Centre for Functional Excellence

Executive Development / Training

Accounts Operations
Focused on the needs of Indian SMEs
 Target Audience
• Indian SMEs employees who needs to be
trained in Accounts Operations

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 Agenda

Organization

Master Data

Transactions

Documents

Reports

Important Aspects

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Organization

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Organization Structure

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 Controlling Area

• One or more company can be assigned to a controlling area

• Enables to carry out cross-company code cost accounting between the

Companies.

• This is possible only if the assigned company codes & the controlling area
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all use the same chart of accounts
 Organization Structure

Organization's performance reporting - decides the reporting structure

• Consolidation levels
• Group level – Client / Corporate
• Legal unit / entity level – Company / Plant
• Line level – Production unit

• Costs and Profitability Analysis levels – CO/PA

• Product / Product Group / Segment
• Customer group/ Customer / Customer order
• Region level
• Line level – Production unit/Cost center/Profit Center

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Consolidation Level

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Master data

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 Master Data

• Chart of Accounts – G/L accounts

• Budgets
• Fixed assets
• Vendor
• Customer
• Cost Center / Profit Center
• Multi Currency
• Bank Master
• Items Master – Accounting and costing view
• Statutory Tax masters – VAT, Excise duty,
Service tax, Income tax, FBT, TDS

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 Master Data

• Chart of Accounts – G/L accounts

• Budgets
• Fixed assets
• Vendor
• Customer
• Multi Currency Operations
• Bank Master
• Items Master – Accounting and costing view
• Tax masters – VAT, Excise duty, Service tax, TDS,
Income tax, FBT,

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 COA – Links

FIXED ASSET

CUSTOMER VENDOR

GL
CHART OF
ACCOUNTS

EMPLOYEE BANK

ITEM

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 Chart of Accounts

The Chart of Accounts is a variant which contains the structure and the basic
information about the general ledger accounts.

Define the Chart of accounts with an identifier/number.

Define components of Chart of accounts – language, length of the G/L

account number, group chart of accounts, status.

Chart of accounts has to be assigned to every company which like to create

Accounts based on the defined structure.

The three steps to create & use :

Define the COA

Define the properties of COA
Assign the COA to a company

The COA can be blocked

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 Chart of Accounts

The core of a company Accounts is the chart of accounts, that is, the list of
the G/L accounts to which all G/L entries are posted.
Use the Chart of Accounts to enter and view G/L accounts and account
balances.

There are mainly four classifications in the chart of Accounts viz…

Assets,
Liabilities,
Income and
Expenses.

Create sub-classifications to this Major groups as per the requirement of the

organization.

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 Chart of Accounts

Assets:
What the company owns is called an Asset. Eg.. Land,
Buildings, Vehicles, Furniture, Cash in hand, Debtors etc..
Liabilities:
What the Company owes is called a liability. Eg.. Capital,
Loans, Creditors etc..
Income:
An income is the amount received or receivable as a result
of the normal business activities of an individual or a concern.
Eg.. Sales revenue – Domestic / Exports
Expenses:
Business expenses are the cost of carrying on a trade or
Business. Eg.. Salary, Rent, Insurance

A typical COA is attached herewith for ready reference.

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Chart of Accounts

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 Chart of Accounts

• Chart of accounts is assigned to the company code

• Chart of accounts can be used by multiple company (diagram)
• The General Ledgers of these companies have the identical structure.

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 A/c Groups - GL Account

G/L accounts can be grouped into account groups

The accounts of an account group normally have similar business
functions.
An account group for cash accounts, one for expense accounts / Revenue
accounts & one for other balance sheet accounts.
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 Master Data

• Chart of Accounts – G/L accounts

• Budgets
• Fixed assets
• Vendor
• Customer
• Multi Currency Operations
• Bank Master
• Items Master – Accounting and costing view
• Tax masters – VAT, Excise duty, Service tax, TDS,
Income tax, FBT,

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 Budget

Budget is a plan expressed in quantitative, usually monetary term, covering a

specific period of time, usually one year.

Budget is a systematic plan for the utilization of resources.

In a business organization, a budget represents an estimate of future costs

and revenues.

Main characteristics of a budget are:

1. It is prepared in advance and is derived from the long-term strategy

of the organization.
2. It relates to future period for which objectives or goals have already
been laid down.
3. It is expressed in quantitative form, physical or monetary units,
or both.

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 Budgeting Process

The exercise of preparing and controlling of budgets is known as budgeting.

The process of budgeting includes:
1. Estimation of Income and Expenditure under various heads of
expenditure for a given period.
2. Continuous comparison of actual performances with budgetary
performance.
3. Revision of budgets in the light of changed circumstances

Budgets may be divided into two basic classes:

Capital Budgets and Revenue Budgets.

Capital budgets are directed towards proposed expenditures for new

projects and often require special financing.

Revenue budgets are directed towards achieving short-term

operational goals of the organization, for instance, production or
profit goals in a business firm.
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 Budget Classification

Master
Budget

Capital Revenue
Budgeting Budgeting

Additional
New Assets
Capacity Revenue Expenditure

Annual Annual

Monthly Monthly
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 Revenue Budget

Revenue budget can be assigned for Sales, Purchase, Administration etc.,

with further break down into territory / Area wise.

Master Sales
Budget

Territory (A) Territory(B)

Area (A1) Area (A2) Area (B1) Area (B2)

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 Master Data

• Chart of Accounts – G/L accounts

• Budgets
• Fixed assets
• Vendor
• Customer
• Multi Currency
• Bank Master
• Items Master – Accounting and costing view
• Tax masters – VAT, Excise duty, Service tax, TDS,
Income tax, FBT,

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 Vendor

Vendor accounts can be combined in various account groups, so that they can be
Organized and managed more easily.

Accounts in an account group usually have similar characteristics (domestic, import,

Sub-contractors, service providers, transporters, one-time vendors etc.,) 25
 Master Data

• Chart of Accounts – G/L accounts

• Budgets
• Fixed assets
• Vendor
• Customer
• Multi Currency
• Bank Master
• Items Master – Accounting and costing view
• Tax masters – VAT, Excise duty, Service tax, TDS,
Income tax, FBT,

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 Customer

Customers can be combined in various account groups, so that they can be

Organized and managed more easily.

Accounts in an account group usually have similar characteristics (domestic, import,

Affiliated customers & one-time customers etc.,)
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 Customer Credit Management

Credit department sets up a separate Credit Management Master Record which is an

extension of the customer master record, so that data relevant credit management can be
maintained & monitored.

Credit management master record consists :

General data : which is relevant for all credit control areas. This could be the
Customer’s address & communication data, or the maximum total limit that can be
permitted for the sum of all granted credit limits.

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Credit Control Process

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 Credit Control Process

Credit Control :

• When the order is placed, a check is run to see whether the customer’s credit
limit would be exceeded if the order were to be accepted. If this is not the
case, the sales process can be carried out in the usual way.

• If the credit limit is exceeded, the order is blocked and the credit department has
to act. The responsible credit representative can either be notified automatically
via remote mail, or can regularly use a report to check a list of all blocked orders.

• The credit representative then clarified the situation, either by using the credit
Information system, or by calling the customer.

• Once clarification has been made, the credit representative releases the order, and
the transactions can be processed in SD in the usual way. If the credit representative
decides not to release the order, the order is rejected.

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 Master Data

• Chart of Accounts – G/L accounts

• Budgets
• Fixed assets
• Vendor
• Customer
• Multi Currency
• Bank Master
• Items Master – Accounting and costing view
• Tax masters – VAT, Excise duty, Service tax, TDS,
Income tax, FBT,

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 Multi Currency

• Every currency which will be used has to be identified by a currency code.

• Each currency code can have a validity date.
• Every combination of two currencies, different exchange rates can be
maintained which are distinguished by an exchange rate type.
• These different exchange rates can be used for various purposes – valuation,
translation, conversion, planning etc
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Translation Factors

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Translation Factors

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 Translation Factors

Exchange rate spreads – between the bank buying/selling rate & average rate usually
remains constant. If the exchange rate spread of an exchange rate type is entered into the
system, only the average rate has to be maintained since the buying and the selling rate
can be derived by adding/subtracting the exchange rate spread to/from the average rate.

Combination of base currency and exchange rate spreads :

A very efficient combination of the exchange rate tools is
Using a base currency for the average rate
Using the exchange rate spreads to calculate the buying & selling rates 35
 Translation Factors

• A base currency can be assigned to an exchange rate type. It is then only

necessary
to maintain exchange rates for all other currencies into this base currency.

• An exchange rate between two foreign currencies is calculated by combining the

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two rates between each currency and the base currency.
 Translation Factors

• A base currency can be assigned to an exchange rate type. It is then only

necessary to maintain exchange rates for all other currencies into this base currency.

• Exchange rate between two foreign currencies is calculated by combining the two
rates between each currency & the base currency.

• Note : A base currency can only be used for an average rate.

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 Bank Master

•Bank Name & Address

•Account Type
•Account No
•Currency
•Bank Account Group
•Minimum Balance
•Branch Details
•SWIFT No

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Introduction to Financial Accounting

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 Accounting Process

Step - 1 Identification of Transactions

Step - 2 Preparation of Business Documents
Step - 3 Recording of Transactions in Journal
Step - 4 Posting to Ledger
Step - 5 Preparation of Trail Balance-before year closing entries
Step - 6 Passing of year closing entries
Step - 7 Preparation of Final Trial Balance
a. Profit & Loss Account
b. Balance Sheet

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