Let' take a look at one of the component in Financial Accounting in SAP. Today, I would like to explain General Ledger Accounting.
Agenda
General Ledger
General ledger is maintained for company code level
General Ledger administers financial transaction occurred in company. So, the general ledger in SAP is maintained for company code level.
Company code is an independent accounting entity in SAP. For example, if there is a corporate group which consists 10 companies. Each of these 10 companies will have their own company code.
As the general ledger is maintained under close relationships with company codes, all the financial transactions are required to have company code in themselves.
Assigning company code to financial transaction could be manually entered by users, but also could be automatically done by system using other information.
When you manually enter general ledger via Tr-Code: FB50, you are asked by system for Company Code first. Then, in the next screen, you are required to input document date, General Ledger account, and amount.
Tr-Code: FB03 will display the G/L Account Document created, and when you click 'General Ledger View', the screen layout slightly changes. (Though I don't see much difference)
By the way, G/L Account document could be created by Tr-Code: FB01, and changed by FB02.
Case of multinational company
Let's take a look at example of the corporate group with 10 companies around the world. The 10 companies have uniquely identified four characters of company code, and they have their own local currency.
Amounts posted in foreign currency would be automatically converted to the local currency.
Here, corporate group at the top and corresponding sub-groups are not set as accounting entities, because they are composed of multiple companies. They will need to create consolidated financial statement of the group, and companies in a group will create their individual financial statements.
Parallel financial reporting (Ledger approach)
It is quite common case that companies are required to create financial statements not only single principles but multiple, for example, US GAAP, German Commercial Codes, and IFRS.
As the approach taken in the accounting varies between the different accounting principles, there are case that company needs to post the same financial transaction to different accounts. For example, different valuation, depreciation, or accruals approaches post to different accounts.
In SAP, new General Ledger Accounting is available.
It allows you to manage multiple general ledgers within general ledger accounting in parallel, and in this way you can create different financial statements. This is called as ledger approach.
In new General Ledger Accounting, one ledger has the role of “leading” ledger, and other ledgers can also exist within the General Ledger.
Leading ledger is the ledger which would be created primarily, and other ledgers are created referring the leading ledger.
When you want to assign new ledger or accounting principle in your company for this parallel accounting, you need to move to SPRO>Financial Accounting>Financial Accounting Global Settings>Ledgers>Parallel Accounting>Assign Accounting Principle to Ledger Groups.
Here, you can modify tables of accounting principle, and ledger group. In the ledger group, several ledger can be maintained and one of them are classified as leading ledger in the group.
G/L Master Records
Chart of accounts
So, we checked basic concept of general ledger accounting. Now let's take a look at master data used in general ledger accounting. The first one is, Chart of accounts.
Chart of accounts is a list of definitions of all G/L accounts. Each general ledger needs to be set in the chart of accounts.
Major contents in the chart of accounts are account number, account name, and type of G/L account. Type of G/L account means whether the account is a Profit and Loss statement related account, or a Balance sheet related account.
Structure of Chart of Accounts
Chart of accounts can be created as per country specific requirements. So, Chart of accounts are composed of 2 levels, Chart level and Company code specific level.
Chart of accounts needs to be assigned to company code and the assigned chart of accounts are referred as operating chart of accounts for the company. It could be possible for one chart of accounts assigned to multiple company codes, if those accounts are commonly used across the companies.
In below menu path from IMG, you can customize chart of accounts.
Chart of account has linkage with these G/L Accounts.
Account Groups for G/L Accounts
Chart of accounts are used by company level, but there should be more detailed level of groups to be used for more smaller granularity.
Account groups are used to organize and manage G/L accounts which have similar characteristics, or business functions. When a new G/L account is created, that G/L account needs to be assigned to Account group.
Example of account group are cash accounts, expense accounts, or revenue accounts.
Account groups also control the appearance of the company code segment of G/L accounts, such as mandatory data entry field, option data entry field, or hidden filed.
Reconciliation account
So far, we have checked components of General Ledger accounting. Here, I would like to touch relationship between general ledger and subsidiary ledger, or sub-ledger.
General Ledger is a ledger which has all the financial transaction within company, however, the company has more detailed ledger, which is called as subsidiary ledger.
For example, there are accounts receivable subsidiary ledgers. The entry in general ledger for one accounts receivable and the entry in subsidiary ledgers for the same accounts receivable would be basically the same, however, the information granularity is different.
In General ledger, the total amount is entered for the accounts receivable, but in subsidiary ledger, entries are separated for customer levels, which means, subsidiary ledger has more detailed information than general ledgers.
Maintaining both of the General ledger and Subsidiary ledgers will require huge effort, so SAP provides functionality to sync the entry in general ledger and subsidiary ledger automatically, which is reconciliation account.
Reconciliation accounts are used to connect subsidiary ledgers with the general ledger. Posting to a subsidiary ledger posts to the corresponding reconciliation account in the general ledger at the same time. You can take reconciliation account as just an account code used to connect subsidiary ledger entry to general ledger entry.
The subsidiary ledgers, which are connected to the general ledger via reconciliation accounts, are accounts payable, accounts receivable, and asset accounting.
Reconciliation accounts has a basic assumption that they are used for entry in subsidiary ledger which needs to be synced with general ledger. So, reconciliation accounts cannot be maintained or entered by manually.
Financial Statement Versions
Now we have walked through the basic elements of general ledger accounting. With these basic elements, we are going to create financial statement at the end of the day.
Then, let's get back to the beginning example. Let's say we have 10 companies as one corporate group. There are case that we need to prepare financial statement based on German specific principle, or US GAAAP.
To meet the various reporting requirements, SAP can create various financial statement versions.
In this financial statement versions, you can define which account should appear in which line of financial statement, in accordance with the requirements.
The financial version can be created based on user's requirement, so we can create financial statement version for not only statutory requirement but also for summary version of board of directors' meeting or internal control perspectives.
We need to be careful to define the version. If some of the accounts are missed to be assigned to certain location on financial statement, those items would appear at the end of income statement as unassigned accounts.
In below menu path, you can maintain financial statement version.
Summary
General Ledger Accounting is based on company level, but one company can have multiple ledgers so that it can provide several financial statements based on several financial requirements such as US GAAP, IFRS, or J GAAP.
Chart of account is a list of account code with definition, which is also assigned to company codes. When you have multiple company in one corporate group, it could be possible that one chart of account is available for several companies. In that case, you just need to assign the chart of account to those companies which require the account codes.
Reconciliation account is important account which connects subsidiary ledger and general ledgers. Reconciliation account cannot be maintained manually, because there is an assumption that reconciliation account is used only when subsidiary ledger is copied to general ledger.
Entry in ledgers are source of financial statement creation. Financial statement has parameter, which is called as financial statement version, and controls which account should appear at which location on the financial statement.
These are the basic concept of general ledger accounting that I have learned so far. I hope this information will be useful for absolute beginner in SAP FI module, like me.