General Ledger Accounting Configuration in S/4 HANA Part 1: Organizational Structure setup

Hello Friends and welcome back. From here on I will be starting with explaining the configuration in Financial Accounting module in S/4 HANA. I do not want to burden you with loads of information at once, thats why I will divide the configuration into various parts for you to understand easily and practice.

To practice, the best is to get access to SAP HANA ERP server. There are plenty of service providers when you Google them from which you can take service.

Excited?? Let us begin!!

Organizational Structure

I already covered the key terminologies related to Org Structure in my previous blog. Please read it to familiarise yourself with definitions of different organizational units. To refresh let us again look at the setup of Org. Structure in SAP S/4 HANA

In SAP, Client is the highest level of an Organizational Structure. Each client is an independent unit and contains its own set of Master records, tables and data. In business sense, client represents a corporate group or group of affiliated companies.

Any configuration done at client level need not to be defined at other levels. You will learn about the configurations at client level later but just to understand with an example, exchange rate is entered at client level and is valid for all other organizational units within the client.

Company Code represents legal entity on which financial statements are created. This is minimum structure necessary in SAP S/4 HANA. To understand more about company code please read my previous Blogs. For every company for which Statutory reports (Balance sheet and P&L statement) are needed is setup as company code in SAP. Normally in international organizations to meet the local statutory reporting requirements company code is setup for each country. This means multiple company codes can be setup under a single Client.

Organisational Structure

Business Scenario:

A client named ‘Demo Company’ having its Global HQ in the US wants to install S/4 HANA on premise edition and configure it according to standard business processes. Following has been discussed and agreed with the client.

• The client operates in 3 countries:
• →US- Operating currency USD
• →Germany — Operating currency EUR
• →India — Operating currency INR
• Company wants to have financial statements to be available according to 3 Principles:
• →IFRS
• →Local GAAP
• →Tax GAAP
• Company also want a provision to post into closed periods for management or adjustment purposes without impacting standard ledgers for accounting principle. Hence, Extension ledgers will be implemented with underlying ledger for each accounting principle.
• Company follows calendar year as Fiscal Year Variant. For Tax purpose, company in India must be assigned to fiscal year variant from April-March.
• It was also decided that Group Currency USD will be used as controlling area currency for cross company code controlling area.
• Parallel Currency:
• →For the purpose of consolidation a parallel currency USDX with exchange rate type USDX will be created and assigned to all company codes. This will be maintained as average rate of the month manually.
• →In addition to parallel currency USDX, all figures for company code in India must be available in Euro also using the exchange rate type M.
• →Due to EU regulation all European countries must use convert local currency into Euro with daily exchange rate provided from European Commission Bank. For this a new exchange rate type EURX will be updated in Table TCURR daily. All Foreign transactions posted in EU companies must be converted to Euro using Exchange rate type EURX instead of M.

Make note of the business scenario. All related configuration in further chapters will be based on this scenario.

Setup Company code.

As explained before setup of company code is a minimum requirement to setup Org. Structure. You can create a company code from scratch or copy an existing company code template available in SAP and change parameters for your company code. The later method is the most preferred method but remember that with this method all the assignments to the company code are also copied. So you may have to change them as you progress further. However, I will be showing how to create company using the former method ie from the scratch.

Let us know try to understand main fields in Company code setup:

· Address Data: This is needed for all correspondence and is used in reports.

· Currency: This is needed for each company code as accounts are managed in Company code currency. All foreign currencies are translated to company code currency. The company code currency is also called the local currency in S/4 HANA.

· Language Key: This allows the system to display texts automatically in the correct language

· Country key: This specifies the country as home /local country. All other countries are classified as foreign country by the system. This is important as different forms are needed for foreign transaction. SAP also supports different address format based on the country key.

Now that we have understood the important fields in the configuration, let us now go ahead and create a new company code.

· In transaction bar enter SPRO

· Click on SAP Reference IMG to access the IMG Tree.

Transaction Code SPRO

IMG Path: Enterprise structure → Definition → Create Company code.

Tcode: OX02

· Click on New Entry

· Enter Company Code: G003

· Company Name: Enter name of the company

· City: Enter City of the Company.

· Country : Maintain the country where the company is registered.

· Currency: Enter the currency for the company. This is the company code currency in which financial statements will be made.

· Language Key: Select appropriate Language from the list.

· Click Envelop Icon

· Maintain Address of the company and Communication details

· Save.

With these steps you should now be able to setup a company code and enter parameters as per your requirements.

Additional Organizational Units

Apart from company code there are other organizational units that are important in FI, however, they are optional. Setup of these Org Units depends upon the legal and internal legal requirements. For Eg According to IFRS guidelines segment reporting is mandatory for companies. Let us now understand these organizational units and how to configure them in SAP.

· Company : Financial information is consolidated at company level. A company ID can be assigned to one or more company code. Specifying the company ID helps in business processing, mapping and showing the hierarchical relationship within a group.

· Functional Area : This is needed for cost of sales accounting. Overhead costs are reported according to functional areas in which they are incurred. Functional Areas are defined at client level and can be used across company codes. Functional Areas are assigned to GL accounts, Cost Centres and other controlling objects to default during document entry. They can also be entered manually during FI document posting. One FI line item can have only one Functional Area assigned to it. Once COS is activated in SAP, Functional Area becomes mandatory field in FI Document Entry.

· Profit center : This is used to evaluate success of an independent area that are responsible for cost and revenue within a company. Profit center can also be related to business line where each business line is responsible for its own cost and revenue. You can decide if you want to create only Profit and Loss statement (Document Splitting not active) or complete financial statements (Document Splitting active) for profit center.

I will show the configuration for Profit center in controlling module as it needs controlling area to be defined first.

· Segment : A segment is a division of a company for which you can create financial statements. Segment reporting is mandatory for IFRS (IFRS 8) and also for US GAAP (SFAS 131). Segments are also defined at client level and can be used across company codes. Segments are derived in FI line items through profit centres. One Profit center can have only one segment maintained in it.

Selection of Organizational units

The answers to the following questions can help clients to select organizational objects in accounting and use them as templates:

· What is the most important accounting principle used in my enterprise?

· Which accounting principles are used for internal or external figure-reporting in my enterprise?

· Does my company structure its Profit and Loss (P&L) statement according to total costs or cost-of-sales accounting?

· Is my company obliged to issue segment reporting?

· Does my company have to issue a consolidated financial statement?

International Accounting Requirements

The following table represents different accounting requirements and recommended procedure for selecting organizational elements to meet reporting requirements. For eg for cost of sales reporting, functional area is needed. If you want to have complete financial statements on profit centers of segments, document splitting need to be activated. I will show configuration for document splitting in future blogs.

Accounting Requirements

Configuration of Organizational units

Now that you have understood various organizational units and their application, let us quickly see on how to configure them in SAP.

Create Company: A company is a 6 character Alphanumeric code in SAP. Creation of company is optional in SAP. Multiple company codes can be assigned to a company. Company is a representation of a Group of Companies in SAP. For Eg Apple INC, SAP AG etc.

IMG Path: Enterprise structure → Definition → Create Company

Tcode: OX15

· Click on New Entry

· Enter Company characters: G00003

· Company Name: Enter name of the Group

· Address: Enter Address of the Group.

· Country : Maintain the country where the group company is registered.

· City: City of the Group company

· Language Key: Select appropriate Language from the list.

· Save.

Define Functional Area:

IMG Path: Enterprise structure → Definition → Define Functional Areas.

Tcode: OKBD

· Click on New Entry

· Enter Functional Area

· Enter Description

· Save

Define Segment

IMG Path: Enterprise structure → Definition → Define Segment.

Tcode:

· Click on New Entry

· Enter Segment

· Enter Description

· Save

Now that you have defined organizational objects… its time to assign the company code to Company. This step is optional and depends upon the requirements of the client as explained above.

Assign Company Code to Company

IMG Path: Enterprise structure → Assignment → Assign company code to company

Tcode: OX16

Here assign the company to the company code. Same company can be assigned to multiple company codes. This is to represent that all company codes belong to same group company.

We also need to assign company to controlling area (If CO is implemented). Configuration related to CO will be covered in CO module.

Assignment of Company code to Company is just the begining. There are other customizing objects as well where company code need to be assigned. You will learn about them as we progress further in the topic.

Once the company code is defined, share this with other consultants for them to make assignments related to their objects for eg Sales org, plant, etc.

With this we come to the end of Organizational structure setup related to financial accounting. Of course there is customizing related to Controlling area and its assignments to company code and Operating concern… however all these would be covered in Controlling module.

In next blog I will be explaining about the customizing related to New General Ledger in S/4 HANA. So don’t forget to subscribe to my page to get notified.

If you like the learning please do not forget to check my other blogs and also share with your friends. Please feel free to write in comments for any questions, sharing your opinions, feedbacks or topics you would like me to cover.

Reference : SAP Publications