Distinguishing Between Management and Financial Accounting

Financial accounting structures and collects the transactional data in accounts in order to provide the standard portfolio of reports which are required for external stakeholders (such as tax authorities, external audits, banks, management), namely:

• Balance sheet
• Income statement
• Statement of cash flows

Financial accounting is the interface between the logistic modules and human capital management on one side and controlling on the other side. All primary costs and revenues that are posted in financial accounting must be assigned to cost objects.

Financial accounting produces the financial reports in accordance with the applicable accounting principles, such as:

• IFRS (International Financial Reporting Standard - Limited Companies in the EU)
• US GAAP (United States General Accepted Accounting Principles)
• HGB (German Commercial Code)

It can be used for parallel accounting to support reporting of multiple accounting principles in their own ledgers.

In financial accounting, the logistical processes are valuated, for example:

• Goods movements (such as goods receipt for goods issue)
• Invoices (such as invoice receipt for purchase order)
• Warehouse stock (year-end revaluation, physical inventory)
• The posting of pure financial transactions (such as the import of electronic bank statements)

To meet the (IFRS) requirements for operational segment reporting, profit centers are defined and segments are assigned to these. As a result, balance sheets and profit and loss statements can be created at any level.

In management accounting, there are different types of cost objects. All of them can carry costs, but only a few carry revenues:

Cost objects to which only costs, no revenues, are assigned:

• Cost centers (where costs are incurred – in which organizational unit of the company)
• Manufacturing orders (production orders and process orders)
• Networks (network activities that subdivide WBS elements, which in turn subdivide projects)

Cost objects that carry costs and revenues:

• Projects and their work breakdown structure elements (WBS-elements)
• Sales orders (products, service)
• Customer service orders (refers to the maintenance and repair of assets)
• Internal orders (not available in SAP S/4HANA Cloud, public edition)

This makes it possible to evaluate the costs and revenues according to:

• Analysis for cost centers and cost objects
  • Calculation of unfinished goods inventory – work in process (WIP)
  • Variance analysis according to categories (quantity variance, price/scrap variance, and so on)
• Results Analysis for cost objects with revenue:
  • Reserves for unrealized costs
  • Reserves for imminent loss (actual costs > planned revenue), and so on

Another function in CO is the calculation of the cost of goods manufactured (COGM), which is used for:

• Valuation of warehouse stock of in-house production products
• Calculation of standard cost of goods sold (COGS)
• Basis for calculating target costs that are used for variance analysis of the cost objects (production orders)