FINANCIALS

CHART OF ACCOUNTS

The Chart of Accounts is organized by drawers and levels.

The organization of the chart of accounts follows GAAP (Generally Accepted Accounting
Principles) in which there is a separate “drawer” for accounts representing: Assets, Liabilities, Equity
(Capital and Reserves), Revenues (Turnover), Cost of Sales, Expenses (Operation Costs), Financing (Non-
Operating Income and Expenditure), and Other Revenues and Expenses (Taxation and
Extraordinary Items). These drawers, which have been defined by SAP and cannot be changed, organize
your accounts by level in a logical fashion appropriate to your financial accounting and reporting
processes.

In the General Ledger, we distinguish between Balance Sheet Accounts and Income Statement
Accounts, also called Profit and Loss Accounts.

BALANCE SHEET ACCOUNTS:

The first 3 drawers: Assets, Liabilities, Equity (Capital and Reserves) hold the Balance Sheet
Accounts, such as the Sales Tax account and the Accounts Payable Account.

The bookkeeping balance of these accounts is kept from one fiscal year to the next.

The Balance Sheet Accounts – reflect the monitory value of the company - stock, assets, etc.

PROFIT AND LOSS ACCOUNTS:

The last 5 drawers: Revenues (Turnover), Cost of Sales, Expenses (Operation Costs), Financing
(Non-Operating Income and Expenditure), and Other Revenues and Expenses (Taxation and
Extraordinary Items) hold the Profit and Loss Accounts, such as the Income Accounts. Note that in some
localization, the lower drawers are not all profit and loss account drawers.

The bookkeeping balance of these accounts has to be cleared at the end of each fiscal year – this
is the Period End Closing process (will be discussed in Unit 4: Financial Periods Process).

The Profit and Loss Accounts - reflect the changes in the company value, such as: sell stock –
cost of goods sold, increase revenues.

REPORTS:

Financial reporting requirements drive most of the initial settings and configuration decisions.

The different financial reports run on the account balances relevant to a selected date range and
present them according to their drawer, level and type:

The Balance Sheet - summarizes the value of the business assets liabilities, and owner’s equity accounts.
The Trial Balance - details for each account: beginning balance for a particular period, all of the debits
and credits, and the ending balance.

Profit and Loss Statement – after the end of the fiscal year, the balances of the expense accounts will be
subtracted from the balances of the revenue accounts to come up with the profit or the loss for the
fiscal year.

A chart of accounts arranges a company's general ledger accounts in a hierarchical structure.

The top level in the structure (level 1) consists of sections or groups for different type of accounts
(assets, liabilities, capital and reserves, turnover, and so on). The number of account groups depends on
the localization that was selected when the company was created and cannot be modified by the user.

The system displays the section as a cabinet drawer (see figure). Each drawer has a section title,
which you cannot change. The system displays lower-level titles in blue and normal active accounts in
black. Accounts that you have entered in the G/L Account Determination (default accounts) are
displayed in green.

Levels 2 through 4 can contain either active accounts or titles that combine several active
accounts. Level 5 only contains active accounts.

Because only active accounts can be posted to in SAP Business One, it is a good practice to have
all your active accounts at the same level.

In reports, a title account summarizes all the balances of each active account below it.

JOURNAL ENTRY

In SAP Business One, a journal entry is automatically posted from many documents, such as A/R
and A/P invoices. Additionally, you can manually post a journal entry directly to a G/L account or to a
business partner sub-ledger account.
 All journal entries are posted to one file in SAP Business One – the Journal Entries file. You can
set various defaults for journal entries. You can also change some document settings for an individual
journal entry.

The screen for entering journal entries manually is divided into three areas: document header
data, extended editing mode for an item, and the items table.

Header:

• In automatic journal entries created by the documents in SAP Business One, the fields are
filled automatically from the document fields. In manual journal entries you set the values:

• The system automatically enters a number in the document header. This number is
incremented with every transaction. You can define numbering series for journal entries on the
Document Numbering screen, under the Administration → System initialization → Document
Numbering.

The three dates in the header default to the current system date but you can change them:

o Posting Date. This date determines the posting period and therefore the fiscal period
for financial reporting. You can post to an earlier or later date if the posting period is Unlocked
for posting.

o Due Date. The date the transaction is due.

o Document Date. The date used for tax reporting purposes.

You can use the Ref. 1 and Ref. 2 fields to enter references to associated actual documents.

You can also classify the document using a transaction code, for example, as an accrual/deferral
document, depreciation document, or value adjustment document.

Choose Administration → Setup → Financials → Transaction Codes to maintain the

transaction codes. The system copies the description of the transaction code to the Details field.

POSTING TOOLS

You can post a Journal Entry by:

 Entering a manual journal entry.

 Using a posting template.
 As a recurring posting.
 From a journal voucher.
POSTING TEMPLATE

You can create posting templates for journal entries that have a very similar structure. These
templates can contain account numbers but you can also just specify an account description in a line
item if you do not yet know which exact account will be used for this line item.

Instead of fixed amounts, only percentages are entered here. These percentages indicate how
the total amount is distributed among the line items.

The illustration shows an example of how you can allocate out a utility expense, like the electric
bill, to its component expenses at a specific percentage rate.

The posting template is stored under a code and with a description. Choose Financials →
Posting Templates to enter and maintain posting templates.

When you enter a journal entry manually, choose Percentage in the Template Type field and
enter the template code in the Template field or press tab and choose it from a list.

Enter an amount in one of the line items and the template will allocate the amounts to the other
lines based on the percentage rate.

RECURRING POSTINGS

SAP Business One features a recurring postings function for similar, fixed amount journal entries
created on a regular basis. Choose Financials → Recurring Postings to enter and maintain recurring
postings.

Recurring postings use a template that is stored with a code and a description. In this template,
you define (among other things) the frequency in which the journal entry is supposed to be created and
until when the recurring posting is valid. The possible entries in the Frequency field include:
  Daily, Weekly, Monthly, Quarterly, Half-Yearly, Annually: You must also specify
the next execution date for these entries.
 One time: Although a one-time recurring posting seems a bit odd, it serves a special
purpose. With this you can schedule a journal entry for a specific date.
 SAP Business One features a recurring postings function for similar, fixed amount journal
entries created on a regular basis. Choose Financials → Recurring Postings to enter and
maintain recurring postings.
 Not executed yet: If you do not need the recurring posting at present, you can turn it off
with this entry.

In the Valid To field, you can enter a date until which the recurring posting is valid and will be
executed by the system.

The system duplicates the original recurring posting (instance 0) every time the execution date
arrives. Once you use this instance and add it to the system, it will be deleted.

You can display a list of all the recurring postings in the system. You can then adjust these
postings and confirm them. You can also configure the system so that the execution list is displayed
automatically in the execution date as soon as you log on. Choose Administration → System
Initialization → General Settings and select the Display Recurring Postings on Execution indicator on the
Services tab to activate this service for your user.

You can add recurring postings to the cash flow, which appear in green in the report.

JOURNAL VOUCHES

SAP Business One offers a two-stage procedure for creating journal entries. You can create the
journal entries as drafts first, correct and post them later.

When the user is creating a journal voucher it is used for storing several journal entry drafts.
You can change journal voucher as long as they have not been posted yet. Then, you can access the
journal voucher, make any necessary corrections, and post the entire journal voucher. You do not have
to post each journal entry individually. If you do want to post the journal entries individually, however,
you must create a separate journal voucher for each journal entry draft.

You can save an unbalanced journal vouchers as long as it is in the draft mode.

To create, change and post journal vouchers, choose Financials → Journal Vouchers.

You can remove a journal voucher or delete an entry from a journal voucher, as long as they
have not been posted yet. Choose the Data menu or, right-click the journal voucher row.
POSTING PERIOD

When you create a new company database, you create the posting periods for the first fiscal
year. Posting periods split the fiscal year into sub-periods. Sub-Periods are created automatically by SAP
Business One in the fiscal year. The available sub-periods are:

 Year (one sub-period)

 Quarters (four sub-periods)
 Months (twelve sub-periods)
 Days (any number of sub-periods)

Using this information, the system automatically creates the corresponding number of posting
periods. You can change these periods, if necessary.

The first posting period must be defined at the time the company database is created.
Afterwards, to set up new posting periods, go to Administration → System Initialization → Posting
Periods.

From here you can update the generated periods (such as date ranges) and create new ones (by
choosing New Period). You can also set or change the start of the fiscal year.

You can create posting periods for future fiscal years at any time

PERIOD -END CLOSING

At the end of a period (month, quarter, or year), you must transfer the balances of the P&L
accounts to a retained earnings account.

Choose Administration → Utilities → Period-End Closing to run Period-End Closing.

 With the Period-End Closing function, you can choose P&L accounts and periods, and specify a
retained earnings and period-end closing accounts.

When you execute the period-end closing, the system generates a list of proposals for closing
entries. You can accept each proposal individually.

After you accept the proposals, the system transfers the account balances from the Expense and
the Revenue accounts to the Period-End Closing account on the same day (the last day of the period).
This sets the accounts balances to zero.

At the same time but with the first day of the following posting period as posting date, the
system transfers the balances form the Period-End Closing account to the Retained Earnings account
(the Period-End Closing is a clearing account).

Two transactions are created for each account and two journal entries are automatically created
to reflect those transactions.

Now, the Retained Earnings account, which is a Balance Sheet account, contains the total
brought forward cumulated profit.

Journal Entries posted by the Period-End Closing Utility have the origin “BC”.

Note that you can store the results initially as a report and then post them at a later stage.

If you make postings after entering the balances carried forward, you need to repeat the period-
end closing routine to include these subsequent postings.