A key function of management accounting is to manage and
allocate costs
 Companies incur these costs as they carry out various
business processes such as fulfillment
 COST: cost means the amount of expenditure, actual or
notional incurred or attributable to a given thing. It can be
regarded as the price paid for attaining the objective. For e.g.
Material cost is the price of materials acquired for
manufacturing a product

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 Cost Centre
 It is a location, person or item of equipment for which cost may
be ascertained and used for the purpose of cost control. It is a
convenient unit of the organisation for which cost may be
ascertained. The main purpose of ascertainment of cost is to
control the cost and fill up the responsibility of the person who is
incharge of the cost centre.
 Types of cost centers
 Personal Cost Centre: It consists of a person or group of persons. e.g.
machine operator, salesmen, etc.
 Impersonal Cost Centre : It consists of a location or an item of equipment or
group of these. E.g. Factory, Machine etc

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 Cost Center
 Master data in controlling
 Location where costs are incurred
 Department, individuals, special projects
 Cost bucket used to accumulate costs
 Accumulated costs are then “charged” to other cost centers – CO
process
 Many processes have “orders”
 Purchase orders, Production orders, Sales orders
 Expenses can be charged to these orders
 Collectively objects that can absorb costs are called cost objects

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 Classification of Cost

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 4.Processes
 Recording of value flows ($$) as a result of other processes
and transactions
 General Ledger Accounting
 G/L postings for rent, utilities, wages, etc.
 Accounts Payable Accounting
 Part of the procurement process
 Accounts Receivable Accounting
 Part of the fulfillment process
 Asset Accounting
 Acquisition, depreciation, retirement

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 General Ledger Accounting
 Concerned with recording the financial impact of all process
steps performed within the organization
 Double-entry accounting is used for every transaction
 Accounts are divided into balance sheet accounts and income
(profit and loss) statement accounts

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

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 Asset Accounting
 Concerned with tracking the financial consequences associated
with the entire lifecycle of an asset, from acquisition to disposal
(retirement).
 Assets can be categorized as tangible, intangible, and financial
 Tangible assets can be further categorized as:
 Fixed assets
 Leased assets
 Assets under construction

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 Asset Accounting
 Assets are assigned to
 company code
 Business area
 Asset accounts
 sub-ledgers accounts
 General ledger
 reconciliation accounts (in the general ledger)
 Involves account determination (via asset classes)

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 Integration of Financial Accounting
with Other Processes
 Financial accounting is integrated with other processes in
SAP within the organization (enterprise)
 Numerous steps in different processes have a financial impact

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 Integration of Financial Accounting
with Other Processes

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 4.Reporting
 Financial reporting is broadly divided into two categories:
 Displaying account information
 Generating financial statements

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 Account Information
 Account information can be displayed at three levels:
 Balance
 Line item
 Original FI document

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 Financial Statements
 Three types
 Balance Sheet
 Income Statement
 Statement of cash flows
 Required for external reporting
 Quarterly filings with the SEC?
 Accuracy is critical – SOX compliance
 Certified by CEO and CFO

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