General Ledger Accounting: Part 3 — Understanding General Ledger Accounting.
General ledger accounting is the core of Financial and Management accounting. The Finance application fulfills the international requirement that must be met by FI department of the organization.
The main task of General Ledger accounting is to provide comprehensive reports for external purposes. It records value related transactions into, primary postings and internal settlements, within integrated operational components of a company to ensure data is always accurate and updated.
Feature of GL Accounting
· Management and representation of All Accounting Data : All data is recording according to the accounting principles with complete audit trail from financial statements to posted documents.
· Open and Integrated data flow: Data is updated between FI and other components in real time. Postings made in subledgers are also updated in General Ledger Accounting.
· Decision Making: Of course without this feature GL Accounting is if no use!! It converts operation information in meaningful reports for decision making.
Main tasks of GL Accounting
· Map all posting-relevant business transactions.
· Display account line items and balances.
· Create and display financial statement for a company code.
· Create financial statements on levels beneath the company code, for example, for profit centers, segments, or business areas.
Important Terms in GL Accounting
· GL Accounts: It is a structure that records value movements in company code and represents accounts in Chart of Accounts. GL Account has transactional figures that records changes during postings. GL Accounts can be distinguished between PL and BS accounts.
· Chart of Accounts (COA): It is a classification scheme which consists GL Accounts into different groups. COA can be assigned to 1 or more company codes. This way GL Accounts can be used across company codes.
· Journal Entry: It records the changes in values in company code arising due to accounting transactions. An accounting document consists of 2 or more line items. When posting an accounting document, SAP system updates the accounts in which document is posted.
General Ledger Accounting and Different Chart of Accounts:
GL Accounts are the most important master data for General Ledger Accounting. GL Accounts structured in Chart of Accounts (COA). There are 3 kinds of COAs:
· Operational COA: This is mandatory and is assigned at the company code level. This is used at operation level ie GL Accounts are used to post accounting entries in Company code.
· Country COA: If a company needs to fulfill local accounting standards which cannot be fulfilled through Operational COA they must use the Country COA. I used this COA during one of the implementation projects in Romania and Spain. Statutory reporting to Government was supposed to be done in certain sets of accounts provided by them. Hence, Operation COA alone was not sufficient to fulfill this requirement. The use of Country COA is optional and is 1:1 assignment with Operational COA. In Other words Operational COA can be assigned to 1 Country COA for a company codes. Below is Illustration of what I mean
· Group COA: As the name suggests, this COA is used for consolidation purpose. The reason is different company codes within the same Group can use different Operational COA. Therefore there is n:1 relationship between accounts from Operational COA and Country COA. Group COA is assigned directly to Operational COA. The use of Group COA is operational.
Now that you have understood different COA possibilities in SAP, let us have a look at different Parallel Accounting approaches possible in SAP to meet financial reporting requirements. Many companies have to create financial reports not only in one specific accounting principle to meet different information requirements such as US GAAP, IFRS etc. This mean financial statements has to be created to meet these requirements.
Account Approach: In Accounts Approach different valuation posts to different accounts between the principles for valuation, depreciation, accruals etc. When Financial Statements are created, Financial Statement Versions ( I will talk about this below) is used to evaluate different accounts. For Eg. Financial statement according to IFRS only takes into account those GL Accounts that are relevant for this purpose.
Ledger Approach: The ledger approach in S/4 HANA allows to maintain different General Ledgers in parallel and create different financial statements. Hence, in new implementations it is recommended to use Ledger approach. But of course, this differs from client to client. Hence, careful understanding of requirements are needed.
In General Ledger Accounting, one ledger has the role of a Leading Ledger. Multiple parallel ledgers can be created but there will be only one leading ledger (0L). Rest of the ledger are known as Non Leading ledger. I will talk about the leading and non leading ledger in my further blogs…. So Stay Tuned !!
Financial Statement Versions
GL Accounts provide information to create Balance Sheet and P&L Statements. To meet various reporting requirements Financial Statement Versions (FSV) can be created. In FSV you define exactly which accounts to appear in which line items of Financial Statement. SAP provides many FSVs that can be copied and modified to suit your requirements. When executing the financial statement, FSV that contains details of the report structure must be selected.
I hope you enjoyed this learning and will be able to apply this knowledge in your projects. Its important that you familiarize yourself with these terminologies and theory. You don’t have to educate clients on these but this should help you to analyse requirements and draw solution in the best way possible to make implementation as smooth as possible.
From my next blogs I will start with the configuration related to financial accounting in SAP S/4 HANA. At the same time I would also be covering more theoretical concepts for you to understand the config behind and how to utilize the knowledge during discussions with clients….so Stay Tuned and don’t forget to subscribe to my page for you get updates the moment my new Blog is online. At the end of the Chapter for General Ledger Accounting, I will be sharing with all the subscribers of my page Configuration document. Please share with your friends and family who are interested to learn about Financials in S/4 HANA and don’t forget to subscribe. Enjoy!!!
Reference: SAP Publications.
