Introducing Accruals Management

Objective

After completing this lesson, you will be able to outline the concept of accruals management

Accruals Management

Introduction

Carla is looking forward to learning what Accruals Management is all about and how it can help the business potentially replace their manual processes and streamline their accruals processes, gaining process efficiency in their month-end close. She already knows how accruals are identified and accrued for in the current system. In addition, she is hoping to gain an insight in the end-to-end processes and the related configuration settings.

Business Example

The following figure outlines the business context.

The figure explains the concepts of accruals and deferrals in accounting. Accruals represent liabilities for goods or services that have been delivered but for which the invoice has not yet been received by the month-end closing. Deferrals, on the other hand, represent assets where payment has been made to a vendor in advance, and the benefit is expected to be realized over multiple reporting periods.

Liabilities
As soon as there are liabilities to a third party - for example, to a supplier, but the related costs have not yet been posted, accruals need to be posted.
Accruals
By posting accruals in the system, the relevant costs are allocated to the fiscal period in which they occurred.
Posting of Accruals
The posting of accruals is typically a period-end closing activity because it is often not known until period end to what extent accruals are required.
Deferrals
In contrast, deferrals (prepayments) are expenses or revenues belonging to the current period upon receipt or issue of an invoice, but financially they belong, at least partially, to a future period. The deferral on the other hand is an asset, whereas the accrual is a liability.

Accruals Management Solution

The figure illustrates the SAP S/4HANA for Accruals Management process, which integrates multiple sources such as purchase orders, manual accruals, and spreadsheets into a unified accrual data structure. This structure facilitates the calculation, review, and posting of accruals, ultimately generating a journal entry. The system offers a unified user experience, transparent reporting and analytics, and ensures auditability.

The vision of SAP S/4HANA for Accruals Management is to be the single-entry point for the business to calculate, review, and post accruals automatically. With the application components Manual, Purchase Order, and Service Entry Sheets accruals, it is possible to automatically calculate and post accruals. Spreadsheets with accruals information can also be directly uploaded. In addition, you can also optionally implement a review and approval process for the monthly accrual amounts.

Note

All the accruals processes (manual, purchase orders and service entry sheets) are available in the SAP S/4HANA Cloud, Private Edition and SAP S/4HANA. However, manual accruals are not in scope for the SAP S/4HANA Public Cloud and the alternative options of post and reverse a journal entry and the use of recurring charges are explained in the course Explaining Local Close for the General Ledger.

Accruals management is optimized for SAP S/4HANA, which means the following two things.

  1. It is fully integrated into the General Ledger, which enables the following:
    • All currencies of the General Ledger are supported.
    • The Accrual Engine postings are stored only as line items of the universal journal entry.
    • The fiscal year variant of the G/L ledgers is supported.
    • Standard document reversal is supported.
  2. It enables complex postings, more than two line items are possible by customer-defined posting schemas.

With accruals management centralized, we have one repository where we can manage our accrual information, the ability to collaborate, ensure a faster close, and be compliant.

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