Accounting Entry in SAP

The double-entry bookkeeping system was codified in the 15th century and refers to a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different accounts. In modern accounting this is done using debits and credits within the accounting equation: assets = liabilities + equity. The accounting equation serves as a kind of error-detection system: if at any point the sum of debits does not equal the corresponding sum of credits, an error has occurred.

An organizations having large assets, external suppliers of capital and thousands of transactions to deal with in a reporting period, it is more appropriate to use a double entry accounting system. There are two distinct characteristic features of a double entry bookkeeping system, which are, that every transaction is recorded in two accounts and each account has two columns. In a double entry bookkeeping method, two entries are made for each transaction. One entry is made as a debit in one account and one entry is made as a credit in another account. The entries are entered in this manner to keep the accounting equation in balance. The columns in a double entry bookkeeping system are namely date, accounts, debit and credit. The debits are entered in the left column and the credits are entered in the right column. For each debit entry, an equal and opposite credit entry is entered. When totaling the accounts, the sum of all debits must be equal to the sum of all credits.

Online bookkeeping is where books are updated through a online bookkeeping application. Online bookkeeping is very secure as the documents are uploaded on to a secure location or into a online bookkeeping application.

In the double entry book keeping system every transaction has to have with at least two line items i.e. one debit and one credit entry.  The line item of an accounting document may be more that one and in case of clearing document, there may be zero line item.

In double entry book keeping, account has been subdivided into two types i.e. Personal and impersonal Account. Impersonal is again sub divided into real and nominal. Personal accounts represent the person involved in the organization. Real accounts include like cash, bank, inventory, goods and services and tangible assets. Nominal accounts include all the intangible assets, incomes, profits, gains, losses, and expenses.

There two sets of books of accounts like General Ledger Accounting and Sub Ledger Accounting. Sub Ledger accounting records transaction in detail and post to its corresponding Control Account in General Ledger Accounting. Sub Ledger includes Account Payable, Account Receivable and Fixed Assets Accounting.

CLASSIFICATION OF ACCOUNTS:

1. Personal Account:- when a transaction involved with a person known as

personal account such as Mr. Roy, Bose& sons ABC Ltd. co. etc.

2. Impersonal Account:

Impersonal Account is subdivided into two accounts as follows:

• Nominal Account:- All recurring expenses/incomes/ gains/losses are known as Nominal Account, such as salary, Rent, Interest etc.
• Real Account:- Other than above two accounts all are fall under this category,

such as Machinery, Furniture etc.

GOLDEN RULES OF ACCOUNTING:

The golden rules for accounting entry in an accounting document are as follows:

a)   Personal Account :

Debit the receiver and credit the giver.

b)   Real Account:

Debit what comes in and credit what goes out.

c)    Nominal Account:

Debit all loses & expenses and credit all income & Gains.

ACCOUNTING ENTRY IN SAP APPLICATION:

SAP is one of the online booking applications and is being used in most of the Large and SME organizations. We need to think about the accounting entry is SAP since the posting transaction having impact on GL Account Balances. GL Account gets value from different source such as Billing Document in SD, Material document and Invoice in MM, Payroll Entry in HR and Direct FI Entry in FI Module. We will try to bring most of the commonly used accounting entry in the SAP Application System. Accounting Entry will be posted based on the Account Determination in the configuration settings as well as manual entry of GL Account. Account Determination settings required for the following to get a real time auto posting to GL while executing a Sub Ledger or other transaction which generates a automatic line items based on the rule defined, e.g., Input Output Tax, Withholding Taxes, FOREX Evaluation.

Tax Transaction

Bank Transaction

Account Receivable and Account Payable Transaction

Foreign Currency Transaction

Fixed Asset Transaction

Payroll Transaction

Sales and Distribution Transaction

Purchasing Transaction

Inventory Transaction

Travel Expenses Transaction

Excise and Custom Transaction

SALES AND DISTRIBUTION

INVOICE GENERATION:

Invoices will be generated at the Smelters and stock points. The accounting entries for the sale of goods dispatched will flow from the Sales invoice generated in SAP Sales and Distribution module. The following entries shall be passed.
a) DOMESTIC SALE

Customer Account Dr
Revenue Cr
Excise Duty Payable Cr
Sales Tax Payable (local or central) Cr

Note: As mentioned above in the FI document, which is created in the background, the SD invoice number shall be captured. However as per the current accounting procedure the accounting entry passed is as follows:
VF01:

Customer Account Dr
Revenue Cr
Excise Duty Billed Cr
Sales Tax Payable (local or central) Cr

J1IIN:

Excise duty paid a/c Dr
Excise duty payable a/c Cr

b) EXPORT SALES

There have been very few export transactions in the past. SAP system will be designed to handle export business. Exports are mainly from the mines and will be handled at the mines, however the documentation part will be taken care at the Head Office. The accounting entry is:
Customer Account Dr
Revenue (Exports) Cr

The realization of export sales will be directly credited to the bank. The accounting entries will be as follow:
Bank Dr
Customer Cr
Exchange Fluctuation Dr/ Cr
Rebates/Discounts Dr
Customer Cr

DEBIT MEMOS

Debit Memos shall be issued in case of price difference, sale tax difference and interest on usance period and overdue payments.

The accounting entries for two possible scenarios are as follows:
Price Undercharged:
Customer Account Dr.
Revenue Cr.
Sales tax payable Cr.
Sales tax undercharged
Customer Account Dr.
Sales tax adjustment Cr.
Interest on delayed payments/usance period and other charges
Customer Account Dr.
Interest Others Cr.

In case of HZL a complete retirement or a partial retirement of asset is done. The system uses the asset retirement date to determine the amount to be charged off for each depreciation area. The existing accounting policy is to provide depreciation for the full quarter in which the asset is sold/discarded, recommended that the depreciation be provided from the date of acquisition on prorata basis .

SALE OF SCRAP

The sale of scrap (non-stock) shall be mapped as a direct manual FI entry. The customer will be created as a FI customer. No Logistics module will be involved in the process.

A FI Invoice will be prepared for the sale of scrap with the following entries:
Customer Dr
Sale of Scrap Cr
Excise Duty Payable Cr

ADVANCES FROM CUSTOMERS
Advances are received from the customers against delivery. These advances will be recorded in a special general ledger account. The accounting entry for the same will be:
Bank Account Dr
Advance Customer Payments Cr

These advances will be later on adjusted against the invoices raised on the customers. Advances can be adjusted against more than one invoice at the time of clearing of the invoices against advances.

Adjustment of Advances:
Customer Account Cr
Advance Customer Payments Dr

A financial document would be created for each Bank Guarantee received and this document number will be referred to in the Sales Order which would then monitor the value and the validity of the of the Bank Guarantee instrument wise while doing the billing. The letter of credit /Bank guarantee given will be recorded as a noted item.

MATERIAL MANAGEMENT

GOODS RECEIPT

Based on the Purchase order and the Quantity actually received Goods Receipts (GR) will be done. Based on the GR done the following accounting entry will be passed in the Financial Accounts
Accounting Entry for Goods receipt:
Stock/Inventory account Dr
GR/IR account Cr
Freight clearing account Cr

Accounting Entry on invoice verification of supplier:
GR/IR Dr
Vendor account Cr

INVOCIE RECEIPT

Accounting Entry on invoice verification of freight vendor
Freight clearing account Dr
Freight Vendor account Cr

SAP Transaction Code:

RM/PM Stock Account Dr

GR/IR Account Cr
Freight Clearing Account Cr

CREDIT MEMO:

EXCISE INVOICE VERIFICATION

On receipt of the excise invoice cum gate pass the following entry will be passed
RG 23 A / RG 23 C Part 2 Account Dr
Cenvat Clearing Account Cr

INVENTORY ACCOUNTING ENTRIES

All the Inventory transactions will look for the valuation class and the corresponding G.L. Accounts and post
the values in the G.L accounts.

For Example: during Goods Receipt

Stock Account – Dr
G/R I/R Account  –  Cr
Freight Clearing account – Cr
Other expenses payable – Cr

During Invoice Verification

G/R I/R Account – Dr
Vendor – Cr

When the Goods are issued to the Production Order the following transactions takes place:

Consumption of Raw Materials – Dr
Stock A/c – Cr

When the Goods are received from the Production Order the following transactions takes place:

Inventory A/c – Dr
Cost of Goods Produced – Cr
Price difference – Dr/Cr
(depending on the difference between standard cost and actual cost)

When the Goods are dispatched to customer through delivery the following transactions takes place:

Cost of Goods Sold – Dr
Inventory A/c – Cr

When the Goods are issued to a Cost Center or charged off against expenses the following transactions takes place:

Repairs and Maintenance – Dr
Inventory A/c – Cr

When the Goods are stock transferred from one plant  to another, the following transactions takes place:

Stock A/c – Dr (Receiving location)
Stock A/c –  Cr (Sending location)
Price difference – Dr/Cr
(due to any difference between the standard costs between the two locations)

When the stocks are revalued, the following transactions takes place:

Stock A/c – Dr/Cr
Inventory Revaluation A/c – Cr / Dr

When the Work in Progress is calculated the following transaction takes place:

Work in Progress A/c – Dr
Change WIP A/c – Cr

Physical verification /shortages and excesses :  Shortages/excesses on authorizations shall be adjusted using the physical inventory count transaction.

FICO:

Journal Entry

Accrual/Deferral

Recurring Entry

Account Payable

Account Receivable

Fixed Assets

Bank Account

CEBAVT

SALE OF ASSETS

Accounting entry for sale of Asset to customers:
Customer Account Dr
Asset Sale Cr
Accumulated Depreciation Dr
Loss on Sale (if applicable) Dr
Asset Sale account Dr
Asset account Cr
Profit on sale (if applicable) Cr

Note: In case of any Sales Tax /Excise duty applicable for this transaction, SAP will calculate the Sales Tax/Excise Duty based on the Tax Code selected the entry is posted to the GL Account (Sales Tax Payable)

Accounting entry for sale without a customer:
Accumulated Depreciation Dr
Loss on Sale (if applicable) Dr
Asset Sale account Dr
Asset account Cr
Profit on sale (if applicable) Cr

Accounting entry for scrap
Accumulated Depreciation Dr
Loss on Sale of Assets Dr
Asset account Cr

CENVAT EXCISE ENTRIES:

1. On receipt of material (MIGO)

DR Inventory            1000.00

CR GR/IR Clearing Account          1000.00

2. At the time of Posting excise invoice (J1IEX_P)

i) if it is raw material

DR RG23 Part II Posting            160.00

CR Cenvat Clearing Account                   160.00

ii) if it is capital goods

DR CENVAT on hold Account       80.00

DR RG23 Part II Posting             80.00

CR Cenvat Clearing Account                   160.00

iii)when making transfer posting (J2I8)

DR RG23 Part II Posting               80.00

CR CENVAT on hold Account                  80.00

3. At the time of Invoice Verification (MIRO)

DR GR/IR Clearing Account         1000.00

DR Cenvat Clearing Account         160.00

CR Vendor                                              1160.00

4. Excise Duty payable on dispatches

DR Excise Duty Account            240.00

CR Excise Duty Liability Account            240.00

5. Advance payment of Excise Duty (F-02)

DR PLA On Hold Account          80.00

CR Bank                                            80.00

6. Creation of TR6 Challan (J1IH) after Deposit

DR PLA Account                      80.00

CR PLA On Hold Account                    80.00

7. Adjustment of Duty liability Utilization (J2IU)

DR Excise Duty Liability Account        240.00

CR RG23 Part II Posting                               160.00

CR PLA                                                         80.00

BANKING TRANSACTION FINANCIAL ACCOUNTING ENTRIES :

Settlement Of Tour Advances Domestic/Foreign
1) Settlement of advance will be done by the Accounts Department based on the Travel Expense Statement submitted by the employee, which is approved by the Concerned Department Head.

2) Expenses  Account                         DR
Cash/Bank  Account                       DR  (if, refund)
Employee Advance Account                                            CR
Cash/Bank Sub ledger Account                                       CR  (if, payable)

3) Banking Operations – Maintenance Of Bank Master

4) A House Bank is a combination of a Bank and a Branch. Account id is the account number. A house bank can have multiple account IDs.. There could be a main account as also payable account, which will be defined as separate account ids. General Ledger accounts have to be created for each combination of a house bank and account ID. The bank master details are to be provided by HZL.

5) General Ledger accounts have to be created for each account ID in the house bank. Bank Account Master data will be maintained by the Finance Department centrally.

6) Each house bank and account ID combination shall have one main general ledger account and several sub accounts mainly based on broad transaction types. These sub accounts are necessary to facilitate automatic bank reconciliation process in R/3 system.

Bank Accounting
7) The accounting entries will be generated automatically according to the posting rules attached to the Transaction type. The following accounting entry is passed by the system in respect of cheque deposit on account of collection from domestic customers.

Bank cheque deposit account         Debit
Customer account                                                         Credit

8) In this case, a bank sub account is selected based on the transaction code entered by the user. The customer account is cleared i.e. invoice is cleared against the receipt. In respect of any other deposits, the relevant accounts to be credited will depend on the nature of transaction.

9) Payment against bills for collection. Based on the bank advices falling due on a particular day one payment advice is made debiting the vendors and crediting bank.

Cheque Deposit – Customer Receipts
10) All cheques received from customers shall be accounted at the point of receipt.  The entry posted shall be

Bank  Sub account  Dr
Customer Account    Cr

Cheque Deposit – Other Than Customer Receipts
11) All  other receipts will be accounted through the Incoming Payment Transaction of the Accounts Receivables module.

Cheque Bouncing – Other Than Customer Receipts

12) Based on the information of cheque bounced from the Bank, the accounts Department will pass accounting entries for the cheque that have been bounced. The procedure to handle bouncing of a cheque has been discussed under the following

13) Reset the clearing document – If the document has been cleared i.e. an    open outstanding item has been cleared against an incoming receipt, then the clearing document has to be reset to its original status of open item. This process is known as reset of cleared document.

14) Reverse the entry passed for cheque deposited earlier – Once the document has been reset it will be reversed. The following accounting entry will be passed.
FI Customer       DR
Bank cheque deposit account  CR

15) In case of cheques being damaged while printing, the concerned cheques no. has to be voided and the payment will be rer

Bank Reconciliation
16) The Bank reconciliation process is based on the entries passed through the Bank sub account and main account. The process is dependent on the Bank Statement received from the Bank that will be entered into SAP. Accounting rules are to be defined for each transaction type and posting rule for posting accounting entries as per bank statement.  Bank statements to be uploaded into SAP.

17) Bank Main account balance is the actual balance as per the bank statement whereas the Bank sub accounts denote the reconciliation items. These sub accounts show those entries, which will flow from the sub account which are not cleared in the bank statement.

18) Adding or subtracting the Bank sub accounts will help in preparing the Bank reconciliation statement.

19) The following scenarios would explain the reconciliation process:
– Cheque received from customer
– Cheque issued to vendors
– Cheque received from Other than Customers
– Direct Debits in Bank Statement
– Direct Credits in Bank Statement
– Fund Transfer between Bank Accounts

Cheque Received From Customer
20) Accounting entry at the time of cheque deposit entry
Bank Cheque deposit account   Debit
Customer                            Credit

21) Accounting entry after cheque has been cleared in the Bank statement Main Bank account
Debit Bank
Cheque deposit account  Credit

22) The clearing criteria for updating the bank main account and bank sub account will be amount and document  number which will be captured in the allocation field of the bank sub account. The items, which have not been cleared in the bank statement, will remain open in the bank sub account and will form part of the bank reconciliation statement.

Cheque Issued To Vendors
23) Accounting entry at the time of cheque issue
Vendor account     Debit
Bank cheque payment account  Credit

24) Accounting entry after cheque has been presented in the Bank
Bank cheque payment account  Debit
Main Bank account     Credit

25) The clearing criteria used for updating vendor account and Bank cheque payment account will be amount and cheque number. The cheques presented to the bank and are cleared are transferred to the bank main account. The remaining cheque issued will form part of the bank reconciliation statement.

Direct Debit In Bank
26) Direct debit instructions will be given to the bank for example, LC payments or certain bank charges are directly debited in the Bank Statement. In this case accounting entry is passed only after the entry is passed in the bank statement.
Vendor / Expense Account  Debit
Bank clearing account  Credit

Direct Credit In Bank
27) Customer receipts are sometimes directly credited in Bank. E.g. export receipts. In this scenario accounting entry is passed only at the time of bank statement entry.  The following accounting entry is passed
Bank clearing account    Debit
Customer account    Credit
Main Bank A/c    Debit
Bank Clearing A/c    Credit

Bank Fixed Deposits
28) HZL has a practice of converting any amount above Rs. 1 crore in its Main bank account, to a fixed deposit subject to a minimum of Rs. 1.01 crores. The FDR number can be filled in one of the fields available in the accounting document.

Cheque Management / Cheque Printing Cum Advice
29) The function of cheque management will enable printing of cheque through SAP. Cheque series will be defined for a combination of a Company code and Bank Account. Cheque numbering will be sequential order.

30) Cheque series for automatic payment has to be in sequential order. Cheque printing facility will be available for the bank account.

Cash Management / Liquidity Analysis
31) The day-to-day treasury process in a company includes a number of transactions. This includes determining the current liquidity using bank account balances (cash position), determining open receivables and liabilities (liquidity forecast), manually entering planned cash flows (payment advice notes), through to clearing bank accounts, that is, collecting multiple bank account balances on one target account.

32) The main objective is to ensure liquidity for all due payment obligations. It is also important to control and monitor effectively the incoming and outgoing cash flows.

33) This section shows you the overall liquidity status of your company by displaying together the cash position and the liquidity forecast. The cash position is used in Cash Management to show the value-date-dependent bank accounts and bank clearing accounts, as well as the planned cash flows (payment advice notes). The liquidity forecast comprises the incoming and outgoing cash flows, as well as the planned items on the sub-ledger accounts.