Outlining management accounting in SAP S/4HANA


After completing this lesson, you will be able to:

  • Describe the scope of management accounting.
  • Differentiate between financial and management accounting.

Management accounting

Global scenario

Bike Company SE is an international group of companies that reports financial statements in local accounting standards for the various subsidiaries and in IFRS in parallel.

You are responsible for controlling and management reporting and need to evaluate profitability results and understand how they were produced. The Bike Company has chosen SAP S/4HANA as the starting point and centerpiece of its digital transformation.

We assume you have no prior knowledge of SAP S/4HANA and therefore need a brief but concise introduction to the business scope and best practices. Therefore, you need to familiarize yourself with the concepts of controlling that relate to structures, processes, and reporting options in the system.

Our global scenario

You are interested in the quantity and value flows within the controlling and the integration with other modules of the SAP S/4HANA system. Your company manufactures bikes and provides maintenance and repair services to customers. You are interested in how the business processes for production and services are valuated and how planned, target, and actual costs are calculated. You want to learn about variance calculation and results analysis.

You want to be able to track and control the above-mentioned quantity and value flows using a dashboard and detailed reports. You assume that accounting will give you this information, but you are not sure whether it is in financial accounting or in management accounting. Therefore, you want to understand what the difference is between those two.

Lesson overview

This lesson describes the tasks of management accounting (also referred to as controlling or CO) and how they differ from financial accounting. We will first describe basic organizational units of accounting and controlling in SAP S/4HANA. Management accounting goals are then compared to those of financial accounting.

Management accounting

Management accounting is designed to assign data from business transactions to CO objects in order to make clear who is responsible for operational expenses and revenues.

For example, to be able to show profit and loss correctly for the "Mountain Bikes in Southeast Asia" market segment, you need to know what the costs of producing a bike are and the revenues brought by the respective sales offices. To do this, you need the direct productions costs as well as auxiliary costs and revenues from the following objects:

  • Profitability segments are the market areas you want to analyze and report on.
  • Cost centers are areas of responsibility where you can assign costs. They roughly correspond to departments.
  • Projects represent a traceable event or undertaking with a fixed start and planned end date, for example, participating in a trade fair or implementing SAP S/4HANA in your company. The associated costs and revenues are collected on the project.
  • Internal orders are additional objects (available in SAP S/4HANA Cloud, private edition), which you can think of as projects with limited functionality. You can use these for tracking, for example expenses per company car or mobile phone.

These objects are arranged in different organizational levels.

Organizational levels

Organizational levels represent the organizational plan of the company. The organizational structure establishes a framework that supports a company’s financial decisions with the methods the management wants. It supports the development and presentation of relevant information to enable and support business decisions.

In the same way, organizational structures are maintained in all modules of the SAP system. The structures you will encounter most are:

  • Financial accounting: company code. Local financial reporting is based on local companies which are identified by their company code, for example, a production company in Germany, a sales company in Singapore.
  • Management accounting: controlling area. To be able to display the costs and their structure from producing bicycles in Germany at the Singapore sales company, the two companies must belong to the same controlling area.
  • Logistics - general: plant. The cost of producing the bicycle varies depending on where it is produced. The production site is called a plant.

Organizational structures

Management accounting vs. financial accounting

Financial accounting

Financial accounting structures and collects the transactional data in accounts in order to provide the standard portfolio of reports which are required for external stakeholders (such as tax authorities, external audits, banks, management), namely:

  • Balance sheet
  • Income statement
  • Statement of cash flows

Financial accounting is the interface between the logistic modules and human capital management on one side and controlling on the other side. All primary costs and revenues that are posted in financial accounting must be assigned to cost objects.

Financial accounting produces the financial reports in accordance with the applicable accounting principles, such as:

  • IFRS (International Financial Reporting Standard - Limited Companies in the EU)
  • US GAAP (United States General Accepted Accounting Principles)
  • HGB (German Commercial Code)

It can be used for parallel accounting to support reporting of multiple accounting principles in their own ledgers.

In financial accounting, the logistical processes are valuated, for example:

  • Goods movements (such as goods receipt for goods issue)
  • Invoices (such as invoice receipt for purchase order)
  • Warehouse stock (year-end revaluation, physical inventory)
  • The posting of pure financial transactions (such as the import of electronic bank statements)

To meet the (IFRS) requirements for operational segment reporting, profit centers are defined and segments are assigned to these. As a result, balance sheets and profit and loss statements can be created at any level.


Profit centers will be discussed further in a later lesson.

Management accounting

In management accounting, there are different types of cost objects. All of them can carry costs, but only a few carry revenues:

Cost objects to which only costs, no revenues, are assigned:

  • Cost centers (where costs are incurred – in which organizational unit of the company)
  • Manufacturing orders (production orders and process orders)
  • Networks (network activities that subdivide WBS elements, which in turn subdivide projects)

Cost objects that carry costs and revenues:

  • Projects and their work breakdown structure elements (WBS-elements)
  • Sales orders (products, service)
  • Customer service orders (refers to the maintenance and repair of assets)
  • Internal orders (not available in SAP S/4HANA Cloud, public edition)

This makes it possible to evaluate the costs and revenues according to:

  • Analysis for cost centers and cost objects
    • Calculation of unfinished goods inventory – work in process (WIP)
    • Variance analysis according to categories (quantity variance, price/scrap variance, and so on)
  • Results Analysis for cost objects with revenue:
    • Reserves for unrealized costs
    • Reserves for imminent loss (actual costs > planned revenue), and so on

Another function in CO is the calculation of the cost of goods manufactured (COGM), which is used for:

  • Valuation of warehouse stock of in-house production products
  • Calculation of standard cost of goods sold (COGS)
  • Basis for calculating target costs that are used for variance analysis of the cost objects (production orders)

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