A guide to functional areas and cost of sales P&L reporting in the SAP® General Ledger

1. A Guide to Functional Areas and Cost-of-Sales P&L Reporting in the SAP General Ledger Paul Ovigele Ovigele Consulting

2. Introduction 3 Learn how to activate cost-of-sales (COS) functionality in the SAP General Ledger Find out how to define and derive functional areas Receive step-by-step instructions for creating and running functional area reports Discover tips for easily switching from period-based to COS accounting using the same report

3. Topics Overview of cost-of-sales accounting Using functional areas for cost-of-sales accounting Using cost-of-sales accounting with SAP General Ledger Activating cost-of-sales scenario and deriving functional areas Creating cost-of-sales financial statements Summary 4 Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

4. Approaches to Profit and Loss Accounting Period-Based Accounting Sales are matched with cost-of-sales for the period Cost-of-Sales Accounting Sales are matched with cost of goods sold regardless of when produced 5

5. Comparing Accounting Methods Period-Based Cost-of-Sales Revenues Sales deductions Changes in stock Work in process Revenues Sales deductions Cost-of-sales (incl. period variances) Total Output Gross Result Material Consumption Salaries Other Costs Sales and Distribution Administration Research & Development Result Result 6

6. Extra G/L Accounts Approach A simpler approach to implement, as every classification is dealt with using general ledger accounts Could lead to a significantly larger and unmanageable chart of accounts Could make configuration of account assignments more complicated e.g., which depreciation expense account category will you assign to the asset class? 7

7. Costing-Based CO-PA Approach Value fields are mapped to sales conditions, G/L accounts, and variance categories to reflect the source of the activities Characteristics help determine what dimensions to report on; e.g., product line, customer, region, etc. Reconciliation with FI is sometimes difficult because value fields are not always updated at the same time as general ledger accounts 8

8. Functional Area Approach Allows you to classify your expense accounts into the different functional areas in which they occurred e.g., you can identify whether a payroll expense is production or marketing related With SAP General Ledger you can pull extra characteristics into the FAGLFLEXT table and hence facilitate evaluations by product, customer, country, etc., just as in CO-PA CO-PA is still more suitable for contribution margin reporting and analyzing fixed vs. variable costs 9

9. Period Accounting Mapped to Functional Areas 10

10. Topics Overview of cost-of-sales accounting Using functional areas for cost-of-sales accounting Using cost-of-sales accounting with SAP General Ledger Activating cost-of-sales scenario and deriving functional areas Creating cost-of-sales financial statements Summary 11 Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

11. Options for Deriving Functional Areas 12 Manual Entry Cost Objects G/L Account Substitution P&L Account

12. Functional Areas in Cost Objects 13

13. Multiple Cost Objects in One Line Item If, for example, a cost center and internal order are entered on one line item, the order is treated as actual and the cost center as statistical (due to the “actual assignment” rule) Hence the functional area of the order is derived 14 Whose functional area is derived?

14. Functional Areas in G/L Accounts/Cost Elements If the G/L account is also a cost element, you can only enter the functional area in the master record of the P&L account The functional area is then copied to the master data of the cost element Since several company codes can be assigned to a controlling area, the functional area field is assigned to the chart of accounts area of the G/L account and cost element master data This ensures that the same functional area is entered in the G/L account and its related cost element 15

15. Functional Areas in G/L Accounts/Cost Elements (cont.) Scenario Derivation You post to a G/L account for which there is no cost element System derives the functional area from the G/L account You post to a G/L account for which a cost element exists System derives the functional area from the G/L account You post to a cost element (in controlling) for which there is no G/L account System derives the functional area from the secondary cost element 16

16. Cost-of-Sales Substitutions Substitution is a process for checking a value entered in SAP against a user-defined prerequisite If the prerequisite is met, then the value of a specific field is replaced by substitute values 17 User defines rules and field to be replaced Is prerequisite met? Replace field with specified value Replace field with specified value No Yes

17. Substitution vs. Cost Center Categories Substitutions Pro: Particularly useful in exceptions to normal circumstances; for example, you want functional area ABC to be derived only for postings to a specific cost element in that cost center Con: Trickier to modify when business circumstances change Cost Center Categories Pro: Simpler to set up. Easy way to ensure that all new cost centers have a functional area assigned to them Con: Doesn’t take into account special situations where the cost center category is not the only driver for the functional area assignment 18

18. Manual Entry of Functional Areas Could be used in very unique circumstances where the functional area will not be known until the time of posting Field status group for posting keys and chart of accounts should be set to “optional” for functional areas 19 This overrides all other methods of deriving functional areas, so should be used only where automatic derivation does not apply

19. Topics Overview of cost-of-sales accounting Using functional areas for cost-of-sales accounting Using cost-of-sales accounting with SAP General Ledger Activating cost-of-sales scenario and deriving functional areas Creating cost-of-sales financial statements Summary 20 Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

20. Cost-of-Sales Ledger in SAP General Ledger With SAP R/3 you needed to activate the Cost of Ledger (0F) in order to use functional areas. Now with SAP ERP, the Cost-of- Sales Ledger is included in SAP General Ledger SAP ERP SAP GENERAL LEDGER SAP R/3 •Reconciliation Ledger • EC-PCA • Special Purpose Ledger • Cost-of-Sales Ledger • Consolidation Staging Ledger 21

21. Scenarios in SAP General Ledger A scenario determines what fields in a ledger are updated when it receives posting from other application components If you want to update the functional area field in the SAP G/L view of an accounting document, you need to assign the Cost-of-Sales scenario (FIN_UKV) to the relevant ledger This updates the sender and receiver functional area fields Go to IMG path: Financial Accounting (NEW)  Financial Accounting basic settings (NEW)  Ledgers  Fields  Display Scenarios for General Ledger Accounting 22

22. Examples of Scenarios in SAP General Ledger Scenario Description Fields Filled Technical Field Name FIN_CCA Cost center update Cost center Sender cost center RCNTR SCNTR FIN_PCA Profit center update Profit center Partner profit center PPRCTR PRCTR FIN_UKV Cost-of-sales accounting Functional area Partner functional area RFAREA SFAREA If you don't assign scenarios to the leading or non-leading ledgers, the system updates only the account and company code objects in the FAGLFLEXT table 23

23. Substitutions in SAP General Ledger When SAP G/L is active, you can activate functional area derivation on the entry screen This means that the functional area is derived before you save the document anytime you hit the “Enter” button This makes substitution call-up point “6” relevant for activation (with classic G/L call-up point “5” is relevant) Financial Accounting (New)  Financial Accounting Global Settings (New)  Tools  Customer Enhancements  Enhance Functional Area Determination 24

24. Substitutions in SAP General Ledger (cont.) 25 This prerequisite states that: If the account number is “474240” and the cost center category is “5”….. Then the functional area to be derived in the posting is “TEST1” The substitution is activated for the relevant company code with call-up point “6”

25. Adding Characteristics to CO Totals Records When you activate SAP G/L, the functional area characteristic is updated in the totals table of Controlling (CO) This means that credit postings can be made from the CO sender objects using the functional areas during assessments The menu path for this is: “Controlling  General Controlling  Add Characteristics to CO totals records” 26 Sender Functional Area is now available in Assessments!!

26. Account Assignment Objects for Asset Accounting You can activate the functional area field as an account assignment object in asset accounting This means that the functional area field will be available during asset postings to the general ledger You then assign the functional area object to an account assignment type (either APC posting or Depreciation posting) This is done per company code and depreciation area Financial Accounting (NEW)  Asset Accounting  Integration with the General Ledger  Additional Account Assignment Objects  Activate Account Assignment Objects / Specify Account Assignment Types for Account Assignment Objects 27

27. Topics Overview of cost-of-sales accounting Using functional areas for cost-of-sales accounting Using cost-of-sales accounting with SAP General Ledger Activating cost-of-sales scenario and deriving functional areas Creating cost-of-sales financial statements Summary 28 Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

28. Creating and Deriving Functional Areas 29

29. Activating Cost-of-Sales Accounting 30 In Preparation This enables the functional area to be available for input in master data such as G/L accounts, cost centers, etc. No postings can be made to functional areas Active This enables the functional areas to be derived and updated during posting Options for Activation per Company Code

30. Activating Cost-of-Sales Accounting (cont.) 31 When cost-of-sales is activated for a company code, the global parameters will have “2” in the “Cost of sales accounting actv.” field (this can be seen in transaction OBY6) The Functional Area field is ready for input in all company codes of a client, provided that the status of cost-of-sales accounting is either In Preparation or Active for at least one company code of the client

31. Entering Functional Areas in Master Data 32 Master Data Transaction for update Assignment Level G/L Account FSP2 Chart of Accounts Cost Center KS02 Controlling Area Cost Center Category OKA2 Client Internal Order KO02 Controlling Area Order Type KOT2 Client Cost Element KA02 Chart of Accounts

32. Functional Areas in Cost Center Master 33 Advantages of direct entry Allows for flexibility to change in case the cost center categories propose placeholder functional areas in the cost center The business may not want to create as many cost center categories as there are functional areas Disadvantages of direct entry Users can accidentally overwrite the correct functional area that was derived from the cost center category May make master data creation more time-consuming

33. Functional Areas in Internal Orders 34 To ensure consistency of the functional areas in the master data of internal orders, define the Functional area field in the field selection control of the order type as an output field. This will make it impossible to manually enter the functional area in the order type. Is functional area entered directly in order master? Is functional area entered directly in order type? Is functional area entered in responsible cost center of the order Functional area recorded in order master No No YES YES YES

34. Functional Areas in Secondary Cost Elements 35 Be careful when trying to enter functional areas in secondary cost elements Entering a functional area in a secondary cost element only makes sense if, before the assessment, the CO object to be credited was only debited under the functional area that is also entered in the secondary allocation cost element Otherwise this could cause reconciliation issues if the sender cost center has been debited with other functional areas, in which case the functional area balance for this cost center will not be zero For assessments or other allocations, it is advisable to derive the functional area from the cost center or substitution rule

35. Changes to Functional Areas 36 If you want to change the functional area in the master data where postings with this functional area have been made, you get the following error: “Transaction Data already exists” You can change this setting by either making the Error Message (FH 600) a Warning Message or deactivating the message totally Go to Menu path : Financial Accounting (New)  Financial Accounting General Settings (New)  Document  Default Values  Change message Control for Document Processing

36. Functional Areas in Field Status Groups 37 Functional Area field status is found in Additional account assignment section of posting keys transactions (OB41) and chart of accounts (OBC4) Field statuses can be set to allow functional areas to be suppressed, displayed, or required when documents are posted Set the field status for functional areas to “suppressed” to eliminate possible user error

37. Topics Overview of cost-of-sales accounting Using functional areas for cost-of-sales accounting Using cost-of-sales accounting with SAP General Ledger Activating cost-of-sales scenario and deriving functional areas Creating cost-of-sales financial statements Summary 38 Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

38. 39 Reporting by Functional Area

39. 40 Options for Reporting by Functional Area Other Report Options Drill-down Reports Report Painter Since the functional area field is made available in the FAGLFLEXT table, standard report 0SAPBSPL-01 can be executed by functional area Other reporting tools can also be used to tailor to specific requirements Standard Reports

40. 41 Financial Statement Versions You must explicitly define financial statement versions as being permissible by functional area allowed indicator in the configuration settings of transaction OB58 You then assign the functional areas to the lowest nodes You can assign either a functional area or an account to a node in the Financial Statement version, but not both

41. 42 Standard Report 0SAPBSPL-01 This report can be executed through transaction S_PL0_86000028 The functional area field is available to selection in the initial screen You enter the financial statement version where you set the functional area as allowable

42. 43 Standard Report 0SAPBSPL-01 (cont.) When executed in the drill-down format, this report can be displayed using the standard drilldown functionalities Click on any of the characteristics on the top left of the screen to analyze the data with that characteristic These are the functional areas that were set up in the Financial Statement version

43. 44 Drill-Down Reports You can use the standard reports as a template for creating your own custom drill-down report Financial Accounting (New)  General Ledger Accounting (New)  Information System  Drilldown Reports (G/L Accounts) Standard Report being copied Custom Report

44. How to Copy and Modify a Standard Report 45 GR23 GS11 GR11 GR51

45. 46 Problem with Report Painter Reports Report Painter reports do not support a financial statement version with functional areas This means that in order to group functional areas into reporting nodes, you need to create sets and replicate the functional area financial statement version This makes the reports more time-consuming to create It also means that you need to update two structures when business circumstances change – the Financial Statement version and the Set that was created

46. 47 Other Reporting Options ABAP Reports Custom reports can be created from tables GLFUNCT and GLFUNCA in classical G/L and FAGLFLEXT & FAGLFLEXA in SAP G/L BI Reports Activation of InfoCubes 0FIGL_C02 (Cost of Sales Ledger: Transaction Figures) and 0FIGL_VC2 (Cost of Sales Ledger: Financial Statements) Query 0FIGL_V10_Q0001 (Financial Statements (New): Actual/Actual Comparison ) is a New G/L financial statement report which can be viewed by functional areas

47. Topics 48 Overview of cost-of-sales accounting Using functional areas for cost-of-sales accounting Using cost-of-sales accounting with SAP General Ledger Activating cost-of-sales scenario and deriving functional areas Creating cost-of-sales financial statements Summary Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

48. Resources Paul Ovigele , 100 Things You Should Know About Financial Accounting with SAP (July 2011) Provides little-known tips to optimize the Financial Accounting module, including with cost-of-sales accounting http://help.sap.com/saphelp_erp60_sp/helpdata/en/e1/8e51341a06084de10000009b38f83b/frameset.htm Go to: ERP Central Component  Financials  Financial Accounting  General Ledger Accounting  General Ledger Accounting  Cost of Sales Accounting SAP Note 677630 – Correcting functional areas in FI documents This note can also be used to re-derive the functional areas of accounting documents already posted 49

49. Five Key Ideas The functional area field is updated by assigning the “cost-of- sales” scenario to the relevant ledgers Cost –of-sales can be activated as follows: “In Preparation”– means it is available for entry in master data “Active” – means that it is available for posting It is best not to allow direct entry of functional areas during posting in order to avoid manual errors Standard financial statement reports such as 0SAPBSPL-01 can be viewed by functional area Functional areas are derived by manual entry, substitution, G/L account, cost element or cost object assignment 50

50. Questions Now: Ask questions now for immediate answers Later: Contact me at [email protected] 51 Q&A