Placing Extension Ledgers in Business Scenarios

Despite its many advantages, the extension ledger isn't intended to be a substitute for the standard parallel ledger. It has several limitations concerning functionality.

You can post to the extension ledger through manual postings, using the Ledger Group Field to include your Extension Ledger.

You can also post through an interface and general allocations.

However, unlike the Standard Ledger, the Extension Ledger isn't integrated with subledgers, and crucial finance processes like Asset Processes and Open Items aren't fully supported.  

With this in mind, let’s review some business scenarios to implement extension ledgers:

In addition to creating GAAP financial statements, many companies have complex management reporting requirements. Most of the required data comes from Standard Ledgers, but often, this data needs reorganization, expansion, or refinement. An Extension Ledger can efficiently handle this, for example, to manage:

• Adjustments for internal management reporting.

• Adjusting entries after the closure of books.

• Topside adjustments.

• Adjustments for tax purposes to calculate a tax-adjusted profit or loss.

Predictive accounting is a functionality that facilitates the bottom-up projection of potential financial outcomes. Even though documents like sales or purchase orders might not yet have accounting relevance, they are likely to result in postings over time. Consider the Order-to-Cash process - it unfolds from a sales quotation until payment.

When a sales order is created, the system simulates subsequent documents, such as Goods Issues and Billing Documents. It then creates predictive journal entries in a P-type Extension Ledger. These documents appear in the system as if they're real data. All ensuing financial processes, like Document Splitting, Derivations, and Splitting of the Cost of Goods Sold, are also initiated.

The postings in the extension ledger, along with the current data from the underlying standard ledger, enable forecasting. For example, it allows for the revenue forecast for one product. It is also possible to report on all line items of one product. The data analysis can be done in detail, but also at a higher level like in a financial statement.

Besides creating the Extension Ledger, you must activate and configure Predictive Accounting and some additional settings to enable this functionality.

It is possible to post statistical sales conditions, such as warranties into an extension ledger during the billing of a sales order. This feature improves Selling, General & Administrative reporting in a Profit & Loss (P&L) statement, as it enables the anticipation and inclusion of prospective costs related to sales warranties.

In SAP S/4HANA, the Commitments Management functionality updates purchase commitments in an extension ledger. A purchase commitment signifies a future payment obligation to a vendor for the delivery of goods or services. These commitments are activated when a purchase requisition or order is created in the system.

At this stage, no actual payments are recorded against the General Ledger accounts. However, a reservation (commitment) should be made against the budget. The activation of commitment updates in the Universal Journal is particularly significant in connection with the new Budget Availability Control feature, which has been available since the 1909 release.

For further details, please refer to SAP Note https://launchpad.support.sap.com/#/notes/2778793. 

A common simulation example involves a closing valuation with foreign currencies. Let's say you're interested in understanding the impact of foreign currency revaluation on your financial statements before applying it. In this case, you can execute the foreign currency valuation in simulation mode. This simulated run generates valuation posting documents that are posted into an S-type extension ledger.

When reporting on the extension ledger used for the simulation, the simulated data is combined with the actual data from the underlying ledger. You can view the simulated data on any report where a ledger can be specified. This simulated data is automatically removed once you carry out the foreign currency valuation in productive mode. As such, you're able to run financial statements and assess the effects of currency changes at any point before actually posting them.

Another application of simulations is in organizational changes. The existing functionality for organizational changes accommodates profit center restructuring for S/4HANA Cloud customers. Within this context, an extension ledger can be used to record simulated transfer journal entries.