Common Practices for Implementing SAP S/4HANA

The Universal Journal (table ACDOCA) is the common line item persistence for:

• General Ledger
• Profit Center Accounting
• Fixed Asset Accounting
• Material Ledger
• Controlling
• Profitability Analysis

This makes the configurations and settings also relevant for many other scenarios such as:

• Parallel accounting (local GAAP and international GAAP)
• Segment reporting (profit center/segments)
• Preparation for consolidation (companies/consolidation transaction types)
• Period accounting (nature of expense method) and cost of sales accounting (accounts/functional areas)
• Profitability Analysis (account-based)

Sometimes it is not so easy to define the landscape and organizational structure of an International Corporate Group. Therefore, here you find some short descriptions of important organizational elements.

A group can be distributed across several clients or systems. If it is possible (in terms of size, shareholdings etc.) all companies should be in one client. This makes it easier to realize topics such as company reconciliation, consolidation and so on. In some cases, it is strongly recommended (for example, using transfer prices in Controlling).

Every legally independent company becomes a company code. Only in very rare cases a real company is represented over several company codes in SAP.

For parallel accounting, there are essentially two solutions (ledger solution and account solution). Ledger solution is strongly recommended for new systems (Greenfield Approach). The leading ledger shows the accounting principle used to manage the entire group. That is mostly international law. But it can also be a local GAAP, according to which all companies must report.  In case local GAAP is not leading, only one ledger for local GAAP should be set up for all countries. It is recommended that the ledger structure be the same everywhere if possible.  Another requirement is often to have the tax law as an additional non-leading ledger in the system.   

The Controlling Area is an organizational unit in accounting used to represent a closed system for cost accounting purposes. A cross-company-code cost accounting is recommended and all data relevant to cost accounting appears in a common controlling area and is available for allocations and evaluations. Cross-company value flows are not desired in controlling in certain scenarios. Controlling topic is covered in controlling courses.  

The operating concern is an organizational unit in accounting which structures an enterprise from the Profitability Analysis point of view. Profitability Analysis (CO-PA) uses characteristics (pre-defined and customer-specific). When using the account-based COPA, these characteristics are stored in the Universal Journal and can be used for multi-level contribution margin accounting. This topic is covered thoroughly in management accounting courses.

These two objects are used for preparation for consolidation. Consolidation functions in financial accounting are based on companies (legal consolidation). The actual consolidation takes place in another solution (commonly in Group Reporting). For example, a group of companies has 400 subsidiaries but only 100 of these company codes are defined in the SAP S/4HANA system. Thus, 100 company codes and 400 companies must be created in the system. Each company ID is consistent across the group in all systems. Every company code gets their own company ID.

The company ID of participating or affiliated companies (called partner companies) must be assigned to the business partner for customers or vendors, if these companies are set up as sub-ledger accounts. Alternatively, these companies can also be managed as a G/L account by using company ID directly in a G/L account. The document type is used to transfer the partner company (company ID) to all document items (offsetting accounts of accounts payable/accounts receivable). Transaction types for consolidation are used for provisions analysis (horizontal development of balance sheet items).

Segments are used cross-company for segment reporting within the meaning of the law (IFRS 8 and ASC 280 in US-GAAP). Customers typically have few segments in accordance to accounting regulations. The segments are derived from the profit centers.

Profit Centers are used to internally structure and internally report groups or company codes. The recommendation is to have at most 5000 profit centers (note 217338 - Number of profit centers). It is not a technical restriction. A large number of more than 10.000 profit centers is generally not useful. The profit center is derived directly from the CO objects that affect income (cost center, internal order, sales order and others).  

It is also possible to have balance sheets for profit centers and/or segments by document splitting in addition to a profit and loss statement. Profit centers or segments are sometimes treated like internal companies. Due to the document split, the effort for test and legacy data transfer becomes higher. Document splitting requires opening balances that must be created on the detailed level of each relevant object. The profit centers (and segments) in the balance sheet accounts are derived directly from other objects such as the material master and the asset master or entered manually (as is the case for provisions). The functionality of document splitting additionally distributes the account assignment ​​to other balance sheet accounts such as receivables, payables, tax items, and other line items where they are not defined.

The income statement is presented either by the nature of expense method or by the cost of sales method. S/4HANA supports both methods in parallel. The nature of expense method is always active while the cost of sales method must be activated. The result of both methods is the same. The nature of expense method is account-driven (different types of expenses like material, depreciation, and so on), whereas cost of sale method is activity based driven (cost of production to realize revenues, administration, and so on).

The functional area is entered in the G/L account master record (Chart of account level) when all postings are assigned to the same functional area. In other cases, functional areas will be assigned to controlling objects, such as cost centers, internal orders, and so on. Optionally a substitution can be used to derive functional areas. If the functional area can be determined from several objects simultaneously, then substitution has the highest priority, followed by manual entry, G/L account and, at the end, controlling object.

The line item contains all the information for nature of expense method and cost of sales accounting (account, functional area, profit center and segment).

Every company code uses at least one currency, the Company Code Currency (10). This currency is the 1^st FI currency. It is possible to have a 2^nd and 3^rd currency type (parallel currencies) in FI for additional purposes like reporting a hard currency. These three currencies are stored in addition to the document currency in the external view (Data Entry View).

The Controlling area uses a separate currency type and currency. This currency may differ from the Company Code Currency. The recommended currency type for the controlling area is 30 (Group Currency).

Both currency types (company code and controlling area) are updated in all SAP S/4HANA solutions for all documents in the Universal Journal. Company codes use different currencies for different countries or as defined in the Articles of Association. Therefore, there is a group-wide uniform group currency.

The universal journal can store 8 additional currency types for additional purposes (such as transfer prices).