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External Accounting

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Title: External Accounting


1
External Accounting
  • Chapter 8 (C L) and Chapter 5 BMW See also the
    R/3 Simulation on Customer Invoice and Payment
    Processing

2
Introductions
  • Accounting system data is used
  • By decision-makers throughout a company to plan
    and manage day-to-day activities
  • By managers to make long-range operating
    forecasts
  • By accountants to generate a companys financial
    statements and other reports

3
Basic Financial Statement
  • Balance Sheet shows companys financial health
    at a point in time
  • Income Statement shows a companys sales, cost
    of sales and profit or loss for a period.
  • Closing the books means checking to see that
    financial statements are accurate and up to date.
    Usually done quarterly or monthly.

4
Figure 5.1 Fitter Snacker sample balance sheet
5
Figure 5.2 Fitter Snacker sample income statement
6
Using ERP for Accounting and Finance
  • Unintegrated systems usually require research
    effort by accountants to assemble required data
  • ERP systems capture accounting data in real time
    as business transactions occur
  • Transfer of finished goods from assembly line to
    warehouse results in changes to Accounting
    records as well as Materials Management records.

7
Inconsistent Record Keeping
  • Companies may have divisions that keep records in
    different systems or with different structures
  • Summarizing the data to provide management
    summaries may require additional processing by
    middleware systems (e.g. spreadsheets)

8
ERP for Accounting Information
  • Early information systems gathered data primarily
    for their own functional area (sales, production,
    payroll, etc.)
  • Data sharing with accounting did not occur in
    real time
  • Accountants and functional area clerks frequently
    had to do significant research to gather the data
    needed for reports
  • ERP systems, with centralized databases, avoid
    these problems
  • Materials Management module sees a goods receipt
    as an increase in inventory
  • Accounting module sees goods receipt as an
    increase in the value of inventory
  • A single data entry transaction provides the data
    for both

9
General Ledger
  • A companys accounts are kept in the general
    ledger
  • In SAP R/3, input to the general ledger occurs
    simultaneously with the business transaction in
    the functional module
  • Sales and Distribution (SD)
  • Sales to customers create accounts receivable
    entries
  • Materials Management (MM)
  • Purchase orders create accounts payable entries
  • Human Resources (HR)
  • Payroll processing creates expense entries

10
General Ledger
  • Other modules also create general ledger entries
  • Financial Accounting (FI)
  • Manages the accounts receivable and accounts
    payable items created in SD and MM
  • Module where general ledger accounts are closed
    at the end of a fiscal period
  • Controlling (CO)
  • Tracks the costs associated with producing
    products
  • Asset Management (AM)
  • Manage fixed-asset purchases (plant, machinery,
    etc.) and associated depreciation

11
Operational Decision Making Problem Credit
Management
  • A company with an un-integrated information
    system can have accounting data that is
    out-of-date or inaccurate
  • Out-of-date or inaccurate data can lead to bad
    operational decisions
  • Fitter Snacker has this problem with credit
    management
  • Companies routinely sell to customers on credit
  • Sound credit management gives customers enough
    credit to promote sales while minimizing the risk
    from default
  • Making the correct credit management decision
    requires accurate and timely sales and payment
    data

12
Operational Decision Making Problem Credit
Management
  • At Fitter Snacker
  • The sales clerk uses a weekly printout of all
    customer balances and credit limit to see if
    credit should be granted for a new order
  • Sales data are transmitted to accounting 3 times
    per week
  • Both sales and accounting work off data that is
    not real-time and may be more than a week old
  • Customer orders that would bring them over the
    credit limit may be accepted
  • Customers may be denied credit because recent
    payments are not available to the sales clerk

13
Credit Management in SAP R/3
  • SAP R/3 allows for a number of configuration
    options to determine how the system responds to
    an order that would cause a customer to exceed
    its credit limit
  • The system may block the sales order
  • The system may prevent the sales order from being
    saved
  • The system may issue warning messages to the
    sales order clerk
  • Credit is a sensitive issue, so the system
    response must be configured to match a companys
    procedures
  • Typically, sales orders are blocked, with no
    warning given to the sales order clerk
  • A credit specialist would regularly review
    blocked orders and take corrective action

14
Dynamic credit check
Only orders for the next two months are considered
Reaction C warning message is issued when order
is saved
Figure 5.3 Credit management configuration
15
Credit limit for Health Express
Outstanding obligations
Figure 5.4 Credit management for Health Express
16
Options to release, reject or forward blocked
sales orders
Figure 5.5 Blocked sales order
17
R/3 and Accounting
  • Internal Accounting
  • profit center accounting/analysis
  • management accounting
  • see Chapter 10 and CO module
  • Asset Management (chap 11 and AM module)
  • External Accounting
  • vendor/customer processing
  • financial accounting (Chap 8 and FI module)

18
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19
External Accounting
  • Vendor Processing (A/P)
  • Customer Processing
  • A/R, credit management, dunning
  • OTA Vendor Processing (one-time accounts)
  • Subsidiary/Head Office Accounting
  • GL Processing
  • Consolidation

20
Vendor Handling
  • A vendor is a business partner that has an
    outstanding payable
  • AP concerns integration of cash mgt, payment
    procedures, G/L, forecasting
  • Automatic vs. manual
  • dunning procedure for credit memo/returns
  • vendor master data
  • invoice processing/verification

21
Vendor Processing
Vendor Master Record Processing
Direct Capitalization
Handling Fixed Assets
Travel Management
Source Administration
Invoice from Vendor has Arrived
Creditor is created
Vendor invoice processing
Invoice posted and released for payment
Vendor invoice is posted
Overheads mgt with allocation cost
22
Vendor Processing (cont.)
Down Payment Release
Bank sttment for payments has arrived
Payment deadline is reached
Down paymnt is released for auto payment
Manual Payment
Automatic Payment
Payment carrier is sent
Payment is posted
Complex Proc. For investmt measure
Simple Proc for Investmt Measure
Project-related maintenance proc.
Supplier proc.
23
Vendor Master Record Processing
  • Vendor master has link into G/L, purchasing and
    accounting function
  • must generate internal or external account
  • 3-level structure of master record
  • general data
  • company code data
  • correspondence, individual dunning, payment terms
  • purchasing organization data
  • individual RFQ, PO, and invoice verification data

24
Vendor Processing
Vendor Master Record Processing
Direct Capitalization
Handling Fixed Assets
Travel Management
Source Administration
Invoice from Vendor has Arrived
Creditor is created
Vendor invoice processing
Invoice posted and released for payment
Vendor invoice is posted
Overheads mgt with allocation cost
25
Vendor Invoice Processing
  • Invoice can be sent in a variety of ways.
  • Manual
  • EDI
  • Web-based EDI
  • This triggers invoice processing
  • entered into system
  • check vendor master
  • tax checked and posted
  • allocated to a CC
  • either fixed asset or current asset account
  • balance check

26
Vendor Processing
Vendor Master Record Processing
Direct Capitalization
Handling Fixed Assets
Travel Management
Source Administration
Invoice from Vendor has Arrived
Creditor is created
Vendor invoice processing
Invoice posted and released for payment
Vendor invoice is posted
Overheads mgt with allocation cost
27
Down Payment Release
  • Generates down payments to vendors
  • Stored as a separate document
  • referred to at final settlement
  • May include tax or not
  • important for posting to G/L

28
Vendor Processing (cont.)
Down Payment Release
Bank sttment for payments has arrived
Payment deadline is reached
Down paymnt is released for auto payment
Manual Payment
Automatic Payment
Payment carrier is sent
Payment is posted
Complex Proc. For investmt measure
Simple Proc for Investmt Measure
Project-related maintenance proc.
Supplier proc.
29
Automatic Payment
  • May take months and involve multiple currencies
  • 3 Basic steps
  • create payment proposal list
  • based on customer master and invoices
  • process payment proposal list
  • document changes in banks, etc.
  • monitors due dates latest possible preferred
  • post payments
  • items cleared and linked to payments

30
Manual Payment
  • Many businesses still choose to make payments
    manually
  • Must enter following information
  • G/L account no. for bank
  • payment amount
  • any charges or fees
  • document number

31
Vendor Processing (cont.)
Down Payment Release
Bank sttment for payments has arrived
Payment deadline is reached
Down paymnt is released for auto payment
Manual Payment
Automatic Payment
Payment carrier is sent
Payment is posted
Complex Proc. For investmt measure
Simple Proc for Investmt Measure
Project-related maintenance proc.
Supplier proc.
32
Customer payment processing
  • Major FI scenario (see R/3 Customer Invoice and
    Payment Processing simulation)
  • Provides data for credit management
  • Supports traditional AR functions
  • manual or automatic processing supported
  • built in dunning procedures
  • integrated with SD, MM and FI

33
OTA Vendor Processing
  • Do not require individual master record
  • simplifies master data processing
  • one-time accounts created
  • provides one-step invoice processing
  • down payments not supported

34
Vendor Processing
Vendor Master Record Processing
Direct Capitalization
Handling Fixed Assets
Travel Management
Source Administration
Invoice from Vendor has Arrived
Creditor is created
Vendor invoice processing
Invoice posted and released for payment
Vendor invoice is posted
Overheads mgt with allocation cost
35
Vendor Processing (cont.)
Down Payment Release
Bank sttment for payments has arrived
Payment deadline is reached
Down paymnt is released for auto payment
Manual Payment
Automatic Payment
Tax Calculator
Paybase
Payment carrier is sent
Payment is posted
Complex Proc. For investmt measure
Simple Proc for Investmt Measure
Project-related maintenance proc.
Supplier proc.
36
Summary of External Accounting
  • Scenarios
  • Vendor Processing
  • OTA vendor proc.
  • Customer proc.
  • OT customer proc.
  • Consolidation
  • G/L processing
  • Special purpose ledger processing
  • Core Processes
  • G/L account proc.
  • Vendor master
  • Customer master
  • invoice proc.
  • clearing
  • payment
  • dunning
  • closing
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