Using Fund Accounting

Fund Accounting is the fundamental basis for financial accounting and reporting for public sector organizations. Fund Accounting requires the ability to track all financial activities and produce financial statements by individual fund and by group of funds. This includes balance sheet, income, and cash flow statements.

Financial reporting helps public sector organizations fulfill their duty of public accountability. It also enables their users to assess that accountability by providing information about sources and uses of financial resources and reporting how money is earned and spent by funds and fund groups.

A fund is an accounting entity with a self-balancing set of accounts for a specific activity or objective in accordance with special regulations, restrictions, or limitations. Unlike businesses, which generally use a single set of self-balancing accounts, public sector organizations must be able to produce financial statements by fund and to summarize the organization's financial activities across all of its funds.

Also, Fund Accounting in public sector organizations requires revenues and expenses to be recorded and reported by function or activity. Functions are classifications of high-level objectives, services, or regulatory responsibilities. At SAP, functional areas are used for function or activity classification and reporting.

In SAP S/4HANA Cloud, public sector, Fund Accounting is enabled by having fund as a document splitting characteristic and a balancing characteristic. This setting is delivered by default and is not changeable. This enables balanced posting within each fund (meaning that the fund's debits must equal to its credits at all the times). If there is an unbalanced entry (for example, the total debit equals the total credit but not balanced by a fund), the system forces it to balance by fund by introducing a zero balance clearing account to offset the balances by fund.

Also, document splitting and balancing by other characteristics, such as grant, segment, and cash origin account are delivered by default. Profit center is a document splitting characteristic, but it is not a balancing characteristic. 

Fund, grant, segment, and cash origin account are required for all account types.

• Fund
  • Available for input
  • Can be derived or obtained through document splitting
• Grant
  • Available for input
  • Can be derived or obtained through document splitting
• Segment
  • Not available for input
  • Can be derived from profit center and/or from document splitting
• Cash Origin Account
  • Not available for input
  • Can be derived from the G/L account and/or from document splitting

Functional area is required for revenues and expenditures with budget consumption types 99, 95, and 61.

In profit and loss (P&L), assets, and material inventory, line items derive account assignments, such as fund, grant, segment, and profit center. These account assignments are derived from either the cost object, the posted assets, or the posted materials. Contrarily, document splitting is used to split line items for selected account assignments, receivables, payables, tax accounts, and cash accounts by document splitting characteristics. It is also used to effect a zero-balance setting in the document for account assignments that are selected by document balancing characteristic.

You can create financial statements by accounting principle, for example, US generally accepted accounting principles (GAAP) Full Accrual or US GAAP Modified Accrual and according to areas of responsibility, such as fund, grant, and/or segment.

Document splitting is achieved based on the unique assignment of document types to predefined and unchangeable business transactions and the assignment of accounts to predefined and unchangeable item categories. The item categories are used to define the document splitting rules.

The following vendor invoice examples illustrate the business process with document splitting.

The following examples illustrate the clearing of the vendor invoice. It records payment with a cash discount at 4% and reflects that there is no Treasury pool fund.

Balances are carried forward with general ledger account and document splitting characteristics, such as fund, grant, profit center, segment, and cash origin account.

The balances on the balance sheet accounts are carried forward to the same accounts and document splitting characteristics.

P&L accounts are carried forward to one or more retained earnings accounts. When balance carryforward is performed, the balance of the P&L account is set to zero. Retained earnings balances are established by the same document splitting characteristics.

For a retained earnings account, the opening balance equals the sum of the closing balance of the previous year and the retained earnings from P&L accounts.

Further detail on Fund Accounting in SAP S/4HANA Cloud, public sector is provided in this course:

• Multiple bases of accounting and reporting for current resource (modified accrual) and economic resource (full accrual) measurement focus
• Payroll agency and Treasury fund in the scenarios where public sector organizations require to pool payroll payables or pool the cash receipts and payments
• Investment interest apportionment to the participating funds based on its equity in pooled cash
• Cash flow reporting using cash origin account

Detail on the financial accounting of encumbrances will be added in due course.

Fund, grant, cash origin (RE_ACCOUNT), and segment are delivered as document splitting and balancing characters. These fields are mandatory, meaning that after document splitting, these fields must be filled out.

Profit center is delivered as a document splitting characteristic, but not as a balancing characteristic.

You can view the document splitting characteristics in the Define Document Splitting Characteristics for General Ledger Accounting configuration activity on SAP Help Portal. For more information, see note 2868475.

Functional area is defined as a document splitting characteristic in Controlling. This means that it is an additional characteristic relevant for application components, such as Controlling, that use documents transferred from General Ledger accounting.

Functional area is a required field. Enabling it as a document splitting characteristic in Controlling ensures that the functional area is available in follow-on documents, such as cash discount paid/received from customer/vendor payments.

An overview of document splitting characteristics in G/L and CO is provided in the table.

The following zero balance account key and clearing accounts are delivered in SAP S/4HANA Cloud, public sector, fund accounting:

• For all zero balance clearing except cash and CO processes, the standard account key 000 is used.
• If a zero balance clearing is necessary for transactions involving cash accounts, the account key 003 and its configured account is used. This allows you to distinguish between zero balance postings for cash and non-cash transactions.
• If a zero balance clearing is necessary from the transactions initiated by controlling transactions, account key 001 is used.

The following examples illustrate a journal entry in general ledger with document type SA to correct an expense incorrectly posted to fund A.

The following examples illustrate cost allocation in Controlling (CO).

The following examples illustrate payment to a vendor using the Treasury Fund.

Standard delivery includes constant for cash pooling (0CASH), payroll agency fund (0PYRL), and default constants (0DFLT).

For a description of how to configure the Treasury Fund (0CASH) and payroll agency fund (0PYRL), refer to the lesson on Treasury and payroll agency fund.

To assign document splitting characteristics, such as fund, grant, segment, and profit center to your respective constants, use the Edit Constant for Nonassigned Processes app.

To assign constants for cash origin account, use the Edit Constant for Expense or Revenue Account app.

When there is a user error or when document splitting characteristics are not entered for a financial document posting (for example, a journal entry between balance sheet accounts entered without document splitting characteristics or a bank file upload), the standard solution uses constants from 0DFLT to post the document.

You can allow or disallow this type of posting by maintaining message control in fund accounting message control.