Financial Accounting Overview

Financial Accounting

SAP R/3 Financial Accounting system is designed for automated management and external reporting of general ledger, accounts receivable, accounts payable and other sub-ledger accounts with a user defined chart of accounts. As entries are made relating to sales production and payments journal entries are automatically posted. This connection means that the "books" are designed to reflect the real situation. 

R/3 Financial Accounting gives you the ability to centrally track financial accounting data within an international framework of multiple companies, languages, currencies and charts of accounts. The fully integrated SAP finance accounting systems offers a comprehensive range of capabilities with open, integrated data flow and user-friendly handling for the external accounts. Every company needs Accounting to provide information to shareholders, creditors, employees, and general public. SAP Accounting application consists of the following components, which are,  Accounting, Controlling, and Treasury. Accounting is integrated with  Logistics and Human Resources components. SAP provides Preconfigured systems for various industries with specific charts of accounts. SAP supports  multilingual approach, flexible currency handling, and country-specific functions for taxes, reporting, and payment transactions.

SAP  Accounting System offers you a complete set of applications:

   Financial Accounting (FI) includes

• General Ledger Accounting
• Consolidation
• Accounts Payable
• Accounts Receivable
• Asset Accounting
• Special Ledgers

   Treasury (TR) includes

• Cash Management
• Treasury Management
• Funds Management

    Controlling (CO) includes:

• Overhead Cost Controlling
• Product Cost Controlling
• Profitability Analysis

SAP's Accounting component includes:

Chart of Accounts
The G/L Accounting function uses a chart of accounts that can be installed in individual companies or in entire corporate groups. If the system must meet both international corporate and specific national demands, you can use different charts of accounts side by side.

Currencies
To satisfy specific statutory requirements at a national level, the system allows you to balance the books of foreign subsidiaries in up to three currencies simultaneously. Every business transaction is recorded in historical values from local, corporate group, and hard currency perspectives.

Balance Sheet
The FI application maintains different types of balance sheets:

• List of balances
• Funds flow analysis

You can also maintain balance sheets by purpose:

• Closing date balance sheet
• Annual financial statements

Sub-Ledgers
Besides integrating Logistics with Financial Accounting functions, it is also essential to link sub-ledgers with the General Ledger itself. All movement involving the sub-ledger Debtors and Creditors accounts, as well as the asset accounts, are immediately reflected in the assigned General Ledger balance sheet. As a result, sub-ledgers are always reconciled with the General Ledger.

Accounts Receivable
Accounts Receivable monitors and controls customers' accounts. Account analyses, maturity lists, as well as a flexible dunning system, make it easier to pursue open items. 

Accounts Payable
Accounts Payable  manages accounting data for all vendors.  It serves as an important information source for the sales department regarding delivery, invoicing, and payment values.

Special Ledgers
Special Ledger provides special calculations for a particular customer. A ledger is an accounting book that has been expanded to include various dimensions from the account assignment feature (cost center, product). It maintains and analyzes figures to meet the reporting wishes of the individual firm. All firm-specific ledgers come with validation and derivation of characteristic features. You can perform planning, allocation, and currency conversion calculations for each ledger. SAP automatically updates ledgers whenever business transactions take place. Data collected at a more detailed level is stored in compressed form using a rollup function

Corporate Group
Complex organizations need to have the big picture. Corporate group financial statements have grown in importance compared to individual statements. Another trend is the need to portray the corporate group to the public by making conscious balance sheet policy decisions. This may be at odds with the picture painted by individual financial statements.

The corporate group can be broken down into consolidation units. You can base it on legally autonomous companies or on business area segments. In centralized companies, data from operative company codes are typically incorporated directly into a corporate group ledger.

Otherwise, they are periodically incorporated into this ledger using ALE. This often involves external data from non-SAP accounting systems. The R/3 System has special tools to capture this data. The ability to regroup corporate groups and consolidation units is an essential function for internal corporate reporting. This allows the corporate group ledger to fulfill information needs along with those required by law. This includes meeting the needs of national or regional distribution companies.

Company: This represents a legally autonomous entity, composed of one or more company codes.

Company code: This represents the tax law (national) view of the company. Fiscal calendar, chosen currency, and tax reporting requirements determine the design of the complete and reconciled tracking system. In the context of a company, the company code can also represent a foreign operation that carries inventory.

Business area: This helps depict internal structures for external segment reporting. You use business area to analyze selected balance sheet items and profit and loss statements for product divisions or regional structures.

Functional area: This area displays profit and loss calculations according to cost-of-sales accounting. This is in comparison to period accounting, which differs depending on the request. By grouping functional areas, such as administration and manufacturing, cost-of-sales accounting shows what company costs were incurred for what and displays business expenses for the operation.

Profit center: With its flexible design, this Controlling term depicts internal areas of responsibility. The objects of a company's operating readiness are assigned to profit centers. These objects include cost centers, assets, materials, and those that measure performance (such as production and customer orders). Consequently, areas of responsibility are more detailed than can be captured by just using the business areas.

Profit center provides more than a determination of revenues, costs, and corresponding profit margin for an area of responsibility. Relevant items from the balance sheet, such as inventory, work in progress, receivables, payables, or investments can also be used to produce a targeted yield report, such as return on investment (ROI).
[from http://planetsap.com/fi_main_page.htm]