SAP Extension Ledger

In this blog post, I will give you an overview of extension ledger?use cases in the latest release of SAP S/4HANA On-Premise and S/4HANA Cloud, private edition. These use cases?will give you a clear idea about?extension ledger?usage. However, before we start, we will need to understand what is?an?extension?ledger.?You are probably well aware of standard ledger functionality in SAP ERP. Due to different?regulations and requirements,?the?majority of companies today publish financial statements according to multiple accounting standards in parallel.?Starting from SAP ERP with?newGL?you can use standard ledger functionality where a separate ledger is kept in the system for each accounting standard.? There are 2 types of ledgers - leading ledger which is integrated with all subsidiary ledgers and controlling. Then you have parallel ledgers which are called non-leading ledgers.? These parallel ledgers are always managed as complete ledgers.? This means that all postings relevant to the specific valuations are always posted fully.?At the moment, parallel?ledgers?are?supported fully in General Ledger and Fixed Asset Accounting, but the vision is?that?all finance applications based on the universal journal will be able to work with parallel ledgers.?

What is?an?extension?ledger??

In SAP S/4HANA, we have a new type of ledger?– an?extension ledger. The?extension?ledger, in contrast to?the?standard parallel ledger, is a delta ledger.?It means?that?only differences?between valuations are posted?into the extension ledger.? As a delta posting is meaningful only in combination with the original posting, the extension ledger always must have?a?standard ledger assigned as an underlying ledger.??The postings to the underlying?ledger?also apply to?the?extension ledger.?Anytime you report on the extension ledger, data from?the?underlying ledger are?always accessed?and displayed together with delta posting.?Based on what?kind of journal entries you want to post to the extension?ledger,?you can define 3 extension ledger types:?

• Standard?Journal Entries- stores?journal entries with real document numbers.?These journal entries cannot be deleted and have to be reversed when required. Use cases?–?management?adjustments, tax adjustments,?realignments?
• P - Line items with technical numbers /no deletion possible?(former?Prediction)?-?stores journal entries?with?technical numbers only, without?document numbers. They cannot be deleted and have to be reversed when required.?Use cases – predictions, commitments, statistical sales conditions.??
• S - Line items with technical numbers/deletion possible?(former?Simulation)?-?stores journal entries with technical numbers only, without document numbers. They can be deleted.?Use cases – simulation, posting?

You may also come across the so-called valuation extension?ledger?V -Journal Entries for valuation?differences, which is not?ready?yet but was made visible?in the configuration?by mistake.??

Advantages?of?an?extension?ledger?

• Flexibility –?This is?probably?the biggest advantage of an extension ledger when compared to standard ledgers. Setting up new extension ledgers is easy, it is not necessary to?perform any kind of data migration, only the configuration is needed.,?This is enabled by?the?extension ledger concept, as it just inherits the historical data of the underlying ledger. You can activate?or deactivate the?extension ledger?in?a?productive system anytime during the year?without having to migrate data as it is?the?case with?the?standard ledger.?
• Reuse of existing reports -?All reports supporting standard ledgers also work?with?extension ledger. This is true for?new FIORI?analytical apps?and?classical SAP?GUI?reports?as well.?
• Reduced data footprint?–?as only delta values are kept in the?extension ledger?

Replacement of?standard?ledger with extension ledger?

It is important to realize that the extension ledger is not?a?replacement for?the?standard parallel ledger. It?still?has many limitations in terms of functionalities. You can post to the extension ledger?via??

• manual postings (i.e. transactions?FB50L,?FB01L, KB1, KB41, or corresponding?FIORI apps such as?Post General Journal Entries)??
• interfaces??
• General?ledger Allocations (FAGLGA15, FAGLGA11,?FAGLGA31,?FAGLGA35)?work?on top of?the?extension?ledger.??

However,?in contrast to?the?standard ledger,?the extension ledger?is not integrated with subsidiary ledgers and?many crucial finance processes?such as?asset processes?and?open items?are not?supported.??

Extension ledger?restrictions?

• No?postings to?vendor or customer?reconciliation accounts?
• No?postings to GL accounts with?open item?items management?
• No integration with Asset Accounting?
• Only very few automatic processes?work with?extension ledger (GL allocations)?

What?are?some existing extension?ledger?use?cases?

Adjustments?Ledger?

Besides?preparing GAAP financial statements,???many companies have fairly rich management?reporting?requirements.?Most of the information needed comes from?standard ledgers but?usually,?data?must be regrouped, enhanced, or refined.?In the past, in SAP ERP you could use a special Ledger,?a second parallel Ledger,?or just?add?cost objects?to address this?kind of?requirement.?However, none of these solutions was optimal and each came with its problems and limitations. Now,?in S4HANA we have?a?better?solution -?the?extension ledger.??You can set up an extension ledger, for example, to?record:?

• Internal?Management reporting?adjustments?
• Adjusting?entries?after books?are?closed.??
• Topside adjustments??
• Adjustments for tax?purposes to reach a?tax-adjusted profit or loss?

Predictive Accounting?

Predictive accounting is a functionality?enabling?bottom-up prediction of?future financial results.???If you look into an?ERP system, you can see there?is?already?a?lot?of?information that can create predictions.?There?are?documents?such as sales orders or purchase orders?which?are not accounting relevant yet, but we can assume that at some point?in time, they will?result in postings. In addition, these documents already?contain?the amount and expected date when they will be transformed into accounting-relevant documents.?For example,?if you look at the?order-to-cash process, we have?a sales?quotation, sales order,?goods?issue,?invoice, and payment.??However,?only?goods issues, Invoices, and Payments are relevant for Accounting. The other documents are?in the system as well, but?they?do not impact accounting.??The?first scenario of Predictive Accounting available in SAP S/4HANA is?for?Incoming Sales Orders.??The idea here is pretty straightforward:?when a sales order is created,?the system will simulate the follow-on?documents,?goods issues, and billing documents,?and?create predictive?journal entries in a?P-type?extension ledger.?The best part is that the corresponding documents are displayed in the system as if they were real data.?All subsequent financial processes such as?document splitting, derivations, and?splitting of costs of goods sold are also triggered.?For further details, please?refer?to?SAP help?

Statistical?Sales Conditions?

Statistical Sales conditions, for example, warranties?can be?posted to?an?extension ledger during sales order billing.??This can?enable?enhanced SG&A reporting?in a P&L Statement?by allowing the inclusion of?projected?sales?warranty?costs.??For further details, please refer to?SAP help??

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Purchase Commitments??

Commitments Management functionality in SAP S/4HANA updates purchasing commitments in the extension ledger.? A Purchasing commitment represents an obligation to pay a vendor for?the?future delivery of goods or services. Commitments are triggered when a purchase requisition or purchase order is created in the system. At this point, there are no actual?payments?recorded against GL accounts, but a?reservation (commitment) should be made against the budget.? The activation of commitments updates in Universal Journal makes sense especially in relation?to the new Budget availability control available since the 1909 release.?Until release 1809 commitments were stored in the dedicated line items table?COOI, and totals?were stored in the table COSP. Since S4HANA 1809, the commitments?now?update Universal Journal (table ACDOCA). In order to distinguish them from actuals, they are stored in a separate extension ledger which must be defined as?a?prediction ledger. For compatibility reasons, commitments are continued to be updated in the old commitments tables as well.?For further details, please refer to SAP Note?2778793 - Constraints with New Commitments?Management Solution .?

Simulations??

An example of?a?simulation?is a closing activity?with?Foreign Currency?Valuations. Imagine that you would like to see an impact of foreign currency revaluation?on your financial statement before actually running it.? Since SAP S/4HANA 1610,?you can run the Foreign Currency valuation in simulation mode.?The simulation run generates valuation posting documents?that?are posted into?an S-type extension ledger.?Reporting on?the?simulation ledger combines simulation data with actual data of the underlying ledger. You can see the simulated data on all reports for which you can specify a ledger.?The?simulated?data are deleted automatically once you run the foreign?currency valuation in productive mode.?This?way you?can?run financial statements and see the impact of currency?changes?any time?before actually posting them.?

?Another example is the simulation of organizational changes. The current scope of organization changes supports profit center reorganization for S/4HANA Cloud customers (available since release 2008). Here you can use an extension ledger for posting the simulated transfer journal entries.

Conclusion?

These?are?some of?the use cases of extension ledgers that?have already been developed and successfully implemented by customers.?And there is more coming in future releases.?Some of the upcoming enhancements are on the roadmap already, for example, enabling predictive accounting for purchase orders. Some?of the future concepts include the possibilities of using an extension ledger for the simulation of closing activities or the simulation of?reorganizations.?I?would like to hear your thoughts?in the comments below. What do you think about the?extension ledger?use cases??Should?we?add more???