Chapter 2: Enterprise

information system
components

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 Financial Accounting

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 Learning Objectives
1. Explain the differences between financial
accounting and management accounting.
2. Describe the organizational data related
to financial accounting.
3. Discuss and analyze the key types of
master data involved with financial
accounting.
4. Explain and apply basic accounting
concepts.
5. Execute key processes in financial
accounting.
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 Learning Objectives
(Continued)
6. Identify key integration points between
financial accounting and other processes.
7. Prepare reports in financial accounting.

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 Accounting Categories
The accounting process is divided into two
major categories:
Financial accounting (FI)
Management accounting (CO)
In general, BRANCHES OF ACCOUNTING as:

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 1. A CONCEPTUAL FRAMEWORK OF
FINANCIAL ACCOUNTING
A Information system should
mentioned in:
Organizational data (organizational
structure of the company- rarely change)
Master data (Master data describes the key
entities associated to the organization.
Examples include customers, materials, and
vendors. Master data changes infrequently)
Key concepts
Process
Reporting

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7
Key Financial Accounting
Processes
General ledger accounting
Accounts receivable accounting
Accounts payable accounting
Asset accounting
Bank ledger accounting

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 1. Organizational Levels
Client
Company code
Business area

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 Client
Highest organizational level
Only one client per enterprise
Can have one or multiple company codes

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 Company Code
Highest organizational level for financial
reporting (external, legal reporting)
Four-digit alphanumeric field
Smallest entity that supports a full set of
books
General ledger, journals, etc.
At least one CC is required; can have more
than one

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 Multiple Company Codes
One for each legal One for each
entity country
Buick GBI USA
Cadillac GBI Germany
Oldsmobile GBI Australia
Chevrolet Consolidate to the
Hummer “parent” company
Saturn code level
Saab
GMC

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 Business Areas
Internal division to generate financial
statements
GM
Cars (Sedans)
Cars (Sports)
Pick-up
SUV
Minivan
Across Company Codes

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 GBI Business Areas

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 2. Master Data
Chart of Accounts
General Ledger Accounts
Balance sheet accounts
Income statement accounts
Reconciliation accounts
Subsidiary ledgers (sub ledgers)
AR(customers)
AP (vendors)
Assets

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 Chart of Accounts
An orderly definition of accounts in the
general ledger
Three types of chart of accounts:
Operative COA
Country-specific COA
Group COA
Multiple charts of accounts exist
US (CAUS) , Germany (GKR), Canada (CANA)
Country specific to meet reporting
requirements
International Chart (INT)

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 Chart of Accounts
A chart of account can be used by multiple
company codes
Different GM companies (Buick, Cadillac,
Oldsmobile) can use the same (US) chart of
accounts
Saab will use the German chart of accounts
A company must use at least one chart of
account
Can use more than one chart of account to
create alternate ledgers

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 General Ledger Accounts
G/L accounts are master data
Recording of all accounting-relevant
business transactions occurs in a G/L
account
Data in the general ledger accounts are
segmented by organizational level
Chart of account segment
Company code segment
General ledger = COA data + Company code
data

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 3. Key Concepts
Key concepts to financial accounting are:
Accounting document
Parallel accounting
Concepts in Management Accounting

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 Document Type
Two-digit code that identifies the process
that generated the document
Financial accounting document (FI)
Customer invoice (DR)
Customer payment(DZ)
Goods issue (WA)
Goods receipt (WE).
Determines the document number range
and the account type that can be posted to

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 Account Type
Customer(D)
Vendor (K)
Asset (A)
Material (M)
General ledger accounts (S)

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 Concepts in Management Accounting (second
major in Accounting process) - CO-Cost
management
Most of the data used in management
accounting are derived from financial
accounting
A key function of management accounting
is to manage and allocate costs
Companies incur these costs as they carry
out various business processes such as
fulfillment
COST: cost means the amount of
expenditure, actual or notional incurred or
attributable to a given thing. It can be
regarded as the price paid for attaining the
23 objective. For e.g. Material cost is the price of
 Cost Centre
 It is a location, person or item of equipment for
which cost may be ascertained and used for
the purpose of cost control. It is a convenient
unit of the organisation for which cost may be
ascertained. The main purpose of
ascertainment of cost is to control the cost and
fill up the responsibility of the person who is
incharge of the cost centre.
 Types of cost centers
 Personal Cost Centre: It consists of a person or group
of persons. e.g. machine operator, salesmen, etc.
 Impersonal Cost Centre : It consists of a location or an
item of equipment or group of these. E.g. Factory,
24 Machine etc
 Cost Center
 Master data in controlling
 Location where costs are incurred
 Department, individuals, special projects
 Cost bucket used to accumulate costs
 Accumulated costs are then “charged” to other
cost centers – CO process
 Many processes have “orders”
 Purchase orders, Production orders, Sales orders
 Expenses can be charged to these orders
 Collectively objects that can absorb costs are
called cost objects
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 Classification of Cost

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 4.Processes
Recording of value flows ($$) as a result of
other processes and transactions
General Ledger Accounting
 G/L postings for rent, utilities, wages, etc.
Accounts Payable Accounting
 Part of the procurement process
Accounts Receivable Accounting
 Part of the fulfillment process
Asset Accounting
 Acquisition, depreciation, retirement

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 General Ledger Accounting
Concerned with recording the financial
impact of all process steps performed
within the organization
Double-entry accounting is used for every
transaction
Accounts are divided into balance sheet
accounts and income (profit and loss)
statement accounts

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 Debits and Credits

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 Accounts Payable Accounting
Concerned with vendors
Involve sub-ledgers to track money owed to
individual vendors: vendor master
Involve reconciliation accounts: Accounts
payable-reconciliation
Recall the non-reconciliation AP account
(payables-miscellaneous) discussed earlier
Involve GR/IR account (discussed in
procurement chapter)

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 Accounts Payable Accounting

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 Asset Accounting
Concerned with tracking the financial
consequences associated with the entire
lifecycle of an asset, from acquisition to
disposal (retirement).
Assets can be categorized as tangible,
intangible, and financial
Tangible assets can be further categorized as:
Fixed assets
Leased assets
Assets under construction

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 Asset Accounting
Assets are assigned to
company code
Business area
Asset accounts
sub-ledgers accounts
General ledger
reconciliation accounts (in the general ledger)
Involves account determination (via asset
classes)

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 Integration of Financial
Accounting with Other
Processes
Financial accounting is integrated with
other processes in SAP within the
organization (enterprise)
Numerous steps in different processes have
a financial impact

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 Integration of Financial
Accounting with Other
Processes

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 4.Reporting
Financial reporting is broadly divided into
two categories:
Displaying account information
Generating financial statements

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 Account Information
Account information can be displayed at
three levels:
Balance
Line item
Original FI document

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 Financial Statements
Three types
Balance Sheet
Income Statement
Statement of cash flows
Required for external reporting
Quarterly filings with the SEC?
Accuracy is critical – SOX compliance
Certified by CEO and CFO

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