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SAP In House Cash Solution -Automation of Accounting solution for Nostro / Vostro posting into General Ledger

 

WHITE PAPER

 

SAP In House Cash Solution -Automation of Accounting solution for Nostro / Vostro posting into General Ledger

 

 

Table of Contents

Abstract 3

Background. 3

Scenario. 4

Business process. 4

Business Requirement 4

SAP Solutions. 5

Conclusion. 17

 

 

 

Abstract

Nostro and vostro (from Italian, nostro and vostro; English, ‘ours’ and ‘yours’) are accounting terms used to distinguish an account held for another entity from an account another entity holds.

The terms nostro and vostro are used, mainly by banks, when one bank keeps money at another bank (in a correspondent account often called a nostro or vostro account). Both banks need to keep records of how much money is being kept by one bank on behalf of the other. In order to distinguish between the two sets of records of the same balance and set of transactions, banks refer to the accounts as nostro and vostro.

Speaking from the point of view of the bank whose money is being held at another bank, same solution can be extended to SAP In-House Cash Cross bank posting:

  • A nostro is our account of our money, held by the other bank area
  • A vostro is our account of another bank area money, held by us

A vostro account is a record of money held by a bank area or owed to a bank area by a third party (company code).

The nostro account is a way of the bank area whose money it is, keeping track of how much is being held by the other bank area. This is similar to an individual keeping a detailed record of every payment in and out of his or her bank account so that she/he knows the balance at any point in time.

This white paper explains how the concept used by banks can be extended to SAP Inhouse Cash, using master data changes and configurations.

 

Background

An organization which operated globally having subsidiaries handled with multiple inhouse cash centers. There could be transaction (receipts/payments) processed by cross bank area accounts. For example: –

Vendor liability of company code 0005 (bank area IHC1 in Co Code 0001) is paid by in-house cash center held by company code 6000 (bank area IMXN). The following accounting entries will be posted

 

Company 0005 a subsidiary of Co code 0001 (bank area IHC1)

  1. Payment to vendor

Vendor A/c             Dr

To IHC accounts rec/pay           Cr

 

Inhouse Cash entries in inhouse cash center IHC1

IHC accounts rec/pay          Dr.

To IHC Nostro/Vostro               Cr

Inhouse Cash entries in in-house cash center IMXN associated with Co Code 6000

IHC Nostro/Vostro Dr.

To Bank A/c                                         Cr

 

Scenario

 

Business process

Company is doing business across the Globe. We operate in around countries across globe which are divided into regions. There are In House Cash centers to cater the payments on behalf of the subsidiary.

Source: SAP.com/google.com

Payment processing of a Co Code 0005 of Region 2 is processed by IHC Center of Region 1. For example, vendor open item is in Co Code 005 of Region 2, IHC Center of Region 2 will process a payment order and forward it to In-house Cash center IMXN (Co Code 6000) of Region 1 for payment.

In House Cash Center for Region1 process the payment from bank account and send the payment file to SWIFT.

During day end processing accounting entries for cross bank area should be posted a Nostro / Vostro account in Balance sheet.

 

Business Requirement

During month end closing, we need to identify the cross-bank area posting and pass manual entries to rectify the IHC accounts receivables/ payable accounts in Balance sheet. Cross bank area GL posting (day end processing) should be automatically posted and identified in balance sheet.

 

Challenges

Technically, the accounting entries will be processed between head office and subsidiary companies. In-case, of cross bank area posting, accounting treatment between head office of Bank area1 and Bank area 2 should also be identified and accounted in balance sheet of respective company codes. Cross bank area entries are to be identified and manually pass accounting entry.

This White paper helps to setup the system to identify & post the accounting entry for cross bank areas automatically.

 

Prerequisites

Required Business Function FIN_INHOUSE_CASH_1

 

Value Proportions

  • Automated process with full audit trial
  • Easy reconciliation of Nostro/Vostro account

 

SAP Solutions

When a payment to vendor is processed from cross bank area, in the background system post the payment item in the payment order to a cross bank accounts. The cross-bank accounts should be created with a product BANK and in the control data tab of IHC account in General ledger transfer maintain General Ledger group as “BANK”.

 

In customization for the ledger group “BANK” assign Nostro/Vostro GL Account. During posting system will pick the GL group in the payment items and post Nostro/Vostro GL accounts accordingly.

 

 

 

Configuration

Periodic Tasks

General Ledger Transfer Maintain GL Group

General Ledger Transfer Define GL Account Assignment: Current Accounts

General Ledger Transfer Define GL Account Assignment/Items in Post processing

General Ledger Transfer Transfer Postings Payable/Receivables

 

Master Data

 

Scenario – 1

Cross bank area posting IHC1 to IMXN

Ordering party GL posting will be to BANK GL group (Nostro/Vostro) and recipient party will be with IHC Cash payable/receivable group.

GL account view of IHC1 bank area (Co Code 0001), Nostro/Vostro account  is credited in Ordering bank area (IHC1)

In recipient co code/paying co code, Nostro/vostro account is debited.

 

 

Scenario -2 External vendor payment from cross bank area

Vendor Invoice paid thru IHC

Vendor Invoice paid

IHC IDOCs posted and payment request generated in Co code 6000 under In-house Cash area (IMXN)

Payment order 97 created with ordering party

Recipient item type with GL group Bank (Nastro/Vostro)

Payment request in Co code 6000 IHC center IMXN

 

IHC Transfer posting

Credited Nostro/Vostro GL in Co Code 0001 under bank area IHC1

 

Payment Posting in Co code 6000

 

Conclusion

Accounting treatment for cross bank area posting can be identified as Nostro/Vostro GL accounts in Balance sheet. The posting process can be automated by assigning GL Group in the In-House cash Account master data and GL assignment in GL variant in customization.

 

About Author

Colin Thomas has ten years of domain experience in Financial Accounting and fourteen years of SAP experience. His experience in SAP includes business process re-engineering and SAP implementation in Finance and Manufacturing and Treasury processes. He holds a master’s degree in Commerce and he is certified in S4 HANA Finance 1610, Certified in IFRS and ITIL certification.

 

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