Professional Documents
Culture Documents
MM - FI Integration
Training document
[This training document contains the details of integration between MM & FI Modules of
SAP at various points of transaction. The user should be familiar with the Materials
transactions before proceeding to read this document. This is internal training document
of Kirloskar Brothers Limited]
Index
Sr. No. Subject Page Number
1. Basics of Accounting 3
8. Assignment 42
Hint:
– Example
– Information
1) Accrual basis – Effects of transactions takes place when they occur and not
when cash is paid.
2) Real Account – These are the accounts of properties. For example – Cash,
Inventory, Machinery. Rule applied for this type of account is „Debit what comes
in & Credit what goes out‟.
3) Nominal Account – These are the accounts of income & expenditure. For
example – Travelling expenses, Colony Expenses, Rent received from land. Rule
applied for this type of account is „Debit Expenses & Credit Incomes‟.
These rules can be applied interchangeably between the different types of accounts
depending on the business transaction.
At the end of every period, a business entity prepares Balance Sheet and Profit &
Loss Account. Balance sheet shows the financial position of the entity on a given
date in the terms of its Assets & Liabilities. Balance sheet is prepared as on date
(For example – Balance sheet as on 31–March–2008). Income statement (Profit
and Loss Account) shows the results in terms of excess of Income over
Expenditure. Profit & Loss statement is for the period „From (for example
01.04.2007) To (for example 31.03.2008)‟. It consists accounting for Real &
nominal accounts. Funds flow statement (or Cash Flow statement as it is
popularly called) shows the movement of funds during a given period i.e. where
FUNDS came from and How they were applied. Cash flow statement is for the
year ended (For example – Year ended on 31–March–2008). For example – Net
cash flows from operating activities / investing activities / financing activities.
2) Assets – Assets are valuable resources that a firm owns or controls, such as
Cash, Bank Account, Inventory, Account Receivable, Fixed Asset and Intangible
Asset.
a.) Fixed Assets: Assets which are held for a long period of time usually for
production of the goods sold by the company
E.g.: Plant and Machinery, Building, Land, Furniture, Equipment
b.) Current Assets: These are short term assets which get converted into cash
during the operating cycle of the firm
E.g.: Inventories, Debtors, Cash and Bank
4) Liabilities – Liability is what company owes. These are the obligations of the
business to convey something of value in the future such as – Account Payable,
Notes Payable. Liabilities are of types – Long Term Liabilities, Current Liabilities,
Equity capital.
a.) Long term liabilities are the liabilities maturing beyond a year. E.g.: Term
loans, Debentures, Bonds.
b.) Current Liabilities are the liabilities maturing within a year. E.g.: Creditors,
Cash credit, bills discounted.
5) Profit & Loss Statement – A Profit and Loss statement shows the results of
operations of the business concern for the year. It summarises the earnings
generated by an enterprise during a specific period of time. It also comprises of a
statement of all expenses during a period of time (financial year). It contains at
least two major sections: Revenue & expenses.
Revenues are inflows of assets from providing Goods & Services to Customers
such as Sales to Customer / Gain from foreign currency transactions. Income
includes sales, income on investments, miscellaneous income, etc.
The difference between revenue & expense is profit (or loss if the expenses are
greater than revenues).
7) Balance Sheet – The balance sheet shows an enterprise‟s assets, liabilities &
equity at a specific time (such as balance sheet as on 31st March). It is described
sometimes as a snapshot of a business in financial terms.
9) Relationship between balance sheet & profit & loss account – Balance sheet
& Profit & Loss statement are based on same underlying transaction information,
but they present different views of an enterprise. They are not alternative to each
other but are complement to each other.
Authorized 1. Goodwill
..... Shares of Rs....... each 2. Land
Issued 3. Buildings
..... Shares of Rs....... each 4. Leaseholds
Subscribed
5. Railway Sidings
..... Shares of Rs....... each
6. Plant and Machinery
Rs. .... per share called up
Less: Unpaid calls 7. Furniture and Fittings
Add: Forfeited shares 8. Development of
Property
RESERVES AND SURPLUS 9. Patents, trademarks
and designs
10. Livestock
1. Capital Reserves
11. Vehicles etc.
2. Capital Redemption
Reserve
3. Share Premium Account INVESTMENTS
4. Other Reserves
Less: Debit balance in 1. Investments in Govt.
profit and loss account, or Trust Securities
if any 2. Investments in shares,
5. Balance in the profit debentures or bonds
and loss accounts after 3. Immovable properties
providing for proposed 4. Investments in the
2) PROFIT & LOSS ACCOUNT For the period ending 01st April to 31st March
1) Chart of Accounts – This is a list of all G/L accounts used by one or several
company codes. For each G/L account, the chart of accounts contains the account
number, account name, and the information that controls how an account functions
and how a G/L account is created in a company code. The chart of account is
assigned to the company code. This chart of account is the operating chart of
accounts & is used for daily postings in this company code. The chart of account can
be extended to other company codes.
The chart of account used for FI postings for our company is KBL.
2) Valuation Area – The valuation of the material can be done under one of the
following areas – a) Company Level or b) Plant Level. When the Company code is
set as the Valuation area, the valuation price of the material is same in all plants of
the company code. We have set the Plant level as Valuation area for all the
materials. This is because we are using Production Planning & Costing application
components.
4) General Ledger (G/L) Account – The central task of G/L accounting is to provide a
comprehensive picture for external & accounts.
5) Cost Center – Organizational unit within a controlling area that represents a clearly
delimited location where costs occur. You can make organizational divisions on the
basis of functional, settlement-related, activity-related, spatial, and/or responsibility-
related standpoints. Cost centers are grouped together into decision, control &
responsibility unit. The activity types are assigned to the cost center.
ii) Production – Goods Issue to Production Order, Goods Receipt from Production
Order.
iii) Other – Transfer material to material, Goods Issue to Cost Center, Sales Order,
Asset, Scrapping, Physical Inventory Difference posting.
i) Initial Entry of Stock Balances – Receipts are valuated at current material price of
using another material price specified externally.
ii) Goods Receipt for Purchase Order – Receipts are valuated at the Purchase order
price (Goods Receipt before Invoice Receipt).
iii) Goods Issue – Issues are valuated at current material price.
For materials to be valuated the accounting data for each valuation area (which is plant
in our case) is maintained in the accounting view of material master for every plant in
which the material is maintained.
Material valuation depends upon the price control procedure set in the material master
as below –
i) Moving Average price (V) – The moving average price procedure is used for
externally procured material. The Goods Receipt from Purchase Order is posted at
Purchase Order price (Quantity X Purchase Order Price). The system modifies the
material price in the material master according to delivered price. The system
automatically calculates the goods issue by dividing total value by total stock value
(that means current price of material). Differences between purchase order price and
the invoices are posted directly to the relevant stock account if there is sufficient
stock coverage. If sufficient stock of material is not available, then the difference (for
balance quantity which is not in stock) is posted to the “Expenses / revenue from
price difference”. The data used for cost accounting / controlling purpose therefore
contains fluctuations. The price can be changed if required, generally at the end of
the period. This causes the system to revaluate the total stock for the valuation area.
In our company, „Bearings‟ are procured from Vendor. Hence the material
master data of the bearings will have „Moving Average Price‟ control in accounting
view.
ii) Standard Price (S) – The standard price procedure is used for in-house produced
material. The system calculates all stock postings at price defined in the material
master. Variances are posted to account “Expenses / revenue from price difference”.
Exact values are available for cost accounting / controlling purpose. The material
price can be changed if required at the end of period. This causes the system to
revaluate the total stock in the valuation area. All goods issues (such as issue to
production order) are valuated at same standard price. This allows better analysis of
the cost of production orders. A receipt from Production Order is posted at standard
price.
Valuation Area
Company
Plant Plant
Code level
valuation
is set-up
in KBL
Requirement determined
through Material Requirement
Planning
Following are the steps involved in Purchasing, which are important from material
valuation / financial point of view –
Following are the steps involved in material movement, which are important from financial point
of view –
Valuation
Storage
Valuated
Inventory
posted in Store
Goods Issue
Goods Receipt at
manufacturing plant
To SD To Production Order
Delivery / Cost Center
Consumption
of material
posted
directly to
consumption
account
Cost of Consumption
Goods Sold
Value /
Quantity update
Value Transaction
String Key
Business
Transaction
Goods Movement /
Invoice Account
Verification Grouping
Material price can be changed for an individual material in a valuation area (plant) with
immediate effect or activate the price changes for selected materials after maintaining
the future prices in material master accounting view. Material credits / debits cause a
price change in case of material subject to price control V or posting to price difference
account in case of materials having price control S (Depending upon stock position).
Changing the material price involves accounting transaction (& not the material master
change) in which total stock of the plant is revaluated.
A Purchase Order is raised on Vendor for a raw material which is to be used for
production of an in-house manufactured material, depending upon the requirement
generated from MRP. When you post a GRN for raw material against Purchase
Order, the material is placed in a storage location in the plant. The inventory of the
received material is increased by first entry. The second entry will increase the
clearing account by equivalent amount. An accounting document is also posted
along with the GRN. The inventory of imported raw material & raw material procured
from domestic vendor is kept separate. The process flow is as below –
Raw Material
Without
Purchase account
Order assignment
GRN To Store
Quantity
To
GRN Inventory
Value
Raw Material /
Non Valuated
Material
With account
Purchase assignment
Order
To Store (Raw
Material) or
GRN To Consumption
Quantity (Non-valuated
material)
GRN
Value Consumption
Account
We use account assignment A to order a fixed asset item. A Fixed asset is a long
lived asset which is not expected to be fully consumed within one year period or to
be converted into cash within that period, such as: property, plant, equipment etc.
For PO / PR with account assignment A, we need additional data to be entered as
Asset Number. Asset number is a code to identify a single fixed asset. It must be
generated first before we can create a PO or PR item with A as account assignment.
Asset number is created in FI / CO module. Asset number is linked with a Fixed G/L
Account in the company‟s balance sheet. The G/L account is a reconciliation account
that means that it reconciles several asset numbers.
For Purchase Order with account assignment K, the entry in FI G/L Account at the time
of posting GRN is as below –
Purchase Order with account assignment Q are raised for material required for a Project
being / to be executed by the enterprise. For this account assignment, we need to define
the additional data WBS (Work Breakdown Structure) to be entered in the detailed
account assignment screen. The WBS element is the small element in which the
material / service to be procured is planned & budgeted. We can procure following type
of materials against the Project account assignment – Raw / Semi Finished material (to
be inventoried), Traded Material. When we procure a raw material (to be inventoried)
Purchase Orders with account assignment E (Sale Order) are raised for a material
required for Sale Order either for in-house manufactured material or Traded Goods.
Depending upon the scenario the item category will change (Blank for Standard
procured material) or S (Traded material). In this case after posting GRN, the
accounting entries posted will be same as that indicated in scenario Purchase Order
with account assignment as Q (Project).
Accounting Entries after GRN for Inventory Material –
Posting G/L Business Account Amount in Text of
Item Currency
Key Account Area Text INR Material
Respective (Quantity of INR (for Material
Business Material X domestic master
Account of Area, where Inventory Purchase Purchase) / short
10 Debit
Inventory the Material account Order Price) Other Currency text /
/ Service is + Freight (For Imported Service
received Charges material) Text
Respective (Quantity of INR (for Material
Business Material X domestic master
Account of GR / IR
Area, where Purchase Purchase) / short
20 Credit GR / IR Clearing
the material Order Price) Other Currency text /
Clearing Account
/ service is (For Imported Service
received material) Text
Respective Freight INR (for
Business amount to domestic
Account of
Area, where Freight be paid to Purchase) /
30 Credit Freight
the material Clearing vendor Other Currency
Clearing
is received (For Imported
material)
When we post GRN for traded goods, following accounting entries are posted –
No accounting
Components in entry. Stock of
BOM provided to material
Transfer of provided to
material to Sub Vendor for
processing vendor is
– Contractor updated
Inventory of Semi-
Finished material
= Processing
GRN Value Charges + Value
of BOM
Components
If a raw material is to be imported, the material should have the relevant valuation class
(Imported Raw Material). The PO consists of additional customs & delivery costs to be
paid. The invoice of planned delivery cost (to be paid to clearing agent) is booked first
when the material arrives in the Port (For example – Mumbai JNPT Port). After material
is cleared from port & received in Plant, GRN is posted. Then the customs duty is also
inventorised along with the basic price of material & freight charges. After the booking of
this invoice, GRN is posted when the imported material actually arrives in the plant. The
process flow is as below –
Import
Purchase With / without
Order on account
Overseas assignment
Vendor
GRN is Quantity of
posted when Imported
material Material is
arrives at updated
Plant
(Quantity)
Basic Value of
GRN Value Material +
Planned Delivery
Costs + Customs
Duty
Posting Amount in
Item G/L Account Business Area Account Text Currency
Key INR
Inventory Quantity of
Business Area Inventory –
Debit account of Material X
1 where the material Imported Raw INR
(89) Imported Raw Basic Price
has been received Material
Material of material
Quantity of
GR / IR Business Area
Credit GR / IR Material X
2 Clearing where the material INR
(96) Clearing Basic Price
Account has been received
of material
Freight Basic
Business Area Freight Clearing
Credit Clearing Customs
3 where the material – Import (Basic INR
(96) (Imported) Duty
has been received Customs Duty)
Account Amount
Ecess
Freight Freight Clearing
Business Area amount on
Credit Clearing – Import (Ecess
4 where the material Basic INR
(96) (Imported) on Basic
has been received Customs
Account Customs Duty)
Duty
S&H Ecess
Freight Freight Clearing
Business Area amount on
Credit Clearing – Import (S&H
5 where the material Basic INR
(96) (Imported) Ecess on Basic
has been received Customs
Account Customs Duty)
Duty
Business Area CVD
Credit CVD Clearing
6 where the material CVD Clearing Amount INR
(50) Account
has been received
Business Area Ecess on
Credit CVD Clearing
7 where the material CVD Clearing CVD INR
(50) Account
has been received
Business Area S&H Ecess
Credit CVD Clearing
8 where the material CVD Clearing of CVD INR
(50) Account
has been received
In a stock transport Purchase Order cycle, material is transferred from one plant of the
same company code to another plant. A stock transport purchase order is raised by the
receiving plant on supplying plant as vendor. When the material is ready, the supplying
plant delivers the material to the receiving plant along with commercial proforma invoice
& excise invoice and the receiving plant posts GRN when the material is received. In this
case the FI entries are posted when Goods Issue is done against the delivery note as
Inventory transfer from supplying plant to receiving plant. Following are the FI entries
posted when Goods Issue is posted –
Account assignment
data such as Project
or WBS Definition /
Cost Center Number
/ Sale Order Number
is maintained.
Consumption of the
service is posted to
the cost object
maintained in
account assignment
field.
When we procure an excisable material the entries in the excise registers are updated
when the GRN for the material is posted. The Modvat benefit of the excise paid to the
vendor can be taken for payment of excise duty on finished material (when sold) which
we manufacture by using the raw material which the vendor has supplied. For material
not used in manufacturing of finished material or for traded material, the excise paid is
inventoried (that means the excise amount is added to the material inventory value.)
Following are the entries posted for excise registers when the excisable material is
received against GRN –
In a sub – contracting purchase order, a semi finished material is ordered on the sub
– contractor & components are provided to the sub – contractor for processing the
ordered material. When the GRN for ordered material is posted, the consumption of
ordered material is posted against the ordered material & the concerned FI entries
are posted.
When an Invoice for Vendor is booked in the system for material supplied by the vendor
against a Purchase Order, the vendor is credited with the invoice amount & the GR / IR
clearing account is debited (this account was credited when the Goods Receipt was
posted). If the GR based Invoice (GR based IV) is marked in PO, then system does not
allow to post the invoice unless the GRN is posted in the system. That also means
invoice posting is possible only for the items for which the GRN is booked. The invoice
may refer to a Purchase Order / Scheduling Agreement & based in GRN / Service Entry
Sheet quantity not yet invoiced. If required you can simulate the entries before actually
posting the Invoice. After invoice is booked, the Purchase Order history is updated.
Based on the clear booked invoice, payment can be made to the vendor either through
automatic payment run or manually. The invoice may be blocked for automatic payment
to vendor due to following reasons – Quantity Variance, Price Variance, Quality
Inspection, Manual block, date variance and Amount variance. The process flow is as
below –
Purchase Order
for Material /
Service
Purchase G/L
Order History MM Account
Invoice
Document Assets
Delivery
Costs
Invoice
Verification FI Invoice Cost
Material Document Center
Master
Project
Further
Vendor Document
Master Sale
Order
Goods Invoice
Receipt Receipt
Topic: MM – FI Integration
2) What is meaning of –
3) State whether following entries will go to Balance Sheet or to Profit & Loss
statement –
a) Purchase Order for Raw material „12550022‟ (Gland) raised on M/s Vishal
Foundry, as per following details –
Quantity 100 PC at INR 37.50/- per PC,
Freight – 1% (To be inventorised)
Excise 14%, Ecess 2%, S&H Ecess 1% (Set-Off to be taken)
VAT – 12.5%
b) GRN for above material for quantity 64 PC posted as per Delivery Challan
cum Commercial Invoice Number 346 & Excise Invoice Number 238 from
Vendor along with freight & Excise conditions.
c) Invoice for above Purchase Order booked in system.
What entries will be posted at the time of booking GRN for above PO?