Typical period end challenges
After completing this lesson, you will be familiar with the properties of the universal journal and the posting logic for financial and management accounting.
Period-end closing for the accounting department requires an enormous amount of effort to reconcile the data between different work areas in accounting and controlling.
The necessity of reconciliation tasks arises from:
- Different levels of detail and therefore also the data structure in the individual application areas of financial accounting and management accounting.
- Work area-specific object types that have different data fields.
- Different options in the design of the work areas, for example, customer fields and process enhancements, parallel currencies, multiple accounting principles, and so on.
- Merging the individual results of the application areas of accounting and controlling in an external data warehouse. To map the entire result as CURRENT, many extractors are required to load this data into external platforms.
You can see examples of potential factors in various areas in the figure:
Challenges to creating the profit and loss statement
The SAP S/4HANA solution:
The actual financial accounting and controlling data is recorded in one single table: the universal journal (Technical name: ACDOCA). This table acts a the definitive single source of truth for financial data.
Since all financial data is based on the same line items, no reconciliation between financial accounting and controlling is necessary. Permanent reconciliation is achieved by merging the following components:
- General Ledger Accounting (FI-GL)
- Asset Accounting (FI-AA)
- Controlling (CO)
- Profitability Analysis (CO-PA)
- Material Ledger (CO-PC-ACT)
All business transactions, both internal and external, are recorded on G/L accounts. You can drill down to the same line items from FI and CO key figures and reports without mapping rules.
The chart of accounts contains all balance sheet and profit and loss accounts, including accounts for secondary costs. The ledger unit offers several options for US GAAP reporting, enabling reporting based on different accounting principles, such as US GAAP and IFRS.
All controlling units (such as cost center, project, and internal order) that comprise the coding block are integrated into each journal entry. Secondary cost elements are a special type of G/L account and not a separate unit in CO.
Since the different application components often use the same dimensions (such as profit center, cost center, or fund), these dimensions do not have to be stored redundantly in each component but are integrated in the journal entry. This offers many advantages, for example:
- G/L accountants can drill down from a fixed asset account in the balance sheet to the individual fixed assets (balances) assigned to the account.
- Cost center managers can quickly determine which fixed assets incur depreciation costs for their cost centers.
- The universal journal enables you to use document splitting to prepare balance sheets for multiple dimensions. Document splitting ensures balanced journal entries for entities below the level of the entire company. For example, you can prepare a complete balance sheet for each segment.
From siloed areas to unification under the universal journal
Using the universal journal entry table ACDOCA eliminates the time-consuming reconciliation activities and therefore optimizes the reporting and financial analysis processes. The enhanced reporting functions include:
- Flexible analysis of the balance sheet. You can drill down from each balance sheet item to the original document ("prima nota") and to the units involved such as assets or materials.
- Profit and loss statements can be broken down by any of the dimensions present in the journal entry. Market segment analysis is possible for each item of the income statement. The income statement is fully reconciled with the profitability reports. The market segments are entered when a transaction is recorded in the journal, or they are derived automatically. This enables you to analyze data with characteristics from different components. You can, for example, create balance sheets at segment level.
- Real-time profitability analysis. Market segments are included in journal entries as additional attributes so that you can continuously analyze profitability and do not have to wait for period-end settlement runs. For example: salary costs are posted to a cost center, the corresponding market segment can be derived directly and is therefore available for analysis.
- For each balance sheet item, financial statement attributes are specified so that it is ensured that the profitability data is always reconciled with the balance sheet. As mentioned above market segment fields are filled by entering profitability attributes directly or by automatic derivation. Attributes can be enriched by further processes, such as settlement or allocations.
- Comparability of costs. Costs in the income statement can be compared directly with the costs in a controlling report because both are based on the same data.
- Facilitate compliance with financial reporting requirements. The integration of financial and management reporting makes it easier for you to comply with financial regulations, such as the requirement to include business units in statutory reports.