What is SAP FICO module?

SAP FICO stands for sap finance & controlling. Before understanding sap fi we need to
understand the duties and responsibility of finance department in an organization.

Duties of finance department are:

 Book keeping/ recording accounting entry for day to day business transactions.

 Generating balance sheet and profit & loss statement

 Generating financial reports for legal/ statutory purposes e.g. tax reporting to
government, reports for auditors etc.)

Now let’s understand what is meant by day to day activities in a business.

In order to understand activities in a business, we need to understand operations of a

business. Every business will have customers to whom it will sell either services or
product. Product/services may be purchased from outside or produced in-house.
Purchase department has to purchase and supply to production department for
production of finished goods. Distribution department has to deliver finished goods to
customer.

Supplier/ vendor have to be paid.

Money from customer has to be collected.

Employees need to be paid.

Assets (machine/ vehicle/ building/ land etc.) need to be purchased or produced in-
house. Depreciation of assets needs to be recorded.
Above picture depicts business activities generate accounting entry in finance.

Assume no IT system is used in organization, keeping track of activities and recording

corresponding accounting entry becomes challenging. This challenge increases many
folds by the fact that people are spread across geography. Improper and slow
coordination between departments lead to slow business cycle. Manual recording of
accounting entries increases the chances of in-accurate data being recorded.

Sap finance module deals with all the activities of finance department. At the same time
overcomes the challenges of department’s coordination and manual recording of
accounting entry.

Most of the manual activities are automated. Less manual intervention ensures more
accurate data. Real time coordination between departments (sap fico module with other
modules) ensures all affected parties are updated simultaneously.

Sap fico module helps in generating faster financial reports e.g. balance sheet/ profit &
loss statement/ tax reports for tax authority/ reports for auditors etc.

Above picture depicts coordination between various modules and FI module.

Sap finance module is composed to several sub modules. Each sub-module is designed
to handle specific business activity and corresponding accounting entry.

-General ledger accounting

-Account receivable

-Accounts payable

-Asset accounting

-Bank accounting
-Tax accounting

Sap CO stands for sap controlling.

Sap finance & sap controlling modules are placed close and overlapping (as shown in
above picture) because sap finance and controlling modules are very closely integrated.
A business activity often generates accounting entry in finance and corresponding entry
in controlling as well.

What is enterprise structure in sap?

Let’s understand concept of enterprise structure with an example.

Example: House (consider functioning of a house)

Guests are chaired in hall. Material is stored in store room. Food is cooked in kitchen.
Bath is done is bathroom. Cloths are washed in washing machine kept in dry area.
Balcony is to provide fresh air and drying cloths.

Hence a house is composed of below units:

Hall / store room / kitchen / bathroom / dry area / balcony

For effective functioning of a house, all these units need to be put together and
interlinked in a specific way. This is an example of house structure. Here structure
represents the specific way in which there units are interlinked with each other to make
a house function effectively.

Each house may have different arrangement of these units hence each house can have
different structure.

Now let’s apply the same concept and understand enterprise structure.

Functioning of an enterprise or organization

Sales department might have multiple sales representative scattered across geography.
Purchase department might be divided into multiple groups with responsibility of
specific purchase. Purchasing department procures raw material from vendor and store
it in storage. Using raw material finished goods are manufactured at manufacturing site.
Manufactured finished good are stored at a location for sale. Goods for sale are
dispatched from a specific location.
A company might have several affiliates. Each affiliate is independent legal unit hence
finance department has to prepare balance sheet and profit & loss statement for each
affiliate separately. For balance sheet and profit & loss statement of Group Company,
finance department has to consolidate financial data of all affiliates.

Sap is supposed to replicate business and fulfill business requirements.

To enable effective functioning of enterprise/ organization, above organizational units

are interlinked in a specific way. This interlinking of organizational units in a specific
way is referred as enterprise structure.

Below picture represents enterprise structure in sap.

SAP ENTERPRISE STRUCTURE

When sap is implemented in an organization, enterprise structure is decided and

created as per business requirement.

Below picture depicts how business units are represented as organizational units in sap.
 What is operational chart of account in SAP?

Let’s consider below example to understand operational chart of account in

SAP

Company is selling laptops to customer. Takes services from vendors and pays rent to
building owner.

Above picture shows the business activity and corresponding accounting entry to be
recorded.

To be able to post above accounting entries, below general ledger accounts need to be
set up in the company code.

General ledger for laptop inventory account

General ledger for cost of goods sold

General ledger for accounts receivable

General ledger for sales account

General ledger for bank account

General ledger for service account

General ledger for accounts payable

General ledger for rent expense account

Similarly in practical business scenario there will be various business transactions and in
order to record corresponding accounting entry, appropriate general ledger account
needs to be set up in company code.

Accounting entry is recorded in sap by posting a document. An accounting document

will have few general ledger accounts debited and few general ledger accounts credited
(net sum zero hence double entry book keeping).

General ledger account needs to be created prior to accounting document posting.

In sap, general ledger accounts are represented by a number. Each general ledger
account will be represented by a unique number.

Below screenshot showing an accounting document which has two general ledgers
account posted.

accounting document
General ledge for accounts payable is represented by number 11

General ledge for home expenses is represented by number 3

What is GL account group and operational chart of account ?

A company might have thousands of different accounts in their book of accounts. Hence
thousands of general ledgers need to be created in sap. General ledger of similar nature
is grouped together and is called as account group.

All account groups put together is called operational chart of accounts.

As the name suggests, chart of accounts is the list of all the accounts put together.

account groups in chart of accounts

Company is assigned chart of accounts.

Account groups are created under operational chart of account.

General ledger accounts are created under account group.

Each account group is assigned a number range. General ledger account when created
under an account group has to be within account group’s number range.
While creating general ledger account (master data) you will have to provide input into
various fields. Each field has its own significance.

General ledger master data fields and its significance is covered under separate topic,
you will find as you proceed.

What is country chart of account in SAP?

Normally all company codes use the same operational chart of account irrespective of
country. But some countries have legal requirement to prepare financial reports using
specific accounts. This can be achieved using country chart of account in sap.

Consider below example to understand the concept of alternate chart of

account.

Below picture explains the concept better

As shown in above picture, account in operation chart of account is mapped to country
specific account.

When document is posted, account from operational chart of account is posted. Hence
financial reports are available in accounts listed under operational chart of account.
Since account in operational chart of account are mapped with specific account in
country chart of account, hence financial report in country specific accounts is also
available in sap.

Below picture just to give you a comprehensive view of mapping country chart of
accounts with operational chart of account.

Account in operation chart of account is mapped to country specific account

When country specific chart of account is used, it’s mandatory to map every single
account in operational chart of account to an account in country specific chart of
account.

Normally, an account in operational chart of account is mapped to a single account in

alternate chart of account.

But practically business might require mapping multiple accounts in operational chart of
account to single account in country specific chart of account. This can be done by
setting sap error message into warning message.
How general ledger account in operation chart of account is mapped with
general ledger account in country chart of account?

Operational chart of account INT is mapped with country chart of account ZINT

After chart of accounts are mapped, general ledger accounts are mapped as shown
below.

Account 1 belonging to INT is mapped with account 101 mapped with ZINT.

Alternate account no. refers to general ledger in alternate chart of account.

Does a separated document get generated for alternate chart of account?

No separated document is generated for country specific accounts. Document is posted
only with accounts in operational chart of account.

If there is no document with general ledger accounts belonging to alternate

chart of account, then how financial reports are available with country specific
accounts?

Financial statement (balance sheet and profit & loss statement) can be drawn from
operational chart of account or country chart of account or group chart of account as
shown below.

In above example, group chart of account is shown to get data from only one company
code. But in practical scenario, group accounts will pull data from multiple company
codes. That is how group accounts help in arriving at consolidated financial statement.

What is group chart of account in sap?

A company might have several company codes. Each company code prepares its own
financial reports. But business requires consolidated reports of the entire group. To
generate reports at group level, data from various company codes need to be pulled in
together for consolidation. This consolidation of financial data is achieved by using
group chart of account in sap.

Consider below example for understanding the use of group chart of account

A company has two company codes.

Company code 1 uses operational chart of account COA1 and company code 2 uses
operational chart of account COA2.

Both company codes prepare their own financial reports using operational chart of
account. But for financial reports of company both financial data needs to be
consolidated. Since list of accounts in both company codes are different hence
consolidation becomes challenging. Here comes group chart of account to resolve this
problem of consolidation.

Below picture showing financial data in company code 1 and company code 2

Now below picture shows how these financial data can be consolidated in SAP to arrive
at group’s data.

Consolidation in group chart of account

As you can see above, general ledger account in operational chart of account is mapped
to general ledger account in group chart of account.

Multiple GL accounts in operational chart of account can be mapped to single GL

account in group chart of account.

This mapping enables consolidation of data.

How operational chart of account is mapped to group chart of account in sap?

While setting up operational chart of account, group chart of account is also assigned as
shown below.

In above example, operational chart of account ZRAK is mapped with group chart of
account ZZZZ.

After above mapping, every general ledger account created in operational chart of
account requires mapping to a group account as shown below.
General ledger account belonging to multiple company codes will be assigned to group
account. This mapping enables to prepare consolidated financial statement.

What is non leading ledger in sap?

Every company code needs to maintain different set of account books using different
accounting principle. When a financial transaction happens, financial document is
recorded in different books and this is referred as parallel accounting. Non leading
ledger enables parallel accounting.

Let’s understand the concept of non leading ledger with example.

Nike headquarter at USA has subsidiaries in India (company code 1200) and Australia
(company code 1100).

Both company code is required to produce financial reports using different accounting
principle and in various currencies.
Below picture showing accounting books needed for Nike India .

Parallel accounting using ledgers

Nike India is required to prepare financials

 For group reporting using US GAAP in INR, USD — Fiscal year 1st OCT to 31st SEP

 For local authority using local GAAP in INR ——–Fiscal year 1ST APR to 31st MAR

 For global reporting in IFRS in INR, USD ———-Fiscal year 1ST APR to 31st MAR

Hence Nike India needs to maintain three different set of books.

Whenever a financial transaction happens, accounting document should be recorded

appropriately in different books.
Scenario 1, 2 & 3: Documents are updating all ledgers 0L, N1 & N2.

Scenario 4: Documents are updating only ledger 0L & N1. (Ledger specific document
posting)

Scenario 5: Documents are updating only N1 & N2 . (Ledger specific document posting)

Scenario 6: Document is updating only 0L. (Ledger specific document posting)

Normally when document is posted, data flows to all ledgers as shown in scenario 1, 2
&3.

But specific accounting principle may require adjustment hence ledger specific
documents are posted as shown in scenario 4, 5 & 6. This helps in maintaining multiple
set of books independently.

Now let’s understand difference between leading ledger and non-leading ledger.

Leading ledger

Leading ledger is the primary ledger or lead ledger. Leading ledger is always
represented by 0L.

Leading ledger 0L is automatically created by sap and assigned to all the company
codes. When a financial transaction happens, financial document always gets posted in
leading ledger.

It’s a standard practice to keep accounting principle of leading ledger same as the
group’s accounting principle (accounting principle in which consolidation has to
happen).
Non leading ledger

Non leading ledger is used for maintaining books in accounting principle other than
group’s accounting principle (accounting principle in which consolidation has to
happen).

You may create as many non leading ledgers as you want but sap allows only one
leading ledger. Standard practice is to keep ledger 0L as the leading ledger.

Non-leading ledgers require adjustments hence ledger specific documents are posted
(as shown in scenario 4, 5 & 6).

What is ledger group? What is the use of ledger group?

A group of ledgers is called ledger group. Ledger group helps in posting ledger specific
document

How to post a ledger specific document?

While posting a financial document, the field ‘Ledger Grp’ decides which ledgers will be
updated by the document.
How ledger specific document can be posted.

If no input provided in the filed ‘Ledger Grp’ then document gets posted in each ledger.

If input is provided in the field ‘Ledger Grp’ then document gets posted in ledgers
belonging to the ledger group.

Is it possible to post customer/ vendor account only in non leading ledger?

No, ledger specific documents cannot be posted for customer/ vendor account.

Customer/ vendor accounts will always be posted in all ledgers.

When posting customer/ vendor account, the field ‘Ledger Grp’ needs to be empty. No
input should be provided in field ledger group.

Does a separate document number gets posted for each ledger.

Document number in non-leading ledger may be different from document number in

leading ledger. Consider below two cases

Case 1: Fiscal year variant and posting period variant of non leading ledger is same as
leading ledger

Outcome: Non leading ledger inherits the document number from leading ledger.

Case 2: Fiscal year variant and posting period variant of non leading ledger is different
from leading ledger

Outcome: Document number in non leading ledger is different from document number
in leading ledger.

Document number range needs to be assigned to document types in non leading

ledger.

Summary: Leading ledger VS non leading ledger

Leading ledger

1. It’s the base ledger which updates the consolidation.

2. Only one leading ledger can be defined, sap provides leading ledger ‘0L’ which is
assigned to all the company codes by default.

3. Inherits properties (fiscal year variant, posting period variant and 1st currency)
from company code

4. Leading ledger is integrated with all non-leading ledgers.

5. Only values from leading ledger flow from finance to controlling.

Non-leading ledger

1. Non leading ledgers are activated by company code.

2. Fiscal year variant, posting period variant can be different from leading ledger.

3. Separate document number range can be assigned to document types in non

leading ledger.

4. Second local currency (LC2) and third local currency (LC3) can only be picked
from currencies assigned to leading ledger.

5. Non leading ledger enable parallel accounting by applying different accounting

standards such as IFRS/ IAS or US GAAP etc.

What is company code global setting in SAP?

Company code global setting refer to a set of parameters that needs to be
maintained for a company code.

As we understand that company code is a legal entity for which books of

accounts need to be maintained. Hence whenever any transaction
happens, corresponding accounting documents need to be posted in the
company code.

But before posting any document in the company code, below parameters
need to be maintained for the company code:
Screenshot showing minimum parameters needed for posting an
accounting document in the company code

Above parameters (as shown in picture) collectively is called as company

code global setting

Fiscal year variant:

Fiscal year corresponds to financial year of accounting.

For example,

In India, financial year of accounting is 1st April to 31st March

In Europe, financial year of accounting is 1st Jan to 31st Dec

Financial year of accounting has 12 months. Each month is referred as a

posting period in sap.

Fiscal year variant is used to supply below information to company code:

Start date and end date of financial year of accounting.

Number of normal posting periods and special posting periods.
Number of days in each posting period

Posting period variant

Posting period variant controls weather any accounting document can be
posted in the period or not.

Document can be posted only in period which is open for posting.

Standard practice is to keep only current month posting period open for
posting.

To restrict document posting in future months and previous months,

corresponding posting periods are closed.

Hence accounting document posting in any company code can be allowed

or disallowed in the period. This control is enabled by posting period
variant which is assigned to company code.
 Above picture showing posting period variant
Chart of account:
Assignment of operational chart of account to company code is mandatory.

Field status variant

Field status variant is a collection of field status groups. Field status group
refers to status of all fields which are available for input in document line
item while document posting.

Field status variant is assigned to company code. All field status groups
which belong to field status variant are available for assignment to GL
master in company code.

Field status group is assigned to general ledger account. When document

is posted to a GL account, then fields behave as per their status in field
status group.

Field status variant–> field status group–> fields with their status
Screenshot showing few fields on left and corresponding status on right.

Only few fields are shown in screenshot, there is huge list of fields in field
status group.

Without maintaining company code global setting, it is not possible to post

any accounting document in the company code