Definition and Use of Ledger
Definition of Ledger
A Ledger is a section of a database table. A Ledger only contains those dimensions of the totals table that the ledger is based on and that are required for reporting. A ledger group is a combination of ledgers for the purpose of applying the functions and processes of General Ledger Accounting to the group as a whole. Often a ledger group only contains one ledger.
Ledger
A ledger in SAP S/4HANA serves as a comprehensive recording system where all financial transactions are captured and stored. The primary ledger usually aligns with the organization's main accounting principles or local GAAP (Generally Accepted Accounting Principles). It includes all standard journal entries, ensuring that the organization can create a full set of financial statements. This ledger:
- Records Financial Transactions: It captures all business transactions, such as sales, purchases, and adjustments.
- Generates Reports: From the transactions recorded, financial statements like balance sheets and profit & loss statements are generated.
- Ensure Compliance: It ensures that financial reporting meets local legal and regulatory requirements.
Parallel Ledger
A Parallel Ledger is an additional ledger used to maintain financial records according to different accounting principles or standards. Organizations often require parallel ledgers to comply with multiple accounting standards, such as IFRS (International Financial Reporting Standards) and local GAAP. Here's how parallel ledgers work:
- Separate Accounting Standards: While the primary ledger maintains records according to one set of principles, a parallel ledger allows for the recording of transactions according to another set. This helps organizations meet different legal, regulatory, or management reporting needs.
- Adjustment Entries: Parallel ledgers can include adjustment postings that are specific to the alternative accounting standard. For example, some transactions may need different valuation methods under IFRS compared to local GAAP.
- Consolidated Reporting: By using parallel ledgers, organizations can consolidate financial data seamlessly across different accounting standards, allowing them to report in various formats required by different jurisdictions.
Use of Ledger
Within the General Ledger, Parallel Accounting stores and posts data in separate ledgers that allow different accounting principles to be used. There is a single leading ledger with the leading valuation view while the remaining principles are the parallel accounts.
For example, international companies that belong to a group may have multiple branches in different countries and need several statements with differing accounting principles. Parallel accounting allows them to enable valuation and closing transactions for a company code based on group accounting principles as well as those more specific to local specifications. The system prepares financial statements in accordance with local accounting principles and, also per IFRS or US GAAP.
Example of Ledger
Bike Company
Bike Company is using 2 ledgers to represent local accounting principles and international IFRS accounting principles:
- 0L: Local Accounting Principles
- 2L: IFRS Accounting Principles