This blog will introduce you to the Accruals Management and how it is reorganized in SAP S/4HANA. It is intended for the business users, consultants and anyone interested to learn about accruals management.
I have divided the complete article into 2 blogs:
Part 1 – Introduction to Accruals Management, Introduction to Purchase Order Accruals, Features, Transaction Types, Use Case, Process Step, For Which Purchase Order Items are Accruals Needed, Accounting posting logic and Reporting.
Part 2 – Customizing, System Demo and Central Finance - Calculate and Post Accruals for Replicated Purchase Orders
Accruals management means accounting for expenses in the period incurred, regardless of when the expenses are actually posted.
An accrual is a record of revenue or expenses that have been earned or incurred but have not yet been recorded in the company's financial statements. This can include things like unpaid invoices for services provided, or expenses that have been incurred but not yet paid.
Accrual processing is a typical period end activity for the business users. SAP has come up with an Accrual Engine in S4 HANA 1909 to make accrual processing easier.
Typically, Accruals Management functions build on the accrual engine, which calculates the accruals that are posted in Financial Accounting. It is a part of digital core where we need to make the general Customizing settings for the required accruals components to calculate and post accruals according to our needs.
Introduction to Purchase Order Accruals:
The Purchase Order Accruals application enables you to calculate and post accruals in General Ledger Accounting automatically.
The relevant data is transferred from the Materials Management component to the Accrual Engine and automatically converted from purchase order items into accrual items. On the basis of this data, the system calculates the amounts to be accrued for each purchase order item. You can also simulate these amounts. In each period, you can start an accrual run, which posts all accruals for the various business transactions.
From a technical point of view, the Purchase Order Accruals application is built on the Accrual Engine. The purchase order items to be accrued are managed in Purchase Order Accruals. The processes for calculating and posting accruals, on the other hand, are managed in the Accrual Engine.
Features:
- The functions in Purchase Order Accruals support Parallel Accounting. This means that we can calculate and post accruals simultaneously according to different ledger groups.
- Automatic accrual calculation based on purchase order data.
- Availability of a review process where you can review the accrual amounts proposed by the system before posting them.
- The purchase order is automatically transferred into the Accrual Engine. It happens depending on the configuration settings controlling whether and how accruals are posted. In the Accrual Engine, an accrual object is created for each purchase order.
- When implementing the Purchase Order Accruals application, you want to transfer your existing purchase orders to the Accrual Engine. To do this type of data transfer, you can use job template Accrual Engine for POs - Transfer Purchase Orders to Accrual Engine in the Schedule Accruals Jobs app.
The following transaction types are available in the Accrual Engine:
- IP Opening Posting: This type of posting occurs when an accrual object is created or changed. The total amount to be Accrued given in the accrual item will be posted.
This transaction type is not used for Purchase Order Accruals
- PP Periodic Posting: This type of posting is performed by the periodic accrual posting run. The amount that is calculated by the accrual method for this period is posted.
- FP Automatic Release Posting also called Final Posting: This type of posting occurs when the status of the accrual object is changed to Prematurely Finished.
Use Case for Accruals: PO item Without validated GR
- Purchasing of consumable material or service – without Goods Receipts
There is no recording of goods receipt in the system. In this case the accruals are proposed
- Either based on the delivery schedule given in the purchase order item. All the planned deliveries with a delivery date in the past are assumed as received.
- Or using a straight-line approach, that is, linearization of the total value of the PO item between start and end date.
- Purchase of consumable material or service – With non validated goods receipts
- The quantity of the received material or service was recorded in the system using non-valuated goods receipts: Non-valuated means that no cost was posted by the goods receipt entry.
- In this case the accruals are proposed based on the quantity recorded by the non-valuated goods receipts multiplied by the net price given in the purchase order item.
Use case of Accruals: PO item with validated GR
- Purchasing of consumable material – with Valuated goods receipt postings
- The valuated goods receipt (GR) entry posts the costs as entered quantity multiplied by net price of PO item.
- In this case accruals are only needed if the GR has not been posted despite the material was already received. That’s why the system proposes the accruals based on the delivery schedule given in the purchase order item. All planned deliveries with a delivery date in the past are assumed as received. The costs posted by the GRs are considered of course in the proposed accruals.
- Purchasing of service – with service entry sheet postings
- A service entry sheet posts the cost like a valuated goods receipt.
- Usually there is no delivery schedule available in the PO item. In this case the accruals are proposed based on a straight -line approach. The total value of the PO item is distributed linearly between start and end date of the PO item.
Note: the two fields start, and end date are visible in the PO screens if the PO item uses the Lean services approach (Product Type Group is 2 “Service “)
Main Process Steps
Creation of purchase order in application component Purchasing MM-PUR (Transaction ME21N):
- Each purchase order is automatically transferred into the Accrual Engine. This happens according to the customizing setting controlling whether and how accruals will be posted. In the Accrual Engine, an accrual object is created for each purchase order.
- Special case – initial data load: When implementing the application component Purchase Order Accruals, you have to transfer your existing purchase orders once into the Accrual Engine of your production system. This can be performed using the transaction. “Transfer Purchase Order to Accrual Engine” (POAC_MM2ACE_TRANSFER).
Display Accrual Objects:
- For each purchase order, you can display the monthly accrual amounts the system calculates using transaction “Accruals for Purchase Orders: Display Accrual Objects” (POACTREE03).
Optional: Review and approval process at the end of each fiscal period:
- At the end of each fiscal period, a reviewer can adjust the accrual amounts (or planned costs) that the system proposes for the current fiscal period:
- As a prerequisite, the proposal amounts must be generated for the given fiscal period using transaction ACEPROPOSALRUN.
- The review can be performed using transaction “Review My Purchase Order Accruals” (FACRARVWBU, for PO owners) or “Review My Cost Object Accruals” (FACRARVWCO for controllers). The review includes the possibility to manually adjust the accrual amounts that the system proposes.
- As an alternative or in addition to the review, an approval can be performed using transaction “Approve Periodic Accruals” (FACRAAPPRVGL).
- The difference between review and approval is that in case only review is active, then the system will post the proposed accrual amounts even if no review was done. But if approval is active, then only those accrual amounts are posted which haven been approved.
Post accruals at the end of each fiscal period:
The accruals amounts are posted for example with transaction “Period Posting Run” (ACEPOSTINGRUN).
For Which Purchase Order Items are Accruals Needed?
- Accruals needed to be posted for the costs that already incurred but were not yet posted in accounting.
- As a consequence, accruals are only relevant for purchase where costs occur.
- Purchasing products that are directly used, for example office materials.
- Purchasing of services that are received during a period. Example IT consulting services.
- The corresponding purchase order items usually have an additional account assignment like a cost center.
- Accruals are usually NOT relevant for the purchasing of
- Products that are put on stock, for example raw material that will later be used for producing other products.
- Products that represent a fixed asset, for example a laptop. Their value is posted to a balance sheet account. The costs will occur later during depreciation postings.
Posting Logic for Purchasing Process with Costs: GR and Accruals
- Creation of Purchase Order on 01st Mar 2023 for office material total value = 600 EUR
- Goods receipt posted of valuated goods receipt of only 100 USD on 15th Mar 2023
- AC: Period close for 03/2023: Posting of accruals (provision) on 31st Mar 2023. The PO item value of 600 USD minus the already delivered amount of 100 USD is posted as provision.
The difference of 600 – 100 = 500 USD are posted as accrual. This expresses that the company has a debt of 500 USD against the supplier (assuming the company has received the goods, but the goods receipt was not yet posted).
- SIV: Posting of invoice on 05th April 2023
The posting of the invoice does not reduce the accruals, because the costs occur only when the delivery is posted.
- GRL: Late posting of the remaining goods receipt of 500 USD on 10th April 2023
- ACRV: Period close for April 2023 – No accruals are relevant anymore because goods receipt has been completely posted. The accruals of the former period are reversed, and no accruals are posted again.
Accrual = Planned Cost – Recognized Cost only post when it is positive
Reporting of Accrual Postings:
In release S/4HANA 1909 reporting of accrual engine postings is possible with Fiori Apps
- Fiori App Analyze Accrual Postings
- Fiori Appa Display Line Item in General Ledger
In release S/4HANA 2022 two more reports were released
- Accrual postings - with simulation and
- Accrual postings – Simulated/Posted
Accrual object in G/L Line-item reports
- In the G/L line-item browser transaction FAGLL03H and GBL3H the accrual object is available as field in the selection screen and in the result list
This ends Part 1 of this series. We will discuss more on the following topic in Part 2
- Customizing
- System Demo
- Central Finance: Calculate and Post Accruals for Replicated Purchase Orders
I hope you enjoyed this article. Please feel free to share your inputs/suggestion/corrections in the comments sections.
Regards
Ramesh Papanna
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