Introduction

In the case of SAP, when we are going for an SAP implementation project, first of all, we need to understand the complete requirement, that is the company. For example, now what we are planning to do is,  say we are a team of consultants, we are going to implement SAP for, say, Doctor Reddy Labs Group. So Doctor Reddy Labs is a multinational company, and their head office is in India, and in different countries, they do have their business. So in case we are going to implement SAP to this, how do we do it?

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So first of all, we need to understand the requirements. So as a team of consultants, we need to go and we need to discuss with the respective manager. FICO consultants will discuss with the finance manager and the finance department and the end users, that is business process owners, and SD, PP, like that, each and every consultant, right, the group of consultants will go and discuss with the respective department. That is for the purpose of understanding their business process requirement, what has been running for the existing organization, and how they want in future because we are going to prepare as it is the existing organization structure in a document, and we are going to prepare a blueprint. Once we prepare the blueprint, then we’ll configure the SAP system.

So for that purpose, let us imagine that we are going for an SAP implementation for Doc Reddy Labs group. So they have, say, around any number of compute codes they can have. So first of all, imagine that we have Doc Reddy Labs group, and implementation has been done for doctor Reddy Labs. This is DRLB, B means bulk drugs. Under that group, we have doctor Reddy Labs pharma, Bulk drugs pharma like that, and these two companies are say for example, this is in India. We can create any number of companies under the group. So the total group is called a company in the case of SAP. Under the group, any number of companies, right, as per the legal requirement, that is nothing but a registered legal entity, we call it company code. So the companies under the group, we call it company code. So the company code is nothing but a registered legal entity as per the Companies Act of any country it may be. So that should be defined as company code. So this is the group company and the company code, and wherever you are doing your business, maybe we can call it a business area. Here it is in Hyderabad, and they have their plant in Chamblee. We can define it as a plant now for the time being because the plant organization object is going to be defined by production planning consultants.

But we are going to define it as one of the business areas because I want to capture expenses by business area wise,nd Bangalore, Chennai like that. In different places, we do have business areas. And the concept of business area, I think slowly it is getting obsolete, but it is going to take place. Its place is going to be occupied by the profit center accounting. Right? When we go to controlling, we are going to see in-depth the profit center accounting part. But until then, let us understand the business area, it is not completely remote. We can use it in the business area, so this is called an organization structure. And we can have any number of company codes under one group, even if it is 100 company codes under the group, we can have one chart account.

What is a chart of accounts?

Chart of accounts is nothing but a chart wherein all the GL accounts are going to be defined, what GL accounts are required for the companies to prepare their financial statements like profit and loss account and balance sheet. We are going to define a chart of accounts. Let any number of company codes, we can do with one chart of accounts because subsequently we are going to consolidate the total balance sheet, plain account etc. In order to consolidate, I’m going to have if it is one chart of accounts that will be easy for me. Though the company codes are in different countries, ultimately when you see the balance sheet and P & L account of any company, right, you’ll find the balance sheet, assets, liabilities, income and expenditure in the P & L account. And liabilities, say, share capital, secured loans, unsecured loans, results and surplus, like that everywhere, worldwide. Similarly, assets, fixed assets, current assets, and investments like that, you’ll have the assets. So ultimately, the GL accounts are going to be used by any number of companies we’ll be seeeing. And here in SAP, we are going to create GL accounts not only, just by names, we are going to create with numbering system. Now before we go for SAP implementation, right, we need to understand their requirement, specification, that is language, English, accounting system as per Indian accounting standards, financial year, right, April to March or January to December, moderate maybe we can define, currency INR that is a company code currency and we are going to have around 21 steps are there, basic steps which we need to discuss.

We need to create an SAP system itself. When you want to post any accounting entries in one company, we need to create first all these steps. So we are going to define all these steps. So step number 1, define company. Step number 2, define company code. Step number 3, assign company code to company. Nothing but group company and the company are going to be established with a link between these two. Otherwise, the system cannot understand which company code belongs to which group. And then create business area. The first 4 steps belong to organization structure of the company. Then the next 4 first steps belong to the general ledger accounting: Define chart of accounts. See here we’ll be using the name DRCA. Then assign chart of accounts to company code. Once we create a chart of accounts, we link up company code to the chart of accounts, so that any number of GL accounts you are going to create are going to be defined in the chart of accounts. And these charts of accounts are going to be used by these company codes. And, logically, the chart of accounts is above the company code. That means Organization structure, chapter of accounts is at a higher level. So that any number of company codes can be linked to one chart of accounts. Then we’ll define account group. So in chart accounts, we are going to define account group. The account group will consist of, Liabilities, assets, income and expenditure. Here liabilities, share capital, reserves and supplies

So the total GL accounts are going to be grouped. They’re grouped depending upon the nature of the accounts. And these groups, we are going to define into the SAP system. We’ll see how to do it. Whatever we are going to configure here, whatever we decide, as per the requirement of the client, we are going to create the same account groups in the SAP system. And then coming to the account group, then define retained earnings account. So defining a retained earnings account means we need to define the retained earnings account that is where you are going to post your retained earnings, that is the profit that is going to be earned by the company after incurring all expenses and after transferring the profit and loss account that is profit to the dividend other results, whatever is the amount that is going to be retained in the P and L account, that will be transferred to the retained earnings account. That we’ll see. We define one account. That is a requirement in SAP to define retained earnings account, and we have to tell to the system which account we are going to post because that is going to be used for balance carry forwards, etc.

Then coming to define fiscal year variant. Fiscal year variant means nothing but the financial year. So what is the financial year we are going to use? Whether January to December or April to March. So that needs to be defined. See, first of all, any number of, any number of fiscal years, it may be January to December or April to March. Everything is defined and kept in the system. Just we need to link up that fiscal year to the company code. So V3, it is called variant. V3 is equal to nothing but April to March. K4, January to December. Say now, presently, the current year is going to starting from 1/4/2013 to, 31st March 2014. So that is 12 accounting periods. Here April, May, June, July like that, each month is called each period. 1, 2, 3, 4, 5 like this. Each account is each month is called each period. And so that we’ll have 12 periods. These periods are called normal posting periods. Normal posting periods are nothing but for regular posting of entries. Apart from normal posting periods, we have 4 more special periods. Special periods are nothing but for the purpose of finalization of accounts, that is after March. As on 31st March, I cannot prepare a balance sheet immediately. Because a lot of entries has to be done. I have to receive so many bills. Any person who participates in the finalization of accounts, then you’ll come to know, how time taking is the finalization of accounts. So for that purpose, what SAP has done, since I cannot prepare my balance sheet and P & L account, that is financial statements, immediately after completion of my financial year, it may take a month or 2. Anyway, the system has given 4 months. Within 4 months, I have to complete my finalization of accounts. Afterwards, periods will get closed. So that’s why maybe even if when you are using SAP, hardly we require only 10 to 15 days. But, of course, the accounting process may take some more time because getting the bills, etc. So that’s why 4 periods will be given. That is called special posting periods. Special posting periods are nothing but used for the purpose of finalization of accounts. And here so here, this is called defined fiscal year variant and assign fiscal year variant. Though I say that define fiscal year variant, we need not define any fiscal year variant. V3 is already defined and kept in the system. We need to link up that V3 to the company code. So that system understands this company code is going to follow April to March. And this company code is going to follow maybe January to December. Like that, whatever it may be we want, we can assign that particular fiscal year variant.

 

Then coming to step number 11, 12, 13, In fact, with these 3 periods, what we are going to do is, system will allow me to post accounting entries only in the current month. Generally, that is the requirement. Every company will allow the users to post accounting entries only in the current month only. So for that purpose, we keep the current month open. All the rest of the months will be closed because I’m not supposed to post any accounting entries in the past because that monthly finalization has already been done, I cannot change that. Similarly, in future, Future post dated entries should not be posted because that is not going to be affected in the current month. The purpose of posting future dated entries is not required at all. So, this posting period variant, that is closing or opening will be done in 3 steps. How we’d work out we’ll see in the SAP system. So define posting period variant, assign posting period variant to company code, define open or close posting period. So here, what we do, we’ll keep only the current month open, all the rest of the months will be closed. And, then coming to step number 14 and 15, define field status variant and assign field status variant to the company code. So 14 and 15 are interlinked to each other. For example here, say I’m posting an accounting entry, telephone expenses account attached to a bank. So document number we are posting, on a particular date. Once you post the accounting entry, what I can do, being telephone expenses paid for the month of April. This is the text.

Telephone expenses through bank being telephone expenses paid. But the management wants after the month end, they want to know which business area this belongs to because I have different business areas here, Hyderabad, Bangalore, Chennai. So if you post an accounting entry, a telephone expenses account return to bank that will be posted in the general ledger. But at the end of the month, I want to know which business area this belongs to. So I cannot get it. That’s why SAP has given one specific requirement, facility rather. You can post expenses by business area wise. Business area wise, I can post business area Hyderabad. Similarly, maybe the cost center. Once we create a controlling area and the cost accounting is also activated so we can post a business area, Hyderabad. Say, car center belongs to the admin department or cost, finance department, right, or any other department. You can activate that field and post the accounting entry. So we have a facility like that. There are three options, one is suppressed, the other one is required. The third one is optional. If you suppress say for example, for telephone expenses, I don’t require a quantity field. So I’ll suppress this. Once I suppress this, right, even that field will not be visible to the user at the time of accounting entry.

Then if I make a required entry, right, there’ll be a symbol not star of course. There’ll be a right symbol there, that will come and unless that is entered, that field is filled by the user, the system will not allow him to save it. And, if it is optional, field will be visible and whether you enter it or not. If you enter, you’ll get the information, if you don’t enter, you don’t get the information. But if you make it required, definitely, the user has to enter the relevant data, not any other, so then only will the system accept. Relevant data means, say, for example, business area. Business area is whatever you have defined. Out of that, anyone you have to enter. Of course, even if you enter each of Hyderabad, if you enter Bangalore, the system takes. But system will allow only business areas that have been defined. So, at the time of capturing the information itself, we have to bifurcate the information, business area, cost centers. All these things have to be done. So that facility, SAP has given.

So anyhow, there are so many fields there. Say, for example, around field status groups will be there. G001, G002, 3, 4, like that, so many groups will be there. Each group of field status will be used for different purposes because for general ledger accounting one group, for material accounting one group, for bank accounting one group. What are these groups? Each group will consist of so many fields where it is the required entry or mandatory or suppressed. Depending upon the required fields for that particular account, we can use. So that we’ll see anyhow afterwards. In the system, we’ll define a field status variant, and we’ll post it.

So once we define field status variant, then assign field status variant to company code. So whatever the fields that you make it mandatory or optional or suppressed, what are the options that you choose, that will be defined in the group, G0123… like that. And groups will be defined. So that group, we are going to link up to the respective GL account so that all the features, whatever you choose, required, optional, suppress, etc, those things will be applicable when you go for the posting of entries. So how will that work out? We’ll see how, while creating the field service group. That is 14 and 15.

Then coming to 16, define document types and number ranges. So here, say this is a document -each and every accounting entry, we call it a document, it will give you document numbers. And that to each document, we have a name for that. SAP has defined standard documents like SA is nothing but GL document. And here, say for example, customer invoice, customer invoice, we call it DR. Then customer payment, we call it DZ. All these are all standard documents provided by SAP. SA, GL document. DR, customer invoice. DZ, customer payment. DG, customer credit note. Like that, whatever the type of document that you are going to use, every document has been defined in the SAP system, we need not define. Though I say define document type and number ranges, I need to choose which document I’m going to use. And for that document, I need to give the number range. I want some number range to the document because each document should be identified separately. So that’s why we give the document number and the range will be given. If I say 1 to 1 lakh is given to the SA document, then the system will post accounting entries like 1, 2, 3, 4,… like that. Up to 1 lakh, the system will go on posting the accounting entries. That it’ll take that number. That is called document type and number ranges. How do we do it? We’ll go to the system and we’ll see.

Define tolerance group for employees. What does this mean? Different tolerance group means amount authorization limits, that is how much the system will tolerate. Say, for example, one accounts officer is there. EO or EA, accounts executive. He’ll be given authorization up to only 5 lakhs. Any number of EOs has a blanket approval. EOs can pay up to vendor bills payment up to 5 o’clock. That is 5 lakhs. Similarly, AFM, assistant finance manager, 10 lakhs. Finance manager, 25 lakhs. General Manager finance, 50 lakhs. Anything above 50 lakhs should be approved by the MD. Here, approval means, not physical documental approval. Here, everybody or user will be given authorization, and in case if this person cannot do so, then he will create and keep it, and it’ll be approved by either FM or EFM or whoever it may be, then only the system will allow him to save it. So the process, how it works out, we’ll see later.

Then coming to, defined tax procedure. Defined tax procedure, assigned tax procedure, they are linked to each other. In the case of SAP, right, system is so transparent that whatever the entry that you are posting, whether it is applicable sales tax, income tax, etc, the system will look into it. So that’s why in the beginning, at this juncture, we are not going to define any sales tax or income tax or tax rates, everything. So those things we’ll create when we go to the accounts receivable, accounts payable. But at this juncture, we are going to create one small tax procedure and with that procedure, we’ll go ahead. So that tax procedure will be assigned to the country. So first of all, we define a tax procedure that will link it to the country. Because generally, tax positions are at country level, whether you take income tax, central excise. So whatever it may be that will be linked, will be linked to the respective country. Then last and final step, define global parameters.

So whatever the things that we have defined here, all those things will be visible in one screen. Then there’ll be some checkboxes there. Those checkboxes we’ll tick and what are those and what are the use of that, we’ll see in the system itself. So these are the 21 steps that we have to define. Let us go ahead with the definition when defining the same in the SAP system.

 

So first of all, you’ll have your SAP logon icon on your desktop or laptop. You can freely download it, you can type in Google “SAP GA download”. Once you install that, the icon will come. Now, once you double click on that, this is called SAP logon pad.

This logon pad, whatever the server that you are going to configure, will appear here. Just double click on that server name. And SAP, I’m using EHP5. So as soon as you enter SAP easy access screen.

So in the easy access screen, you’ll find, this is called menu path. The green Button is Enter. The same button, the way how you press enter in our keyboard, same enter. Next to it is called command box. We have the standard toolbar, for every screen, it will be appearing. We have the title bar, we have the transaction toolbar, depending upon the nature of the transaction, this will change, and we have the menu, SAP menu. And here you can open each path down. Financial accounting, general ledger.

Now we are going to first of all, as a consultant, we are going to configure in IMG screen. This is called the easy access screen. There are 2 things, one is IMG screen, the other one is easy access screen. As soon as you enter, you can see this easy access screen, so this is going to be used, right, used by the end users. The purpose is creation of Master records and, creation of reports, entering day to day transactions, for this purpose, we use this easy access screen.

Now as a consultant, first, what we need to do, I need to go to IMG screen and, this will be used by the consultants. IMG screen means implementation guide. The purpose is configuration of system and customization of reports, everything is done by a Consultant. So as a consultant, we need to configure the system here and come to the easy access screen for the purpose of testing. So now we are in the easy access screen. In order to move to that IMG screen, I need to use T code (Transaction Code) SPRO. So generally, for T codes, you will not have any expansion. Transaction codes generally do not have any expansion. They are not abbreviations. But only one SPRO can have, the expansion that is SAP project reference object. This is the only SPRO you have that. The rest of the things, there will be so many codes, FS0, F -02, etc, they are just code numbers, that’s all. It will not have any expansion. But only SPRO will have SAP project reference object. And what we have to do, you have to go to command box. Here, you can type SPRO. It is not case sensitive, you can use either capital letters or small letters, anything. Type SPRO here. Press enter. Then click on SAP reference IMG. Then you’ll come to this IMG screen, Implementation guide.

See here, so SAP Customizing Implementation Guide. Here, you’ll have Enterprise Structure, Financial Accounting, Controlling, for all consultants, they have to launch. This is their launching pad. Here’s your playground, you start playing the game. Now, whatever the configuration step that we have to create, the DRCA, DRLB, the group company, company, and the GL accounts, business areas, everything we have to define first. Because unless you define all these things, you cannot post an accounting entry. When I’m going to post an accounting entry, I need GL account, I need business area, I need the text field, all these things are required here. So that’s why let us first create.

 

So step number 1, define organization structure. In this, define company. So in order to create that company, there is a right side arrow here. Click on that, Enterprise structure. We are going to define organization structure or enterprise structure. Go to enterprise structure, Definition, Financial Accounting, Define company.

And I told you every screen will have a transaction code. In order to activate the transaction code, click on additional information, display IMG, IMG Activity.

This is the path. Click on this. The last four digits will form part of the transaction code. The purpose of the transaction code, I’ll tell you later. First of all, I want to define my company. See here, you can see IMG document, IMG activity documentation.

Read all this documentation that is very much important. It’ll give you a clear understanding of the subject. Maybe in the beginning, you may find it a bit difficult to understand the slang, the language, new jargon, new terminology. But as you go on reading, you’ll get accustomed to that. But understanding and reading of this document is very, very important. Right. So define company. And this is called IMG activity. Here, I need to define. Now click on Okay. This IMG activity button, that clock like button. So here sample data will be available, but, of course, we don’t require, the sample data for the time being. Let us create our own.

 

So here, I’m going to create one company code, Doc Reddy Labs. So I’ll take, DRL group.

You can create a DRL group, Doc Reddy Labs groups. Street, say, Banjar Hills. PO box number, City: Hyderabad. Country, here when you come to the country, standard countries are available here in the system.

You select, so from this, you can choose India, double click on this. Or you can type in, similarly for language key. So for language key, I want English, you can use EN. Then coming to currency, our currency is INR.

See how many currencies are there. 218 currencies are there. Right. Out of that, we can choose INR. Or straightaway, you can type INR. So like this, we can create a copy like this. Once you enter all these things, click on save. So once you save, the system will give you one number. This is called a request number.

Request number, this is going to be used for the purpose of transporting the total configuration from one system to another system because we are going to use around more than half a dozen systems in a landscape. Those details, I’ll tell you later. So DRL GRP is our company, this is a pharmaceutical company.

 

Next, step number 2, define company code. So my company code is going to be here, Edit, Copy, Delete, Check company code. So don’t forget to read the documentation here. It’ll give you, very clear understanding of the subject. Right click on this. When you click, edit company code data, click on edit company code data, go to new entries. So I’m going to create my own company code. So I’m taking DRLB, Doctor Reddy Labs Bulk Drugs Limited. City, I’m taking Hyderabad. Country, India, In. Currency, INR. Language, I’m going to use English. And all these things I need to tell the system.

Once you enter these things, we have to save it. See. It will be available like this. Doctor RLB bulk trucks limited. Hyderabad, India. Then click on this button (the last button on the New entries row) or just as you save, it will open up. Doctor Reddy Labs Bulk Drug Limited and the DRLB.

DRLB is nothing but by company code. Address, you can give. Just press enter. So, once you do this, click on save. Whenever you save anything, system will create a request number like this.

This will be used for the purpose of transporting from one server to another server. Right. So like this we need to go ahead with the total configuration steps.

 

Then coming to step number 3. Step number 3 is nothing but assign company code to company. So, Enterprise Structure, Assignment, Financial Accounting, Assign company code to company.

Here, I need to go ahead, select our company code. The company code is, for example, DRLB. Against DRLB, this DRLB belongs to doctor Reddy Labs group. Select your group. Doc Reddy Labs group, DRL group. Double click on that. Or manually, you can enter it. Then save it. So now both are linked to each other. So, group company and company code are linked to each other.