Defining General Ledger (G/L) Accounts and Cost Elements

Objectives

After completing this lesson, you will be able to:

  • Define a G/L account

Chart of Account

Each G/L is set up according to a chart of accounts. The chart of accounts contains the definitions of all G/L accounts. The definitions consist of the account number, the account name, and the type of G/L account (e.g. balance sheet, non operating expenses/revenues, primary costs/revenues, secondary costs or cash accounts).

Assignment of Company Codes to Chart of Accounts

A chart of accounts can be used by multiple company codes so that the general ledgers of these company codes have an identical structure.

General Ledger Account and Cost Element

The two segments of the G/L master record from a Financial Accounting perspective are as follows:

  • Chart of accounts segment:

    The chart of accounts segment contains a description of the account, the account type that classifies how the account can be used in FI and/or CO and, the account group that controls the company code segment fields, and the consolidation account number.

  • Company code segment:

    The company code segment contains values specific to how the company code will manage that account.

Account Groups

Accounts with the same account group normally have similar business functions. You can, for example, have an account group for:

  • Cash accounts

  • Expense accounts

  • Revenue accounts

  • Other balance sheet accounts

The account groups are assigned number ranges. You can control which account numbers are permissible for cash accounts, expense accounts, and so on, through the number ranges.

Account groups also control the appearance of the company code segment of G/L accounts. Account groups control:

  • The fields that are required for data entry

  • The fields that are optional for data entry

  • The fields that are display only.

  • The fields that do not show up at all in the company code segment

Reconciliation Accounts

Expenditures versus Costs

In the economical theory, there are two approaches for values:

  • In the first approach, the values in Financial Accounting and Management Accounting are the same:

    Controlling provides additional reporting opportunities by separating the FI documents along additional characteristics, such as segments, profit centers, projects, stored in a coding block. The results may be P&L statements and balance sheets per segment, per profit center or per project.

  • In the second approach (most used in central Europe), Management Accounting is based on cost and revenues. Costs are only those expenditures, which are as follows:

    • Related to the business of the company

    • Exactly assigned to periods (source specific)

    • Valuated:

      For example, a gift to a welfare organization is an expenditure, but not a cost, because it is not the business of the company to make gifts.

Expenditures, which do not meet the definition of costs, are only reflected in Financials, and not in Management Accounting. They are called neutral expenditures.

SAP provides the opportunity to realize each of the theories. In SAP S/4HANA revenues, expenditures, and cost are represented by financial accounts and separated by the Account Type of the accounts. Based on the account type, the accounts used in CO are also called cost elements.

Account Types

The controlling area-specific data is only needed for Secondary Costs and Primary Costs or Revenue accounts. In the controlling area-specific data, you assign a Cost Element category. This category determines which account can be used for which business transaction in CO.

Create a Primary Cost Account

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