Back to Basics: FI and CO 101
At the Fall 2010 ASUG/SBOP conference in Orlando, I asked a room full of attendees whether they are familiar with the difference between FI and CO. Exactly half the hands went up. That tells us while there are many veterans of SAP ERP Financials implementations, many others are new to the concepts.
The short answer to that question is that FI refers to financial accounting, and CO to controlling, or managerial accounting.
But what does that mean?
On the simplest level, it means that the General Ledger accounts reside in FI, while the financial information about internal organizational entities, such as cost centers and projects, resides in CO. And as we increasingly leverage analytical tools, it is important to understand where the data resides so that we can better understand it during on-going business analysis, for example using the SAP BusinessObjects solutions.
Let’s look at a simple example of FI/CO. In many legacy systems, the chart of accounts – the actual General Ledger account coding block – includes the cost center as part of the account number. If we take the G/L accounts 123 and 456, and cost centers AB, CD and XY, which are allowed to post to these accounts, the coding block of these legacy chart of accounts includes both the account and the cost center, requiring an exponential increase in the number of G/L accounts (see the left side of the diagram below). It also means that each time a new cost center is created, the updates to the master data can be very time-consuming, since may new accounts need to be created.
How is SAP different?
The chart of accounts contains only the “pure” G/L accounts. The organizational entities, in this example the cost centers, are represented by their own master data. In a journal entry, then, the G/L account and the cost center are represented by two different fields (see the right side of the diagram below). Reporting in SAP ERP on the cost centers, then, does not involve reporting directly on the G/L accounts in FI, but instead on the cost centers in the CO module. (A note to the veterans: I will discuss the concept of cost elements in a subsequent blog).
This concept is the same for the "classic" G/L as well as the "new" G/L.
As for benefits of the New G/L, that includes document splitting (esp. in A/R and A/P documents with multiple line items), and the ability to more easily extend the coding block with additional fields and incorporate these in standard analytics, which helps to replace the Special Ledgers for which there was no standard reporting. Most of all, the New G/L provides parallel ledgers, which will become especially relevant as companies move towards IFRS.
I have seen descriptions of GL accounts as
Sales - South division
Sales - North division
There should be one GL account "Sales" and the area would be made up by a number of cost or profit centers.
Once a client is bought into this, they want to redesign their CoA so they can get the best reporting for their requirements.
SAP SLO offer a great service for the migration of GL open items so you can historically use the new CoA.
I definitely agree with the design approach that you mention, glad to hear that your client agrees as well!
I'm glad that you find this introduction valuable!
The intention was to provide one scenario that could be applied across different scenarios. I would be interested in hearing which other scenarios you had in mind, for potential follow-ons to this blog post!
This is very helpful for someone who is not working in FI/CO module but has to understand the basics of FI/CO e.g. those working in PS module.