SAP FICO THEORY

Client The client is the highest level in the SAP System hierarchy. Clients are a commercially, organizationally, and technically self-contained unit within an SAP System and definition of the same is obligatory. Clients have their own master records and set of tables. Specifications that are made or the data that is entered at this level are valid for all company codes and for all other organizational structures. Company The definition of the company organizational unit is optional in SAP. Company is the organizational unit for which individual financial statements are created according to the relevant legal requirements, all of the company codes within a company must use the same chart of accounts and fiscal year, it can have a different local currencies. Company Code: Company code is assigned to company. Transactions are posted at company code level. Company code is used for identifying a legally independent entity, the smallest organizational unit of external accounting for which a complete, self-contained set of accounts can be created and maintained, thus including entry of all transactions that must be posted and the creation of all items for legal individual financial statements, such as the balance sheet and the profit and loss statement. Thus the company code is the central organizational unit of external accounting within the SAP System. Company code is assigned to different organizational units depending on business and integration requirements. Company code is assigned to Credit Control area from credit management perspective, to Controlling area from costing perspective, to Plant to establish integration with

Materials Management, to Purchasing Organization to integration with Purchasing, to Sales Organization from Distribution perspective. Assignment of Company code to organizational units thus helps to establish integration link different modules in SAP. Credit Control Area

establish Sales & different between

Credit control area is an organizational unit that represents the area where customer credit is awarded and monitored. Credit control area will be defined at company code level, sales area level (sales organization, distribution channel and division), in customers master record. Credit limits can normally be specified in the individual customer master records at sales organization level. The credit limits at the control area level are checked during sales order processing. Company code is assigned to credit control area. Chart of Depreciation Chart of depreciation is country-specific and is defined independently organizational units. Charts of depreciation are used in order to manage various legal requirements for the depreciation and valuation of assets. Typically the depreciation values for the asset to be calculated in different ways based on business needs, both internal and external. The chart of depreciation, therefore, is a directory of depreciation areas organized according to business management requirements. Depreciation keys will be designed for calculating automatic depreciation of the assets in each depreciation area. In order to make a company code usable in Asset Accounting, you have to assign a chart of depreciation to the company code. Assignment to Plant / Location Plant / Location do not have any Asset accounting significance. However, they could be used for reporting purposes.

Chart of Accounts Chart of accounts is a classification scheme used for accounting and with the purpose to provide a framework for recording values or value flows in order to guarantee an orderly representation of accounts. For each G/L account, the chart of accounts contains the information that controls how an account functions and how a G/L account is created in a company code. The chart of accounts is shared by Financial Accounting as well as Controlling. Account groups that are assigned to the G/L master records, determine the number range and data relevant for the master records. Fiscal Year Variant Fiscal year is generally a period of 12 months for which a company regularly creates financial statements. Fiscal Year April to March assigned to company code for posting the accounting transactions in that particular company code. A fiscal year starts from 1st April and ends on 31 st March of every year is divided into 12 posting periods for which a start and a finish dates have been defined for posting of documents in company code. Based on the posting date in the accounting transaction, system will derive the posting period. In addition to the regular posting periods, defined up to four special periods for year-end closing. Currencies & Exchange Rates Currencies are legal mode of processing and reporting business transactions in legal company code. Each currency dealt by company is defined in SAP In Financial Accounting, for the company code, INR (Indian Rupee) is configured as local currency in which currency ledgers should be

managed. Local currency (or company code currency) is typically the national currency of country in which company code is situated. From a company code view, all other currencies are then foreign currencies. The account currency can be defined in the GL Master. In order to for the system to translate amounts into various currencies, exchange rates need to be maintained. daily or periodic basis. \ For each currency pair, different exchange rates can be defined and then its possible to differentiate between them by using exchange rate types. Exchange rates for different purpose for the same date are defined in the system as exchange rate types. The company only needs to specify the translation rate between each currency and the base currency.

Variant for Open Posting Period A separate variant for posting period is defined for every company code. You can specify for each variant which posting periods are open for postings. Two intervals are available for doing this. For every interval enter a lower period limit, an upper period limit and the fiscal year. You close periods by selecting the period specifications so that the periods to be closed are no longer contained. Define Tolerance Groups for employees Employees are classified in to tolerance groups basing on, the maximum document amount the employees is authorized to post, the maximum amount the employee can enter as a line item in a customer or vendor account, the maximum cash discount percentage the employees can grant in a line item, and the maximum acceptable tolerance for payment differences for the employee. Determine Tolerance Groups Customers & Vendors Tolerance groups are created for postings of differences in payment and residual item, which can occur during payment settlement. Defined

tolerance groups are assigned to each customer and vendor via the customer and vendor master record. Document Types Postings to various accounts are made through documents. Only complete documents can be posted in SAP. Document types are created to differentiate different types of transactions depending on business need and number range can be assigned each document type. You can further specify the characteristics for the document types based on business use. Posting keys are used to post transactions to accounts. The combination of positing key and document type can restrict the type of accounts to be posted for the transaction. When customer or vendor account is posted, the system automatically makes a posting to the corresponding reconciliation account in the general ledger. As a result amount totals from sub-ledger accounting no longer needs to be transferred to the general ledger before preparation of balance sheet. Certain line items like gain/losses from exchange rate differences, price variance etc. are generated automatically by the system. Special G/L transactions can be used to account special transactions in account receivable or payable and are displayed separately in general ledger and the sub-ledger. Transactions like bill of exchange, down payments, bank guarantee etc. can be accounted through special G/L transaction option. Create General Ledger Master General Ledger Master is created at Chart of Accounts Level and also 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, only balances in local currency, tax category, reconciliation account for account type, open item management, line item display, field status, post automatic and relevant to cash flow etc. Create Vendor Master

Vendor master is created centrally in materials management & financial accounting with their respective views. However, financial vendors can be created only in financial accounting. For example, employees, 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. Create Customer Master 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. Create Asset Master 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 area, depreciation key useful life etc., are copied. Asset values are managed for different needs, both internal and external. SAP enables management of values in parallel in as many depreciation areas as needed without having to maintain multiple asset masters for this purpose. The various purposes for which asset values are to be maintained and the depreciation calculation methods and parameters need to be clearly laid down. The depreciation terms, if required can be changed. Low Value Assets (LVA) can be handled as a separate Asset Class as they are fully depreciated in the month of purchase. The maximum value for low value assets has to be decided and can be specific to the depreciation area maintained under chart of depreciation. Also decision needs to be taken whether low value assets should be managed collectively or individually. In case of collective management, the entire acquisition and production costs of the asset, divided by the total quantity, are checked against the LVA maximum amount defined in configuration under individual depreciation area. Assets need to be assigned to cost centers so that the depreciation costs of these assets get properly charged to cost centers. Since its also proposed to use Profit center accounting, assets can be categorized under profit center through cost center assignments. The general and time dependent data fields like description of asset quantity, cost center which asset related plant and location where it is situated to be filled in the data. Create 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.

Create Profit Center A profit center is an organizational unit in accounting that reflects a management-oriented structure of the organization for the purpose of internal control. You can analyze operating results for profit centers using the period accounting approach 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. Create 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. The statistical order is used for capturing of expenses item wise like telephone and vehicles and others. 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. TDS TDS is deducted based on nature of transaction between the service provider and the Company. 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 applicab le range and thus even if we dont 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 issue the required Form 16 and comply with the statutory process. Annual e-return is filed to the department 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 respective accounts. In case of retirement with net book value, no profit or loss sale of asset is triggered Cash Journal (Petty cash) We will maintain petty cash at plant and depot level. All expenses are entered receive expenses statements weekly/fortnightly at depot office for approval and will be entered at plant offices. Controlling Controlling provides you with information for management decisionmaking. It facilitates coordination, monitoring and optimization of all processes in an organization. This involves recording both the consumption of production factors and the services provided by an organization. As well as documenting actual events, the main task of controlling is planning. You can determine variances by comparing actual data with

plan data. These variance calculations enable you to control business flows. 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 cost 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. Cost Center Accounting You use Cost Center accounting for controlling purposes within your organization. It serves as a tool for monitoring overhead costs and assigning them to the location at which they occurred in line with their source. Overhead costs are those that cannot be directly assigned to the manufacture of a product, or the provision of a particular service. You assign all overhead costs to the locations at which they were incurred, or to the activities from which they arose. Cost centers are separate areas (within a controlling area) at which costs are incurred. You can create cost centers according to a number of criteria including functional considerations, allocation criteria, activities provided, or according to their physical location and/or management area. Integration In the following activities you make the settings for integrating the financial accounting application component with other components of the SAP R3 system. Define accounts for Asset accounting

In this process define G/L accounts for asset accounting that leads to posting of automatic postings in financial accounting. Depreciation postings also defined in integration of Asset accounting with finance accounting basing on Asset class and account determination. Define Accounts for Material Management-MM In this process you define accounts for Material Management transactions that lead to automatic postings in financial accounting. Inventory is valuated at Plant or company code level and plant or company code or represented by valuation area. Define Accounts Revenue account determination SD In this process define G/L accounts for the revenue account determination. You make the allocation for each of the access sequences defined in the system The G/L accounts are defined basing on Account determination type Application key Material assignment group Customer account assignment group Account key

Financial Statement Version In FI system, Balance sheet and P&L statement can be set up in various ways to meet specific requirements. Several different financial statement versions can be maintained in system. This may be necessary if its required to generate the financial statements using different formats. Financial statements can be generated at different level of details. You can vary the level of detail of your financial statements. For accounting department, for example, individual accounts can be listed with their respective balances. For senior management, on the other hand one set

of financial statements for the whole group can be created with summarized information. The different financial statement versions maintained basing on management requirement.