ENTREPMAN (AIS5132)

THE CURRENT SCENARIO

MODULE 1: INTRODUCTION TO
On why ERPs are created, are vital, and
ENTERPRISE RESOURCE MANAGEMENT where it can be used.
● Islands of information. Different
ENTERPRISE RESOURCE PLANNING processes in different islands can
(ERP) software is a comprehensive contain complex functions that are
business management solution that separated from other related islands
enables companies to manage their core and processes, this is challenge as to
business processes in one system. why ERPs are created.
● Difficult to get timely & accurate
ERP integrates all aspects of a company’s information
operations into a cohesive system, from ● Heterogeneous (different; separate)
accounting and financials to sales and Hardware & Software platforms &
marketing. practices
● Does not only involve financial ● Poor connectivity between different
transactions, ERP also integrates organizational locations
other functions such as Human ● Sticking with obsolete
Resource Management (napag-iwanan) technology
○ Ex. Mobile games (COD) and the
support team/customer service
Example | Imagine you are the owner of a small
business. You have a shop and sell clothes. You also
when error occured with regards
have a website where people can buy your clothes to payment. With this, the mobile
online. To run your business, you need to manage game’s power to accomodate
two different types of resources: physical resources helps their game to improve.
(e.g., the stock of clothes in your shop) and digital
resources (e.g., the website where people can buy
They are not obsolete.
your clothes). ● Resistance to change
○ Ex. Some elders do not want to
Enterprise resource planning systems allow you to adapt to changes in technology.
manage physical and digital resources using a single
system. This is done by integrating different
● Lack of proven man-power to
applications into a single system. develop integrated software

For example, it might include an application for WHY ERP

managing your shop’s stock (e.g., Lazada), an
application for managing your website’s content, an
● For Management – to know what is
application for managing your human resources happening in the company (E.g. To
(e.g., employees), etc. check the performance of different
functional departments)
● One solution for better management
● For cycle time reduction
● To achieve cost control & low
working capital (CA - CL = WC)
○ WC: Resources needed for short
term operations
● To marry latest technologies, we
must embrace change
● To shun the geographical gaps
● To satisfy the customers with high
expectations
● Enterprise Resource Planning
● To be Competitive & for survival
ERP EXPECTATIONS
TAILOR-MADE ERP SOLUTIONS
● Integrating all the functions
● Integrating the systems running in
all the locations EXECUTION PHASES
● Transparency of information using a ERP PRODUCT SELECTION PHASE
single data source across the ● ERP Team formation for selection
organization ● Appointment of consultatnts (if
● Software must be responsive needed)
○ Modular ● Scoping study
○ Flexible ● Implementation partners selection
○ Easy to add functionalities ● Hardware/Communication cost
○ Provide growth path estimation
● Planning → Execution (Blueprint is
ERP OPTIONS now created to be an actual running
1. MAKE (Using internal resources). system) → Implementation
Developing a custom-built ERP
package, specific to the PRODUCTION SELECTION | PARAMETERS
requirements of the organization, ● Reputation of the ERP product
with the help of the in-house IT ● No. of installations in the
department. geographical vicinity
2. BUY. Going for Tailor-made ERP ● % of the overalll functional
packages available in the market availability
like SAP, Oracle applications, Baan, ● Customization possibilities
PeopleSoft etc. ● After sales support
3. MAKE (Using external resources). ● Your investment plan and budget
Developing a custom-built ERP ● Implementation partner’s track
package, specific to the record
requirements of the organization, ● ERP Product Selection Criteria
with the help of a software solution ○ Goal: To select the most
provider. sustainable software package
solution.
BUILDING ERP SOLUTIONS USING ○ 5 Staregic Requirement Levels
INTERNAL SOURCES a. Functionality
FACTS b. Technology
● Lack of adequate & qualified c. Vendor
manpower. d. Support
● Not driven with clear focus on e. Costs
expectations, time & cost
● Poor software project management
● Lack of seriousness with the
Management & the IT Team
● High employee turnover (many
people are leaving the company)
● Lot of schedule gaps during Project
execution
● Frequent change in the scope with
the approval of the Management
PREPARATION PHASE PRODUCTION PHASE
● Framing ERP Implementation ● Installing the software and
Strategies hardware
● Formation of Steering Committees ● Tuning the software to meet the
○ Oversees the ERP customization needs
implementation and ensues ● Master and control data arrival as
every component is aligned with per the product data structures
company’s strategic goals ● Location and people specific roles
● Functional and IT team formation and rights allocation for module
● Training on ERP functions and access and security
features
● Scope finalization IMPLEMENTATION PHASE
● GAP Analysis ● Conference Room Pilot (Parallel run)
● Action plan to resolve the gaps ● Resolving the Parallel run issues
● Training the end users
Gap Analysis ● Live run
This is the process to identify the gaps by
mapping the expectations of the POST-IMPLEMENTATION PHASE
company with the capabilities of the ERP ● Regular monitoring
product. ● Tuning hardware/software for
patching the performance issues
Results of the Gap Analysis ● Maintenance
● Directly supported ● Did the requirements set were
● Workaround suggested implemented as intended?
● Extension required
● Change in business process - PITFALL AND POINTS OF CONCERN
suggested ● Costly comparing to custom-built
● Not full supported options
● Manual - not under the scope of ERP ● Lot of hidden costs
● Chances of cost & time overrun are
ERP PRODUCT ACCEPTANCE OPTIONS high
1. Adapting directly, all the functions ● The level of
available in the ERP Product. customization/indianization
(Applicable for startup companies) ● Compulsion to pay for redundant
○ Accepting the ERP as is modules/features
○ Applicable for startup ● Vigorous involvement of all during
companies implementation
2. Change the way the firm does the ● Non-availability of special practices
business to fit the product. like Customer Complaint and
○ Compromising Logistics
3. Customize the ERP product to suit ● Linking historical data – offline &
the business processes. painful
○ Customization ● The requirement of Change
○ Disadvantage: May be costly Management is a must
There may be a requirement by the firm ● Dependency on outsiders is high
that the vendor cannot give (90%/100% ● IT department – Poor grip on the
complete only). Though, if kaya pang gawan implemented systems
ng paraan (10%) at a cost, this still should
be discussed by the management or the
persons in-charge (E.g. Is this missing 10%
vital in the firm’s operations?)
CRITICAL SUCCESS FACTORS SILO EFFECT
● The firm & optimistic approach of ● Focusing on functional objectives
the Management without regard to process
○ On adapting the ERP product objectives
driven methodologies ○ They essentially complete their
○ On customization part of the process, hand it off to
○ On monetary commitments the next person, and then
● The dedicated Team proceed to the next task.
● Good Training ○ Narrow focus on tasks
● Strict adherence to the Project ● Optimizing functional goals vs.
schedules process goals
● Right technical infra-structure ● Process execution requires
● Change Management communication and coordination
among functions
BEYOND ERP
ENTERPRISE SYSTEMS
● Impossible to manage processes
that are geographically dispersed
without utilizing modern information
systems
● Enterprise systems (ES) support
end-to-end processes
● Investments in ES have provided
○ Increased profitability
○ Increased productivity
○ Competitive edge

BUSINESS PROCESSES BUSINESS PROCESSES

● Sequence of tasks or activities that
FUNCTIONAL ORGANIZATIONAL produce desired outcomes
STRUCTURE ○ Regardless of their type or size,
● Most common organizational successful organizations and
structure industries use processes and
● Functional structure divided into enterprise systems to complete
functions or departments each of the work needed to achieve their
which is responsible for a set of goals.
closely related activities ● May vary depending on the unique
○ Ex. Purchasing, operations, characteristics of the industry
warehouse, sales and marketing,
research and development, KEY PROCESSES
finance and accounting, human THREE PROCESSES ARE DIRECTLY
resources, and information RELATED TO CREATING AND
systems. DELIVERING PRODUCTS AND SERVICES.
● Functions perform specialized tasks 1. Procurement (buy) refers to all of
or activities the activities involved in buying or
● Processes cut across functions acquiring the materials used by the
(cross-functional) organization, such as raw materials
○ No single group or function is needed to make products.
responsible for their execution 2. Production (make) involves the
○ Shared responsibility among actual creation of the products
many functional areas within the organization. Concerned
 with acquiring needed materials All these processes have an impact on an
internally (making), the procurement organization’s finances. This brings us to the
process is concerned with obtaining LAST TWO PROCESSES, WHICH TRACK
needed materials externally (buying) THE FINANCIAL IMPACTS OF
3. Fulfillment (sell) consists of all the PROCESSES.
steps involved in selling and 1. Financial accounting (FI)
delivering the products to the processes (track–external) track
organization’s customers. the financial impacts of process
steps with the goal of meeting legal
Closely related to buying, making, and reporting requirements—for
selling are FOUR PROCESSES USED TO example, the Internal Revenue
DESIGN, PLAN, STORE, AND SERVICE Service (IRS) or the Securities and
PRODUCTS Exchange Commission ( SEC).
1. Lifecycle Data Management 2. Management accounting or
Process (design) supports the controlling (CO) processes
design and development of (track–internal) focus on internal
products from the initial product reporting to manage costs and
idea stage through the revenues
discontinuation of the product.
2. Material Planning Process (plan) Processes interrelated with other processes.
uses historical data and sales Processes may have sub-processes.
forecasts to plan which materials
will be procured and produced and ENTERPRISE SYSTEMS
in what quantities. ENTERPRISE SYSTEMS (ES)
3. Inventory and Warehouse These are complex and powerful
Management (IWM) process information systems.
(store) is used to store and track the
materials. SAP Enterprise Resource Planning (ERP)
4. Asset Management and Customer system is the world’s most popular.
Service Processes (service) are
used to maintain internal assets such ARCHITECTURE OF ENTERPRISE
as machinery and to deliver SYSTEMS
after-sales customer service such as Architecture refers to the technical
repairs. structure of the software, the ways that
users interact with the software, and the
Going further, TWO SUPPORT PROCESSES ways the software is physically managed
ARE RELATED TO PEOPLE AND on computer hardware.
PROJECTS. 1. Client-Server Architecture
a. Human capital management Three layers/components of the
(HCM) processes (people) focus Client Server Architecture:
on the people within the
organization and include
functions such as recruiting,
hiring, training, and benefits
management.
b. Project management processes
(projects) are used to plan and
execute large projects such as
the construction of a new factory
or the production of complex
products such as airplanes
 a. Presentation Layer. How you integrate multiple
interact with the application client-server applications
(using menus, typing, and and create enterprise
selecting). It’s what we see as mash-ups, or composite
clients and it runs on a common applications.
server. ■ Used to expose ES (and other
b. Application Layer. What the system) functionality
application allows you to do ■ Standard Interface - Input
(create formulas or charts, and Output
compose an essay). It’s ■ Ex. You can access Google
responsible for the presentation Drive using the web.
layer, this is the root. This is the ■ Ex. Accessing SAP through a
common server. web link.
c. Data Layer (Database). Where b. Composite Applications
the application stores your work ■ Connect multiple
(on your hard drive or flash applications via Web
drive) Application servers gets it services
data from the database server. ■ Build new capabilities
without changing the
In the desktop applications underlying applications
mentioned above, all three layers ■ Ex. Applications in Google
are contained in one system. Drive are accessible without
the need to install any
Three-tier client-server application.
architecture separates these layers ■ Ex. Canva Applications in the
into three separate systems. web

Scalability is ability of the ENTERPIRSE RESOURCE PLANNING

hardware and software to support SYSTEMS
a greater number of users easily ● Focus primarily on internal
over time, typically at a decreasing operations of an organization
cost per user ● Integrate functional and cross
○ Ex. Application layer (server), functional business processes
computer ng may ari ng ○ Primarily on intra-company
computer shop, who is processes
responsible sa time in and ● Supports multiple languages and
time out ng mga computers currencies
(presentation layer).
SAP ERP MODOULES
2. Service-Oriented Architecture ● Production Planning (PP)
New technologies that could help ● Materials Management (MM)
link, or integrate, many different ● Sales and Distribution (SD)
client-server systems together in ● Plant Maintenance (PS)
new and valuable ways. ● Quality Management (QS)
a. Web Services. Technical ● Financial Accounting (FI)
capabilities that allow systems ● Management Accounting/Controlling
to connect with one another (CO)
through standardized ● Human Resources (HR)
interfaces. ● Business Intelligence (BI)
■ By using Web services,
companies could now
OBJECTIVES OF ERP research, design, and product
● Improved customer service management.
● Reduced production time
● Increased production The ES Architecture Suite
● Elimination of legacy systems
(Elimination of obsolete systems)

ENTERPRISE SYSTEMS APPLICATION

SUITE
● Application Suite is a collection of
these inter-company systems and
the underlying intra-company ERP ● If these 3 utilizes ERP systems, they
system. can integrate their operations.
● EXTENSIONS TO THE ● Company has SRM, but in the POV of
PROCUREMENT AND MATERIAL the Supplier, the Company is a CRM.
PLANNING PROCESSES OF ERP Therefore, the SRM and CRM are the
SYSTEMS systems that communicate.
a. Supply Chain Management ○ EOQ of 500 raw materials
(SCM). Help companies plan for which will gradually
their production requirements decrease, therefore the
and optimize complex company will order at
transportation and logistics for reorder point, not at 0
materials storage since ordering has
b. Supplier Relationship lead time.
Management (SRM). Typically
manage the overall APPLICATION PLATFORMS
relationships with the materials ● Enterprise Operating System
suppliers. SRM systems contain ● SAP Net Weaver introduced in 2003
functionality to manage the ○ Integral part of SAP ERP and
quotation and contracts SAP Business Suite
processes. ○ Toolset for composite
Both SCM and SRM are application and plug-in
intra-company systems, which software
connect a company’s ERP system to ○ Integrates non-SAP
those of its suppliers applications
● On the other side of the
MANUFACTURING AND SALES DATA IN AN ENTERPRISE SYSTEM
PROCESSES:
a. Customer Relationship
Data in an ERP system are used to represent
Management (CRM). Connect a
the physical system in which process steps
company’s ERP system to those
such as creating a purchase order and
of its customers. Provide
receiving goods are carried out.
companies with capabilities to
manage marketing, sales, and
There are three types of data in an ERP
customer service.
System:
■ These systems are an
extension of the fulfillment
(1) ORGANIZATIONAL DATA. Defines the
process of ERP systems.
structure of the enterprise in terms of legal
b. Product Lifecycle Management
or business purposes; Data rarely changes
(PLM). Help companies
administer the processes of
Examples: Legal entities, plants, storage Ex. Students (clients) in UST (company)
areas, sales organizations, profit centers wherein UST have master data of each of
their students (e.g. student number, address,
mobile number, etc.)

Material Master Data

Material master data are some of the most
complex and extensively utilized data in an
ERP System.

Organizational Levels
1. CLIENT
○ Highest organizational level
○ Represents the enterprise;
comprised of many companies
○ May have multiple companies

2. COMPANY CODE
○ Central organizational element in
financial accouontings (books
are maintained at this level for
Material Master Data is used in numerous
legal reporting).
processes:
○ Identifies legal entities in an
● Procurement
enterprise (Client).
● Fulfillment
○ Legally independent from other
● Production
companies in the enterprise.
● Material PLanning
○ Client can have multiple
● Asset Management
company codes
● Project Systems
○ Company code must belong to
only one client ● Lifecycle Data Management

3. PLANT To manage these data, the material master

○ Performs multiple functions groups them into different categories or
○ Used by many processes views, each of which is relevant to one or
○ Represents factory, warehouse, more processes. Basic data, such as
office, distribution center, etc. material number, description, and weight,
are relevant to almost all processes.
(2) MASTER DATA. Long term data that
typically represent entities associated with Data are grouped based on: process,
various processes: material type, and organizational
● Customer element
● Vendor
● Material Material Types (Codes of SAP)
Materials are categorized into different
It typically includes: material types based on the way they are
● General data (across company used in the firm’s operations.
codes) ● Raw Materials (ROH)
● Financial data (CC specific) ○ Purchased from an external
● Area-specific data (Sales, source, not sold, used in
Purchasing, Plant) production
 ○ Purchasing-and It requires:
production-related views ● Organizational data
○ No sales-related view ● Master data
● Semi-finished goods (HALB) ● Situational data
○ Produced using other
materials (ROH, HALB) Example | Sales order creation
○ Used in the production of ● Organizational elements: Client, Company
other materials (HALB, FERT) Code, Sales Area
○ Not purchased or sold ● Master Data: Customer, Material
● Situational data: Date, Time, Person
○ WIP
● Finished Goods (FERT)
○ Produced using other DOCUMENTS
materials (ROH, HALB) Some of these documents are created or
○ Sold to customers utilized as the process is being executed;
● Trading Goods (HAWA) others record data after the process steps
○ Purchased and resold without are completed
additional processing
● Numerous Other Types Record of transactions (Code of SAP as
well):
Material Groups 1. Transaction documents.
Include materials with similar Requisition, purchase order, invoice,
characteristics delivery document, etc.
2. FI documents. Record the impact
Organizational Level on financial accounting
Same material can be used differently by 3. CO documents. Record the impact
different organizational levels on management accounting
● Different company codes 4. Material documents. Record the
■ HALB in one, FERT in another impact on material status (value,
● Different plants location)
■ Only exports or imports in
specified plants, not all Example | Purchase Order
● Different sales-related
organizational elements
■ Wholesale vs. retail
Ex. Transfer of FERT goods from one
company to another which labels them as
HALB for the production of their product

(3) TRANSACTION DATA. Associated with

process steps; data generated during
execution of process steps
REPORTING features: characteristics, key
The ways that users can view and analyze figures, and period definition
both transaction and historical data to help ■ Characteristics are the
them make decisions and complete their objects for which data are
tasks. collected.
■ Key figures are
SAP ERP provides TWO REPORTING performance measures,
OPTIONS—SIMPLE LISTS OF DATA AND such as quantities and
DOCUMENTS AND ANALYTICS. counts that are associated
1. ONLINE TRANSACTION with the characteristics; is
PROCESSING (OLTP). Transactional one level of aggregation of
environment of SAP ERP transaction data, and it is
○ designed to capture and store qualitative in nature
detailed transaction data because the selection of key
○ primary function of OLTP is to figures is subjective
execute process steps quickly ■ Period definition specifies
and efficiently the collected or aggregated
○ employ OLTP to generate only data for specified time
simple lists and reports periods, such as daily,
○ Data Warehouse. Complex data weekly, and monthly; a
repositories. Data aggregation quantitative aggregation of
and reduction using: data.
■ Qualitative reduction by ○ Various analysis tools
aggregating by time period ■ In ERP: Information systems
■ Quantitative reduction by (OLAP lite)
selecting key figures (KPI) ■ In BW: Various reporting
■ In ERP: Information tools
structures
■ In BW: Infocubes, info BUSINESS ANALYTICS refers to the
providers, etc. overall capabilities a company uses to
collect and analyze data from a variety of
2. ONLINE ANALYTIC PROCESSING sources to better understand its operations
(OLAP). For detailed data analysis, and make better managerial decisions.
which is in the form of information
systems. WORK LISTS
○ Instead of using detailed Identify tasks that are scheduled to be
transaction data, these systems completed in a process.
use information structures to 1. Picking Due List: Identifies all
provide analytic capabilities. customer orders that must be
○ Information structures prepared for delivery so that they
capture and store specified can be shipped in a timely manner.
transaction data in an 2. Billing Due List
aggregated and summarized 3. Delivery Due List
form that enables users to
analyze the data as needed. ONLINE LISTS
○ Provides reporting in the form Display lists of master data that are
of analytics via information generated during the execution of a
systems. process. The content and appearance of
○ Each information structure in these lists are defined using selection
the OLAP environment is parameters and scope-of-list parameters.
defined in terms of three
 a. Selection Parameters determine analysis is sufficient for most
which documents will be included in analytic requirements.
the list 2. Flexible Analysis (User-defined
b. Scope-of-list Parameters define content and format). Allows users
which data will be included for the to define the content and format of
selected documents the analysis. Specifically, it enables
users to combine available
INFORMATION SYSTEMS characteristics and key figures as
Information systems (IS) can be divided needed and to create new key
into three broad categories: figures using user-specified formulas
1. Logistics Information Systems
(LIS). Support all of the logistics OLAP provides reporting based on
processes aggregated data in information structures.
○ Purchasing IS
○ Sales IS SAP BW receives data from SAP ERP, SAP
○ Inventory control IS Business Suite, and non-SAP systems.
○ Shop floor IS
2. Financial Information Systems INTRODUCTION TO ACCOUNTING
(FIS). Supports reporting related to ACCOUNTING CATEGORIES
the general ledger The accounting process is divided into two
○ GL reporting (B/S, I/S, Cash major categories:
flows) 1. Financial Accounting (FI)
○ Receivables, payables ○ Concerned with recording the
3. Human Resources Information financial impacts of business
Systems (HRIS). Used to retrieve processes as they are executed.
information about different HR ○ Businesses use these data to
components such as personnel, generate financial statements
positions, and jobs to meet legal or regulatory
○ Human resource information reporting requirements
systems ○ From an ERP perspective,
○ Personnel, positions, payroll financial accounting is the
“heart” of the system because
INFORMATION STRUCTURES it must accurately reflect the
Used to provide analytic capabilities. financial status of the firm at
any given point in time.
Types of Information Structure
1. Standard (Predefined). Predefined 2. Management Accounting or
in the SAP ERP system, and they Controlling (CO)
collect the data needed to generate ○ Internally focused; provides the
the most commonly used reports. information the organization
2. User-defined Information needs to effectively manage
Structures. Enables users to define the various processes.
their own structures; to meet ○ CO reports focus on costs and
specific reporting requirements. revenues which management
uses to achieve basic business
Types of Analysis objectives such as increasing
1. Standard Analysis (Predefined revenues, minimizing costs, and
Analytics). Provides predefined achieving profitability
analytics for data in standard
information structures. This type of
KEY FINANCIAL ACCOUNTING requirements of an enterprise
PROCESSES segment
1. General ledger accounting. To ○ Segment: a division of an
record the financial impacts of enterprise for which
business process steps; it contains management monitors
much of the data needed for performance (revenue, costs,
financial reporting. profitability, etc.) separately
2. Accounts receivable accounting. from other segments.
Associated with the fulfillment
process and is used to manage MASTER DATA
money owed by customers for 1. Chart of Accounts.
goods and services sold to them. ○ An orderly definition or listing
3. Accounts payable accounting. of accounts in the general
Associated with the procurement ledger.
process; used to record and ○ Has three types:
manage money owed to vendors a. Operative COA. Contains
for the purchase of materials and the operational accounts
services that are used to record the
4. Asset accounting. Used to record financial impact of an
data related to the purchase, use, organization’s day-to-day
and disposal of assets such as transactions
buildings, equipment, machinery, b. Country-specific COA
and automobiles c. Group COA. Contains group
5. Bank ledger accounting. accounts that multiple
Concerned with recording data companies within an
associated with bank enterprise use to
transactions. consolidate their financial
reporting
ORGANIZATIONAL DATA ASSOCIATED ○ Multilple chart of accounts exist
WITH FINANCIAL ACCOUNTING ■ US (CAUS), Germany (GKR),
1. Client Canada (CANA)
○ Highest organizational level in ■ Country specific to meet
the system reporting requirements
○ Only one client per enterprise ○ International Chart (INT)
○ Can have one or multiple ■ A chart of account can be
company codes used by multiple company
2. Company code code
○ Highest organizational level for ○ A company must use at least
financial reporting (external, one chart of account
legal reporting) ■ Can use more than one
○ Four-digit alphanumeric field chart of account to create
○ Smallest entity that supports a alternate ledgers
full set of books (General
ledger, journals, etc.) 2. General Ledger Accounts
○ At least one CC is required; can ○ G/L accounts are master data
have more than one ○ Recording of all
3. Business area accounting-relevant business
○ Internal divisions of an transactions occurs in a G/L
enterprise that are used to account
define areas of responsibility or ○ Data in the general ledger
to meet the external reporting accounts are segmented by
 organizational level posted as a debit or a credit
■ Chart of account segment ● Field status of the additional data
■ Company code segment
■ General ledger = COA data Account Type
+ Company code data ● Customer (D)
○ Balance sheet accounts ● Vendor (K)
○ Income statement accounts ● Asset (A)
○ Reconciliation accounts ● Material (M)
● General Ledger accounts (S)
3. Subsidiary Ledger (Sub ledgers)
○ Are not part of the general PARALLEL ACCOUNTING
ledger. ● An enterprise can use multiple
○ Used to separate accounting ledgers
for customers, vendors, and ● In a typical arrangement, an
asset enterprise will implement one set of
accounting principles for all
4. Reconciliation Accounts companies (company code) in the
○ Are general ledger accounts enterprise (client).
that consolidate data from a ○ Multiple “books” for different
group of related subledger purposes
accounts, such as customers ○ One leading ledger for all
and vendors. company codes
○ AR (customers) ■ Global principles are
○ AP (vendors) consolidated
■ All transactions are posted
ACCOUNTING DOCUMENTS to it
Financial Accounting document (FI ○ Non-leading ledgers for each
document) records the impact (financial company (company code)
data) of a transaction step on financial ■ Local accounting practices
accounting. and reporting

Document Type. Two-character code that Components in Management Accounting

identifies the specific business process ● Most of the data used in
step that generated the document. management accounting are
● Financial accounting document (FI) derived from financial accounting
● Customer invoice (DR) ● A key function of CO is to
● Customer payment (DZ) manage and allocate costs
● Goods issue (WA) ● Companies incur these costs as
● Goods receipt (WE) they carry out various business
processes such as fulfillment
Determines the document number range
and the account type that can be posted Cost Center
to ● Master data in controlling
● Location where costs are incurred
Posting Keys. Is a two-digit code that ○ Department, individuals,
determines how a line item is posted. special projects
● Cost bucket used to accumulate
The posting key specifies the following: costs
● Account type for posting the ● Accumulated costs are then
document item “charged” to other cost centers –
● Whether the document item is CO process
 ● Many processes have “orders” Accounts Receivable Accounting
○ Purchase orders, Production ● Concerned with customers
orders, Sales orders ● Involves sub-ledger accounts:
○ Expenses can be charged to customer master
these orders ● Involves reconciliations accounts:
● Collectively objects that can Accounts receivable - reconciliation
absorb costs are called cost ○ Non-reconciliation AR accounts
objects also exist (Misce AR)

Processes Asset Accounting

● Recording of value flows ($$) as a ● Concerned with tracking the
result of other processes and financial consequences
transactions associated with the entire
○ General Ledger Accounting lifecycle of an asset, from
■ G/L postings for rent, acquisition to disposal
utilities, wages, etc. (retirement).
○ Accounts Payable Accounting ● Assets can be categorized as
■ Part of the procurement tangible, intangible, and
process financial
○ Accounts Receivable ● Tangible assets can be further
Accounting categorized as:
■ Part of the fulfillment ○ Fixed Assets
process ○ Leased Assets
○ Asset Accounting ○ Assets under construction
■ Acquisition, depreciation,
retirement Asset Depreciation
● Asset depreciation is
General Ledger Accounting concerned with the decrease
● Concerned with recording the in the value of an asset over
financial impact of all process steps time
performed within the organization ● Depreciation can be planned or
● Double-entry accounting is used for unplanned
every transaction ● Depreciation methods are used
● Accounts are divided into balance ○ Straight line
sheet accounts and income (profit ○ Double declining balance
and loss) statement accounts ● Useful life
● Residual value
Accounts Payable Accounting ● Book value
● Concerned with vendors ● Depreciation areas: parallel
● Involve sub-ledgers to track money valuation
owed to individual vendors: vendor
master Asset Retirement
● Involve reconciliation accounts: ● Concerned with the disposal
Accounts payable-reconciliation or retirement of an asset after
● Involve GR/IR account its useful life
(discussed in procurement ● Retirement may be:
chapter) ○ Revenue generating (sold)
○ Non-revenue generating
Integration of Financial Accounting with 3. Statement of Cash Flows
Other Processes Required for external reporting (usually
● Financial accounting is quarterly filings with SEC) and accuracy is
integrated with other processes critical (SOX compliance) and is certified by
in SAP within the organization the CEO and CFO.
(enterprise)
● Numerous steps in different
processes have a financial
impact
● Financial Accounting, and
○ Project Management
○ Inventory and warehouse
management
○ Management accounting
○ Enterprise asset management
○ Fulfillment
○ Production
○ Procurement

Reporting
Financial reporting is broadly divided into
two categories:
● Displaying account information
● Generating financial statements

Account Information can be displayed at

three levels:
1. Balance
2. Line Item
3. Original FI Document

Asset Explorer
● Asset explorer provides an overview
of all activities related to the asset
● Acquisition data
● Planned values. Depreciation
amounts that have not yet been
posted to the general ledger
accounts; must periodically be
posted
● Posted values. Those that have been
posted;
● Drill down details for:
○ Master data
○ Transactions
○ Documents
● Depreciation posting run

Financial Statements (3 Types)

1. Balance Sheet
2. Income Statement