- [\#Overview of Financial Accounting|]
- [\#Setting Up Financial Accounting|]
- [\#Performing Daily Procedures|]
- [\#Maintaining Records|]
- Period-End Procedures\
- [\#Incoming and Outgoing Payments|]
- [\#Cost Accounting|]
- [\#Inquiries and Reports|]
SAP® Business One delivers the tools and reporting capacity you need to manage your company's finances effectively and according to Generally Accepted Accounting Principles (GAAP). SAP Business One can bring your financial accounting to a new level of automation:
- Real-time, really. Every time you add (or post) a transaction, your general ledger is updated. No need to batch journal entries for later posting - unless that's what you want to do.
- Automatic journal entries. Perhaps the largest productivity boost in SAP Business One is its ability to create various journal entries automatically - greatly reducing the need to make journal entries or corrections manually.
- Drill-down functionality. SAP Business One gives you the ability to drill down using the orange navigation arrows, not only to the general ledger but all the way to the source documents of a transaction - another powerful labor- and time-saving feature.
- Task automation. You can automate redundant tasks by using recurring postings and avoid posting mistakes by using posting templates.
- Data integrity. To prevent users from posting manual journal entries to certain accounts, you can set up control accounts. In addition, alerts help you manage expenses by informing you when expenses reach their budget threshold.
- Audit trail. SAP Business One provides a complete audit trail, allowing you to track who made changes to all data or documents - and when.
The key to making the most of the finance and accounting features in SAP Business One is careful design and implementation to make sure that every part of the application precisely describes and tracks the way your business works. Of course, most companies come to SAP Business One with a well-established chart of accounts (and other financial accounting methods) as well as legacy databases of customers, vendors, and transactions. Working with your implementation partner, you translate and migrate the way your business works into SAP Business One. The five-step process of setting up financial accounting is shown in Figure 3-1.
These steps represent general guidelines. In any given implementation, the order of these steps may be changed or new steps may be added to reflect the unique needs and circumstances of your company.
Figure 3-1: Accounting setup step-by-step
Proper setup of financial and accounting functionality is the bedrock on which much of the automation of SAP Business One rests. With the right chart of accounts, posting periods, and account determination for automated journal entries, SAP Business One takes care of many tasks that are usually performed manually. That is why we spend much of this chapter on issues related to initial setup of financial accounting.
The first step, which you may have already taken with your implementation partner, is to establish your posting periods: Will you have monthly posting periods? Daily? Somewhere in between? Will your fiscal year correspond to the calendar year or will it cross calendar years?
To set your posting periods, go to Administration → System Initialization → General Settings → Posting Periods tab. From here you can update the generated periods (such as date ranges) and create new ones. You can also set or change the start of the fiscal year.
While SAP Business One is very flexible when it comes to setting periods and fiscal years, you and your implementation partner should bear in mind the following important caveats:
- Financial reports can be executed based on fiscal periods, but SAP Business One out-of-the-box monthly, quarterly, and yearly reports are based on a calendar year and not a fiscal year. To support quarterly reports based on 4-4-5 weeks, for example, you can create custom reports using XL Reporter (see Chapter 9).
- You cannot have overlapping posting periods, and only one posting period is the default period at any one time.
If you plan to use a segmented chart of accounts, the next step for your implementation partner and you is to decide on and define the account segments you need.
To define account segments, go to Administration → Setup → Financials → Account Segmentation. You must have at least the first, natural account segment, but you can rename it or change its length, as you can with all other segments. Usually, companies determine their account segments based on their business processes and financial reporting needs. They can represent divisions, departments, regions, lines of business, entities, branches, and so forth. Figure 3-2 shows how account segments are merged to create an account code.
Figure 3-2: A segmented account code
SAP Business One provides four default account segments and allows up to 10. During setup you can change the size and name of any segment but the first segment must always be the natural account segment.
Although you may currently use fewer than the ten segments available, it is recommended that you define additional segments to allow for growth. For example, if you are planning to expand, you may want to define an additional segment for business units you envision adding in the future.
Once you have defined all your account segments in SAP Business One, you have created the foundation for a fully qualified chart of accounts, which, in other words, is the concatenation of all account segments. A fully qualified account code, as shown in Figure 3-2, includes all account segments. For example, a travel expense account code used by your business's marketing department looks exactly like the travel expense account code used by your sales department, except for the segment of the account code representing the department.
Once you have determined your financial or posting periods and account segments, you are ready to create your chart of accounts in SAP Business One. The organization of the chart of accounts follows GAAP in which there is a separate "drawer" for accounts representing assets, liabilities, equity, revenues, cost of sales, expenses, financing, and other revenues and expenses. These drawers, which have been defined by SAP and cannot be changed, organize your accounts by level in a logical fashion appropriate to your financial accounting and reporting processes.
In the Chart of Accounts window, SAP Business One asks you to characterize every G/L account as either a title account or an active account and identify its level. Because only active accounts can be posted to in SAP Business One, it is a good practice to have all your accounts at the same level. In reports, a title account summarizes all the balances of each active account below it. In the account segmentation shown in Figure 3-3, level 4 is the lowest level that contains postings of transactions.
Figure 3-3: Chart of accounts organized by drawers and levels
Foreign currency management is available for companies that use multiple currencies. In SAP Business One, you can specify G/L accounts and business partners as multicurrency. This allows you to post documents and journal transactions to these G/L accounts and business partners in any currency that has been defined in the SAP Business One company. Reconciliations, reports, and balances of multicurrency G/L accounts and business partners are performed, calculated, and displayed in the local currency. When a new G/L account is added, the currency defaults to multicurrency.
One of the key advantages of SAP Business One is its ability to create various journal entries automatically, particularly those involving sales, purchasing, and inventory transactions. In a manual system, doing business and keeping track of it are separated. Invoices and other such documents are created first, and then later the accounting entries for keeping track of them are added. In SAP Business One, when an invoice is created, the accounting entries are created at the same time. But how does the application know how to create those accounting entries? G/L account determination is the process of telling SAP Business One in which accounts to put various sorts of automatically created accounting entries.
To take full advantage of the application's robust automation, you must take special care to provide SAP Business One with the correct information in the G/L Account Determination window.
To specify G/L accounts, go to Administration → Setup → Financials → G/L Account Determination.
Determining your G/L accounts thoroughly and accurately is crucial to the automatic creation of journal entries in SAP Business One.
Figure 3-4 shows the mandatory fields for G/L account determination setup for sales documents, including the revenue account. The revenue account is the default revenue account used for any A/R invoice. It is overridden if a revenue account is specified in item or warehouse master data.
Figure 3-4: Mandatory fields for G/L Account Determination: Sales tab
When making the change from your legacy financial accounting system to SAP Business One, you are faced with the challenge of having to keep historic data online for audit and research purposes as well as for ongoing day-to-day business activities.
The data transfer workbench add-on for SAP Business One is a migration tool that enables you to transfer data from your legacy system into SAP Business One. It transfers master data, such as business partner and item records, as well as transaction data, such as orders, invoices, and balances, since both types of data need to be available in SAP Business One.
In the United States, certain vendors are subject to 1099 reporting, meaning that payments to them must be tracked and reported to the United States Internal Revenue Service (IRS). With a little setup, SAP Business One automates the tracking of payments that are subject to 1099 reporting and automatically creates 1099 forms at tax time.
When importing any existing vendor master data into SAP Business One, you should designate your 1099 vendors as such. This saves you from having to change business partner master data manually.
For setting up new vendors, you should know that the process of tracking 1099 payments starts in the Business Partner Master Data window. The Accounting tab has two subtabs, General and Tax. Figure 3-5 shows two boxes on the lower right of the General tab that allow you to specify which 1099 form will be used to track payments to this vendor and the category for payments. With these boxes set, the payments to this vendor are tracked so that a 1099 form can be created and sent to the IRS as required.
Figure 3-5: Setting the 1099 Form and 1099 Box
Once you have set up your chart of accounts and your G/L account determination, you are ready to use SAP Business One for day-to-day activities as well as for period- and year-end closing tasks.
The majority of journal entries in SAP Business One come from one of the other modules; sales, purchasing, payment, and inventory documents post transactions automatically to the G/L. However, in GAAP accrual-based accounting, you sometimes need to make manual journal entries in the G/L, such as depreciation entries, accrual entries, correcting entries, and the like - anything, in other words, that would not come from one of the other SAP Business One modules. When a journal entry is added manually, it is recorded immediately and cannot be deleted - only reversed. (To do so, see "Reversing Transactions" later in this chapter.)
Using the Journal Entry window shown in Figure 3-6, you can create journal entries manually. The purpose of manual journal entries is to record transactions that are not automatically initiated from a subledger or from another process within SAP Business One. For example, a manual journal entry might be used to record a finance charge to a customer account or a service fee to a bank account.
Figure 3-6: Entering a manual journal entry in the Journal Entry window
To create a manual journal entry, go to Main Menu → Financials → Journal Entry. A journal entry can be displayed and created in an expanded editing mode or reduced editing mode. Figure 3-6 shows the expanded editing mode, which allows you to easily enter lines of data without having to scroll left and right.
Some transactions recur monthly or weekly. The transaction amounts may not be the same each time and the percentages may not necessarily be fixed (although they recur on dates that are known in advance and are usually made up of the same G/L accounts).
You use recurring journal entries for expenses such as depreciation, equipment lease payments, payroll, and office rent and utility costs.
To access recurring postings, go to Main Menu → Financials → Recurring Postings.
Posting templates help streamline the posting of individual journal entries that repeat from period to period but are more complicated than simple recurring postings. SAP Business One allows you to create fixed templates for such recurring journal entries. When recording this type of transaction, select the relevant template and fill in the missing items. SAP Business One allocates the amounts in accordance with the account assignment template.
The posting template function, for example, can work based on percentages when allocating an expense (for example, marketing costs) over two or more departments. With a posting template, you can take 100% of one account and allocate it automatically to the other relevant accounts based on fixed percentages.
To access the posting template function, go to Main Menu → Financials → Posting Templates.
You can use journal vouchers to review a large volume of financial transactions before posting them. Before you post the entries as journal vouchers, you have the opportunity to edit, change, or delete entries, as required. Let's consider a couple of situations in which you would use journal vouchers. Perhaps you're training a new employee, and rather than risking that some or all of the new employee's journal entries might have to be reversed, you can allow the new employee to create journal vouchers that you can review. This eliminates the risk that the new employee could post incorrect journal entries that would have to be reversed later. You can also use journal vouchers to perform what-if analyses. You can run financial reports that include journal vouchers to determine the effect of the postings before you actually post them.
To create a journal voucher, go to Main Menu → Financials → Journal Vouchers.
In SAP Business One, a journal voucher is always used for a batch of transactions. In other systems, a journal voucher is used sometimes used for a single journal entry.
A variety of tasks come under the category of maintaining records, including reversing transactions, editing G/L accounts, and editing 1099s. This section covers these maintenance topics.
If you need to reverse a transaction that had been posted to the general ledger using the Journal Entry window or the Journal Voucher window, SAP Business One provides you with three options:
- Go to Main Menu → Financials → Journal Entry and create a correcting journal entry
- Run the Transaction Journal Report and open the relevant journal entry, then click Cancel
- Run the Transaction Journal Report and open the relevant journal entry, then check the Reverse box and click Update (see Figure 3-7)
Automatic reversal of manual journal entries is usually set up to occur on the first day of the following month. For a list of manual journal entries scheduled for reversal, go to Main Menu → Financials → Reverse Transactions. Note that this option is used primarily during month- and year-end closings.
Figure 3-7: Automatic reversal of manual journal entries
In the normal course of business, it is not uncommon to have to adjust the chart of accounts from time to time. Using the Edit Chart of Accounts window, you can make changes to the chart of accounts, create new accounts, rearrange groupings, and change and edit existing accounts.
To display the Edit Chart of Accounts window, go to Main Menu → Financials → Edit Chart of Accounts, or Administration → Setup → Financials → Edit Chart of Accounts.
Creating codes for a set of newly created accounts is a common task when adding new accounts. The account code generator is a tool that enables you to assign codes to newly created account segments at the click of a button. In addition, you can insert a new G/L account in a number of different account groups (for example, departments) simultaneously. To access the account code generator, select Financials → Account Code Generator.
Vendors that are assigned a 1099 form within business partner master data will have A/P invoices and credit memos that accumulate 1099 amounts for year-end reporting to federal authorities. If a document is incorrectly posted with the wrong 1099 amount, form, or box, you can use the 1099 editing function to modify the data. To access 1099 editing, go to Main Menu → Financials → 1099 Editing.
Figure 3-8: The 1099 Editing window
When a change is made to a document, master data record, or setup element, an audit trail is created. To view these changes, select Tools → Change Log from the SAP Business One menu bar to display a Change Log window that lists changes, including user, date, and time, that have been made to that particular document or master data record. You can then click on an entry to see the change that was made. If there are multiple changes, hold down Ctrl and click on two or more lines, then click on Show Differences in the lower right of the Change Log window to see what has changed between iterations of the document.
Much of the work of financial accounting takes place at the end of each period and at the end of the year when transactions are examined and any corrections or adjustments are made. SAP Business One supports such activities in a variety of ways.
Period-end activities take place at the end of the month or the end of the quarter, or both, depending on how your financial accounting processes work. In either case, the checklist at the end of the period is much the same.
- Make sure that all transactions for the period were posted properly, including adjustments and accruals
- Print trial balance (a balance of each account and a current status)
- Print vendor liabilities aging and customer receivables aging reports to reconcile receivable accounts with the G/L
- Print inventory audit report to reconcile inventory with the G/L
- Print financial statements
- Make a backup of your database and put it in an off-site storage location
- Close or inactivate the fiscal period by locking it using the posting period window
Year-end closing is a big event that affects many aspects of how SAP Business One operates. For example, a year-end close will zero all profit and loss account balances to the retained earnings account. Balance sheet accounts are summarized, bringing the balances forward as the beginning balances in the new fiscal year. All of this activity takes time, of course. The year can remain open until all adjusting entries are received from accountants and other reporting entities.
Here is a general year-end checklist:
- Post final transactions for the period in all modules
- Complete the period-end procedures
- Post any final adjusting entries in the G/L
- Close the last period of the fiscal year
- Make a backup of your database and put it in an off-site storage location
- Print 1099s
- Print a final detailed trial balance
- Print financial statements
- Set up a new fiscal year
- Run the period-end closing routine to close the fiscal year
In SAP Business One, the functionality and reporting associated with processing payments are accessed through the banking module. This section provides only the basic information you need to get started. For more detailed, field-by-field information go to Help → Contents tab → Banking.
Incoming payments can be received in four ways: cash, checks, credit cards, and bank transfers. SAP Business One handles all of them in basically the same way - either by making a payment against a specific A/R invoice or by making a payment to a customer against two or more A/R invoices.
The following steps explain how to create an incoming payment against specific invoices:
- Go to the Banking → Incoming Payments → Incoming Payments window shown in Figure 3-9
- Click the selection list button to the right of the Code field and then select a customer
- Review the Documents for Payment table that displays all the open invoices for the customer
- Select the invoices for which you want to apply a payment (press Ctrl and click to select more than one); the cumulative amount is displayed in the Total Amount Due field in the footer of the window
- Fill in all the required details
- Select the payment means icon from the SAP Business One toolbar to open the Payment Means window. Select the tab for the desired payment means, fill in the relevant details, and click OK, which brings you back to the Incoming Payments window.
- Click Add to post the document
Figure 3-9: Incoming Payments window
Once the incoming payment document is added, the following actions are taken:
- Journal entries credit the customer's receivable account and debit the bank account or bank clearing account.
- The payment is applied to the invoice.
- The paid invoices are closed and no longer appear in the Open Items List or Documents for Payment table. Their related transactions are reconciled internally with payment-related transactions.
You can accept payments that are received without reference to specific invoice(s) - for example, a one-time point-of-sale purchase. To do this, you check the Payment on Account checkbox of the Incoming Payments window and fill in the required information. Once the incoming payment document has been posted, the appropriate journal entry is created.
For more information about managing incoming payments with SAP Business One, go to the linked files under Help → Contents tab → Banking → Incoming Payments.
Just as with incoming payments, there are, generally speaking, four ways of sending outgoing payments: cash, checks, credit cards, and bank transfers. You can perform the following activities:
- Create outgoing payments for business partners and accounts using various payment means
- Print and void checks for a payment for various purposes, including employee bonuses
- Create, trace, and process drafts of outgoing payment documents and drafts of checks for payment
- Generate a Check Register Report
For more information about managing outgoing payments with SAP Business One, go to the linked files under Help → Contents tab → Banking → Outgoing Payments.
SAP Business One provides a payment wizard that allows you to create outgoing and incoming payments in batches for checks and bank transfers. The payments are created according to your selection criteria and payment methods. Using the payment wizard requires the following steps to properly prepare the relevant master data:
- Create a payment method by going to Administration → Setup → Banking → Payment Method
- Assign the payment method to the business partner on the Payment System tab of the Business Partner Master Data window
- Select the payment run methods you want to include in the payment wizard by going to Banking → Payment System → Payment Run Defaults
The payment wizard then steps you through the process of creating payments, deciding who you want to pay, how, and when.
To access the payment wizard, go to Banking → Payment System → Payment Wizard.
Printing checks is an important payment process for most U.S. businesses. The setup for printing checks usually requires some help from an implementation partner. Part of the check printing process involves making sure that the correct printer is designated for check printing and that the check forms are loaded and ready to go.
Once properly set up, printing checks involves marking the method of payment as a check for all invoices or other outgoing payments. Then, when you do a check run, all payments so marked are printed as checks to be sent out.
In the United States, cost accounting is used to track the various cost and profit centers of a business. Using cost accounting, you can track departments, divisions, or various geographies as if they were separate entities. You can determine how much spending or revenue is being generated for various business purposes. In Europe and other parts of the world, segmented charts of accounts are not considered Generally Accepted Accounting Practices (GAAP); cost accounting is the prevalent method used.
Through SAP Business One's cost accounting functionality, you can establish profit centers for almost any purpose by going to Main Menu → Financials → Cost Accounting → Profit Centers.
To use cost accounting, you define the various cost centers or departments in your company as profit centers. You then assign revenue and expense accounts to the profit centers so that any data relevant to a profit center can be updated automatically for all transactions entered in the application. Costs are allocated to profit centers using information that you define in a distribution rule (described in the next section). This means that any costs incurred are allocated to the profit centers on the basis of a specific distribution rule. If you decide that the way in which costs are allocated no longer reflects the way your company works, you simply change the distribution rule as required.
Cost accounting can be used to track and allocate shared expenses or revenues. In every company there are always expenses and sometimes even revenues that cannot be assigned to one specific business activity. These include administration costs, advertising costs, and financing costs. These indirect costs (and indirect revenues) are spread across multiple business activities using distribution rules.
A distribution rule is used to allocate direct and indirect costs and revenues to one or more profit centers. Consequently, each distribution rule contains information regarding the portion of costs or revenues to be allocated to each individual profit center.
To distribute indirect costs incurred by rent, for example, you could specify what portion of the total rented space a specific profit center uses. Alternatively, you could allocate by specifying the number of employees belonging to a profit center as a percentage of the total headcount in the company.
You can use a distribution rule for several different cost elements. If, for example, one store uses 1500 square feet of the total rented floor space of 2000 square feet while another uses only 500 square feet, you distribute the costs incurred by rent and professional cleaning services proportionately between the two stores on the basis of this information. To achieve this, you assign distribution rules to the appropriate expense accounts and revenue accounts.
To access the cost accounting distribution rules function, go to Main Menu → Financials → Cost Accounting → Distribution Rules.
You use the budget functions in SAP Business One to track corporate expenses and revenues. SAP Business One has an encumbrance function that allows you to block additional transactions if the budget is exceeded. SAP Business One can calculate budget amounts automatically based on a series of distribution rules that you specify. For example, you can base budget amounts on a previous year's budget and mark them up by a certain factor if you expect expenses or revenues will increase by a certain percentage. The markup can be distributed equally to all accounts or incrementally. SAP Business One can automate the process, but your accountant should help decide what distribution rules to use.
In the course of routine work, SAP Business One checks the debit side of accounts for which you have defined a budget amount, and, if the budget is exceeded, issues a warning or blocks the action, depending on which method was chosen.
To begin the process of defining a budget, set the required options in the Administration → System Initialization → General Settings → Budget tab. For all other budget functions, go to Main Menu → Financials → Budget.
Budget scenarios are used for planning as well as budget tracking and reporting. They help you analyze your company's (or division's or department's) financial position given certain conditions. SAP Business One allows you to define these conditions as well as determine the fiscal period during which they apply. Whenever you set up a new company, a scenario called the "main budget" is created automatically. You can use this scenario as a basis of other scenarios, but you cannot edit or delete the main budget scenario. It is important to keep in mind that SAP Business One does all budgeting based on calendar months and the calendar year. To set up budget scenarios, go to Main Menu → Financials → Budget → Budget Scenarios.
By default, each company in SAP Business One has three common methods of budget distribution:
- Equal: This method distributes the budget amount equally among the months of the year.
- Ascending order: This method distributes the budget amount in ascending order and is used when you increase your budget expenses over the year. For example, in January you use only a small portion of your budget, in February you increase your expenses, and so on.
- Descending order: This method distributes the budget amount in descending order and can be used when you decrease your budget expenses over the year. For example, in January, you use the largest portion of your budget, in February you use a little less, and so on.
You can use these methods or define new budget distribution methods for the budget scenarios you create by going to Main Menu → Financials → Budget → Budget Distribution Methods.
Figure 3-10: Setting up budget scenarios
SAP Business One offers a comprehensive suite of standard financial and control reports. Choose Main Menu → Financials → Financial Reports to access standard reports such as those in the following table. In addition to these standard reports, SAP Business One offers advanced reports via XL Reporter (see Chapter 9).
|Report||How to reach||What it shows|
|Customer receivables aging||Accounting → Aging||All of the receivables that are current and past due, usually by several periods; receivables aging in aggregate as well as detail for each customer. Customer statements can be accessed and printed from this report.|
|Vendor liabilities aging||Accounting → Aging||How much is owed each vendor and how much is current and past due (in the same way as the customer receivables aging report)|
|Balance sheet||Financial||Summary of the financial position of a business: value of a company's assets, total liabilities, and owner's equity|
|Trial balance||Financial||Details for each account: beginning balance for a particular period, all of the debits and credits, and the ending balance; used to reconcile account balances with each other and with external sources of information.|
|Profit and loss statement||Financial||Income of your business|
|Cash flow||Financial||Cash flow forecast (statement of cash flow is available through XL Reporter (see Chapter 9)|
|Document journal||Accounting||All the detailed journal entries created manually or automatically|
|Transaction journal||Accounting||Posted journal entries by journal entry number, with drill-down to related transactions for more detail|
|Inventory audit||Main Menu → Inventory → Inventory Reports||Listing of all items in inventory, along with details of every posted transaction related to the item and cost of the remaining on-hand quantities; used by accountants and auditors to reconcile inventory transactions to their G/L|
|Check register||Main Menu → Banking → Outgoing Payments||Listing of all checks including complete details such as account code, vendor ID, payment amount, status, whether it was printed, and who printed it|
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