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Demand for finished products from customer will be recorded by Sales department in
a sales order document. Sales order data can be analyzed by Inventory department.
If there are not enough finished products in current stock, the sales order can trigger
a production order that request the Production department to start producing the
finished products. In order to produce the finished products maybe it requires some
raw materials that have to be bought from vendors. The production order can trigger
a purchase requisition for the raw materials. The purchase requisition will be
processed by Procurement department to be a purchase order that is sent to vendor.
Vendor will deliver the raw materials and Inventory department will receive them.
Accounting department will record the vendor’s invoice and Finance department will
process the payment. Once the raw materials are available, the Production process
begins. Then the finished products will be delivered to the customer, and Finance
department will send invoice to the customer.All of the above processes need man
powers that are managed by HR department and paid by Payroll Accounting
department.
Certain transactions in the above example also trigger accounting business process.
FICO module posts accounting documents for some transactions that have an
accounting effect in SD, PP, and MM module, such as finished products issue for
sale to customer, raw materials receipt from vendor, etc. These processes will affect
the financial reports such as Balance Sheet and Profit & Lost Statement.
In this blog-post, we will explain the way MM transactions affect the FICO module.
First, we will explain basic accounting business process principle that used in FICO
module.
Balance Sheet
The balance sheet shows an enterprise’s Assets, Liabilities, and Equity at a specific
time (such as Balance Sheet on December 31, 2007). It is sometimes described as a
snapshot of the business in financial terms.
Assets are valuable resources that a firm owns or controls, such as:
• Cash
• Bank account
• Inventory
• Account Receivable
• Fixed Asset
• Intangible Asset
• etc
Liabilities are obligations of the business to convey something of value in the future,
such as:
• Account Payable
• Notes Payable
• etc
• Capital stock
• Retained earning
• Current year net profit/loss (in traditional accounting that is without a real-time
software such as SAP, there is no current year net profit/loss account. The
Balance Sheet is usually prepared at the end of fiscal period, such as
December 31 every year. All of the profit/loss in that year from Profit & Loss
Statement, after deducted by dividend that given to shareholders, will be
recorded as an addition to Retained earning account. But, in SAP system, the
current year net profit/loss from Profit & Loss Statement is directly recorded in
balance sheet under equity, without waiting transferred to retained earning
account, so it is possible to have a snapshot of enterprise balance sheet at
any time along the year, not have to wait until the end of year.)
The Profit & Loss Statement summarizes the earnings generated by an enterprise
during a specified period of time (such as Profit & Loss Statement in year 2007).
It contains at least two major sections: revenues and expenses.
Revenues are inflows of assets from providing goods and services to customers,
such as:
• Sales to customers.
• Gain from foreign currency exchange transaction
• etc
The difference between revenues and expenses is net profit (or net loss if expenses
are greater than revenues).
Balance Sheet and Profit & Loss Statement are all based on the same underlying
transaction information, but they present different “views” of an enterprise. They
should not be thought of as alternatives to each other but as a complement.
The balance sheet represents an expansion of the accounting equation and explains
the various categories of assets, liabilities, and equity. The profit & loss statement
explains changes in financial position (that is, assets and liabilities) that result from
profit generating transactions in terms of revenue and expense transactions. The
resulting number, net profit, represents an addition to the equity in the enterprise.
This relationship is called articulation.
• Invoice Receipt
• GR Subcontract PO
o GR for Subcontract PO material (movement type: 101) and GI for
component material provided to vendor (movement type: 543)