General Ledger Accounting: Part 2 — Understanding Organizational Structure.
In my last blog I explained about the Universal Journal. You can read about it by clicking in the link below.
In this blog I will take you through the important terminologies in SAP to understand setup of Organizational Structure. Don’t underestimate this topic!!
Important Terms in Org. Structure
An org structure is the basis of all customizing. For selecting an org structure careful thoughts should be put in keeping in mind future business and flexibility an Org. Structure can provide. From FICO point of view the main org structure starts with:
1. Company code: It is the smallest org unit in FI for which complete set of financial statements are drawn from external reporting. This includes recording of all transactions and generating support document for financial statements. This is a 4 character Alphanumeric code which identifies legal entity in SAP. All financial reports ie Profit and loss statement, Balance sheet and Cash flow are based on company codes. Company code is the minimum requirement in SAP
2. Controlling area: Controlling area is needed for Management reports ie for cost accounting purposes. This is the main component of controlling module and can be compared to company code in finance. There could be multiple company codes assigned to single controlling area for consolidating reports, however, there are certain pre-requisites for it. We will cover this in Management accounting.
3. Operating concern: This is used in COPA to consolidate figure at the group level and analyse profitability at different segments such as Region, sales person etc. This is different from Segment reporting in finance.
4. Plant: It is an organizational unit within company code used for Logistics module.
This is how org structure in SAP will look like.
As SAP S/4 HANA is fully integrated system, you need to assign organizational unit to each other across different application component.
Key questions to ask during implementation of Org. Structure
· How many Legal entities need to be implemented for which independent financial statement need to be drawn?
· What will be operating currency / Local currency for each company code?
· Is consolidated reports for all company codes are needed?
· What other modules need to be implemented ? For eg Logistics, Production Planning, Sales, Management reporting … etc?
· Will there be a need for cross company cost accounting?
· Is it needed to have COPA reports on various segments for analysis?
These are few questions to ask your client(s) which may help you to determine how the setup of org structure should look like.
Conclusion:
Setup of Org. Structure in SAP will determine how flexible and effortless it will be to implement further functionalities in SAP.
Each setup depends upon clients’ client requirements. So pay good amount of time to understand them and make recommendations.
