Configuring a New Financial Statement Version

Financial statements present a summary of your organization's financial operations and economic activities. These documents are reviewed by auditors and regulatory bodies to ensure precision and proper taxation. Moreover, financial statements are crucial components of the annual report. They offer investors and market experts insights into the company's financial standing, operational outcomes, and cash flow during the stated period.

Organizations must generate the following key financial statements:

• Balance Sheet: The balance sheet provides a overview of the organization's assets, liabilities, and shareholder equity.
• Income Statement: The income statement offers a breakdown of the company's earnings and costs. It also reveals the net income.
• Cash Flow Statement: The cash flow statement gives a detailed account of the organization's cash intake and expenditure during the specific period.

Meet Carlo. He just joined the accounting department of Bike Company, an international sporting goods manufacturer. He has recently taken on a new role as a super-user in a project to update the company’s financial statements, following several requests from auditors and management. This task becomes even more crucial due to recent changes in accounting standards and regulations.

Carlo is eager to learn how SAP S/4HANA can handle changes to the structure of the financial statement reports. For example, he wants to understand how to add new accounts, remove unnecessary accounts, and modify subtotals in the financial statements. Since the company operates internationally, Carlo also needs to ensure that these updates can be maintained.

He wonders if the reports can be made time-dependent, allowing for multiple versions to be available simultaneously or to replace each other at specific points in time. Additionally, Carlo wants to explore how Microsoft Excel can be used to support these maintenance tasks.

Moreover, he would need to figure out how to display accounts dependent on their balances and how to set up in the financial statements.

Carlo has previously used financial statement versions. Now, he wants to delve deeper into the functionality of these versions to understand how they can support his company's requirements.

Financial statement versions serve as tools to produce financial statements, forming a basis for statutory reporting and addressing other internal or customized reporting needs. SAP S/4HANA Cloud comes with specific preloaded financial statement versions to avoid creating entirely new ones. These can be duplicated in the SAP Manage Global Hierarchies app for easier modification of the General Ledger account assignments, using drag-and-drop functions.

The financial statement version enables you to configure the following aspects of the report format:

• The items to be included, and the sequence and hierarchy of these items.
• The text describing the items.
• The chart of accounts and the individual accounts relevant to the report.
• The totals to be displayed.

The user can define as many financial statement versions as deemed necessary to make reports for various purposes, such as for tax authorities, internal users, or external users.

The SAP Manage Global Hierarchies app is used for maintaining hierarchies and groups within SAP S/4HANA. This application boasts features like time dependency, status control, and node description maintenance in multiple languages, as well as the ability to import or export the data to a spreadsheet. In addition to financial statement versions, it also accommodates other hierarchy types such as cost center or profit center hierarchies.

With the SAP Manage Global Hierarchies app you can view, create, edit, activate, and deactivate hierarchies. You can import new or copy existing hierarchies to accommodate shifts in the structure or evolving reporting demands.

The most relevant parameters related to the creation of financial statement versions include:

• An FSV ID and description.
• Chart of Accounts: only accounts from the specified chart of accounts can be selected.
• Valid From and Valid To: The FSV can only be applied in reports if the reporting period is within your specified time frame. With the time-dependent nature of Financial Statement Versions, it's possible to generate several FSV hierarchy versions under an identical FSV ID, given that their respective time periods don't coincide.
• Allow Contra Nodes: Allows to designate a hierarchy node (A) as the contra to another node (B). If an account has a credit balance, it will show under node A in the financial statements. If it has a debit balance, it will appear under node B.
• Allow Functional Areas: To assign functional areas (in addition to G/L accounts) to individual nodes of the FSV, required to create P&L statements in accordance with the cost of sales accounting.

When creating a financial statement version, a structure is automatically generated with the following nodes:

• Assets
• Liabilities and Equity
• Net Result: Loss
• Net Result: Profit
• P&L Result
• Financial Statement Notes
• Not Assigned

These nodes are also referred to as "special nodes" or "special financial statement items".

The program that generates the financial statements is responsible for calculating the net result of the balance sheet and the Profit & Loss (P&L) statement. This program also labels any accounts that it couldn't assign to a pre-defined item in the financial statement version as 'Not assigned'.

The accounts classified as Financial Statement Notes or Not Assigned are not factored into the calculations of retained earnings/net losses or into the profit and loss (P&L) result. The balances of all other accounts contribute to the calculation of the P&L statement result.

A fixed item, similar to the assets and liabilities items, is created for the Financial Statement Notes item when you define the financial statement version. By reassigning the corresponding accounts to this item, you can ensure that these accounts are no longer included in the profit and loss result when you execute the financial statement report.

The program that generates the financial statement does not generate any journal entry. Its function is limited to computing the balance sheet and P&L statement gains or losses and showcasing these results within the financial statements.

To accommodate different requirements, users have the ability to modify only the Assets, Liabilities and Equity, as well as Financial Statement Notes nodes. This allows you to allocate G/L accounts to these nodes based on your particular reporting demands. The allocation of G/L accounts to the other special nodes is done automatically.

Once you have an FSV structure in place, you can modify it by:

• Adding additional nodes
• Assigning G/L accounts
• Assigning functional areas

When editing the structure of a financial statement version, the additional items can be added at different levels in a hierarchical manner. The accounts whose names and balances are to be listed are added at the lowest level of the hierarchy. The system calculates a total or subtotal for each financial statement item, which is then displayed when the program runs.

The SAP Manage Global Hierarchies app includes an import/export function that makes editing financial statement versions (FSVs) in a spreadsheet simpler and more efficient.

Once the financial statement version is completed, it can be simulated for testing purposes: Activate the Simulate flag. The FSV can be saved with a Draft status, however, it must have the Active status to be available for runtime use.

Now, let’s try copying and modifying your own financial statement version in the next activity.

Now that Carlo has a better understanding of setting up a financial statement version, he’s interested in exploring the key functions available to set up the financial statement versions in the system.

The financial statement Version (FSV) is time-dependent. This means that when creating an FSV, it must be assigned a 'valid from date' and a 'valid to date'. Multiple instances of the same FSV ID can be created, each identified by their validity dates. The underlying account hierarchies can significantly differ from each other in this case.

However, it's crucial to note that the validity periods for FSVs should never overlap.

For Carlo, using this feature means that he can automatically execute financial statements using the FSV that is valid on the date selected by the user to run the report. Additionally, he has the flexibility to manually select a different FSV to execute a report, allowing for easy comparison of different versions using the same set of data.

To facilitate this comparison, the FSV Key Date field can be added to the filter bar. After that, Carlo can select different key dates to display the financial statement versions for those dates.

In most cases, G/L accounts are displayed under the same balance sheet node, regardless of whether the account balance is in credit or in debit. In this case, select both Debit Balance and Credit Balance for the account when setting its parameters in the FSV.

In some cases, however, the total balance of the node will determine where it is displayed as well as its linked accounts. In these cases Carlo can activate the allow contra nodes feature the entire financial statement version. This feature allows for the designation of one hierarchy node (Node A) as a counter to a different node (Node B), with both nodes encompassing identical account groups.

The total balance of these accounts decides which node they are displayed in in the financial statements. If the balance is in credit, they are listed under Node B. However, if the balance is in debit, they are shown under Node A.

For example: When the balance of your bank accounts indicates a debit balance, meaning you have a positive bank balance, they ought to be categorized as assets under the node called cash at bank. However, if your accounts reveal a credit balance, implying your bank account is overdrawn, these should be displayed as liabilities under the node dubbed payables to bank.

The balance of the individual account can also be used to determine the display of the account under different balance sheet nodes. This is set up by selecting either Debit Balance or Credit Balance for the account under the relevant node.

There are two methods to manage the required set of G/L accounts needed for bank reconciliations:

• Standard balance sheet accounts

• Special cash accounts, that is, bank reconciliation accounts.

The benefit of linking house banks with bank reconciliation accounts is that you only need one set of G/L accounts, no matter how many house banks there are. However, if you use standard balance sheet accounts to link house banks, you will need create a new set of G/L accounts every time you add a house bank account.

The choice between a standard balance sheet account or a bank reconciliation account is done in the G/L account master data, during the creation of the account.

To apply the special cash accounts method and to use the bank reconciliation accounts, take the following steps:

1. Select the Allow Contra Node and Bank Account Grouping checkbox for the Financial Statement Version.
2. Select a node to open the Change Node window.
3. Choose either Debit Balance (Dr.) or Credit Balance (Cr.) for the node, but not both.
4. In the Contra Node field, specify another node as the contra node.
5. Select the Bank Account Grouping checkbox.
6. Add only the G/L accounts with the account type Cash Account and subtype Bank Reconciliation Accountto the node.

This approach controls that only bank reconciliation accounts belong to these specific nodes and that the bank account balances are displayed in the Balance Sheet/Income Statement in two ways:

1. Classified as assets or liabilities based on whether the balance is in credit or debit.
2. Grouped by business partners who are associated with the relevant banks.

Cost of sales accounting is a method used to analyze the sales revenue within a specific accounting period against the costs of production for the activities performed during a period of time. Businesses can allocate incurred expenses among different functional areas such as sales and distribution, administration, and research and development (R&D), or any other area.

The goal of cost of sales accounting is to provide a comprehensive understanding of the costs associated with various functional areas. By identifying the specific expenditures related to each area, Carlo can ensure that Bike Company can make informed decisions to optimize their operations and improve profitability.

To produce a Profit and Loss (P&L) statement in line with cost of sales accounting, it is necessary to activate the Allow Functional Areas feature in the financial statement version (FSV). By enabling this option, functional areas can be assigned to individual nodes of the FSV, in addition to G/L accounts. This pairing is subsequently used for the creation of the P&L statements in line with the cost of sales accounting.

It's important to note that the concept of functional areas only applies to P&L accounts. The assignment of functional areas to P&L accounts is based on their functional area assignment in the postings, rather than the settings of their master data. While balance sheet accounts can potentially also have functional area assignments within their postings, the Balance Sheet/Income Statement app disregards these assignments.

Maintaining the financial statement version in multiple languages can be done effortlessly. However, it is important to ensure that the general ledger accounts are translated in the account master data as a prerequisite. In the Manage Global Hierarchies app, you must:

1. Activate the edit mode for the chosen FSV.
2. Ensure the status is set to draft.
3. Choose a language from the language dropdown menu.
4. Insert the descriptions for the node.

Repeat this process for all the languages you need.

An import/export function is available in the Manage Global Hierarchies app. It simplifies the process of editing financial statement versions (FSVs) via a spreadsheet. Note that in order to leverage this feature and edit an FSV in a spreadsheet, you should have already entered the essential information for that FSV. However, you do not need edit authorization to perform this action, so it is available to users with read-only access to FSVs.

By using this feature, you can download a spreadsheet file that contains all the necessary hierarchy details to your local device. These hierarchy details include the header, structure nodes, their attributes, assigned G/L accounts, and functional areas.

Once downloaded, the FSV file can be opened and edited. You have the ability to add or modify nodes, accounts, or account ranges. However, it is important to keep in mind the following guidelines:

• Do not modify the header
• Ensure that the spreadsheet isn't protected to delete rows
• Files over 250 KB will be processed in the background and the status will be displayed on the notifications area of the SAP Fiori launchpad

The updated file can then be imported. After checking for any errors, the FSV structure will be accordingly updated and is ready to be saved and activated.