[S/4HANA Accruals Management] [Cloud version] Purchase Order Accruals one-stop-shop

Hello there! This series blogs about S/4HANA Cloud Accruals Management – Purchase Order Accruals, are created specially for you.

• Business users who would like to know the features and logic
• Functional Consultants who would like to know the features and logic , and in addition, design based on SSCUI capability
• Technical Consultants who would like to know the features and logic , and in addition, extend default logic by leverage the SAP Cloud BAdI capability

The world has seen increasing complexity in business. There are goods/service sold and consumed across time span consume across time span. To reflect an accurate snapshot of financial position, it is important to have a reliable and consistent rule of financial reporting. Consequently, it is important to accurately accrue for both revenue and expense at the end of the reporting period.

With a series of blogs, I plan to debrief the concepts and alongside, walk you through how SAP S/4HANA Accruals Management helps you automate the process. In addition, if there are special rules for a country/industry, these blogs might help you to understand the possible changes you could make within SAP S/4HANA Cloud.

Concept Clarification

Highlights for a few common questions which has been raised tons of times.

1. Accruals vs Provisions

• Accruals: A liability, goods and services already delivered where the invoice wasn’t received.
• Provisions: A liability of uncertain timing or amount. (IAS 37: the likelihood of occurrence of this obligation higher than 50%).

The main differences from my point of view, is certainty of liability

• For Accruals, it’s 100% certainty of liability. Because ‘we’ know that the supplier has rendered the service or delivered the goods. So, accruals are often reported as part of trade and other payables.
• For Provisions, it is 50% ~ 100% certainty of liability. Because ‘we’ have to ‘puts a certain amount of money aside’ as preparation for the potential (>50% likelihood) consequence of an event in the past. So, provisions are reported separately.

If you want to understand in deeper level, I would recommend the IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets ‘, which is so far the best I learned to summarize the differences.

2. What is S/4HANA Accruals Management？Why it’s important?

• With pure manual accruals posting, it is not easy to explain why certain amount is added for what kind of business transactions.
• Accrual posting becomes a headache for both accountants and audit.

How to provide and prove this accrual posting?

With SAP S/4HANA Accruals Management, you could find every trace for purchase order accruals posting – WHEN, WHAT & WHY.

With the application Purchase Order Accruals, it is possible to automatically calculate and post purchase order accruals. This new application is based on the (new) S/4HANA Accrual Engine which offers flexible configuration options for calculation and posting of the accruals.

Optional: A review process for the monthly accrual amounts can be activated in the Configuration.

3. Accruals vs S/4HANA Accruals Management

By definition in IFRS, accrual-based accounting means recording accounting transaction in the time period on which they occur – matching revenues against expenses when transactions. In short, there are accrued revenue and accrued expenses.

S/4HANA Accruals Management only focus on accrued expense. Accrued expense is a liability whose timing or amount is uncertain by virtue of the fact that an invoice has not yet been received.

• o If you are looking for a solution to automate the accrued revenue, you could explore ‘Event-based Revenue Recognition’.
  o Until CE2105 there is only purchase order accruals available in SAP S/4HANA Cloud. There will be more to come in the upcoming releases.

Toolbox for Purchase Order Accruals 

You are welcomed to pick the most relevant blogs/information based on your knowledge level.

I am a beginner…

• SAP Best Practice: Purchase Order Accruals (‏2VB‏)
• SAP Best Practice: Machine Learning for Accruals Management (‏3NF‏)
• Purchase Order Accruals – Scope item 2VB
• Help Portal – General Ledger Accounting -Closing Operations -Accruals Management – Purchase Order Accruals
• Demo Video: S/4HANA Finance – Accruals Management

I want to know more for project implementation …

• For which business scenarios can I use purchase order accruals?
• Q1: What kind of Purchase Order Item is Accruals relevant?
• Q2: How is the Purchase Order Item converted into S/4HANA Accrual Engine?
• Q3: How can I influence the way Purchase Order Item converted into S/4HANA Accrual Engine? (SSCUI + Cloud BAdI)

(Stay tune! More blogs will come! feel free to leave your questions or share your experience under this blog)