FIN2013_Ghosh_Lessonstosimplifyprofit

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Lessons to Simplify Profit Center and Segment Reporting Activities

Saugata Ghosh PwC

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In This Session …

•  We will discuss… s  How Profit Center accounting in the classic GL compares to its

capabilities in the latest version, i.e., SAP General Ledger s  Step-by-step guidance for implementing SAP General Ledger

Profit Center accounting functionality s  Importance of setting up correct master data s  Walk through various examples and reports s  Recommendations and best practices

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What We’ll Cover …

•  Why implement profit center accounting •  Classic profit center accounting vs. profit center in SAP

General Ledger •  Step-by-step guide for implementing SAP General Ledger

profit center •  Wrap-up

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Why Profit Center Accounting?

•  Statutory reporting s  Various accounting pronouncements require disclosure about

operating segments of an enterprise and related financial information, particularly for public companies �  Example: FASB Statement No. 131 (US GAAP), IAS 14 Segment

reporting, IFRS 8 Operating Segments. s  Increasing importance of IAS/IFRS as global accounting principle is

heightening the need for improved quality and modeling of segment reporting

•  Management reporting s  Multi-dimensional analysis of the performance (revenue, expense,

profit, working capital, ROI, etc.) of various operating segments and responsibility centers within an enterprise has always been in the priority list for the management information system

•  Profit center accounting is an ideal tool for modeling of your segment reporting

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SAP General Ledger World

Source: SAP

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Classic Profit Center Accounting vs. Profit Center in SAP General Ledger •  Profit center accounting in Classic GL

s  Primarily for deriving Income Statement for internal responsibility centers �  CO objects responsible for revenue and costs (such as cost center,

order, project, customer order) are assigned to profit centers and updated with the relevant transaction data affecting net income

s  For measuring ROI, select Balance Sheet items (such as fixed assets, inventory, WIP, AR, AP, Cash) can also be accounted for the profit centers

s  However, there is no zero-balance functionality for each profit center

•  Profit center accounting in SAP General Ledger s  Enhanced functionalities for complete financial statements (Income

Statement and Balance Sheet) by profit center, segment, and profit center group �  Online document splitting makes it real time

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Key Differences/Improvements

Profit Center Accounting in Classic GL Profit Center Accounting in SAP General Ledger

Application • Use profit center to represent responsibility centers/BUs for which you need independent income statement (Only select B/S Items can be tracked at profit center level; for example, Inventory, WIP, Fixed Assets, A/R, A/P, and dedicated accounts, like Bank and Cash)

• Use profit center to represent responsibility centers/BUs for which you need independent financial statements (income statement, as well as balance sheet)

Part of CO vs. FI

•  Part of Controlling (CO) module •  Integrated into FI module

Ledger • Documents are posted in 8A ledger •  Profit center and partner profit center are characteristics of FI postings; no need for separate ledger

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Key Differences/Improvements (cont.)


Total Table • GLPCT •  FAGLFLEXT • Characteristics like profit center and

segments are part of this table Allocation • Use CO profit center allocations

(assessment 3KE5 and distribution 4KE5)

• Use FI to perform actual allocation (assessment and distribution) of account balances, including balance sheet items

• CO allocations can be posted in FI real time with the functionality of real-time reconciliation (CO with FI)

Period-End Process

•  Period-end B/S readjustment (TCode: F.5D and F.5E)

•  Periodic transfer of payables and receivables (TCode: 1KEK)

• No period-end processing (B/S readjustment) required

• With document splitting, AR and AP lines are distributed real time to respective profit centers

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Key Differences/Improvements (cont.)


Fixed Asset Master

•  Profit center derivation is based on cost center as maintained in asset master

•  (EHP 5) Profit center and segment fields added in asset master for enhanced reporting

Dummy Profit Center

• Unassigned postings go to dummy profit center

• No need for dummy profit center • New functionality of “Constant” as

part of document splitting

Segment • Not available • A new account assignment object (org. unit) added for enhanced segmental reporting

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Step-by-Step Guide for Implementing SAP General Ledger Profit Center •  Configuration •  Master data •  Transaction data (derivation) •  Planning •  Reporting

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Implementation Guidelines

•  Define profit centers and segments based on segment reporting needs •  Ensure every FI document line has correct profit center/segment

s  Assign scenarios to your ledgers s  Set up master data for derivation of “profit center” and “Segment” in

transactions �  Use Assignment Monitor

s  Set up additional derivation logic �  Default profit center assignment (FAGL3KEH) �  Document splitting �  Substitution, BAdI

s  Manually enter profit center in transactions •  Every FI document needs to be self-balanced by profit center/segment

s  Zero balance and mandatory field check s  Real-time integration of CO with FI

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Segment — A New Organizational Unit in SAP General Ledger •  SAP had introduced “segment,” a standard account assignment

object, as part of SAP General Ledger •  Segment can be used to represent your business segments

(segmentation based on product lines, geography, or customer) •  Segment can be viewed as a group of profit centers

s  Then what is the rationale of having “segment,” too? �  Unlike profit center group, segment is assigned to

transaction records �  Unlike profit center group, segment is available for most of

the GL reports (part of selection parameters in every standard SAP General Ledger report)

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Segment — Definition

•  Segment creation is a configuration setup

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Segment — Derivation

•  Segment is automatically derived from profit center •  It’s possible to develop custom derivation logic using BAdI

FAGL_DERIVE_SEGMENT

•  For many business transactions, especially in logistics, segment can’t be entered manually s  This is why the segment is recommended to be used along with

profit centers s  However, if you want to use segment without profit center, you

should ensure that segment can be derived using the BAdI FAGL_DERIVE_SEGMENT or substitution rules for all your business transactions

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Profit Centers — Assigned to Segments

•  TCode: KE51/KE52/KE53 for Create/Change/Display •  Profit centers are assigned to segments (master data “Basic Data Screen”) •  Multiple profit centers can be assigned to a segment (n:1 relationship) •  Profit center can go across company codes, but not across Controlling

Area

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Changing Segment in Profit Center

•  In standard settings, once posting is made to a profit center, the assigned segment cannot be changed

•  To allow change of segment in profit center master data, configuration needs to be done in view V_FAGL_SEGM_PRCT using TCode SM30 s  Once this configuration is done, the segment will be allowed to

be changed in the profit center master data (KE52)

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Scenarios for Profit Center and Segment

•  “Scenario” defines which fields are updated in the SAP General Ledger tables during posting s  Scenario for profit center is FIN_PCA s  Scenario for segment is FIN_SEGM

•  Scenarios are SAP-delivered; you can’t define your own •  Scenarios need to be assigned to leading and/or non-leading ledgers

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Profit Center Derivation in Transactions

•  Profit and loss accounts s  Expense accounts s  Revenue accounts

•  Balance sheet accounts s  Fixed assets s  Inventory s  Cash and bank s  Accounts receivable s  Accounts payable s  Other accounts

Master data/cost objects Master data/material/SO Master data/assets Master data/material Default assignment Document splitting Document splitting Manual entry

Financial Statement Items Derivation

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Profit Center Derivation in Transactions (cont.)





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Profit Centers in Asset Accounting

•  Prior to EHP 5 s  Only cost center is available in

the asset master s  Profit center is derived from the

cost center •  EHP 5 onwards

s  SAP added profit center and segment fields in asset master

s  This enables you to create asset reports at the profit center or segment level

•  Profit center should be same in asset master and in the cost center assigned to the asset

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Asset Accounting — Make “Profit Center” Required •  In the screen layout, set profit center (and cost center) as

mandatory

•  Assign screen layout to Asset Class: TCode OAOA

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Material Master — Make “Profit Center” Required •  In field selection settings for material, set the profit center as a

required entry s  Transaction codes – OMSR and OMS9

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Cost Center — Make “Profit Center” Required •  There is no field status configuration for cost centers •  Standard SAP displays a warning message when saving a cost

center without entering a profit center •  Change the message control to display an error message

s  Transaction code – OBA5 s  Application Area – KS s  Message Number – 096

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Internal Order — Make “Profit Center” Required •  In the field selection settings in the “Define order type”

configuration, set the profit center as a required field •  Transaction code: KOT2

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WBS Elements — Make “Profit Center” Required •  In the field selection settings for WBS Element, set the profit

center field as required

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CO Production/Process Order — Profit Center Derivation •  The profit center in CO Production/Process Order is proposed from FG material

master (to review assigned profit center, use TCode CO03 ª Assignment tab) •  The following FI entries get generated while processing CO Production/Process

Order: s  Confirmation/Goods Issue

�  Dr. RM Consumption (1) �  Cr. RM Inventory (2)

s  Confirmation/Goods Receipt �  Dr. FG Inventory (3) �  Cr. Cost of Goods Manufactured (4)

•  Analysis s  (1) and (4) posted to profit center maintained in the Production/Process Order s  (2) and (3) inventory posted to profit center maintained in material master’s RM/FG

•  Note: s  If profit center in consumption line (1)/COGM line (4) is different from the Inventory

line and if “zero balancing” is active the system will automatically create inter-profit center clearing lines

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Sales Order — Profit Center Derivation

•  Profit center is proposed in the Sales Order line from material master

•  Proposed profit center can, however, be changed manually (VA02) or by using a substitution rule s  Example scenario for substitution: Selling profit centers are

different from the profit center responsible for the manufacturing plant (where inventory is sitting) and you want to book sales in the selling profit centers

•  To review profit center determined, use TCode VA03 ª GoTo ª Item ª Account Assignment tab

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Sales Order — Profit Center Derivation (cont.)

•  Sales Order s  The following FI entries get generated while processing sales orders:

�  Delivery/PGI §  Dr. Cost of Goods Sold (1) §  Cr. Inventory (2)

�  Invoice §  Dr. Customer (3) §  Cr. Revenue (4)

•  Analysis s  (2) will be posted to the profit center maintained in the material

master s  (1) and (4) will be posted to the profit center maintained in sales

order s  (3) Profit center will be inherited from line (4)

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Setting Up Default Profit Centers

•  A new transaction (FAGL3KEH) is available for maintaining default Profit Center for a combination of Company Code and GL A/C (Classic GL transactions 3KEH and 3KEI are not valid in SAP General Ledger)

•  Alternatively, BAdI FAGL_3KEH_DEFPRCTR can be used for determining Profit Centers

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Setting Up Default Profit Centers (cont.)

•  For these GL accounts, the system needs to be set so that profit center is not allowed for manual entry. This can be accomplished by suppressing the profit center field in the field status group assigned in the master data of the GL account.

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•  Profit and Loss Accounts s  Expense Accounts s  Revenue Accounts

•  Balance Sheet Accounts s  Fixed Assets s  Inventory s  Cash & Bank s  Accounts Receivable s  Accounts Payable s  Other Accounts

Master data/ Cost objects Master data/ Material/ SO Master data/ Assets Master data/ Material Default Assignment Document Splitting Document Splitting Manual Entry


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Manually Enter Profit Center — Other Accounts

•  There are some balance sheet and revenue accounts for which the profit center cannot be derived s  For such accounts, the profit center needs to be manually

assigned during document entry •  For these accounts, the system should be configured to set the

Profit Center field as “required” during posting s  This can be accomplished by making the profit center field a

required entry in the field status group assigned in the master data of the GL account (TCode OBC4)

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Profit Center Derivation for AR and AP

•  In classic profit center accounting (PCA), AR and AP line items get transferred to PCA only during period end (TCode 1KEK)

•  With SAP General Ledger, profit centers can be derived for AR and AP line items real time from the offsetting lines s  This can be achieved by activating document splitting and zero-

balancing functionalities

•  Remember that real-time document split postings are only in the SAP General Ledger, not in the AR or AP sub-ledgers

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Customizing — Define Document Splitting Characteristics •  Characteristics are the organizational elements based on which

document splitting functionality is performed •  In the example below, document splitting is performed based on

profit center and segment

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Balance Sheet for Profit Center and Segment

•  Activate “document splitting” with profit center and segment as splitting characteristics s  Set the “zero balance” indicator to ensure self-balancing s  Set the “Mandatory Field” check indicator to ensure that profit

center and segment are populated in all postings •  Define “Zero-Balance Clearing Account”

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Customizing — Activate Document Splitting

•  Document splitting method: Defines how splitting is to be performed •  Inheritance: Characteristics of a line item get copied into the offsetting

item •  Constant: Default splitting characteristics

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Customizing — Activate Document Splitting (cont.) •  Selected company codes can be deactivated

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Customizing — Define Constants

•  Constants are used to define default values for splitting characteristics, such as profit center, segment, etc.

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Views in Accounting Document

•  When SAP General Ledger is active, an FI document always has two views: Entry view and the General ledger view

•  Entry View s  This is how a user makes a document entry s  This is how a document also appears in the sub-ledgers

•  General Ledger view s  This is how SAP General Ledger is updated with the postings

�  Document splitting is only relevant for the general ledger; it is not visible in Entry View

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Example of a Vendor Invoice — Entry View

•  No profit center in the vendor line item in the Entry View •  To view the profit center assignment, click General Ledger View

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Example of a Vendor Invoice — General Ledger View

•  Vendor line gets split; profit center is derived from offsetting lines s  Split line items are stored in actual line items table FAGLFLEXA s  Totals updated in table FAGLFLEXT

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Configuration — Zero-Balance Clearing Account •  In this configuration, you specify a GL account for zero-balance

posting – Example: Inter Profit Center Clearing

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Example of Vendor Payment — Entry View

•  This is a cross-profit center payment (from corporate P0000 to P1000 and P1100)

•  For the bank line item (GL Account 113130), the profit center derived was P0000 (from FAGL3KEH configuration)

•  No profit center in the vendor line item in the Entry View •  To view the profit center assignment, click General Ledger View

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Example of Vendor Payment — General Ledger View •  Note the AP and Inter-PC Clearing lines

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Example of Vendor Payment — Analysis of General Ledger View •  Bank line item (GL Account 113130)

s  Profit center derived was P0000 (as set in FAGL3KEH) •  Accounts payable line item

s  Split based on the document splitting configuration, and the profit center was derived from the original invoice for which the payment was made

•  The Inter-Profit Center Clearing Account (GL Account 194500) s  These line items were created as a result of cross-profit center

posting and the configuration of zero-balancing functionality s  System creates a receivable in P0000 and stores the partner

profit center information P1000 and P1100 s  System creates payables in P1000 and P1100 with the partner

profit center information P0000

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Example of Vendor Payment — Analysis of General Ledger View (cont.) •  Shown below is the same document sorted and summarized by

profit center •  With the addition of inter-profit center clearing line items, the

document is now balanced by profit center and also by segment

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CO/FI Real-Time Integration

•  Secondary allocations within CO, across profit center or segment, should be accounted for in FI as reconciliation s  Example: Cost center assessment

•  In SAP General Ledger, the system can be configured to reconcile CO and FI on a real-time basis

•  IMG menu path:

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CO/FI Real-Time Integration — Example

•  Cost center assessment s  Sender: Cost Center CCP1000 (Profit Center P1000, Segment

S000) s  Receiver: Cost Center CCP1100 (Profit Center P1100, Segment

S100) s  Both belong to Company Code 0006

•  CO document:

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CO/FI Real-Time Integration — Example (cont.)

•  Reconciliation Document (Entry View)

•  Reconciliation Document (SAP General Ledger View)

Line 0003 and 0004 generated due to document splitting

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Assignment Monitor

•  Use the assignment tool provided by SAP to find out if there is any master data that is not assigned to the profit center (TCode 1KE4)

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Planning — Classic GL vs. SAP General Ledger

•  Profit center accounting in Classic GL s  Planning for cost centers/orders happens in the CO module (CO-OM) s  Integrated planning (CO ª EC-PCA) is used to transfer plan data to

classic profit center accounting (online)

•  Profit center accounting in SAP General Ledger s  Profit center is now integrated with FI planning functionality s  FI planning is possible using any combination of characteristics,

such as GL Account/Profit Center/Partner Profit Center/Profit Center Group/Segment/Functional Area/Cost Center �  Plan data gets updated in FAGLFLEXP (plan Line Items) and also in

total table FAGLFLEXT s  Planning for cost centers/orders continues in CO module (CO-OM).

The plan data is transferred online to FI with characteristics such as profit center and segment (only for primary cost elements).

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SAP General Ledger Profit Center Planning

•  IMG: Financial Accounting (New) ª General Ledger Accounting (New) ª Planning

•  This functionality can be used for plan vs. actual reporting

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SAP General Ledger Profit Center Planning — Enter Plan Values (TCode GP12N)

•  Transaction Codes s  GP12N: Enter plan Values s  GP12NA: Display Plan Values s  GLPUP: Upload From Excel

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SAP General Ledger Profit Center Planning — Copy Data to Plan (TCode FAGLGP52) •  Copy 2010 actual data to 2011 plan

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Profit Center and Segment Reporting (Standard Reports) •  SAP has provided a set of

new reports as part of the SAP General Ledger

•  SAP Easy Access screen: Accounting ª Financial Accounting ª General Ledger ª Information System ª General Ledger Reports (New)

•  New reports have profit center and segment as selection criteria for segment reporting needs

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Profit Center and Segment Reporting (Design Your Own Reports) •  You can define your own reports using IMG path: Financial

Accounting (New) ª General Ledger Accounting (New) ª Information System ª Drilldown Reports (G/L Accounts)

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Report — GL Balance by Profit Center/ Segment (FAGLB03)

Replaces classic GL report FS10N

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Report — GL Line Item by Profit Center/ Segment (FAGLL03)

Replaces classic GL report FBL3N

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Report — Financial Statements (S_PL0_86000032)

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Standard SAP General Ledger Reports Financial Statement: Actual/Actual Comparison – S_PL0_86000028

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Standard SAP General Ledger Reports (cont.)

Financial Statement plan vs. actual comparison (S_ PL0_86000029)

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Standard SAP General Ledger Reports (cont.)

Financial Statement S_ALR_87012284

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Profit Centers in Asset Accounting Reports

•  To generate reports with profit centers, you can create a sort variant (Transaction Code OAVI)

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Profit Centers in Asset Accounting Reports (cont.)

•  Use a new sort variant to generate profit center-wise asset reports

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Where to Find More Information

•  http://service.sap.com * s  SAP Note 756146: SAP ERP new General Ledger: General

information s  SAP Note 826357: Profit Center Accounting and New General

Ledger s  SAP Note 321190: Difference between business area and profit

center s  SAP Note 812919: SAP ERP new general ledger: Migration s  SAP Note 1070629: FAQs: New general ledger migration s  SAP Note 1534197: SAP LT: Transformation Solution- Profit

Center Reorganization

* Requires login credentials to the SAP Service Marketplace

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7 Key Points to Take Home

•  Ensure every FI document line has the correct profit center/segment derived s  Understand the importance of setting up master data correctly s  Set Profit Center field as mandatory in the relevant master data wherever possible

•  Take advantage of document splitting s  Ensure every FI document is zero-balanced by profit center/segment, so that you

can report complete financial statements for your profit centers/segments s  Have AR and AP items distributed to profit center/segment real time

•  Configure real-time CO-FI integration for secondary allocations across profit center/ segment

•  Use FI planning using profit center/segment for plan vs. actual analysis •  Use new reports (introduced by SAP as part of SAP General Ledger) for segment

reporting needs •  If you are currently using classic profit center accounting, you may continue to use

the same in parallel after migration to SAP General Ledger. However, it’s not recommended on a long-term basis due to the increased data volume and additional time and effort.

•  Despite all new functionalities in SAP General Ledger, the user interfaces for data entry are virtually identical with the earlier version

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Your Turn!

How to contact me: Saugata Ghosh

[email protected]

Please remember to complete your session evaluation

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Disclaimer

SAP, R/3, mySAP, mySAP.com, SAP NetWeaver®, Duet®, PartnerEdge, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by SAP.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. © 2013 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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