Basic General Ledger Terms

Chapter 4

Basic General Ledger Terms

Company Code
In terms of International Accounting Standards (IAS), the legal or independent accounting unit is the central concept of financial accounting. One of the basic requirements of an independent accounting unit is the publication of a balance sheet and a profit and loss statement. In the SAP system, the company code represents the independent accounting unit. It is the central organizational entity that integrates accounting data from many different company areas.

Fig. 4-1: Company Code as an Independent Accounting Unit

The company code is the smallest organizational entity of external accounting. You use it to represent a complete, self-contained accounting system. A company code is usually established using tax-related, commercial, or other financial accounting considerations. In this regard, it is very similar to a legally independent company. However, it can also be established using different criteria.

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For instance, the company code can represent a legally dependent operating unit abroad, if this operating unit requires separate evaluations (for example, in country currency).

Fig. 4-2: Company Code as a Central Organizational Structure

What is the function of the company code within financial accounting? The company code is the central organizational structure of financial accounting. It controls the publication of balance sheets and profit and loss statements.

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Basic General Ledger Terms

Business Area
As a legal entity, the company code represents the independent accounting unit. In addition, you can create organizational units beyond the company code, which represent a specific business segment or responsibility center. These are used to assign value transactions entered in financial accounting. The business area can contain any type of entity (division, profit center, plant, office).

Fig. 4-3: Business Area

In a document, the business area is included for each line item to allow classification of postings in the general ledger. This enables you to generate a number of views of data that is entered in different company codes. All major items, such as the complete profit and loss statement, fixed assets, receivables and payables, and goods in stock are available for evaluations under the business area. What is the function of the business area within financial accounting? The business area is an organizational structure that goes beyond the company code. It offers an additional level for publishing internal evaluations.

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Document
Document Principle
R/3 FI is based on strict adherence to the document principle. Each business transaction is filed in the system as a transaction-related posting document. The document is a separate and coherent unit. It contains information that results in balances and line items. A uniform document creation system, clear posting rules, and strict document verification for form and content ensure that only correct and complete posting documents enter the system. As a result, all account balances and summary data in the FI component can be traced back to correctly posted single documents. To process the large variety of business transactions using uniform criteria, the FI component offers: u Standardized document creation with uniform posting and entry rules u A great variety of individual parameters for efficient document entry The document consists of the document header, which contains data that applies to the whole document (unique document number, document date), and any number of line items for entering the respective transaction (amount, account, additional account assignment). Once the document has been posted, the resulting data can be displayed, changed, reversed, and archived at each detail level, from report analysis to single documents. The whole document is always considered as a unit. Consequently, document interrelationships are maintained for all document data and do not become lost during any of the processing phases. The uniform document principle ensures that all integrated systems and their posting-based transactions (= logistics) or line items (= sub-ledger accounting) are linked at transaction level.

Changing a Document

Documents can also be changed after they have been posted. However, fields used for updating account balances can no longer be changed. For all fields, you define rules that specify whether, when and how the fields are to be changed. You can specify, for instance, that certain additional account assignments can be changed only as long as the posting period of the document is still open for posting. You can set the system parameters so that data can no longer be changed, once the accounting department has closed the month and transferred the data to other systems for evaluation. The functions available for changing documents are the same as those for displaying documents and accounts. They also include all search and sort options. With the appropriate authorization, you can switch dynamically from the display to the change function without losing the selected view. What is the function of documents within financial accounting? As a database for all individual transactions and summary updates, the comprehensive document logic fulfills the basic requirements of the Generally Accepted Memory-Based Accounting Principles. Documents are adjusted quickly and easily to meet your requirements, while maintaining a correct posting record.

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Basic General Ledger Terms

Chart of Accounts
The FI component offers a flexible method for setting up a general ledger to meet various goals concerning legal issues, value flow, and classification of postings. The chart of accounts is a classification system defined by accounting to record values or value flows. Moreover, it ensures a correct rendering of accounts. The chart of accounts can be represented in the SAP system as one of three functions: u As an operational chart of accounts: The operational chart of accounts contains the accounts currently used in dayto-day transactions with the system. It allows uniform, company-wide classification of business transactions. Financial accounting and cost accounting work with the same chart of accounts. u As a local chart of accounts: The local chart of accounts contains the accounts that are necessary to fulfill legal requirements. The posting data can be represented based on countryspecific, predefined classification criteria. The items in this chart of accounts are derived from the operational chart of accounts. u As a group chart of accounts: The group chart of accounts contains all accounts that apply throughout the corporate group. The posting data can be processed or represented based on the requirements of external group accounting. The items of this chart of accounts are derived from the operational chart of accounts. The ability to define different charts of accounts permits flexible evaluation. Posting data can be processed on multiple levels in the company hierarchy. Daily document postings are posted from the operational chart of accounts using account numbers. Alternately, you can also perform evaluations for a specific country. This allows you to standardize operations within a corporate group without ignoring external evaluation requirements. To meet the various requirements for organizing a chart of accounts, the FI component offers two basically different methods for defining one or more charts of accounts: u Using central organization, you define a uniform, usually maximum chart of accounts at the corporate group level that applies to all companies in the corporate group. u Using decentralized organization, you define the chart of accounts at company code level. You can define a specific chart of accounts for each company. For example, these can be for international organizations, profit center operations with many divisions, or corporate groups covering several industries. The various charts of accounts can be linked to the group chart of accounts so that both consolidation and country-specific requirements are met.

Chart of Accounts Organization

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Multi-Lingual Flexibility

By specifying the desired language key, each chart of accounts can be translated into the available language versions. The international setup of R/3 software allows you to specify the language in which each chart of accounts is to be maintained (for example, the language of the consolidation parent). As a result, the chart of accounts can be maintained in its primary language, but can also be displayed for G/L account evaluation in the language version selected.

Fig. 4-4: Chart of Accounts Organization

What is the function of the chart of accounts within financial accounting? By displaying the chart of accounts at various levels, you can process posting data at multiple levels within the company hierarchy.

G/L Accounts
Each account used for posting is defined in the general ledger and contains information that reflects or describes its function. This information is stored in the master record of an account. It controls how business transactions are entered and posted to the account as well as how posting data is processed.

Structure of G/L Account Master Records

G/L account master data is divided into two areas: u Chart of accounts area: This area contains information that applies to the complete master record (G/L account number, account name, P&L account, or balance sheet account). In addition, you use it to store data that controls the creation of a master record in the company code (account group and screen layout). u Company code-specific area: This area contains data that controls the entry of business transactions for the related account and account management in the respective company code (currency; open item management).

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Depending on company organization, both areas can be created and processed jointly or separately. This allows you to control the master data responsibility according to your companys philosophy. Separate functions are available for creating, changing, and displaying G/L account master records. Employees can be authorized to access these functions based on their respective areas of responsibility. Each new master record is assigned to an account group which classifies the G/L accounts based on the following criteria: u Assignment of account numbers: For certain account groups with common attributes (such as bank accounts, or reconciliation accounts), you can predefine a numerical range for the master record account number. u User interface layout: You can specify mandatory and optional attributes for each group of G/L accounts. Attributes that are not required can be hidden on the screen. This allows you to enter only data that identifies an account. The FI component offers various methods of creating G/L account master data. These methods permit flexible and simple representation of the desired chart of accounts in the system. All steps are supported, whether you use the charts of accounts supplied with the standard system or develop your own chart of accounts. The following methods are available: u Copy a chart of accounts: You can use charts of accounts supplied with the standard system and easily adapt them to meet the relevant requirements. u Reference method: Accounts from the desired chart of accounts are assigned to the accounts in the chart of accounts supplied with the standard system. Then, the system creates all accounts in the system. This method offers optimum support if you use accounts from the standard system, but give them new names and numbers. u Data transfer method: G/L account master data from a previous system can be transferred to the FI component. u Sample accounts method: Sample accounts can be used to predefine values for the attributes of an account. This method provides optimum support if you predefine G/L account attribute values for several company codes. You can also change, block, or delete individual master data elements during the current fiscal year. In addition, you can expand individual attributes or add new G/L accounts. The system provides a flexible search function that allows you to search for any subject matter. All entries are logged simultaneously to ensure proper maintenance of master data. A line item display provides an overview of the open, cleared, and parked items from an account. You determine which information about the individual line items is to be displayed on the screen. However, you can also change the view dynamically after the list of items has been processed. Various sort options (by assignment, document number, or clearing data) allow you to interactively select,

Processing Master Records

Line Item Display

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vary, and total the required documents on the screen. Search and summarization functions are available on the initial screen as well, so it is not necessary to display all items. Line item display functions are available for: u An account in a company code u An account group in a group of company codes (worklist) You can switch from the line item list to the document display at any time. A line item list can also be exported and processed further using a spreadsheet. The line item list can be filed in SAP Office and sent to the relevant accounting clerk. You can file it as a PC file or you can store it directly in Microsoft Excel format and then process it in Excel.

Account Balance

Whenever documents are posted to an account, the system automatically updates the account balance. For G/L accounts with line item display, it also indicates which items from a document are posted to the account. You can display the account balance and - depending on the account attribute - the line items for each account. The account balance offers an overview of transaction figures for each period by debits and credits. Possible differentiating criteria include account number, company code, fiscal year, business area, and currency. You can also display a graphic representation of account balances. From there, you can branch directly to the line item display. Worklists for several accounts can also be created. What is the function of G/L accounts within financial accounting? Defining G/L accounts and their functions provides a basis for the correct posting of business transactions as well as efficient management of resulting documents and line items.

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