SAP S/4HANA is an Enterprise Resource Planning (ERP) that covers the processes involved in company operation. For a general introduction to Finance needed for SAP S/4 ERP, you can take
the course in OpenSap:
Guide Your SAP S/4HANA Project to Success
Unit 2: SAP S/4HANA – Finance Essentials
Link to enroll in the course: https://open.sap.com/courses/s4h19
This processes could be:
1) Sales: Order from the client, invoicing, exit of Products from Warehouse Inventory, and receive payments from clients.
2) Procurement: Purchase Order to vendor. Entry the Items into the warehouse inventory. Deliver the invoice to the Vendor and do the payments to it.
3) Financial accounting Journal entries for every process. For example, delivering the invoice to the client after a purchase involves debit and credit journal entries in the account receivables, taxes, and Inventories.
4) Inventory revaluation after the Purchase Order of Items with the same or different cost. The revaluation depends on the method chosen: First In-First Out (FIFO), Last In-Last Out(Lifo), or average.
In this blog post, we will explain the general steps of the Procurement process and the debit/credit entries to the Financial Accounting system.
The procurement process involves three major activities:
1) Create the Purchase Order and then Register the reception of the Items inside the warehouse.
2) Deliver the Invoice to the Vendor. This activity creates the Account Payable that we have to pay to the Vendor.
3) One or several payments to the Vendor applied to the Purchase Order created in activity one.
These three activities create several journal entries in the Financial Accounting System.
1) Activity number one. Create Purchase Order and reception of Items:
Register the reception of the Items inside the warehouse. We will explain the Debit and Credit journal entries later on to balance the transaction. The concept is that the Items enter the warehouse and Accounting Journal keeps track of this movement. With the cost of item information of the Purchase, we calculate the inventory revaluation depending on the chosen method. It can be First In-First Out(FIFO), Last In-Last Out(LIFO), or Average.
2) Activity Number two. Deliver the invoice to the Vendor:
This transaction creates three Accounting Journal entries.
-The items total cost plus tax saved in the account payable line.
-A journal entry of the transaction cost without taxes.
-A journal entry with the transaction taxes.
The entry with the transaction taxes represents a positive balance for our company. The difference between purchase and sales taxes is the amount we have to pay for the government.
3) Activity three. Payment to the account payable created by Purchase Order.
In SAP S/4HANA we define the bank account where the payment funds come from, the Vendor, and the account we will deliver the payment. The process and accounting journal details will be explained later.
To create a Purchase Order involves two steps that affect two journal accounts in the first step and three journal accounts in the second step.
To learn concepts about Financial Accounting management in SAP S/4 Hana see this video:
SAP S/4HANA – Accruals Management
First step: Create the Purchase Order with Vendor, Product, quantity, and cost.
Then Post Goods Receipt for Purchase Order in the Procurement module. This part of the process happens when the products are delivered and enter the warehouse.
This transaction creates a record in the Financial accounting system with two journal entries of the cost of the product of the purchase order.
– Journal debit entry in Inventory Trading Good/Stock Valuation account with the ITEM cost.
– Journal credit entry in GR/IR – Stock Input Account with the ITEM cost to balance the transaction.
All the transactions of Warehouse management of entries, exits, and re-entries are saved in these two accounts. So it is possible to rebuild the inventory movements from them. Also, calculate the Inventory valuation depending on the applied method that could be:
-FIFO, First In-First Out
-LIFO, Last In-First Out
Second step. Create and deliver the Invoice to the vendor. Since it is a legal accounting document, it affects three journal accounts, including the taxes and how much do we owe to the vendor in the account payable.
The Invoice to the client process affects these journals in the accounting system:
-Journal credit entry in Inventory Payables domestic account with the ITEM cost plus taxes.
– Journal debit entry in GR/IR accounts with the ITEM cost without taxes.
-Journal debit entry in Inventory Trading Good accounts with the Purchase taxes.
With these journal entries, the transaction is balanced in the Financial Accounting System.
The tax positive balance of the purchase is saved in the Inventory Trading Good accounts. This account also saves a negative balance for taxes when we sell products to the clients. The tax we pay is the difference between positive and negative tax transactions.
To post a payment to a vendor, we have to open the Incoming Payments module and choose the Bank account that will do the payment, the Vendor ID, and account payable we will do the deposit. This transaction creates two journal entries in the Financial Accounting system.
Post payments to Vendors (accounts payables) and review the Journal entries.
To do a payment follow these steps:
- a) Go to Post Incoming Payments.
- b) Enter the Bank Account number. Here is the BANK where the funds are coming from.
- c) Enter the supplier ID.
- d) Choose the account to benefit from the list of accounts payables for this Vendor.
- e) Enter the amount to take from the Bank Account number of step b).
- f) In the allocated field of the data entry, enter the same amount of step e), but NEGATIVE.
- g) Review the data and check that the balance of the transaction must be zero.
- h) After post the payment, the Journal entries for the Financial Accounting System is:
Journal debit entry in Payables Domestic account with the paid amount.
Journal credit entry in Bank Account with the paid amount.
With these entries, the transaction is balanced.
Go to Post incoming payments module.
Choose the bank account to affect the payment to the vendor.
Enter the Supplier or Vendor ID that receives the payment.
Click on Propose Items to display the Account Payables to Provider HIGHTECH.
Press OK to this WINDOW
Click CLEAR on the account to do the payment. The payment amount is 100.
The Allocate amount is the same, but NEGATIVE:
Review the Post to G/L Account. Credit amount in Bank G/L.
The Balance must be ZERO to operate the Payment
Click on SIMULATE and review the Account Journal Entries.
Click POST to generate the payment.
The transaction generates two Journal Accounting entries.
-A credit to the Bank Account where we took the funds to pay.
-A debit to the Payables Domestic account. This lower the balance we owe to the Vendor.
SAP S/4HANA keeps track of the financial accounting system in real-time. The procurement process saves the cost per item to do the inventory revaluation depending on the chosen method: FIFO, LIFO, or Average. The Invoice process saves the account payable and the positive balance for taxes. Finally, the payment to account payables process saves the bank account origin of funds, and the payment to the account payable originated in the Purchase Order. All the transaction movements are saved in the credit and debit accounting journal entries.