CHAPTER 7: FINANCE CYCLE

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 9 can contain either active accounts or titles that combine several active accounts.

Level 10 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.

Viewing Chart of Accounts

To view existing Chart of Accounts

Go to (1) Financials → (2) Chart of Accounts

Editing Chart of Accounts

To edit (add, modify, update) Chart of Accounts

Go to (1) Financials → (2) Edit Chart of Accounts
3. Tick the box beside the Chart of Account drawer that you want to edit
4. Click OK.
5. Click on Add Same Level Account or Add Sub-level Account.
6. Input the necessary information of the Account to be added.
7. Click OK.
Posting Periods

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:
(1) Administration → (2) System Initialization → (3) Posting Periods.
4. On the lower right corner of the Posting Periods window, click ‘New Period’.
5. Input the necessary information of the Period to be added.
6. Click Add.
7. Click OK.
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.

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.

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:

o Entering a manual journal entry
o From a journal voucher
o Using a recurring postings
o Using a posting template

Non-Routine Transactions

Manual Journal Entry

To record a manual Journal Entry:

Go to (1) Financials → (2) Journal Entry
3. On the Remarks field, input a brief explanation for the Journal Entry being made.
4. On the G/L Account field, click the Pick List button.
5. List of Accounts window will open, select the Account affected by the Journal Entry being made.
6. Click Choose.
7. Input the amount on either the debit/credit side, depending on the nature of the transaction.
8. Add.

Note: Journal Entries created in this manner are not editable once added.
Journal Voucher

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 (1) Financials → (2) Journal Vouchers → (3) Add
Entry to New Voucher
4. A Journal Voucher Entry window will appear, and you can input the information just like in
the manner of a Manual Journal Entry. Click Add to Voucher.

5. Double click the Voucher if you want to edit it contents. You can also remove a journal voucher or delete
an entry from a journal voucher, as long as they have not been posted yet. Right-click the journal voucher
row, select Remove Journal Voucher.

6. Click Post Voucher.

The main purpose of Journal Vouchers is to allow parking of Journal Entries that is still subject to
supervisor’s approval.
 Routine Transactions

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.
 Template: Journal entries that you need repeatedly but not on a regular basis can be created as this type.
You can access these templates from the manual journal entry. To do so, you must specify Recurring
Posting in the Template Type field.
 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.

Example: The company pays a 10,000 Repairs and Maintenance fee for its Office Building every 17th of the
month, for 1 year. Use the following information:
Code: RAME Description: Repairs and Maintenance Fee
Dr. Repairs and Renewals 10,000
Cr. Petty Cash 10,000

To create the recurring posting:

Go to (1) Financials → (2) Recurring Postings
3. Input the code and description
4. Input the recurring Journal Entry
5. Set the frequency and validity.
6. Click Add.
The recurring posting will appear upon log-in on the specified day of the month. Select the recurring
posting and click Execute.

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 (1) Financials → (2) Posting Templates to enter and maintain posting templates.
3. Input the following information

Code: PRE Description: Allocation of Prepayments

Dr. Property Rent 70%
Dr. Premises Insurance 30%
Cr. Petty Cash 100%

4. Click Add.

5. 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.
6. 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.
Posting Period Process

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 (1) Administration → (2) Utilities → (3) Period-End Closing to run Period-End Closing.
4. With the Period-End Closing function, you can choose P&L accounts and periods, and specify a retained
earnings and period-end closing accounts.
5. 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.