SAP Goal of Financial Accounting Controlling(FICO) Principle

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Goal of Financial Accounting (FI)

• Financial Accounting is designed to collect the
  transactional data that provides a foundation for
  preparing the standard portfolio of reports.
• In general, these reports are primarily, but not
  exclusively, directed at external parties.
• Standard reports include
• Balance Sheet
• Income Statement
• Statement of Cash Flows

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Target Audience

• Internal
• Executives
• Senior Management
• Administrative Staff
• Employees

• External
• Legal Authorities
• Banks
• Auditors
• Shareholders
• Insurance
• Taxing Authorities
• Media
• Financial Analysts

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FI Organizational Structure

• Represents the legal and/or organizational views
  of an enterprise
• Forms a framework that supports the activities of
  a business in the manner desired by management
• Permits the accurate and organized collection of
  business information
• Supports the development and presentation of
  relevant information in order to enable and
  support business decisions

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FI Organizational Structure

• Client
• An independent environment in the system
• Company Code
• Represents an independent legal accounting unit
• Balanced set of books, as required by law, are
  prepared at this level.
• A client may have more than one company code
• United States
• Germany
• United Kingdom
• Australia

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FI Organizational Structure

• Chart of Accounts
• A classification scheme consisting of a group of
  general ledger (G/L) 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.
• Credit Control Area
• An organizational entity which grants and
  monitors a credit limit for customers.
• It can include one or more company codes
• Business Area
• An organizational unit that represents a separate
  area of operations or responsibilities within an
  organization and to which value changes recorded
  in Financial Accounting can be allocated
• Financial statements can be created for business
  areas, and these statements can be used for
  various internal reporting purposes.

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GBI 2.0 Structure for Financial Accounting
Global Bike
Client
Company Code
Global Bike Inc.
Global Bike Germany GmbH
Global Bike Chart of Accounts
Chart of Accounts
Bikes
Business Area
Credit Control Area
Global Credit Control
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Chart of Accounts

• A listing of the accounts (assets, liabilities,
  equity, revenues, and expenses) that are
  contained in the General Ledger
• A chart of accounts must be assigned to every
  company code in order to create the General
  Ledger for that company
• Several company codes can use the same chart of
  accounts

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Chart of Accounts

• The foundation for the General Ledger is the
  Chart of Accounts
• A Chart of Accounts contains a complete list of
  all of the accounts utilized in the General
  Ledger for a given company
• Financial accounting reports are prepared from
  the balances contained in the General Ledgers
  Chart of Accounts

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Chart of Accounts (continued)

• There are five types of accounts contained in a
  Chart of Accounts
• Assets
• Liabilities
• Equity
• Revenues
• Expenses
• There are two primary accounting reports prepared
  from the General Ledger Chart of Accounts
• Balance Sheet
• Income Statement

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FI Master Data

• General Ledger (G/L) Accounts
• The unique combination of Company Code and Chart
  of Account creates a data storage area called a
  General Ledger.
• The General Ledger contains a listing of the
  transactions effecting each account in the Chart
  of Accounts and the respective account balance.
• It is utilized in the preparation of financial
  accounting statements.

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FI Master Data

• Customer and Vendor Master Data
• Customer and vendor account balances are
  maintained in FI through fully integrated
  accounts receivable and accounts payable
  sub-modules.
• Financial postings for customers and vendors are
  made directly to their respective individual
  accounts and accompanied by a concurrent
  automatic posting to the General Ledger.

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Customer Accounts

• Accounts Receivable Sub-Module (FI-AR)
• Information with respect to customers who
  purchase the enterprises goods and services such
  as sales and payments made
• Substantive and important integration between
  Sales and Distribution (SD) and Financial
  Accounting (FI)
• Billings in SD generate FI journal entries for
  sales activity

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Vendor Accounts

• Accounts Payable Sub-Module (FI-AP)
• Information with respect to Vendors from whom the
  enterprise purchases goods and services such as
  purchases and payments made
• Substantive and important integration between
  Materials Management (MM) and Financial
  Accounting (FI)
• Purchase and goods receipt activities in MM
  generate FI journal entries

Accounts Payable (General Ledger)
850
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FI Processes

• Posting a G/L Entry

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FI Reporting

• G/L Account Summary

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FI Reporting

• Balance Sheet
• Presentation of an organizations Assets,
  Liabilities, and Equity at a point in time
• Assets What the company owns
• Liabilities What the company owes
• Equity The difference between Assets and
  Liabilities
• Assets Liabilities Equity

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FI Reporting

• Balance Sheet Example

Liabilities Accounts Payable 750 Taxes
Payable 250 Total Liabilities
1,250 Equity Common Stock 2,000 Retained
Earnings 250 Total Equity 2,250 Total
Liabilities and Equity 4,500
Assets Cash 1,000 Accounts Receivable 3,000 Equi
pment 500 Total Assets 4,500
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FI Reporting

• Income Statement
• Presentation of an organizations revenues and
  expenses for a given period of time (e.g.
  monthly, quarterly, or yearly)
• Revenues, in a simple sense, are inflows of cash
  as a result of selling activities or the disposal
  of company assets.
• Expenses, in a simple sense, are outflows of cash
  or the creation of liabilities to support company
  operations.
• Revenues - Expenses Net Income

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FI Reporting

• Income Statement Example

Revenue Sales 11,000 Deductions 750 Total
Revenue 10,250 Operating Expenses Cost of Goods
Sold 4,500 Operating Expenses 3,750 Total
Expenses 8,250 Net Income Before Taxes
2,000 Taxes 750 Net Income 1,250
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FI Reporting

• Statement of Cash Flows
• Considers the associated changes, both inflows
  and outflows, that have occurred in cash
  arguably the most important of all assets over
  a given period of time (e.g. monthly, quarterly,
  or annually)

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Accountants and Audit Trails

• Audit trails allow an auditor to begin with an
  account balance on a financial statement and
  trace through the accounting records to the
  transactions that support the account balance.
• Audit trails enable an auditor to trace
  individual transactions to the effected account
  balance(s) on a financial statement.

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SAP Document Principle

• Each business transaction impacting FI writes
  data to the SAP database creating a uniquely
  numbered electronic document.
• The document number can be used to recall the
  transaction at a later date.
• It contains, for example, such critical and
  necessary information as
• Responsible person
• Date and time of the transaction
• Commercial content
• Once written to the SAP database, a financial
  document (one impacting the financial position of
  the company) can not be deleted from the
  database.
• It can be changed to some degree.
• The SAP document principle provides a solid and
  important framework for a strong internal control
  system a requirement of law for companies that
  operate in the United States and in most other
  countries in the world.

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SAP Document Principle
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Goal of Controlling (CO)

• Managerial Accounting also termed Controlling
  is designed to collect transactional data that
  provides a foundation for preparing internal
  reports that support decision-making within the
  enterprise.
• These reports are exclusively for use within the
  enterprise and include
• Cost center performance
• Profit center performance
• Budgets analyses

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CO Organizational Structure

• Represents the legal and/or organizational views
  of an enterprise
• Forms a framework that supports the activities of
  a business in the manner desired by management
• Permits the accurate and organized collection of
  business information
• Supports the development and presentation of
  relevant information in order to enable and
  support business decisions

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CO Organizational Structure

• Client
• An independent environment in the system
• Company Code
• Represents an independent legal accounting unit
• Balanced set of books, as required by law, are
  prepared at this level.
• A client may have more than one company code
• United States
• Germany
• United Kingdom
• Australia

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CO Organizational Structure

• Chart of Accounts
• A classification scheme consisting of a group of
  general ledger (G/L) 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.
• Controlling Area
• A self-contained, organizational unit for which
  the management of revenues and expenses can be
  performed
• May include one or more company codes therefore,
  an enterprise can perform management accounting
  analyses and reports across several companies
• A way to identify and track where revenues and
  costs are incurred for evaluation purposes
• Operating Concern
• Represents a part of an organization for which
  the sales market is structured in a uniform
  manner
• A operating profit for the individual market
  segments can be calculated.
• Multiple controlling areas can be assigned to one
  operating concern.

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GBI 2.0 Structure for Controlling
Global Bike
Client
Operating Concern
Global Concern
Controlling North America
Controlling Europe
Controlling Area
Company Code
Global Bike Inc.
Global Bike Germany GmbH
Global Bike Chart of Accounts
Chart of Accounts
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CO Master Data

• Profit Center
• Responsible for revenue generation and cost
  containment
• Evaluated on profit or return on investment
• Enterprises are commonly divided into profit
  centers based on
• Region
• Function
• Product
• Cost Center
• Responsible for cost containment, not responsible
  for revenue generation
• One or more value-added activities are performed
  within each cost center.
• Unit that is distinguished, for example, by area
  of responsibility, location, or type of activity
• Copy center
• Security department
• Maintenance department

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CO Master Data

• Internal Order
• Temporary cost center responsible for cost
  containment, not responsible for revenue
  generation
• It is used to plan, collect, and monitor the
  costs associated with a distinct short-term
  event, activity, or project
• Company picnic
• Trade show/Fair
• Recruiting campaign
• Revenue Element
• A one-to-one linkage (mapping) between General
  Ledger revenue accounts and CO revenue elements
  is established to permit the transfer of FI
  revenue information to CO.
• Posting in FI that impact revenue accounts lead
  to a posting in CO to a revenue element.
• In other words, revenue account revenue element
  just different words depending on whether FI
  object or CO object.

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• Cost Element
• A one-to-one linkage (mapping) between General
  Ledger expense accounts and CO cost elements is
  established to permit the transfer of FI expense
  information to CO.
• Postings in FI that impact cost accounts lead to
  a posting in CO to a cost element.
• In other words, expense account cost element
  just different words depending on whether FI
  object or CO object.
• Primary Cost Element
• Originate in the General Ledger within FI and are
  automatically transferred to CO when an FI
  transaction is recorded in the General Ledger
• Secondary Cost Element
• Used exclusively in CO for allocations and
  settlements between and amongst cost centers

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Primary vs. Secondary Cost Elements
Financial Accounting (FI)
Managerial Accounting (CO)
General Ledger Accounts
Aggregated Cost Elements
Balance Sheet
Income Statement
Expense Accounts
Primary Cost Elements
Secondary Cost Elements
Revenue Accounts
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CO Master Data

• Statistical Key Figures
• Provide the foundation for accurate and effective
  cost allocations between cost objects
• Utilized to support internal cost allocations
  involving allocations, assessments, and
  distributions
• Examples number of employees,square footage,
  minutes of computer usage

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This figure shows an example of statistical key
figures. A project cost center has 12 hours
worth the activity. The statistical key figure
is hours and is split at 30 to the Work
Center 50 to maintenance 20 to IS All costs for
the labor will be allocated in this fashion
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CO Processes

• Posting Primary Cost Element

Financial Accounting (FI)

Supplies Expense
Cash
1,500
Managerial Accounting (CO)
Primary Cost Element
Cost Center A
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CO Processes
(FI) Transaction Document Amount G/L Account
Cost Center 1900012432 (CO) Transaction
Document Cost Center Cost Element 20000657
Financial Accounting (FI)
Supplies Expense Debit Credit

Cash Debit Credit
1,500
1,500
Managerial Accounting (CO)

Cost Center
1,500
Transactions can have an effect on both FI and
CO. The transaction will create a debit and a
credit for FI (FI transaction) If CO is turned on
a cost center or cost element bucket will be
updated (CO transactions)
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CO Processes

• Posting Secondary Cost Element

Financial Accounting (FI)

Supplies Expense
Cash
1,500
Managerial Accounting (CO)

Secondary Cost
Element
Cost Center A
CC 1
CC 2
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CO Processes

• Posting Secondary Cost Element

Executive Offices
1,800
Copy Center
Sec. Cost Element
Maintenance Department
1,500 2,500 2,000
Primary Cost Element
Supplies Expense
3,000
Debit Credit
Sec. Cost Element
Primary Cost Element
2,500
Information Services
Labor Expense
Primary Cost Element
Sec. Cost Element
1,200
Debit Credit
2,000
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Types of Allocation

• Distribution
• Method for periodically allocating primary cost
  elements
• Primary cost elements maintain their identities
  in both the sending and receiving objects
• Sender and receiver cost centers are fully
  documented in a unique Controlling (CO) document.
• Assessment
• A method of allocating both primary and secondary
  cost elements
• Primary and/or secondary cost elements are
  grouped together and transferred to receiver cost
  centers through use of a secondary cost element.
• Sender and receiver cost centers are fully
  documented in a unique Controlling (CO) document.

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Types of Allocation

• In Distribution and Assessment, you further
  allocate costs (or quantities for Indirect
  Activity Allocations) collected on a cost center
  during the accounting period to receivers,
  according to user-defined keys. These are
  therefore indirect allocation methods, because
  the exchange of activity is not the basis for
  allocating costs/quantities. Instead,
  user-defined keys such as percentage rates,
  amounts, statistical key figures, or posted
  amounts provide the cost/quantity assignment
  basis.
• The advantage of these methods is that they are
  easy to use. You usually define the keys and the
  sender/receiver relationships only once.
• Distribution and assessment are used primarily
  for cost centers. This is because direct cost
  allocation is not possible here due to the
  variety of transactions, the lack of clearly
  defined individual activity types and the fact
  that the entry of the activity is too
  time-consuming. For example, the costs of the
  company cafeteria may be assigned based on the
  number of employees in each cost center.
  Telephone costs are seldom allocated directly to
  the individual cost centers, but are collected on
  a clearing cost center for each period. They are
  then reposted or distributed at the end of the
  period according to the number of telephone units
  or telephone installations in each cost center.
• Assessment is a method of allocating primary and
  secondary costs in Cost Center Accounting and
  Activity-Based Costing. The following information
  is passed on to the receivers
• The original cost elements are assigned
  cumulatively, or in groups, to assessment
  (secondary) cost elements. The original cost
  elements are not recorded on the receivers.
• Sender and receiver information (sender cost
  center, receiver cost center, or business
  process) appears in the Controlling (CO) document.

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Distribution
Sending cost center
Receiving cost centers
Primary cost element maintains its identity
A005
A010 Administration Rent Expense 1,500
D010
400 sft
550 sft
Distribution
A010
600 sft
D005
900 sft
A015
150
A020
100
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S005
S010 100
200
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Sending cost center
Receiving cost centers
Primary cost element maintains its identity
A005
A010 Administration Rent Expense 1,500
D010
200
275
Distribution
A010
300
D005
450
A015
75
A020
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S005
S010 50
100
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Assessment
Receiving cost centers
Sending cost center
Primary and secondary cost elements
D010 10
A020 IT Software Expense 4,200 A020
IT Supplies Expense 500
A005 15
A010 5
Assessment
D005 20
A015 10
A020 0
S010 10
S005 30
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Sending cost center
Receiving cost centers
Primary and secondary cost elements
A020 IT Software Expense 4,200 A020
IT Supplies Expense 500
A005 705
D010 470
Assessment
A010 235
D005 940
A015 470
A020 0
S010 470
S005 1,410
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SAP CO Module

• Fully integrated with other SAP modules
  including, but not limited to
• Financial Accounting (FI)
• Materials Management (MM)
• Sales and Distribution (SD)
• Production Planning and Execution (PP)

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