SAP FICO Customization S4/HANA, 2022 Part 1

Enterprise Structure

Defining enterprise structure in the SAP system is the first and most critical setup in an implementation. You need to portray your organization’s structure as an enterprise structure in the SAP system by defining the required organizational units and specifying interdependencies by assigning them to each other.

Organizational Units in Financial Accounting

An obligatory organizational unit, a client (field name: Mandt) sits at the top of the SAP system hierarchy, so any data you enter at this level is valid for all company codes within that client. This ensures that the data is consistent because you need to enter data only once. You need to enter a client key (three-digit identifier) when you log on to the SAP system.

Define Company

A company is the organizational unit in SAP for which you can draw individual financial statements, according to the legal requirements of the country where it’s incorporated.

Arranged just below the client, a company includes one or more company codes. If a company consists of more than one company code, all company codes need to be assigned with the same operative chart of accounts and fiscal year variant (FYV) even though they can have different local currencies for the day-to-day transactions. SAP uses a six-character company ID to denote the company

• Use transaction OX15, or go to SAP Customizing Implementation Guide ? Enterprise Structure ? Definition ? Financial Accounting ? Define Company.

Define Company Code

In SAP, a company code is the smallest organizational unit of external accounting for which you can create a B/S and P&L. All the FI-related business transactions and evaluations are represented at the company-code level. You must define at least one company code (per client). Use a four-character alphanumeric key to denote your company code. All the company code data is stored in table T001 in the SAP system.

• Go to SAP Customizing Implementation Guide ? Enterprise Structure ? Definition ? Financial Accounting ? Edit Company Code Data. or use Transaction OX02.
• Use transaction OX16, or go to SAP Customizing Implementation Guide ? Enterprise Structure ? Assignment ? Financial Accounting ? Assign Company Code to Company.

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Define Credit Control Area

Used both in Accounts Receivable (FI-A/R) and SD functional areas, the credit control area provides a method of granting and monitoring credit for a customer. a client can contain one or more credit control areas—which in turn can be attached to one or more company codes—but no company code can be allocated to more than one credit control area. You use a four-character alphanumeric code to denote a credit control area.

The credit limits are normally specified in customer master records. If you have a customer with multiple company codes that are assigned to different credit control areas, you need to provide separate credit limits in each of these areas for the same customer.

Tip: There is no permanent linkage between a credit control area and company codes. The credit control area entered in the company code table acts only as the default credit control area, which is used by the system to identify the credit control area when there is no other way of determining this. You can enter the credit control area when you make transaction postings, or it can be derived when entering an order, from business area and sales area segments of a payer’s master record, or through a user exit.

"Update" Field name: The system uses this indicator to decide when the values of open sales orders, deliveries, and billing documents are updated. SAP provides you with four credit update groups (blank, 000012, 000015, and 000018), with 000012 being the most stringent. The least stringent of the controls is exercised when you leave the update group indicator blank. When it’s blank, the SAP system ignores SD documents when determining the credit availability, and the credit limit equals the FI-A/R balance.

SAP allows you to have three types of credit management.

1. Centralized Credit Management: In centralized credit management, a single credit control area caters to all the participating company codes. Accordingly, the customer is provided with a single credit limit even though it’s serviced by more than one company code.
2. Decentralized Credit Management: In a decentralized environment each company code (or group of company codes) has its own credit control area, which in turn has a defined currency (which can be different from the company code currency). A customer can have separate limits in each of the credit control areas.
3. Mixed Credit Management: A mixing of Centralized and Decentralized Credit Management.

• Use Transaction OB45, or go to SAP Customizing Implementation Guide ? Enterprise Structure ? Definition ? Financial Accounting ? Define Credit Control Area.
• Assign Company Code to Credit Control Area: Use Transaction OB38, or go to Enterprise Structure ? Assignment ? Financial Accounting ? Assign Company Code to Credit Control Area.

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Define Business Area

This step isn’t mandatory. A business area is an accounting organizational unit that represents a separate area of operations (or responsibilities) in your business organization. The idea of defining business areas is to create B/S and P&L statements below the level of a company code.

You denote a business area with a four-character alphanumeric key. You can define the same business area across company codes (within the same client) even if the company codes operate with different charts of accounts by using the same key to denote the business area in all the company codes.

You may link business areas to plant or valuation areas and divisions because single plants usually produce products for one business area. You can link the business areas to sales areas to ensure that revenue postings are made to correct business areas when your sales organizations sell a single grouping of products. When you enable the Business Area Balance Sheet indicator in the company code (t-code: OB65), then the business area becomes a required field for transactions in Asset Accounting (FI-AA).

Note that the financial statements for business areas are mostly unbalanced because you can’t always match the debit and credit entries of a transaction to the same business area (or cost center). These statements are therefore appropriate for internal reporting.

It’s important to note that business-area functionality can be duplicated using Profit Center Accounting (EC-PCA). However, in contrast to business areas, the profit centers are areas of internal responsibility for achieving profits or productivity targets. While the main objective of business areas is internal reporting, the profit centers analyze areas of responsibility to delegate authority and responsibility to decentralized units for effective management and control. The decision to use or not to use business areas should be made early in the design phase of your implementation project. Many new implementations favor profit centers over business areas, but ultimately the decision should be based on what fits in the overall system design of a particular implementation. The need to report business lines across company codes, the need for full balance sheets at the divisional or business line level, and the costs and benefits are the deciding factors.

Define Segments

A segment is another account assignment object that you can use to describe your financial position and performance by line of business or by geographical area. You can create balanced books for each segment and use them for segment reporting requirements of IFRS and US GAAP.

To use a segment as a reporting object, you need to activate the segment reporting scenario in SAP G/L. This doesn’t depend on any structure or relationship of company codes or controlling areas; you can define or reorganize segments, such as business areas, in one client and use the same across all company codes within that client.

There are several ways you can maintain the segment information:

You can assign segments to relevant profit centers (after SAP G/L is activated, the Segment field appears in the profit center master data automatically) so that all postings to the profit centers are then automatically updated in the corresponding segment.

You can enter the segment information manually during document posting (not recommended).

Define Financial Management Area

Denoted by a four-character identifier, a financial management area (FM area) in SAP ERP Financials is an accounting organizational unit used in Funds Management to structure your business organization from the perspective of Cash Budget Management and Funds Management. You need to maintain separate functional characteristics for each of the FM areas for both Cash Budget Management and Funds Management.

We first define the FM area, and then assign a company code to it.

Define Functional Area

Functional areas in an organization are used to meet the cost of sales accounting requirements because they enable you to classify the expenses by functions such as administration, sales, marketing, and production. You can segregate and classify different types of costs within one expense account. For example, you could determine what amount of labor is spent directly on production, compared to sales and marketing, research and development, and so on. You can define a financial statement version by assigning functional areas to the P&L items to create financial statements in accordance with cost of sales accounting.

Define Controlling Area

The controlling area is the central organizational structure in the CO component of SAP ERP Financials. It’s used to subdivide your business organization from the cost accounting viewpoint. Like a company code, it’s a self-contained cost accounting entity useful for internal reporting. You can have one or more controlling areas in a single client. You assign one or more controlling areas to an operating concern. You assign one or more company codes to the controlling area.

• You can also use Transaction OX06 or OKKP to create new Controlling Area.

Currency Types in Controlling Area:

1. Company code currency (type 10) The national currency of a country in which you maintain the accounts or ledgers in FI for a company code. This is also called local currency or transaction currency.
2. Controlling area currency (type 20) You can make any currency the controlling area currency.
3. Group currency (type 30) You use group currency—defined at the client level (in t-code SCC4 and table T000)—for consolidated financial statements.
4. Hard currency (40), Index-based currency (50), Global company currency (60)

Tip: Ensure that all the company codes assigned to the same controlling area use the same operative chart of accounts, even though they can have different country chart of accounts.

Assign Controlling Area to Company Code: One controlling area can be assigned one or more company codes. There are two types of assignments possible: 1:1 (company code = controlling area) and 1:n (cross-company code controlling).

We recommend using this assignment for multilevel product cost management across company codes, to process cross-company code transactions (e.g., production in an associate plant) in a single controlling area, to represent group costing, and to make use of EC-PCA and transfer prices.

• Use Transaction OX19, or go to SAP Customizing Implementation Guide ? Enterprise Structure ? Assignment ? Controlling ? Assign Company Code to Controlling Area

Define Profit Centers

As responsibility areas for revenues and expenses, profit centers reflect a management-oriented structure of your company for internal control. Besides revenues and expenses, you can use the profit centers as responsibility areas for assets and liabilities. By analyzing the fixed capital, you can use your profit centers as investment centers. You need to have a standard hierarchy to depict all the profit centers coming under a controlling area. The profit centers can be modeled based on functional divisions, geographical divisions, product lines, or similar factors. Made up of profit centers, Profit Center Accounting (EC-PCA) is primarily used for performance reporting of responsibility areas to generate P&L statements under period accounting.

Before creating new profit centers in SAP ERP, you need to complete certain preliminary Customizing activities, including defining the standard hierarchy and profit center groups, as follows:

• Use Transaction 0KE5 to define the standard hierarchy. Enter the name of the Standard Hierarchy of the profit center master data. The system creates the standard hierarchy automatically when you save.
• To ensure completeness of data in EC-PCA, the dummy profit center receives all the postings in your system to objects that aren’t assigned to a profit center. You can create the dummy profit center by going to SAP Customizing Implementation Guide ? Controlling ? Profit Center Accounting ? Master Data ? Profit Center ? Create Dummy Profit Center or by using Transaction KE59.
• You also need to maintain the profit center group with transaction KCH3.
• Use Transaction KE51, or go to SAP Customizing Implementation Guide ? Enterprise Structure ? Definition ? Financial Accounting ? Define Profit Center.

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Summary

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Transaction Code -------------------Action

O035 ---------------------------------Localize Sample Organizational Units

OX15 ---------------------------------Define Company

OX02 --------------------------------Define Company Code

OX16 --------------------------------Assign Company Code to Company

OB45 --------------------------------Define Credit Control Area

OB38 --------------------------------Assign Company Code to Credit Control Area

OX03 --------------------------------Define Business Area

SPRO < Enterprise Structure --------------------Define Segments

SPRO < Enterprise Structure--------------------Define Financial Management Area

OF18--------------------------------Assign Company Code to Financial Management Area

OKBD--------------------------------Define Functional Area

OX06/OKKP-------------------------Define Controlling Area

OX19 -------------------------------Assign Controlling Area to Company Code

KCH1 -------------------------------Defining the standard Profit Center hierarchy

KE59--------------------------------Creating the dummy profit center

0KE5--------------------------------Profit Center Accounting (PCA)- Controlling Area Settings

KE51--------------------------------Define Profit Center

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