INDEX

PAGE
SL NO. CONTENTS NO.

1 Define Chart of Accounts 1

Assign Company Code to Chart of
2 Accounts 3

3 Define Account Groups 5

4 Define Retained Earnings Account 6

5 Create General Ledger Account 9

6 Accounting Entries in SAP 16

7 Define Financial Statement Versions 28

 GENERAL LEDGER

Chart Of Accounts

The Chart of Accounts is the list of General Ledger Accounts.

A Chart of Account (COA) is defined at the client level. After creating, it has
to be assigned to a company code. To have better control, general ledger
Accounts are grouped under a chart of accounts. This will help to develop
different financial statements for legal reporting.
Important purpose of COA is to segregate expenditure, revenue, assets, liability
so that viewer can quickly get sense of company financial health.

A well designed COA not only meets the information needs of the Mgt , but it
also helps business to comply with financial reporting std.
Each General Ledger Account created within a Chart Of Account contains the
Account Number, Name, control fields that manages the function of master
data.

Every organization must have an operating chart of accounts to record its

financial transactions for a periodical evaluation at the month, quarter or year
end.

We define COA as a variant within the financial module which contains the
structure and basic information about all general ledger Accounts used within
the organization.

We require information like Maintenance Language, Length of GL Accounts (in

number), Manual or automatic creation of cost elements, Group chart of
account etc while creating this variant.

After creating the COA variant, we create different Account groups within it so
that it will be easy to identify the nature of the expenses by looking at the
naming convention.
It will also be easy to manage Account group’s field status from these A/c
groups. These fields are used in general ledger master data creation.

We can also manage the number range of General Ledger Accounts from its
respective account group that has been created under a Chart Of Account
variant in SAP.

In SAP FICO, we have three different type of chart of account;

1. Operating COA
2. Country Specific COA
3. Group COA

• Operating chart of account

The operating chart of accounts contains the G/L accounts that you use for
posting in your company code during daily activities. Financial Accounting
and Controlling both use this chart of accounts.
You have to assign an operating chart of accounts to a company code.
• Group chart of accounts
The group chart of accounts contains the G/L accounts that are used by the
entire corporate group. This allows the company to provide reports for the
entire corporate group.
The assigning of an corporate group chart of accounts to a company code is
optional.
Eg:
If you have more than one company code and all the company codes are using

different operating chart of accounts (COA) then cross company code controlling

will not be possible by using controlling area. To avoid this problem one can use

group COA. A group COA is used for consolidation purpose when more than one

operational COA is used by different company codes. Group COA is helpful for
internal reporting. To use Group COA you need to assign it to the Operating COA

of a company code. When you assign it, Group A/c Number field in the COA

segment of the operating chart of account (COA) becomes a mandatory entry

• Country-specific chart of accounts

The country-specific chart of accounts contains the G/L accounts needed to
meet the country's legal requirements. This allows you to provide statements
for the country's legal requirements.
The assigning of an country-specific chart of accounts to a company code is
optional.

Create Chart of Accounts Transaction Code : /NOB13 or

Path:- SPRO > Financial accounting > G/L accounting > G/L Account >Master
Account

Preparations > Edit Chart A/c List

After putting /NOB13 press enter then click on new entries

(Chart of Accounts: means list of ledgers)

Length of G/L Account number - 6
 (6 stands for Number of digits assigned for ledger creations. Maximum 10 digits
can be defined in SAP.)

Assign Chart of A/c to company

Transaction Code : /NOB62

Save

Account Group
Define Account Group :– Chart of accounts contains different types of accounts, In
order to manage and control a large number of G/L accounts in SAP, they are
arranged in account groups. Account group must be specify while creating the G/L
account

Grouping of GL Accounts according to its nature. The account group controls

✓ The number ranges of your GL Accounts
✓ Controls field status of GL Masters

Creation of account group

Transaction Code: /NOBD4 or

IMG Menu Path:- SAP Implementation Guide > Financial accounting –> G/L
Accounting –> GL Accounts –> Master Data–> Preparations –> Define Account
Groups
Select - New Entries

Save

While assigning From & To numbers for Accounts group, starting number
1=Liabilities, 2=Assets, 3=Income and 4=Expenses category. This Account Group
represents P&L Account & Balance Sheet.

An Account group controls the data that needs to be entered at the time of
creation of a master record. Account groups exist for the definition of a GL
account, Vendor and Customer master. It basically controls the fields which pop
up during master data creation in SAP

RETAINED EARNINGS ACCOUNT:

Retained earnings are an important concept in accounting. The term refers to the
historical profits earned by a company minus any dividends it paid in the past. The
word “retained” captures the fact that, because those earnings were not paid out to
shareholders as dividends, they were instead retained by the company. For this
reason, retained earnings decrease when a company either loses money or pays
dividends, and increase when new profits are created.

Profits give a lot of room to the business owner(s) or the company management
to utilize the surplus money earned. Often this profit is paid out to shareholders,
but it can also be reinvested back into the company for growth purposes. The
money not paid to shareholders counts as retained earnings

Retained Earnings Account. Retained Earnings Account is used to carry forward the
balance from one fiscal year to the next fiscal year. You can assign a Retained
Earning Account to each P&L account in the chart of accounts (COA).

We maintain two types of Accounts and both are used differently in closing
procedure. For balance sheet, the balance is carried forwarded to the same
Account in the next year. But, in case of profit and loss statement, balance is
carried forward to a retained earning account in SAP and the profit and loss
Account is set to zero. we can define one or two Retained Earning

Eg Profit & Loss Account

To By

Expenses Ledgers Income Ledgers

Total 8,00,000 Total 10,00,000

Balancing Amount 2,00,000

(Net Profit)

This Net Profit should be transferred to

Balance Sheet Ledger: Retained Earnings
A/c.
This transfer function will be done by Key
“X”

Balance Sheet
Liabilities Assets

Retained Earnings A/c 2,00,000

Define Retained Earnings Account: (/NOB53)

Menu Path: SPRO→ Financial Accounting →GL Account →Mater Data →GL
Account → Preparations → DEFINE RETAINED EARNINGS A/C Chart of
Accounts:

Transaction Code: /NOB53

Give company code, press enter, then enter the details as given below
Save, (message: “Account 100100 is not created”, this means simply we are assigning
Retained Earnings Ledger Number and we have not created any Ledger. Once we
start creating General Ledger, first create this Retained Earnings Account as it is SAP
Processing Ledger.) Now, ignore the message and enter

Here we have defined Account No. 100100, because this Retained Earnings A/c
ledger falls under Reserves and Surplus Account Group, hence we have defined first
Ledger Number of Accounts Group.

Here, ‘X’ is SAP delivered key. It activates carry forwards of Profit to Balance Sheet
and it also activates to create P&L Ledgers.

General Ledger (G/L)

accounts are used to provide a picture of external accounting and accounts and to record
all the business transactions in a SAP system. This software system is fully integrated with
all the other operational areas of a company and ensures that the accounting data is
always complete and accurate.

GENERAL LEDGER CREATION: /NFS00

Golden Rules:

Real: Debit What comes in and Credit what goes out

Nominal Account: Debit -All expenses and Loses and Credit -All Gain and Income

Personal: Debit The Receiver and Credit The Giver

General Ledger contains two segments:

1. Chart of Account Segment

2.Company code segment

The Chart of Account Segment consists of Several Group of Fields:

Type/Description:

 Control in chart of Accounts

 Name
 Consolidation in Chart of Accounts
Key Word/Translation

 Keywords in chart of Accounts

 Translation

Information

 Information of Chart of Accounts

 G/L account texts in Chart of Accounts

The Company code Segment consists of Several Group of Fields:

Control Data:

 Account Control
 Account Management
 Joint Venture

Bank/Interest

 Document Creation
 Bank/finance specification

Interest calculation Data

For Example: to create Cash Account Ledger, select Current Assets group. And then in
short Text (mandatory) type Ledger Name: Cash Account. The Long text can be used if
Ledger name is too Long. Then Click on Control Data Tag, Select Local Currency Check
Boxes (for Balance Sheet Ledgers). (When you are selecting Open item Management
Check Box, select this local currency check box also). Select Line Item Display check box
for all Types of Ledgers. Define sort key as the case may be. Click on Create/Bank/Interest
Tag, Enter in Field Status Group Field G001/G005/G067 as the case may be, depending on
nature of Ledgers. Now, Save

GENERAL LEDGER CONFIGURATION

 Balances in local currency: Select the Check box for all Balance Sheet Ledgers
except Sundry Creditors, Sundry Debtors and related ledgers (where foreign
exchange is involved). This selection is optional for other ledgers. If you are
 selecting Open Item Management check box, select this balances in Local currency
check box also.

 Tax category checkbox: Define *(star) here to activate VAT for Sales and Purchases
Ledgers. This should be done after configuring VAT.

 Reconciliation Account Type: Select this checkbox only in case of Reconciliation

Account, i.e., for Sundry Creditors Ledgers select Vendors, for Sundry Debtors
Ledgers select Customers and for Assets Ledgers select Assets. Select in Field status
Group G067 for all Reconciliation Accounts.

 Open Item Management Checkbox: Select this Checkbox only for Ledgers “to be
cleared”. For example, ledgers like Payables, Receivables, Outstanding Expenses,
GR/IR Accounts and Clearing Accounts. Ledgers to be cleared in a short while-
like Auditors Fees Payable, Bonus Payable, Rent Payable and the like select this
option Item Management Checkbox.

 GR/IR Account (under MM module):Goods Receipt and Invoice Receipt Account.

Once we receive material, we check with Invoice & Quotation whether materials
supplied as per invoice i.e., quantity, quality etc..at this stage, we make part
payment to Vendor. Any shortage or low quality in materials supplied, we hold
the payment. Once it is cleared from vendor, we make balance payment.

 Line-Item Display Check Box: Select this check box for all types of ledgers, as it
gives Date-wise Ledger printout, which is must for Reconciliation/Date-wise
verification for Accounting Entries.

 Sort Keys: System defined. Select 001 for all General Types of Ledgers. 012 for
Sundry Creditors Ledgers. 031 for Sundry Debtors Ledgers and 018 for Assets type
Ledgers. This sort key indicates how we want report.

 Field Status Group: Types of Ledgers:

For Cash/Bank type Ledgers select G005 and Relevant to Cash Flow check box.
  Reconciliation Accounts: Select G067 (or G012) for Sundry Creditors, Sundry
Debtors and Assets Ledger
Any other Types Ledgers select G001

For Assets having no depreciation G007

For Sales/Revenue type of Ledgers select G019

Creation of General Ledger A/cs: TC: /NFS00

G/L A/c Ledger Name Sort Fld. Select Check Box
No. Key Status,
Group
100100 Retained Earnings 001 G001
100000 Equity Share Capital 001 G001
200100 Cash A/c 001 G005 Relevant Cash flow

400100 Salaries A/c 001 G001

400300 Rent A/c 001 G001
100500 O/s Expenses 001 G001 Op. Item Mgt.
100300 IDBI Loan A/c 001 G005 Relevant to Cash
flow
400400 Interest A/c 001 G001
100505 TDS Tax Payable A/c 001 G001 Op. Item Mgt.
100506 Surcharge Tax Payable 001 G001 Op. Item Mgt.
100507 Edu. cess Payable A/c 001 G001 Op. Item Mgt.

G/L A/c Ledger Name Sort Fld. Reconciliation

No. Key Sts, A/c
Group
100501 Sundry Creditors 012 G067 Vendor
A/c(Domestic vendor)
200120 Inv. Raw Material A/c 001 G006
200101 ICICI Bank A/c 001 G005 Relevant
Cash flow
200150 Adv to Vendors A/c 012 G067 Vendor
300101 Cash Discount Received A/c 001 G001

200111 Sundry Debtors A/c 031 G067 Customer

300000 Sales A/c 001 G029
100502 Adv from Customer A/c 031 G067 customer
100503 Output Vat A/c 001 G001
200125 Input Vat A/c 001 G001
200010 Land A/c 018 G007 Assets
200011 Building A/c 018 G067 Assets
200012 Plant & Machinery A/c 018 G067 Assets
200013 Furniture & Fixtures A/c 018 G067 Assets
200014 Vehicle A/c 018 G067 Assets
200015 Capital Work in Progress 018 G007 Assets
A/c
200211 Acc. Depreciation Building 018 G067 Assets

200212 Acc. Depreciation P&M 018 G067 Assets

200213 Acc. Depreciation 018 G067 Assets
Furniture
200214 Acc. Depreciation Vehicle 018 G067 Assets
300100 Assets Sale 018 G052
300110 Clearing A/c-Rev 018 G052
300111 Profit on Assets sale 018 G052
400310 Loss on Assets Sale 018 G004
400311 Loss due to scraping 018 G001
400312 Cash Discount Allowed 001 G004
400350 Purchase A/c 001 G001
400500 Depreciation 018 G001
200160 Sundry debtors bill of 031 G067 Customer
exchange A/c
TO Create a New G/L Account

You can use the T-code FS00 to centrally define a G/L account.

We can also use the following path −

In SAP Reference img, go to Accounting → Finance Accounting → General Ledger →
Master Records → G/L accounts → Individual Processing → Centrally.
In the field G/L Account, enter the account number of G/L account and the company
code key and click the Create icon

Once the details are entered, click the Save button to create a G/L account.

Document date:
This date is manually entered at the time of data entry. This date can be in the past,
current or future.

Purpose: This date is used for individual purposes. Normally it’s the date on physical copy
of the supporting document e.g. vendor invoice

Posting date:
This date is manually entered at the time of data entry. It’s the date on which a document
will be posted into the relevant posting period. The relevant posting period would need to
be open for posting.

Purpose: Effect of document on the account books is provided on this date.

Entry date:
This date cannot be manually entered. System automatically picks the date of server as
the entry date. This date can’t be changed.

Purpose: To know when was the document entered in sap.

Translation date:
By default, system picks translation date same as posting date. But translation date can be
changed manually while posting document.

Purpose: This date is used to convert foreign currency into local currency. Exchange rate
between currencies is picked from exchange rate table depending upon this date.

Document date = invoice date.

Reference Number = bill number

Unit testing

Create GL Master -----FS00.

Posting GL Document -----FB50.

Display document ------FB03.

Change document ----fb02.

GL Balance display -----FS10N/FAGLB03

GL line item display-----FBL3N/FAGLL03

Reverse a Document-------FB08.

Accounting Entries in SAP

All the Inventory transactions will look for the valuation class and the corresponding G.L.
Accounts and post the values in the G.L accounts.

For Example: During Goods Receipt

Stock Account Dr
G/R I/R Account Cr
Freight clearing account Cr
Other expenses payable Cr
During Invoice Verification

G/R I/R Account Dr

Vendor Cr

1.2 When the Goods are issued to the Production Order the following transactions
takes place:

Consumption of Raw Materials Dr

Stock A/c Cr

1.3 When the Goods are received from the Production Order the following
transactions takes place:

Inventory A/c Dr
Cost of Goods Produced Cr
Price difference Dr/Cr

(Depending on the difference between standard cost and actual cost)

1.4 When the Goods are dispatched to customer through delivery the following
transactions takes place:

Cost of Goods Sold Dr

Inventory A/c Cr

1.5 When the Goods are issued to a Cost Center or charged off against expenses the
following transactions takes place:

Repairs and Maintenance Dr

Inventory A/c Cr

1.6 When the Goods are stock transferred from one plant to another, the following
transactions takes place:

Stock A/c Dr (Receiving location)

Stock A/c Cr (Sending location)
Price difference Dr/Cr

(Due to any difference between the standard costs between the two locations)

1.7 When the stocks are revalued, the following transactions takes place:
Stock A/c Dr/Cr
Inventory Revaluation A/c Cr / Dr

When the Work in Progress is calculated the following transaction takes place:

Work in Progress A/c Dr

Change WIP A/c Cr

1.8 Physical verification /shortages and excesses: Shortages/excesses on authorizations

shall be adjusted using the physical inventory count transaction.

1.9 Invoice Generation

Invoices will be generated at the Smelters and stock points. The accounting entries for the
sale of goods dispatched will flow from the Sales invoice generated in SAP SD (Sales and
Distribution) module. The following entries shall be passed

Customer Account Dr
Revenue Cr
Excise Duty Payable Cr
Sales Tax Payable (local or central) Cr

Note: As mentioned above in the FI document, which is created in the background, the
SD invoice number shall be captured. However as per the current accounting procedure
the accounting entry passed is as follows:-

Customer Account Dr
Revenue Cr
Excise Duty Billed Cr
Sales Tax Payable (local or central) Cr

Excise duty paid a/c Dr

Excise duty payable a/c Cr

Export Sales

1.10 There have been very few export transactions in the past. SAP system will be designed
to handle export business. Exports are mainly from the mines and will be handled at the
mines; however the documentation part will be taken care at the Head Office. The
accounting entry is:

Customer Account Dr
Revenue (Exports) Cr
1.11 The realization of export sales will be directly credited to the bank. The accounting
entries will be as follow:

Bank DR
Customer CR
Exchange Fluctuation DR/ CR

1.12 The accounting entries will be:

Rebates/Discounts Dr
Customer Cr

Debit Memos

1.13 Debit Memos shall be issued in case of price difference, sale tax difference and
interest on usance period and overdue payments.

1.14 The accounting entries for two possible scenarios are as follows:

Price Undercharged:

Customer Account Dr.

Revenue Cr.
Sales tax payable Cr.

Sales tax undercharged

Customer Account Dr.

Sales tax adjustment Cr.

Interest on delayed payments/usance period and other charges

Customer Account Dr.

Interest Others Cr.

1.15 In case of HZL a complete retirement or a partial retirement of asset is done. The
system uses the asset retirement date to determine the amount to be charged off for each
depreciation area. The existing accounting policy is to provide depreciation for the full
quarter in which the asset is sold/discarded, recommended that the depreciation be
provided from the date of acquisition on prorata basis.

1.16 Accounting entry for sale of Asset to customers:

Customer Account DR
Asset Sale CR
Accumulated Depreciation DR
Loss on Sale (if applicable) DR
Asset Sale account DR
Asset account CR
Profit on sale (if applicable) CR

Note: In case of any Sales Tax /Excise duty applicable for this transaction, SAP will
calculate the Sales Tax/Excise Duty based on the Tax Code selected the entry is posted to
the GL Account (Sales Tax Payable)

1.17 Accounting entry for sale without a customer:

Accumulated Depreciation DR
Loss on Sale (if applicable) DR
Asset Sale account DR
Asset account CR
Profit on sale (if applicable) CR

1.18 Accounting entry for scrap

Accumulated Depreciation DR
Loss on Sale of Assets DR
Asset account CR

Sale of Scrap

1.19 The sale of scrap (non-stock) shall be mapped as a direct manual FI entry. The
customer will be created as a FI customer. No Logistics module will be involved in the
process.

1.20 A FI Invoice will be prepared for the sale of scrap with the following entries:

Customer Dr
Sale of Scrap Cr
Excise Duty Payable Cr

Advances from Customers

1.21 Advances are received from the customers against delivery. These advances will be
recorded in a special general ledger account. The accounting entry for the same will be:

Bank Account Dr
Advance Customer Payments Cr
These advances will be later on adjusted against the invoices raised on the customers.
Advances can be adjusted against more than one invoice at the time of clearing of the
invoices against advances.

1.22 Adjustment of Advances

Customer Account Cr
Advance Customer Payments Dr

A financial document would be created for each Bank Guarantee received and this
document number will be referred to in the Sales Order which would then monitor the
value and the validity of the of the Bank Guarantee instrument wise while doing the
billing.
The letter of credit /Bank guarantee given will be recorded as a noted item.

1.23 Accounting Entry for Goods receipt

Stock/Inventory account Dr
GR/IR account Cr
Freight clearing account Cr

1.24 Accounting Entry on invoice verification of supplier

GR/IR Dr
Vendor account Cr

1.25 Accounting Entry on invoice verification of freight vendor

Freight clearing account Dr

Freight Vendor account Cr

Goods Receipt

1.26 Based on the Purchase order and the Quantity actually received Goods Receipts (GR)
will be done. Based on the GR done the following accounting entry will be passed in the
Financial Accounts

RM/PM Stock Account DR

GR/IR Account CR
Freight Clearing Account CR

Excise Invoice Verification

1.27 On receipt of the excise invoice cum gate pass the following entry will be passed
RG 23 A / RG 23 C Part 2 Account DR
Cenvat Clearing Account CR

Vendor Invoice Verification

1.28 The detail process related to invoice verification is documented in Materials

Management Document.
On receipt of vendor bill the following entry will be passed

GR/IR Account DR
Freight Clearing Account DR
Cenvat Clearing Account DR
Vendor Account CR

1.29 Invoice Verification for Foreign Vendor

On receipt of vendor bill the following entry will be passed:

GR/IR Account DR
Vendor Account CR

1.30 Invoice Verification for Custom vendor

On receipt of Vendor bill the following entry will be passed:

1) RG 23A/RG 23C Part 2 A/c (CVD) A/c DR

Cenvat Clearing A/c CR

2) G/R I/R A/c DR

Cenvat Clearing A/c DR
Vendor A/c CR

3) Cost of Material A/c DR

Vendor A/c (Customs) CR

1.31 Invoice Verification for Freight / Clearing Agent

Cost of Material A/c DR

Vendor A/c (Clearing Agent) CR

1.32 Invoice Verification for Octroi Expenses

Cost of Material DR
Vendor A/c (Octroi) CR
1.33 TDS (Work Contract Tax) for Service Orders shall be calculated and deducted
accordingly. The detail of TDS has been discussed in separate chapter.
The following entry will be passed on bill passing

Expenses Account DR
Vendor Account CR
TDS Account CR

1.34 The material shall be returned to the vendor using the

1- Return to vendor movement type in SAP

2- Creating a Return PO

These transactions will be processed in the MM module.

The accounting entries will be :

Returns after GRN

GR/IR A/c Dr
Stock A/c Cr

The accounting in respect of debit/credit memos for FI vendors, the process will be similar
to that of invoice processing. The accounting entries will be:
On issue of debit note

Vendor Account DR
Expenses Account CR

1.35 In respect of import vendor - capital goods exchange differences are to be accounted
manually through a Journal Voucher for capitalization. Exchange rate differences will be
accounted at HO. An example of the accounting entry in this case shall be: Invoice entry @
40 INR: 1 USD

Asset / Expense A/c DR 100

Vendor A/c CR 100

Payment Entry @ 41 INR: 1 USD

Vendor A/c DR 100

Bank A/c CR 110
Exchange rate loss Capital A/c DR 10

Asset A/c DR 10
Exchange rate loss Capital A/c CR 10

1.36 A new G/L account shall be created for the special G/L transactions.
The accounting entry for making the down payment shall be:

Advance to supplier account Debit

Bank A/c Credit

When the invoice is booked the following entry is passed

GR/IR account Debit

Vendor account Credit

Clearing of Invoice against Down Payment

Vendor A/c Debit

Vendor down payment account Credit

Wherever, TDS is applicable, the TDS will be deducted at the time of down-payment to
the vendor.

Down Payment for Capital (tangible) Assets

1.37 Down payment to vendors for capital acquisitions is to be reported separately in the
Balance Sheet under the head Capital Work in Progress. Hence down payment for capital
goods would be tracked through a separate special general ledger indicator.

1.38 The procedure to be followed is:

1- Definition of alternative reconciliation accounts for Accounts Payable for posting down
payments made for Capital assets
2- Clearing the down payment in Accounts Payable with the closing invoice.

A new G/L account shall be created for the special G/L transactions.

The accounting entry for making the down payment shall be:

Vendor Advance for Capital Goods Account Debit

Bank A/c Credit

When the invoice is booked the following entry is passed

Asset A/c / Asset WIP Debit

Vendor A/c Credit

Clearing of Invoice against Down Payment

Vendor A/c Debit
Vendor Advance for Capital Goods Account Credit

1.39 The Following are the TDS Rates (to be confirmed with the recent changes)

Particulars Tax Rate Surcharge Rate Total

Contractors – 194 C 2% 5% 2.10%

Advertising – 194 C 1% 5% 1.05%
Prof. Fees – 194 J 5% 5% 5.25%
Rent – Others – 194 I 15% 5% 15.75%
Rent – Company – 194 I 20% 5% 21%
Commission – 194H 5% 5% 5.25%
Interest - Others – 194 A 10% 5% 10.50%
Interest – Company – 194 A 20% 5% 21%
Special Concessional Tax
Works Contract Tax

Security Deposits /Earnest Money Deposit Received from Vendors

Bank A/c DR
Security Deposit Vendor CR

EMD to give the age so as to enable the same to be transferred to unclaimed EMD
account.

Payment OF TOUR Advance Domestic tours

1.40 Employee Advances will be paid by the Accounts Department unit wise based on the
requisition or recommendation of the respective departmental head.

Employee Travel Advance A/c DR

Cash / Bank Account CR

Settlement of Tour Advances Domestic/Foreign

1.41 Settlement of advance will be done by the Accounts Department based on the Travel
Expense Statement submitted by the employee, which is approved by the Concerned
Department Head.

Expenses Account DR
Cash/Bank Account DR (if, refund)
Employee Advance Account CR
Cash/Bank Sub ledger Account CR (if, payable)

2 Banking Operations

Maintenance of Bank Master

2.1 A House Bank is a combination of a Bank and a Branch. Account id is the account
number. A house bank can have multiple account IDs.. There could be a main account as
also payable account, which will be defined as separate account ids. General Ledger
accounts have to be created for each combination of a house bank and account ID. The
bank master details are to be provided by HZL.

2.2 General Ledger accounts have to be created for each account ID in the house bank.
Bank Account Master data will be maintained by the Finance Department centrally.

2.3 Each house bank and account ID combination shall have one main general ledger
account and several sub accounts mainly based on broad transaction types. These sub
accounts are necessary to facilitate automatic bank reconciliation process in R/3 system.

Bank Accounting

2.4 The accounting entries will be generated automatically according to the posting rules
attached to the Transaction type. The following accounting entry is passed by the system
in respect of cheque deposit on account of collection from domestic customers.

Bank cheque deposit account Debit

Customer account Credit

2.5 In this case, a bank sub account is selected based on the transaction code entered by
the user. The customer account is cleared i.e. invoice is cleared against the receipt. In
respect of any other deposits, the relevant accounts to be credited will depend on the
nature of transaction.

2.6 Payment against bills for collection. Based on the bank advices falling due on a
particular day one payment advice is made debiting the vendors and crediting bank.

Cheque Deposit- Customer Receipts

2.7 All cheques received from customers shall be accounted at the point of receipt
The entry posted shall be

Bank Sub account Dr

Customer Account Cr
Cheque Deposit – Other Than Customer Receipts

2.8 All other receipts will be accounted through the Incoming Payment Transaction of
the Accounts Receivables module.

Cheque Bouncing – Other Than Customer Receipts

2.9 Based on the information of cheque bounced from the Bank, the accounts Department
will pass accounting entries for the cheque that have been bounced. The procedure to
handle bouncing of a cheque has been discussed under the following

2.10 Reset the clearing document – If the document has been cleared i.e. an open
outstanding item has been cleared against an incoming receipt, then the clearing
document has to be reset to its original status of open item. This process is known as reset
of cleared document.

2.11 Reverse the entry passed for cheque deposited earlier – Once the document has been
reset it will be reversed. The following accounting entry will be passed.

FI Customer DR
Bank cheque deposit account CR

2.12 In case of cheques being damaged while printing, the concerned cheques no. has to
be voided and the payment will be rerun.

Bank Reconciliation

2.13 The Bank reconciliation process is based on the entries passed through the Bank sub
account and main account. The process is dependent on the Bank Statement received
from the Bank that will be entered into SAP . Accounting rules are to be defined for each
transaction type and posting rule for posting accounting entries as per bank
statement. Bank statements to be uploaded into SAP.

2.14 Bank Main account balance is the actual balance as per the bank statement whereas
the Bank sub accounts denote the reconciliation items. These sub accounts show those
entries, which will flow from the sub account which are not cleared in the bank
statement.

2.15 Adding or subtracting the Bank sub-accounts will help in preparing the Bank
reconciliation statement.

2.16 The following scenarios would explain the reconciliation process:

1- Cheque received from customer

2- Cheque issued to vendors
3- Cheque received from Other than Customers
4- Direct Debits in Bank Statement
5- Direct Credits in Bank Statement
6- Fund Transfer between Bank Accounts

Cheque Received from Customer

2.17 Accounting entry at the time of cheque deposit entry

Bank Cheque deposit account Debit

Customer Credit

2.18 Accounting entry after cheque has been cleared in the Bank statement

Main Bank account Debit

Bank Cheque deposit account Credit

2.19 The clearing criteria for updating the bank main account and bank sub account will
be amount and document number which will be captured in the allocation field of the
bank sub account. The items, which have not been cleared in the bank statement, will
remain open in the bank sub account and will form part of the bank reconciliation
statement.

Cheque Issued to Vendors

2.20 Accounting entry at the time of cheque issue

Vendor account Debit

Bank cheque payment account Credit

2.21 Accounting entry after cheque has been presented in the Bank

Bank cheque payment account Debit

Main Bank account Credit

2.22 The clearing criteria used for updating vendor account and Bank cheque payment
account will be amount and cheque number. The cheques presented to the bank and are
cleared are transferred to the bank main account. The remaining cheque issued will form
part of the bank reconciliation statement.

Direct Debit in Bank

2.23 Direct debit instructions will be given to the bank for example, LC payments or
certain bank charges are directly debited in the Bank Statement. In this case accounting
entry is passed only after the entry is passed in the bank statement.

Vendor / Expense Account Debit

Bank clearing account Credit

Direct Credit in Bank

2.24 Customer receipts are sometimes directly credited in Bank. E.g. export receipts. In
this scenario accounting entry is passed only at the time of bank statement entry.

The following accounting entry is passed

Bank clearing account Debit

Customer account Credit
Main Bank A/c Debit
Bank Clearing A/c Credit

Bank Fixed Deposits

2.25 HZL has a practice of converting any amount above Rs. 1 crore in its Main bank
account, to a fixed deposit subject to a minimum of Rs. 1.01 crores. The FDR number can
be filled in one of the fields available in the accounting document.

Cheque Management/ Cheque Printing cum Advice

2.26 The function of cheque management will enable printing of cheque through SAP.
Cheque series will be defined for a combination of a Company code and Bank Account.
Cheque numbering will be sequential order.

2.27 Cheque series for automatic payment has to be in sequential order. Cheque printing
facility will be available for the bank account.

Cash Management/Liquidity Analysis

2.28 The day-to-day treasury process in a company includes a number of transactions.

This includes determining the current liquidity using bank account balances (cash
position), determining open receivables and liabilities (liquidity forecast), manually
entering planned cash flows (payment advice notes), through to clearing bank accounts,
that is, collecting multiple bank account balances on one target account.

2.29 The main objective is to ensure liquidity for all due payment obligations. It is also
important to control and monitor effectively the incoming and outgoing cash flows.
2.30 This section shows you the overall liquidity status of your company by displaying
together the cash position and the liquidity forecast.

The cash position is used in Cash Management to show the value-date-dependent bank
accounts and bank clearing accounts, as well as the planned cash flows (payment advice
notes). The liquidity forecast comprises the incoming and outgoing cash flows, as well as
the planned items on the sub-ledger accounts.

FINANCIAL STATEMENT VERSION

A financial statement version (FSV) is a hierarchical arrangement of G/L accounts.

The accounts can be arranged in accordance with the legal regulations used to generate
your financial statements. Alternatively, you can arrange the accounts in accordance with
your requirements.

Use
You need an FSV for the following purposes:

 To generate financial statements

 To create various reports that are structured lists of account balances, such as Trial
Balance

 As a basis for planning in General Ledger Accounting, for example, by

using Balance Sheet/Income Statement.

You can define different FSVs for various needs, for example:

 For different organizational units, such as corporate group or company code.

 For different levels of detail of your financial statements. For your accounting
department, for example, you want to list the individual accounts with their
respective balances. For senior management, you might want to summarize this
information to create one set of financial statements for the whole group.