IPM 450 Midterm: Topic 5

Define operating chart of accounts.

•A COA is a list of accounts that can be used to create the general ledger. •The operating COA is the chart of accounts used for day-to-day business operations.

What is the primary purpose of account groups? What are the account groups used in the GBI environment?

•Account groups group together accounts with similar characteristics. •Balance Sheet Accounts, Fixed Assets, Liquid Assets, Material Accounts, Profit & Loss Accounts, Reconciliation Accounts

Describe (briefly) the following G/L account categories: assets, liabilities, equity, revenue, and expenses.

•Assets: resources owned by a company that have value and are available for meeting the company's financial obligations. •Liabilities: accounts that designate the amounts that a company owes; for example, to suppliers for materials purchased or to banks for borrowed funds •Equity: the residual claim of the owner's to the company's assets after liabilities are paid. •Revenue: money that a company earns for the sale of products and services •Expenses are the costs the company incurs in buying, making, and selling products and services.

What is the powerful feature of any ERP system that allows the accounting consequences to automatically update the general ledger?

•Automatic account determination is the mechanism that enables the system to record the accounting consequences, behind the scenes, as process steps are completed. •The rules that the system needs in order to perform automatic account assignment are part of the configuration. •Configuration steps such as document types, account types and posting keys are essential to automatic account determination. •Specific rules are defined in the configuration of the various processes.

What are the four key financial statements?

•Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows

What is net income, and how does it flow from all the financial statements?

•Bottom line of income statement is net income. •Net income links to both the balance sheet and cash flow statement. •In terms of the balance sheet, net income flows into stockholder's equity via retained earnings. •Retained earnings is equal to the previous period's retained earnings plus net income from this period less dividends from this period. In terms of the cash flow statement, net income is the first line as it is used to calculate cash flows from operations. •Also, any non-cash expenses or non-cash income from the income statement (i.e., depreciation and amortization) flow into the cash flow statement and adjust net income to arrive at cash flow from operations.

What are the key enterprise structure elements necessary for financial accounting configuration?

•Client, Company Code and Chart of Accounts

What is the purpose of number ranges? How do they serve as an internal control in an ERP system?

•Document number ranges are associated with specific document types. •The document type identifies which business step generated the document. •The definition of the document type includes the account type that can be posted to when the document is generated and the number range for the document type.

What are the differences among field groups, fields, and field status as related to account groups?

•Field groups are combinations of fields that are used to define the accounts (e.g. account control, account management and document entry). •Each field group in turn includes the individual fields (currency, tax category, reconciliation account) for which the field status must be specified.

What is the purpose of field status? Explain the four possible field statuses? How are the field statuses for general ledger accounts different from field statuses for transactions?

•Field status defines the data required to execute a transaction. •The four field statuses are: •Required - account cannot be created if user does not provide valid data for the field; •Optional - user can provide information, but is not required to do so; •Display - cannot be changed, only for informational purposes; •Suppressed - Invisible. The field status for transactions does not include a display option.

What is the difference between field status variants (FSV) and field status groups (FSG) as related to transactions?

•Fields for transaction documents are grouped into field groups as is the case of fields in G/L account master data. •However, field groups for transaction documents are consolidated into field status groups, in contrast to account groups for master data. •The field status groups, are in turn, grouped together into field status variants. •The field status variant is assigned to one or more company codes making the field status groups available for use by the specified company code.

What is the importance of posting periods and fiscal year variant?

•Financial accounting postings are associated with a particular period called the posting period. •Typically 12 - one for each month. (can be quarters or weeks depending on reporting needs) •Special posting periods: A posting period used to divide the last regular posting period for closing operations; for adjustments, usually max of 4. •Adjusting entries are used to correct posting errors and to record accruals of accounting activity. •Postings are generally not permitted in all periods. •Rather, they are limited to specific periods that are designated as open periods. •The number of posting periods available in a given year is specified during configuration using a fiscal year variant •Fiscal Year Variant: specifies the start and end of the fiscal year and the number of fiscal periods. How many posting periods are in a fiscal year? How many special periods you require? How the system determines the posting periods when posting?

What is the key testing an organization can perform to ensure that the financial configuration has been properly executed?

•G/L testing by manually posting entries to the general ledger and verifying that the postings are correct. •This action indicates that the system performs as intended. •Unable to perform accounts receivable or accounts payable testing until procurement and fulfillment have been configured.

What does the term "year dependent" stand for in SAP?

•Indicator that the allocation of posting periods to calendar days must be made individually for each year. •This is necessary if the end of the period is not linked to a fixed calendar day.

What is the maximum number of special periods possible?

•No maximum

Which accounts of the general ledger are the temporary accounts and closed at the year end, and which are the permanent accounts?

•Revenue and expense accounts. Temporary balances for the year. At the end of the year, a company uses period closing to transfer the balances in these accounts to the retained earnings account. •Balance Sheet Accounts (Assets, Liabilities & Equity). Not closed or transferred to the retained earnings account

Describe the purpose of subsidiary ledgers.

•Subsidiary ledgers help track data for individual customers, vendors, and assets. •The summary of all the data in subledger accounts is reflected in special general ledger accounts called control accounts or total accounts. •Called reconciliation accounts in SAP. Reconciliation accounts cannot be posted to directly and the sum of the postings are maintained in the sub ledgers.

How do the chart of accounts and general ledger accounts work together in financial accounting configuration?

•The COA creates the general ledger for a company code. •This process is accomplished by identifying the accounts in the CoA that are needed in the general ledger and then adding company code-specific data to these accounts.

Discuss the relationship among posting key, document type, and field status group.

•The account type permitted in a transaction is also determined by the document type and (2) the status of fields included in the transaction is also determined by the field status group assigned to the G/L account that is affected by the transaction. •If the two definitions are not in agreement, there is a conflict that the system must resolve.

Which master data are critical for financial accounting?

•The critical master data related to financial accounting are general ledger accounts. •The general ledger provides the primary structure of financial accounting at the company code level. •The general ledger is sometimes referred to as the heart of the ERP system because it provides a comprehensive view of the company's overall performance. •All transactions - or at least the financial impact of these transactions - flow through the general ledger.

What are the most significant configuration differences in the set-up of account groups for balance sheet accounts versus reconciliation accounts?

•The field statuses for the various field groups are different. •For example, under account control field group in reconciliation accounts only one field requires data entry, two are optional, and the rest are suppressed. •No required entries in balance sheet account.

Explain the purposes of tolerance groups for employees.

•Tolerance groups for employees specify the upper limits, or tolerances, on the amounts that an employee can post in financial accounting.