Chart of Accounts, FI and CO Comparison

Now, the foundation for the general ledger is the chart of accounts, that is it has a combination of balance sheet and the income statements. A chart of accounts contains a complete list of all of the accounts utilized in the general ledger for a given company.

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Financial accounting reports are prepared from balances contained in the general ledger’s chart of accounts. So, here chart of accounts contains a listing of accounts like assets, liabilities, equities, revenues, and expenses, which are contained in the general ledger. So, it is the foundation of a general ledger in the chart of accounts. A chart of account must be assigned to every company code in order to create a general ledger for that company. Several company codes can use the same chart of accounts, and a different chart of account can be used if a different grouping of the chart of account is required. So here, it comprises of a general ledger, that is, it has a company code, which is used in order to create a general ledger for that company.

 

Next, here, we’ll see how we manage the chart of accounts. Here, we have a client which has the US chart of accounts and German chart of accounts.

Now here we maintain company codes based on the chart of accounts. So here the company code for US chart of accounts is 1000, 2000, and 3000, and the company code for the German chart accounts is 400,5000. So here we have 2 different clients, and we have maintained 2 different chart of accounts for different clients. Next, after chart of accounts, we’ll see what company codes are assigned to that particular chart of accounts.

Now what is a company code? It is a required structure and a legal independent entity- that is, it is not dependent on any entity- the smallest organizational unit for which accounting can be carried out. Now in company code, we have the level where business transactions are processed, a level where accounts are managed, a level where legal financial statements, such as the balance sheet and their income statements, are generated using the general ledger balances. A company code is a structure where the legal financial statements are created based on their balance sheet and their income statements for all the levels using the general ledger balances. So a company code is basically called a balanced set of books, where it maintains all the records of the financial statements. So after client, company, chart of accounts, company goals, next, we’ll see what are credit control area.

Now before company code, we maintain a credit control area. Now let us see what is a credit control area. An organizational unit or area of responsibility created to control customer credit limits. A company code is assigned to one and only one credit control area. Multiple company codes can be assigned to one credit control area. So a credit control area is created to control the customer credit limits, like as we have in a bank, the credit control limits of using a debit card or a credit card.

 

Similarly in financial accounting or we can say in SAP finance model, we have credit control limits for the particular company’s financial reporting. Now, after credit control limit, we’ll see what is a controlling area. A controlling area is an organizational unit defining the company’s cost or managerial accounting operations. Company code is assigned to one and only one controlling area. A controlling area can have multiple company codes assigned to it. This allows cross company cost allocations and reporting. So similar to credit control, we have controlling area where the company code is assigned to the controlling area, and it manages or it has the information about the company’s cost and their accounting operations. Now here, it also allows cross company cost allocations and reporting on the basis of their controlling area. After controlling area, we have a fiscal year, that is a fiscal year variant.

Now a fiscal year report is created at the end of the fiscal year, that is the month end of the fiscal year. Now it determines the fiscal year, It has a calendar year or a non-calendar year. It allows the use of a special period to end closing year, and it’s assigned to a company code. Let us see what is the fiscal year variant. It specifies the accounting fiscal year for reporting purpose. Special periods are created to aid in the quarterly or year-end adjusting process completed prior to preparing financial statements. A single fiscal year variant is assigned to each company code. So here a report, that is a financial year end report, is prepared based on their fiscal year variance, and they make some adjustments prior to the preparation of their financial statements based on their fiscal year variance.

 

So here in the organizational structure, we have seen about client, a company. Then under company, we have seen chart of accounts, company codes, and we have seen that company codes are assigned to cost credit controls and controlling area. And we have seen fiscal year variant, which is assigned to the company codes for preparing the financial statements at the fiscal year end.