FICO Accounts Payable
Here, See, this is the procurement cycle. Procurement cycle, see, requirement to determination means what is the material that is required by see, account payable deals with what Procurement of materials and, maintenance of vendors, making payments to vendors, and of course, it’s a finance department job. So the data into the accounts payable will be flowing from materials department. In case of sales and distribution, data will be flowing from sales and distribution module to financial accounting. In case of, accounts payable, accounts payable is nothing but what are the bills that are payable, the amount payable to the vendors. Now how data is going to be flowing from that module to this module that we’ll see, and also, this is the general procurement cycle. First, the procurement material requirement determination and finding out the source of supplier, supply determination, all these things belongs to, materials management consultants. And once it is done with, vendor will be selected, then we issue a purchase order to procure the material, order processing. Then purchase order monitoring, whenever purchase order that has been issued, how many materials or how much material we have received, still how much we need to get, all those things, monitoring of the purchase order, and then goods receipt. Once purchase order is issued, supplier will supply the material. So goods is going to be received. Once goods are received, invoice verification is done. Once invoice is verified, then payment has to be processed by the finance department. This is the only part in this which has to be taken up by the finance department. This is the general cycle.
Now if you see, whenever we receive any material from any supplier, say general process I’m telling you, generally, material means, okay, I’m speaking about the raw material. Raw material or any material, whatever it may be. See, our company, Doc Ready Labs. Here, we have head office, there’s a plant and a supplier. Generally, once we shortlist a supplier, issue purchase order, he’ll be regularly supplying the material to us. It is not that every time we purchase the material from different vendors like that. Generally, constantly, whatever the raw material that we require, for that, we shortlist vendors, and throughout the year, we are going to procure from the same vendor. Of course, any other material, whenever it is required, we should purchase other and procure the material. So generally, we shortlist one supplier and the material is going to be supplied. See here. Material is supplied from the supplier to the plant. Generally, material is going to be received at plant. Once we receive it, acknowledgment is going to be sent to the supplier. Now once material is received, along with the material, we receive excise invoice, delivery challan, quality report, sales tax related documents like webex, etc. or G1 form, etc, something. In the material in the plant, whatever material that is received, we’ll again make a quality check, and generally, we prepare goods received note, GRN. Material received verify with purchase order. Whenever material is received, that will be verified with purchase order. And I’m speaking about it need not necessarily be a SAP process, the general procurement process I’m telling you. Once the material is received in the plant, that’ll be, we’ll prepare a goods received note. GRN means goods received note, how much material has been received. If say for example, supplier has sent 1,000 units. After that, 995 units are good, 5 new units are damaged rather. They are sent back to the supplier, and here, we are going to receive we are going to raise the goods received note for only 995 units. And that will be sent to the head office, that is finance department. You can imagine that. Right, Bills processing at finance department. And, once material is received here, accounting entries will be posted, like, materials account data to vendor account, that kind of thing. And meanwhile, we are going to receive commercial invoice from supplier to finance department. So finance department will compare the goods receivable note and the invoice that is received from the supplier, and we process it. And once we process, generally, we’ll have payment terms like 30 days credit or 45 days credit, 90 days credit, like that, generally, for raw materials, we’ll have that kind of credit. So that’s why we first, as soon as material is received, we pass an accounting entry, we book the liability, that means material is received, material account return to vendor account. So vendor account is going to be credited and liability is booked. On the due date, say, for example, if it is 30 days due date, that is 30 days credit period is there. So after 30 days, I’m going to take his bill, process it. So this is the general process and prepare a check and send to the supplier.
So this is the general procurement process, and the cycle is going to complete like this. And, of course, in case of SAP, we have certain automated things. As soon as material is received in the plant, we enter into the system. System, by default, prepares a goods received note, and finance department will verify it, here, we call it as MIGO, MIRO, certain t codes are there. There, the material consultants are going to material users will be entering the data. And once the material is received, here that invoice is going to be verified. And, okay, we have a process called automatic payment program. We take that automatic payment program and execute it, and we prepare the checks, and we send the checks to the supplier, etc. So that is the general process what we use, and in these things see here, I told you some topics like, that automatic payment program.
This is one of the very important. Wherever you go, there’ll be some few questions on this and withholding tax. All those things will be covered here. So this is the general process. Now in this process, what I would like to tell you now,
say here, I’m going to say, for example, create vendors. In order to create vendor, I’m going to create certain groups. Now what kind of groups I’m going to create? Say, raw material vendor group and the service vendor. Raw material vendors, all raw material suppliers will be grouped into the raw material vendors. Similarly, service vendors. Those people, those who provide service to the vendors, that is provide service to the company will be group vendor service vendors. For example, auditors, cost accountants, company secretaries, advocates, contractors, everybody, those who are going to provide services to the company are treated as service vendors.
Similarly, employee vendors. You may wonder what is employee vendor. In case SAP HR module is not there, then we may be making payments to the employees by treating them as vendors. And because we may be receiving advances, etc, from employees, for that purpose, we use employees as vendors. And in case HR module is there, every payment or advances, everything, not every payment, Any amount that booking of the liability or advances, everything will be routed through the HR module. Because for an employee, we may be making different types of advances. Maybe salary advance, travel advance, expenses advance, and festival advance. Different types of advances are there. All these advances will be routed through financial accounting if the HR module is not there. And if the HR module is there, then it will be routed through the HR module. But, of course, payment is going to be released by the finance department. Then it will give a nudge. It will give a nudge means all your service means, say, for example, internet providers and mobile services and business what you call landline services, internet services, whatever it may be, all and then not only that. Say, for example, waterworks, electricity, all those things will be coming under utilities, Public utility services. All those utility vendors because I cannot club raw material vendors and utility vendors, service vendors and raw material vendors. Because I want to show them, I want to reflect them in the balance sheet in different ways as per their services, whatever they provide. Similarly, asset vendors. If you are going to buy assets, you are not going to buy from raw material vendors or service vendors. So that’s why we can create one more group like asset vendors.
Now in order to create vendors, first I need to create groups just like what we have done in case of sundry debtors, that is accounts receivable. We are going to create vendor groups first, create number ranges. So all those things, the process will continue. And, now here, again, the process with reference to the recon account is the same.
So here also, we are going to, create 1 recon account, that is sundry creditors account. Then we have created sundry debtors. Now it is sundry creditors. Vendors accounts are sub ledger. Vendors account, which we are going to post is sub-ledger. And the sub-ledger and the main ledger are going to be linked to each other. Now whenever, any entry is posted to vendor account, then immediately that will be posted to sundry creditors account. And the balance is going to be reflected in the balance sheet. The concept, if you understand sundry debtors and customer, the same relation is going to exist between vendor and sundry creditors account. And in each vendor account, we are going to link up sundry creditors account. All those things here. You know, with this background, let us start the configuration.
Right here, basic configuration steps.
Define account groups with screen layout vendor. Screen layout, you know, in case of customers, we have, we can control the screen layout from the customer creation groups. Similarly here, even path, everything looks the same. I’ll show you now. Financial accounting (New), Accounts receivable and accounts payable. Previously, we went to customer accounts. Now go to Vendor accounts, Master data, Preparations, Define account groups with screen layout (Vendors). For customers, Master data, Preparations, Define account group with screen layout (customers). Path also the same. Everything is same. Even accounting entries are also the same but just reverse. There we debit customer and credit sale. Here, we debit purchases and credit vendor account. Now define account groups with screen layout to vendors. Let us activate the T code, OBD3 is the T code.
Define account groups with screen layout (Vendors). Same way what we have done in case of customers. Go to new entries.
Here, what I will do Rights. Here, I’ll do one thing. Raw material vendors or we can say Material vendors domestic. Okay, I’m going to create GL accounts that we see afterwards and I’m going to use one 4 digit code here. That is the Doctor Reddy Labs Material Vendors. What I will do is DRMV, service vendors DRSV, DREV employee vendors, DRUV utility vendors. DRAV asset vendors. Like that we are going to create. Now say, DRMV Material vendors. Here account group DRMV, material vendors domestic for DRL group. Alright.
Not one time account. Now the same way, we can decide the fields in case of general data. Address field. So name required entry. So that people should not even by mistake forget to enter the name of the vendor. Come back. Go to Company code data. Same way, Account management. Reconciliation account, required entry.
So whatever we enter into the vendor account, that should go to sundry creditors account, that is recon account. So that is the main purpose. And, why it should go to reconciliation account? Why it has to go? Because that has to be represented in the balance sheet. Because I cannot represent all if I have 1,000 vendors. Means, all 1,000 vendors I cannot represent in the balance sheet, but the total of the amount will be reflected in the name of sundry creditors. Say, sundry creditors material, say, 2 crores, and, sundry creditors for services, maybe 50 lakhs. So like that, sundry creditors, one mass single figure and consolidated figure should appear. So that figure will be posted through concerned vendor account to sender creditors account. So for that purpose, we are making by default reconciliation account required entry so that we are going to link up vendor account and sender creditors. By default, any amount that is posted to vendor that will be flowing to the reconciliation account, internally that will flow to balance sheet. So DR Reddy Labs Material vendors. Click on right arrow, Next entry. Service vendor, DRSV. This is service vendor group for DRA Group Companies. Same address required entry. Account management, reconciliation account, required entry. Next. Employee vendors, DREV. Employee vendors- DRL group. It will even nuts. DRUV, Utility vendors group- DRL. Next is asset vendors group. Say, DRAV, asset vendors group. Like this see, it doesn’t mean that we have to create like this for all. Depending upon the requirement of the client, I’ll be creating it. Whenever we are going to create anything, we need to discuss with the client what is his requirement. So in in last year’s implementation, we have created vendors based on the business units they had. I think I don’t know whether I told you or not. So one food processing company was there, And, one division is organic foods, other one is textile division, export division, and the biotech division. Something like that for four different divisions are there. So division wise, we have created in different way. So like that depending upon the so this is general requirement. Depending upon the client requirement, we created. So different groups we have created.
Now Create number ranges for the account groups. So what we do is for employee vendors, we use external number range. Here, we create employees with external number range. There also we have given, but we have not created this one. Here, I’ll show you how it works.
Click on intervals. One thing I would like to tell you here is, any number of company codes under the group can use these vendors. For example, if I’m going to, now we have DRLB. So we are going to have DRL Pharma company, one more. So even that company also can use the same group and create Vendors. So not only that, anybody can use. But, of course, in case of real scenario under the group, whatever the group companies are there, they can use this vendor account groups. What is the advantage? I did not create again, because, at company group level, almost every company will be maintaining same similar groups. I can create vendor and, their groups can be used.
Right interval. Now here already we have up to 10.
I’ll create we have 5 groups. Out of 5 groups, for employee vendors, we are going to use external number range X, A to Z. Because employees will be numbered with some employee number. Need not necessarily be whatever the serial number that we are going to give. So that’s why we use for external number range for employee numbers. Up to 10 we have, now I’m going to create 11, 12, 13, 14. Click on Interval.
No 11. What is the number range that is available here? From 400401 to 400500. For 12, 400501 to 400600. For 13, 400601 to 400700. One more we’ll create. For14, 400701 to 400800.
Save it.
See here. So for every anything, whatever you create and save, system is going to generate request number. But for number ranges, it will not generate request number. Rather, it creates this information. The number range intervals are not included in the automatic recording of the customizing changes. Transport of all these changes made within the number range interval maintenance must be triggered manually. If you want to create that request number, whatever we get for other things, if you want to get for number ranges, we have to trigger it manually. And, in the initial screen. See, the main purpose is that in other cases, whenever we are going to save anything, whenever you create anything and a change request will be generated, that will be used for transporting from one server to another server. Same number range also. But generally, what we do, we assume that number ranges that are going to be used by client to client or server to server may be different. In case if you are using the same thing, you can transport it by generating the request manually. Come back. So 4 digits, we have 4 number ranges we have created.
Now step number 3, assign number ranges to vendor account groups. So here, say asset vendor. We have started from number 11.
So you can get it here. See 11, 12, 13, 14 we have created. So employee will assign external number range, so we can give any number range at the time A to ZZ. So for each group each number range has been assigned. Come back. So we have created the account groups, number ranges, and assigned number ranges.
Next step. Okay what are the documents that we are going to use for the purpose of vendor account groups. We have seen customer related documents, now vendor related documents.
Customer DG, DR, DZ. Here in Vendor, KG, KR, KZ. KG- vendor credit memo. KR- vendor invoice, KZ- vendor payment. System suggest you following numbering. So, again, to create the document, place and number ranges, the same path. Go to document, Document types, Define document types for entry view. OBA7 is the T code.
RKG KR KZ, these are the 3 documents we are going to create. First KG.
Number range, 17. Remember that for sundry debtors, our accounts receivable system takes 14, 16, 18. Here, 17, 15, 19, odd numbers. And here, except customer, all the things are checked here. Procurement of material, Vendors, procurement of assets, and GL account.
So company code, DRLB. Click on Intervals, Enter 17, Year 2013.
From number range, I’ll take 1700001 to I’ll take 1800000. Similarly, vendor invoice. 19. Interval. 19. Year, 2013. Say 19 lakhs 1 to 20 lakhs. So similarly, KZ vendor payment. 15. From number range, 15 lakhs 1 to 16 lakhs, So 3 documents number ranges we have created. Come back.
Then coming to tolerance group. So whether we define any parameters or not, defining tolerance group is a must. Go to Vendor accounts, business transactions, outgoing payments, then manual outgoing payments, Different tolerances (Vendors). So here, just I’m going to create only the new entries.
Company code, DRLB. I’m going to create, say, for example, DRO9. So I’ve created DR09. For the Sundry creditors, I’m using DR09, and tolerance group for vendors-DRL. So any parameters that we want, we can assign here. For the time being, I’m not entering anything. So only these 5 steps we need to create.
Then coming to creation of GL account. So we know that creation of GL account, the T code is FS00. So what accounts I need to create now? So number 1, See whenever you are going to post an accounting entry for the purpose of materials etc, see accounts payable. See, the entry which is going to be triggered from materials management is something peculiar. Entries that are going to be triggered from materials management is when material is received, inventory of raw material can return to GR/IR clearing account. What is GR/IR clearing account? Tell you, one intermediary clearing account. Then when invoice is verified, first of all, material is received. So then they’ll enter into a T code called MIGO. And when invoice is verified, then GR/IR clearing account is debited and vendor account is going to be credited. And there’s a T code that is called MIRO. Ultimately, the accounting entry is what? Inventory of raw material account return to vendor account. So inventory, because there’s an asset, debit what comes in? Asset is debited. Because as material is being received. And vendor, he is the giver. Ultimately, though these two entries are given, and this is going to be the entry. So that’s what I am going to do now. Manually, I’ll enter the same entry. So when we see the integration, I’ll tell you about GR/IR clearing account and other things. Whenever we are going to receive any material, inventory of raw material account return to vendor account. And, posting key 40. And the posting keys for the purpose of vendor accounting are 25, 31. And, what are the posting case for sundry debtors, accounts payable? 01 and 15. 01 is debit, 15 is credit. Similarly now, vendor debit is 25, Vendor credit is 31. I told you the importance of the posting key, it is not just like the DR and CR. It is much above that. So now you do I have to create now inventory of raw material account and also vendor account anyway will create, and Sundry Creditors account I have to create. So whenever inventory of raw material is posted, add to vendor account. When we post vendor account and the recon account is going to be sundry creditors. So I have to create an inventory of raw material account and sundry creditors account.
So let me create inventory of raw materials. Let me check what is the GL account that we have created here, the serial numbers we can give. And the 2 here, account group, sundry creditors, nothing but liability, sundry creditors.
Here, Basic settings in Easy Access. So 101201 is going to be used for the Sunday creditors for materials.
Okay sundry creditors 101201. DRLB. Click on create. Now this is sundry creditors.
This is a balance sheet account. Text, Sundry creditors materials.
And here a recon account. Vendors. So what is meant by recon account, that is reconciliation account. Reconciliation account is nothing but it will represent in the balance sheet. Any entry to this reconciliation account will be posted only through sub ledger, you cannot post directly. So that’s why this is going to identify like vendors. That is a reconciliation account vendors and line item display. In summary, creditors account, I can post the line items and sort out by vendor number wise, 012. G067 is the field status group. Save it.
101201 we have created. Now create with template.
This is service vendors, 101202 we use. Three, Employee vendors 101203, create like this. Four, utility vendors 101204, and Asset vendors 101205. So five(5) reconciliation accounts we have created. Then materials account. So materials is nothing but current asset, current asset means inventories, 200201. Inventory of raw material, we call it as. That’s why we’re creating inventories.
200201, Inventory of raw materials. So in the balance sheet account, G001. Nothing special here. It’s a balance sheet. What happens if you create an account? First P&L account and again subsequently, then there is a difficulty, better block that account and create another account. But before you post any entries, you found the mistake, then you can change it. Nothing will happen. Otherwise, then nature of account will be changed completely. So that’s why that is not allowed. And the next, creation of vendor account.