Scenario
Kevin gets the credit for solving the G/L Accounts issues and realizes that knowledge of organizational elements is important when maintaining G/L account master data. He wants to learn more and wonders if there are other organizational elements used in Financial Accounting.
Organizational Elements in Financial Accounting
Before we can post any financial transactions in SAP S/4HANA we have to define the organization structure for Financial Accounting (FI). The most important organizational element in FI is the Company Code. It is the smallest organizational unit of FI for which a complete self-contained set of accounts can be drawn up for the purposes of external reporting. Other important organizational elements are the Profit Center, Segment and the Functional Area. You can create a fully-balanced set of financial statements for each Profit Center and Segment. The use of the Functional Area allows one to report by Cost-of-Sales Accounting (COS).
| Dimension | Definition | Use | Example |
|---|---|---|---|
| Company Code | Smallest organizational unit of external accounting for which a complete, self-contained set of G/L accounts can be created | External financial statement for legal entity |
|
| Profit Center | An organizational unit in accounting that reflects a management-oriented structure of the organization for the purpose of internal control | Internal financial statement based on a management-oriented structure of the organization |
|
| Segment | A division of a company for which financial statements for external reporting can be created | External financial statement based on segment reporting (IFRS) |
|
| Functional Area | An account assignment characteristic that sorts operating expenses according to their function | External financial statement based on cost-of-sales accounting |
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Your reporting requirements will determine whether you need to define the additional dimensions mentioned above. The Profit Centers are freely definable and represent an area of responsibility, such as a business unit or geographical location. They are usually used for internal reporting purposes and enables one to report for example a balance sheet by Profit Center, or groups of Profit Centers.
Segments are used for external reporting purposes where the organization needs to comply with IAS8. Companies are obliged to provide information in their reports on the financial results of business segments (operating segments). To achieve accurate segment reporting in SAP S/4HANA, the segment is maintained on the line items of accounting documents at the time of posting. The segment to be posted is generally derived from the profit center and not entered manually.
Functional Areas break down corporate expenditure into different functions, in line with the requirements of cost of sales (COS) accounting. These functions are:
Production
Administration
Sales and Distribution
Marketing
Research and Development
Thus one can report a financial statement by Functional Area as opposed to the natural General Ledger account providing a COS view.
Conclusion
In this journey it all started off with a posting problem that lead Kevin to identifying and solve the issue. Kevin was able to gain an insight into the finance organizational structure and G/L Account master data maintenance. Kevin now has a better understanding of master data and organizational structures in Financial Accounting!