AK2110

Financial Accounting
Application
Accounts Receivable

ACCOUNTING PROGRAM
• Discuss many of the concepts cover in accounts
receivable, such as account groups and posting to a
subledger account using both the Enjoy and the
traditional screen for complex posting
• Introduce some new tasks such as posting incoming
payments from customers and sending
correspondence, including dunning letters
• See how the sales order process works from the sales
and distribution perspective and how accounting
documents are created automatically during the
delivery and billing steps
• See how credit to customers is managed in the SAP
system

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After completing this unit, you’ll be able to:
• Maintain customer master records in accounting
• Describe the role of an account group
• Enter and change customer invoices in accounting
• Post a manual incoming payment
• Request customer correspondence
• Analyze customer accounts
• Use the Accounts Receivable Information System
• Describe the most important organizational units in Sales Order Management
• Describe the basic sales process in Sales Order Management and trace its effects in external
Accounting
• Maintain credit management master data
• Check and release blocked SD documents
• Post value adjustments
• Run the balance carry forward program

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• Customer Master Data
• Daily Accounting Transactions in Accounts
Receivable
• Integration with Sales Order Management
• Credit Management
• Closing Operations in Accounts Receivable

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Customer Master Data
• Explain how to maintain customer master
records
• Discuss concepts in accounts receivable, such as
account groups and reconciliation accounts

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After completing this lesson, you’ll be able to:
• Maintain customer master records in accounting
• Describe the role of an account group

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• As with G/L accounts and vendor accounts, customer
accounts also consist of two areas
• General data
• A customer account is defined for all company codes at the client
level
• General data, such as the customer's address, is stored here
• General data applies for all company codes that do business with
the customer
• Company code segment(s)
• Postings can not be made to the customer account for a company
code until company code-specific settings have been created
• The company code segment contains information that pertains
to just one company code, such as agreed terms of payment

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• In the same way as for G/L accounts and vendor accounts, customer
accounts are stored in various account groups, so that they can be organized
and managed more easily
• The accounts in an account group usually have similar characteristics
• For example, user could have one account group for domestic customers, one for
customers abroad, one for affiliated customers, and one for one-time customers
• Account groups have a number range assigned to them
• Number ranges are of two types:
• Internal:
• Do not enter a customer number when creating the customer
• Instead, the system assigns user a customer number from the number range assigned to the
account group when the new customer master record is created
• External:
• Enter the customer number manually when creating the customer
• The number can be alphanumeric, if the number range allows for that
• Account groups define the layout of all parts of the customer master record
• That is, they determine which fields are optional, mandatory, displayed, or hidden

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You should now be able to:
• Maintain customer master records in accounting
• Describe the role of an account group

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 Daily Accounting
Transactions in Accounts
Receivable
• Although most transactions with customers are
entered in Sales and Distribution, invoices can
also be entered in accounting
• These are miscellaneous invoices that do not pertain
to a sales order. Payments are handled in accounting.
• Learn how to process an incoming payment with
an underpayment (a short pay)
• Learn how to create correspondence for
customers, including dunning notices, and be
introduced the set of reports in the A/R
Information System

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After completing this lesson, you’ll be able to:
• Enter and change customer invoices in
accounting
• Post a manual incoming payment
• Request customer correspondence
• Analyze customer accounts
• Use the Accounts Receivable Information System

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• Whereas accounts payable accounting is concerned with
vendors, accounts receivable accounting is concerned
with customers
• When businesses need to track money owed by each
customer separately, they create an account in the
accounts receivable subledger for each customer with a
corresponding designated general ledger account (the
reconciliation account)
• The customer subledger account is created when the
customer master record is created, and they share the
same account number
• The association between the customer account and the
reconciliation account is established in the definition of
the customer master record

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• GBI sells bicycles to two customers on credit for $5,000 and $3,000,
respectively, and then receives payment at a later date (Steps 1–2)
• The relevant accounts are sales revenue and the individual customer
accounts
• Sales revenue is credited by the amount of the sale, and a corresponding
debit is made to the appropriate customer account
• This debit is also automatically posted to the accounts receivable
reconciliation account
• As in the case of the AP reconciliation account, the AR reconciliation
account does not track the details of the transactions
• When payment is made (Steps 3–4), the bank account is debited, and
the appropriate customer account is credited
• At the same time, a corresponding automatic credit is posted to the
reconciliation account, accounts receivable reconciliation

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• Nearly all invoices and credit memos from customers reach the Accounts
Receivable via the integration with the Sales Order Management
• In exceptional cases, if there is no reference to a sales order, invoices and
credit memos can still be entered using the Enjoy transaction
• The Enjoy document entry screen is divided into the following areas:
• Work templates
• Here, user can select screen variants, account assignment templates, or held documents as
references
• Header and customer data
• Document header and customer line item data is entered here
• G/L account items
• The G/L line items for the document are entered here
• Information area
• The document balance and information about the customer is displayed here
• It also contains a link to the master data and open items
• This transaction can also be used to create documents in a foreign currency
• The foreign currency amount is translated into local currency using defined exchange
rates

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• Incoming payments can be dealt with in several ways in different companies
and countries
• The items are cleared if the customer pays open items in the full amount or
with an agreed cash discount
• If a minor payment difference exists, this can be charged off automatically
• The maximum amount that constitutes a minor payment difference is
defined in tolerance group settings
• Any greater payment difference (outside of tolerance) must be dealt with
manually
• There are two methods of posting these payment differences:
• Partial payment:
• The item being short-paid does not clear
• A new open item in the amount of the payment is created on the credit side
• This credit entry shows up right above the open item being paid and it references the open item being short-
paid
• Residual item:
• The open invoice is cleared and a new open item (residual item) in the amount of the payment difference is
created to the customer account (and the corresponding reconciliation account)

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• Dunning is controlled by the dunning procedure
• A dunning procedure be entered in every customer
and/or vendor account that is to be included in
automatic dunning
• A dunning procedure that is valid for one-time
customers is entered in one-time accounts
• User can define as many different dunning
procedures as user wish
• MySAP ERP Financials comes with several standard
dunning procedures that can be used as a template
for additional procedures

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• User can specify how the dunning run is to be
executed by entering parameters in the dunning
program
• User can use the parameters of an existing
dunning run as a template and adjust the dates to
meet user requirements
• Typical parameters are the company codes and
accounts that are to be included in the dunning
run

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• During the dunning run, accounts are selected
and checked for overdue items
• The system then checks whether dunning notices
should be sent and assigns the relevant dunning
levels
• All dunning data is stored in a dunning proposal

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• The dunning proposal can be edited, deleted, and
recreated as often as required until the
accounting clerk is satisfied with the result
• The dunning proposal is not a mandatory step;
therefore, it can be omitted
• If Dunn print with scheduling is not selected, the
system will not produce a proposal
• Rather, it will print the dunning notices as soon
as the program has been executed

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• In one step, the system prints the dunning notices and updates the
dunning data in the master records and documents, including the
dunning dates and levels

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• Correspondence relating to daily business first has to
be requested before it can be printed
• A correspondence request can be carried out:
• Automatically when special transactions, such as bill of
exchange charges (bill of exchange charges statement) or
payment differences (payment notice) are posted
• Manually by the accounting clerk
• Using a request program that creates a high volume of
correspondence requests simultaneously (periodic
account statements, internal documents, standard letters)
• Requested correspondence is stored in a
correspondence request table and can be printed via
a trigger program
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• The Accounts Receivable Information System enables
user to carry out quick analyses of important accounting
data, such as:
• Due date breakdown
• Customer payment history
• Currency risk for customers abroad
• Overdue items
• Number of days (DSO days) that a customer takes, on average, to
pay an invoice
• Customer cash discount history (days agreed/days taken)
• These analyses are based on preselected datasets (views)
that must be generated or updated at regular intervals by
means of a background run from the SAP database
• A job wizard helps user here with the update

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You should now be able to:
• Enter and change customer invoices in
accounting
• Post a manual incoming payment
• Request customer correspondence
• Analyze customer accounts
• Use the Accounts Receivable Information System

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Integration with Sales
Order Management
• Discuss the sales process in Sales Order
Management and see where accounting
documents are automatically created

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After completing this lesson, you’ll be able to:
• Describe the most important organizational units
in Sales Order Management
• Describe the basic sales process in Sales Order
Management and trace its effects in external
Accounting

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• Sales organizations are responsible for sales in mySAP ERP
• A Company Code can be linked to several sales organizations
• The IDES company code 1000 (Germany) uses the sales organizations 1000
(Frankfurt) and 1020 (Berlin), for example
• This means that any accounting-relevant transactions in either of these sales
organizations are posted in company code 1000
• A company (company code) is divided into several sales organizations, each
of which is responsible for the sale and distribution of goods and
services for a particular geographical area, such as a regional or
national market
• Specifically, a sales organization is:
• Responsible for negotiating terms and conditions of sales for that market
• Responsible to customers with regard to liability and rights of recourse in
cases of disputes
• The highest level of aggregation in sales-related reporting
• That is, sales data can be summarized up to the level of the sales organization

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• A company code must have at least one sales
organization, although it can have many
• The latter arrangement is appropriate if the sales
processes are substantially different in the different
sales organizations, for instance, to handle regional
differences in practices and customs
• In other cases a company might use multiple sales
organizations simply to make sure that the
geographic area covered remains manageable
• Although a company can include multiple sales
organizations, a sales organization can belong to
only one company code
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• Each sales organization can use different distribution
channels to sell goods
• In principle, a distribution channel can also be used by
two different sales organizations
• A distribution channel (DC) is the means by which a
company delivers its goods and services to its customers
• Typical channels are wholesale, retail, and online
(Internet sales)
• Just as a company can have multiple sales organizations,
it can also have multiple DCs
• Each channel has its own strategies, approaches, and
constraints for getting the goods and services to the
customer

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• More specifically, each channel has its distinctive responsibilities,
pricing systems, plants from which shipments are made, and other
characteristics
• For example, a wholesale channel has the following characteristics
(among others):
• It does not include sales taxes in calculating prices (in the United States)
• It requires a minimum volume of purchase and offers volume discounts
• It may designate a specific plant or plants from which deliveries are made
• In addition, reporting can be consolidated at the DC level
• That is, statistics can be summarized and aggregated based on distribution
channels
• A sales organization must have at least one distribution channel,
although it can have more than one
• In addition, a distribution channel can be assigned to multiple sales
organizations

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• The combination of a sales organization and a
distribution channel is also known as a
distribution chain
• Distribution chains sell goods from the plants
• Some master data, such as material master and
pricing conditions, are maintained at the
distribution chain level

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• Most companies consolidate materials and services with
similar characteristics within a unit known as a division
• Divisions typically represent key product lines of an
organization
• A product or material can be assigned to one division only
• Each division can employ its own sales strategies, such as
pricing agreements with customers
• In addition, it is possible to aggregate reports at the division
level
• A sales organization must have at least one division
• A division can be assigned to multiple sales organizations, and
a sales organization can include many divisions

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• The divisions are assigned to the distribution chain from
which they can be sold
• The combination of distribution chain and division is a sales
area
• In other words, it defines which DC a sales organization uses to sell
the products associated with a particular division
• Customer-specific arrangements, regarding partial deliveries
or terms of payment, for example, can be made for each sales
area
• Statistics can be created and separate marketing activities
carried out within a sales area
• A sales area can be assigned to only one company code
• All of the documents associated with the fulfillment process,
such as quotations and packing lists, belong to one sales area

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• A sales area (the combination of sales organization, distribution
channel and division) must define sales area-specific settings for a
customer before it can start doing business with that customer
• These settings could be special conditions and terms of payments
that the customer has arranged with the specific sales area
• Customer master data include data needed to conduct business with
customers and to execute transactions that are specifically related to
the fulfillment process
• The data in the customer master are divided into three segments-
general data, accounting data, and sales area data
• General data are defined at the client level
• They are valid for all of a client’s sales areas and company codes
• Examples of general data are a customer’s name, address, and account
number

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• Accounting data are specific to a company code and include data such as
payment terms and the reconciliation account in the general ledger
• The accounting department will typically complete this part of the customer master
data
• Sales area data are specific to a particular sales area, which is made up of
one sales organization, one distribution channel, and one division
• Sales area data relate to sales, shipping, billing, and partner functions
• E.g. are the sales office and the currency in which the transaction is conducted
• Shipping data specify the preferred delivering plant, priorities, and methods
• They also define delivery tolerances and policies for dealing with partial deliveries
• Billing data include billing terms and tax-related data
• If a customer is served by multiple sales areas, then the data must be defined
separately for each sales area
• This arrangement permits a company to apply different terms and conditions for
different areas

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• An effective processing of sales orders involves all sales activities in a chain of narrowly integrated
processes
• The SAP system allows user to do this kind of sales order processing
• The individual steps within a sales process are thus mapped by interlinked, electronic documents
• The SAP sales process begins with the setting up and the maintenance of customer relationships and ends
with the invoicing of the delivered goods or the services rendered to the customer
• The posting of incoming payments from the customer is already part of mySAP ERP Financials
• The sales order processing begins with presales activities
• E.g.: In reaction to a customer query, user create and send a quotation
• As part of the order processing, user create a sales document
• During procurement, the system determines the supplier of the goods using data stored by user
• As part of the shipping processing, user organize and execute the delivery of the goods
• With the process step 'invoicing', user create the invoice and transfer all required data to Accounting
• As part of the payment processing, user check open items and post incoming payments

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• Sales:
• The sales order forms the basis of the sales process
• Once a customer has placed an order, a sales order
must be created at the start of the process
• The sales order is generated at the distribution chain
level
• The ordered items can be from different divisions
• The sales order is a document in Sales Order
Management and does not cause any postings in
financial accounting
• When the sales order has been entered, the system
carries out an availability check for the required
delivery date
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• Shipping:
• On the day of shipping, an outbound delivery document is
created
• Billing for the delivery can take place only when the goods have
been taken from the warehouse stock and posted as a goods
issue; this is an separate step in the delivery process
• The warehouse management function is used for picking
• A transfer order has to be created, which generates the pick
order.
• The requested goods are taken from the warehouse and
prepared for delivery
• The goods to be delivered are posted as a goods issue
• A goods issue document is created in Materials Management,
and an accounting document is created in Accounting so that the
goods issue is posted to the correct G/L accounts
• The accounting document debits cost of goods sold and credits
inventory

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• Billing:
• The last stage in the sales process is billing
• A billing document is created in Sales Order
Management, and a printed invoice is sent to the
customer
• At the same time, a document is created in
Accounting so that the receivable and revenue can be
posted to the correct accounts

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• Document flow is a tool that allows user to view
the related documents in the process (customer
order)
• Document flow displays all of the documents
associated with the steps that have been
completed for a single customer inquiry or order
• The document flow is updated after each process
step is completed

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• The shipping step is triggered when orders become due for
delivery
• Shipping consists of several tasks that are necessary to
prepare and send shipments
• Specifically, a delivery document is created which authorizes
the delivery of orders that are ready to be shipped
• Then, the necessary materials are picked from storage and
placed in a staging area where they can be packed
appropriately
• If these tasks are completed through the warehouse
management process, then additional steps in that process are
triggered
• After the order is shipped, a goods issue is recorded in the
system, which triggers processes in accounting

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Data Needed for Shipping

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Data Needed for Shipping
• The central document in shipping is the delivery
document, which identifies which materials are to be
shipped to which partner (ship-to party) and from which
plant
• The delivery document further identifies the storage
locations for these materials
• The data in the delivery document are compiled from
multiple sources
• Because shipping is triggered when a sales order
becomes due for delivery, sales orders—particularly the
schedule lines—are one source of data
• Shipping-related data are the most relevant
• In contrast, pricing data typically are not relevant during
the shipping step
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• The specific tasks completed during the shipping step are (1)
creating a delivery document, (2) picking, (3) packing, and (4) post
goods issue
• Creating a delivery document serves as an authorization for delivery
• Schedule lines from multiple sales orders with similar characteristics can be
combined into one shipment or delivery
• Specifically, thesales orders must have the same ship-to address, shipping
point, and due date
• Conversely, items in one order can be split into more than one shipment
• The picking step is optional and is part of the warehouse
management process
• Although picking is a part of the warehouse management process, it is
triggered during the shipping step when a delivery document is created
• The delivery document serves as a request for picking
• The delivery document is converted into a transfer order in warehouse
management, and the transfer order is then used to complete the physical
movement of the materials needed for the shipment

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• Items from multiple delivery documents can be included in a single transfer
order
• This approach can optimize the work of the pickers in the warehouse by grouping
requests for materials that are located in the same area
• Alternatively, a delivery document can generate multiple transfer orders
• Data from the delivery documents are copied to the transfer order
• The delivery quantity from thedelivery document becomes the pick quantity, which is
the quantity needed to be picked from storage
• Once the picking is completed, the quantity picked is automatically transferred back
into the delivery document
• After picking has been completed, the materials are placed in a staging area
where they are packed appropriately
• Materials are packed using a variety of shipping units such as cartons, pallets, and
containers
• Each shipping unit can be packed into another shipping unit to consolidate the
shipment
• E.g. GBI ships each bike in an individual box and consolidates 20 boxes into one
carton. It then packs several cartons into a pallet. Pallets are usually too heavy to lift
by hand, so the workers must use a pallet jack or a forklift to load them into a shipping
container.

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• The final task in shipping is to post goods issue in
the ERP system
• The goods issue indicates that the shipment has left
the facility

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• The shipping step, which ends with the goods issue, has numerous
outcomes
• These outcomes fall into three broad categories: (1) accounting
impacts, (2) creation of documents to record transaction data, and
(3) updates to master data and previously created documents
• Shipping is the first step in the fulfillment process that has an impact
on financials
• Specifically, the inventory accounts of the materials shipped are
credited, and the cost of goods sold account is debited
• These amounts are based on the cost of making or buying the materials
• In the case of trading goods, the amount is based on the moving average
price of the material
• In the case of finished goods, the amount is based on the standard price
which takes into account production costs such as material, labor, and
overhead
• An FI document is created to record these data

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• Shipping involves a movement of materials that
reduces the quantity of those materials in inventory
• Therefore, in addition to the reduction of inventory value
in the general ledger, the inventory quantity is also
reduced in the material master for the delivering plant
• A material document is created to record this
movement
• Relevant sales documents, such as quotations and
sales orders, are updated with the details of the
shipment
• Finally, the billing due list is updated
• The billing due list is a list of deliveries for which the
billing step can be executed

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• The purpose of the billing step is to create a variety
of documents such as invoices for products or
services as well as credit and debit memos
• The billing step is also used to cancel previously
created documents
• Billing can be based either on deliveries that have
been shipped to customers or on orders that have
not yet been delivered
• This step utilizes organizational data, master data,
and transaction data from previous process steps
• Like shipping, billing has several outcomes, some of
which impact other processes

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• Billing, with reference to delivery documents,
utilizes data from the delivery document and the
sales order, such as material number and
quantities
• Master data, such as customer master and
pricing conditions, are the source of pricing data
and partner function (bill-to party)
• In addition, billing utilizes organizational data
relevant to the fulfillment process, client,
company code, and sales area
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• The key task in the billing step is to generate a billing
document, typically an invoice for materials or services
• As previously mentioned, the invoice can be created on the
basis of either a delivery or a sales order
• However, if the company wishes to be paid before it ships the
materials—which is frequently the case when the customer is
new or has a poor payment history—then the process can be
modifi ed so that billing will take place prior to shipment
• Other billing documents that are sometimes created are credit
and debit memos
• A credit memo is a refund the company issues if the customer
returns the materials or if the initial invoice overcharged the
customer
• The company uses a debit memo when the customer was
undercharged in the original invoice
• A debit memo increases the amount owed by the customer

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• Multiple deliveries can be combined to create one
billing document
• This process can be employed only when the deliveries
share the same characteristics with respect to payer
(partner function), billing date, and country of destination
• Conversely, one delivery can result in multiple invoices
• This is the case when the terms of payment for the items in the
delivery are different
• In these cases, a different billing document must be created for
each term of payment
• Note that when deliveries are combined, the partner
function payer is relevant, not who placed the order
(sold-to party) or who received the shipment (ship-
to party)

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• Like shipping, billing has several outcomes related to
accounting, creating documents, and updating master data and
documents
• When the billing step is completed, accounts receivable
reconciliation and sales revenue accounts in the general ledger
are updated
• The accounts receivable account is debited by the amount of the invoice, which is
the amount the customer owes, and the sales revenue account is credited by the
same amount
• Because accounts receivable is a reconciliation account, the
amount of the invoice cannot be posted directly to the
accounts receivable account
• Instead, the amount is posted through the corresponding subledger account, in
this case, the customer account
• An open item is created in the customer’s account via a debit
entry, which automatically creates an entry in the accounts
receivable account

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• In addition to postings to the general ledger, an FI
document is created to record these data
• Finally, because the billing step increases the amount
receivable from the customer, the available credit
decreases by a corresponding amount
• Billing has potential consequences in management
accounting or controlling
• E.g. Profitability analysis uses revenue data from the
billing step that are recorded via a controlling document
• Finally, billing generates updates to several sales
documents, such as sales orders and deliveries, the
customer’s credit account, and statistics (information
structures) in the sales information system

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• The final step in the fulfillment process is the
receipt of payment from the customer
• The payment is applied to the appropriate open
items—that is, items that have not yet been
paid—in the customer’s account

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• When a company receives payment from a
customer, it retrieves the customer account to
identify the open items
• It then applies the payment to these items
• Therefore, the payment step involves customer
master data as well as organizational data

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• The tasks in the payment step are to identify the
open items and to apply the payment to these
items
• Customers make payment based on terms that
were previously agreed upon
• Further, customers can pay multiple invoices at
once, or, conversely, can divide a single invoice
into multiple payments

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• When a customer payment is recorded, relevant
general ledger accounts are updated, and a
corresponding FI document is created
• The bank account is debited and customer’s account is
credited by the amount of the payment
• This transaction clears the open item in the
customer’s account that was created during the
billing step
• Because the customer account is a subledger
account, the corresponding reconciliation account,
accounts receivable, is also automatically credited
• Finally, because the payment reduced the amount
receivable from the customer, the customer’s credit
limit increases by a corresponding amount
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• Very often, however, the amount paid is not the amount owed
• This is the case, for instance, when the customer is entitled to discounts
based on the payment terms
• Under the terms 1%10/Net 30, for example, payment is due no later than 30
days of receiving the invoice, and the customer is entitled to a 1% discount if
it makes payment within 10 days
• If the customer meets the termsfor the discount, then the payment
received will be less than the invoiced amount
• Consequently, additional postings are included to reflect the discount
• Specifically, the bank account is debited by the amount of the payment, and
the sales discount account is debited by the amount of the discount
• The customer account and the accounts receivable reconciliation account
are credited by the amount of the invoice
• The bank account is debited by a smaller amount (amount owed less
discount), and the difference (discount) is debited to the sales discount
account
• The customer account and the A/R account are credited by the amount
owed

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Financial Impact of The Payment
Step (Payment with Discount)

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• One of the goals of the presales activities is to
encourage customers to place orders for materials or
services
• These orders typically take the form of a purchase
order (PO) sent by the customer to the company
• A customer PO triggers the sales order processing
step, which results in the creation of a sales order in
the SAP ERP system
• A sales order is an internal document that contains
information necessary to fill the customer order in a
standardized form

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• Much of the data contained in the sales order is also found in the
quotation
• In addition, the sales order includes data related to shipping, billing,
partner functions, and, if relevant, data from contracts with
customers
• Shipping and billing data are obtained from the customer master or
the customer-material info record
• Partner functions are obtained from the customer master based on
the specified sold-to party
• Contracts are agreements made by customers to purchase a specified
quantity or value of materials over a certain time period
• Therefore, data regarding quantities, prices, and delivery dates are obtained
from contracts
• In addition, the delivery plant is obtained from the customer-
material info record, the customer master, or the material master, in
that order

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• The Sales Order Entry Screen consists of several sections:
• header data
• header data, combined with Position data
• item details
• The document header in a sales order includes data that are valid for the
entire sales order
• E.g. are customer data such as partner functions and customer PO number, dates, and
order total
• Each sales document can include one or more sales document items, which
contain data about each item included in the sales order
• Examples of item data are material number, description, and quantity
• Each item can be associated with a different item category, such as standard
item, text item, and free-of-charge item, which determines how the item is
handled with regard to pricing, billing, and shipping
• E.g. there is no charge for free-of-charge items
• Finally, each document item can include one or more schedule lines, which
specify delivery quantities and dates

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You should now be able to:
• Describe the most important organizational units
in Sales Order Management
• Describe the basic sales process in Sales Order
Management and trace its effects in external
Accounting

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Credit Management
• Study how credit limits are set up for customers
• Introduce the credit control process where a
sales order is blocked for delivery because the
value of the order would exceed the credit limit
of the customer

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After completing this lesson, you’ll be able to:
• Maintain credit management master data
• Check and release blocked SD documents

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• The organizational unit used for credit control is the credit
control area
• A credit control area is an organizational level that is responsible for
customer credit
• Specifically, it determines customers’ credit worthiness, establishes
credit limits, and monitors and manages the actual extension of
credit to customers
• A credit control area can be assigned to individual company
codes (decentralized organization) or to a group of company
codes (centralized organization)
• In a centralized system, a single credit control area manages credit
for customers across all company codes in the enterprise
• This arrangement is particularly useful if customers conduct
business with multiple company codes within the enterprise
• In contrast, an enterprise that utilizes a decentralized model
maintains multiple credit control areas, each of which manages
credit for one or more companies within the enterprise

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• Even when using a decentralized approach, however,
it is possible-and prudent-to establish credit limits
for customers at the enterprise level and for each
credit control area
• This policy ensures that customers purchasing from
companies belonging to different credit control areas do
not exceed credit limits across the enterprise
• A credit control area is generally managed by a
separate credit department, which is divided into
several credit representative groups
• Each group consists of several credit representatives

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• The credit department creates a separate credit management
master record
• This is an extension of the customer master record that
includes data relevant to managing credit for that customer
• The relevant data for the credit management can be monitored
and maintained via the separate credit management master
record
• The credit management master record consists of three
elements/segments: general data, credit control area data, and
an overview
• General data, which is relevant for all credit control areas
• Includes data applicable at the client level, that is, across multiple
credit control areas
• This includes the customer's address and communication data, and
the maximum total limit that can be permitted for the sum of all
granted credit limits

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• Credit control area data, which is relevant for a specific credit control
area only
• This includes the credit limit at the credit control area level, and the customer's
risk category and credit representative group
• Risk category is a classification used to determine how risky it is to extend
credit to the customer
• Companies use this classification to assess the likelihood that the customer will
pay its invoices
• An overview, which contains the most important data from all sections
(from the other segments from the credit master record)
• Companies use the overview segment to access the most important data
they need to make decisions regarding extending credit to customers

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• Businesses use credit management process to assess whether
a customer should be granted credit to purchase and receive
goods prior to payment
• The credit management process can be configured to make
this assessment at three points during the fulfillment process:
• (1) when the sales order is created or changed,
• (2) when the delivery is authorized (delivery document created) or
changed, and
• (3) when the post goods issue is performed during shipping
• The process can further be configured to consider a variety of
criteria when making this assessment, including the amount of
current receivables from the customer and the number and
amount of open sales orders, scheduled deliveries, and open
invoices
• In addition, third-party sources of credit data, such as Dunn &
Bradstreet, can also be utilized

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• The total credit exposure is calculated as the sum of the
value of open orders, scheduled deliveries, open invoices,
and the value of the current sales order
• If the credit exposure exceeds the credit limit, then the
company must select one of three possible outcomes:
• (1) warn the user and allow the process to continue,
• (2) display an error and do not allow the process to continue,
and
• (3) block delivery of the order
• All three outcomes are possible when the sales order or
delivery document is being created or changed
• During the post goods issue, however, the only option is
to block the goods issue from being posted
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• Credit control is carried out as follows:
• When the order is placed, a check is run to see whether the
customer's credit limit would be exceeded if the order were to be
accepted. If this is not the case, the sales process can be carried
out in the usual way.
• If the credit limit is exceeded, the order is blocked for delivery
and the credit department has to act. The responsible credit
representative can either be notified automatically via remote
mail, or can regularly use a report to check a list of all blocked
orders.
• The credit representative then clarifies the situation, either by
using the credit information system or by calling the customer.
• Once clarification has been made, the credit representative
releases the order, and the transaction can be processed in SD in
the usual way. If the credit representative decides not to release
the order, the order is rejected.

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You should now be able to:
• Maintain credit management master data
• Check and release blocked SD documents

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Closing Operations in
Accounts Receivable
• Learn how to adjust for bad debt expense using a
value adjustment program
• Run the balance carry forward program for a
customer

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After completing this lesson, you’ll be able to:
• Post value adjustments
• Run the balance carry forward program

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• At the start of the new fiscal year, the balance carry forward
program is run, which ensures that the balance on customer
accounts is carried forward to the new fiscal year
• The posting periods of the old fiscal year are then blocked and
the special periods for closing entries are opened
• After this, balance confirmations are sent and evaluated,
foreign currency documents are valuated, value adjustments
are carried out for overdue receivables, and accounts
receivable are reclassified into short and long-term categories
for the financial statement
• The special periods can then be closed
• Balance confirmations, foreign currency valuations, and
regroupings are carried out in the same way as in accounts
payable

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• User can use a valuation program to carry out value
adjustments
• The program functions like the dunning and payment
program
• Each valuation run is clearly identified by the Run date and
Identification fields
• User can specify how the valuation is to be executed
by entering parameters for the valuation run
• User can use the parameters of an existing valuation run as
a template
• These parameters include the valuation method, valuation
area, and posting specifications

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• The valuation run analyzes the accounts and documents
defined in the parameters and creates a valuation
proposal, which can then be edited, if necessary
• The valuations can be:
• Entered manually in the document at an earlier date (individual
value adjustment)
• Determined using a value adjustment key contained in the
customer master record
• During the valuation, a certain percentage of the overdue amount is
used
• The number of days that the respective items are overdue are used as
basis for this percentage (reserve for bad debt)
• Several valuation keys can be created for customers of varying credit
strength
• That way, overdue accounts receivable from weaker customers will be
reduced more than those for stronger customers

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• The last stage of the valuation process is the
transfer
• G/L documents post the valuation, and the
valuation is also entered in the valuated
documents, so that the valuation can be traced at
any time

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• The valuations can be carried out in different
ways if the financial statement is created using
different sets of accounting standards
• The differing results are then posted to separate
accounts that are used in different financial statement
versions
• The valuation run can also be used to discount
open accounts receivable, which means they are
valuated at their net present value
• This is a requirement in some countries

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You should now be able to:
• Post value adjustments
• Run the balance carry forward program

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You should now be able to:
• Maintain customer master records in accounting
• Describe the role of an account group
• Enter and change customer invoices in accounting
• Post a manual incoming payment
• Request customer correspondence
• Analyze customer accounts
• Use the Accounts Receivable Information System
• Describe the most important organizational units in Sales Order Management
• Describe the basic sales process in Sales Order Management and trace its effects in external
Accounting
• Maintain credit management master data
• Check and release blocked SD documents
• Post value adjustments
• Run the balance carry forward program

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1. The _____________________ defines the screen layout of the customer master record. The
account group is assigned a number range.
2. The general data section of the customer master record must be created separately for
every company code that does business with that customer.
o True
o False
3. The _____________________ ties the posting of a customer to the general ledger.
4. When a short pay for an incoming payment is processed using the partial payment
method, the invoice being partially paid is cleared and a new open item in the amount of
the payment difference is created.
o True
o False
5. Miscellaneous invoices that do not pertain to a sales order can only be entered in AR using
the Enjoy document entry screen.
o True
o False

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6. You can run a report with up-to-date information at any time in the AR Information
System.
o True
o False
7. How can you tell if a customer has been dunned?
 A. Look in the correspondence section of his master record
 B. Look at the line items in his account using the dunning screen layout
 C. Both A and B
 D. None of the above
8. A sales area consists of a _____________________, a _____________________, and a _____________________.
9. When a delivery is initially created, accounting transactions are automatically generated.
o True
o False

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10. When the billing document is created in Sales Order Management, an
accounting document that debits and credits is automatically generated.
11. The organizational element that is required to maintain credit limits is the:
 A. Controlling area
 B. Sales area
 C. Credit control area
 D. None of the above
12. If the value of a sales order would put a customer over its credit limit, the
sales order cannot be created.
o True
o False

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13. The limit that specifies that a single credit control area cannot have more
than a certain amount of the total limit is set up for a customer in which
segment of the credit management master record?
 A. Overview
 B. General data
 C. Credit control area data
 D. None of the above
14. A _____________________ must be entered in a customer's master record so that
customer can be included in the valuation program to estimate bad debt
expense.
15. The value adjustment program makes the following posting, which is
cancelled at the beginning of the next month. Debit: _____________________,
Credit: _____________________.

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