What is MM FI integration in SAP

When good receipt (GR) and invoice receipt (IR) is performed, accounting document gets generated.
Movement of material leads to automatic generation of accounting document and this is referred as
MM FI integration.
Question is how system determines which accounts to debit and which accounts to credit?
Let’s understand MM FI integration

Movement type:
It’s a three digit number which represents the nature of movement of material.
Movement types are predefined by sap. Depending upon transaction, sap automatically picks the
corresponding movement type.
Below shows few examples of movement types:

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Transaction key:
GL account is determined with the help of transaction key.
Below are few examples:
BSX : Inventory account (helps in determining GL account for inventory)
GBB : inventory offsetting account (helps in determining offsetting GL account of inventory GL
account)
WRX : GR/IR clearing account (helps in determining GR/IR clearing account)
PRD : Price difference account (helps in determining GL account for booking any difference in prices)

Valuation modifier:
Valuation areas are grouped together and this group is known as valuation modifier or valuation
grouping code.
The valuation area is basically the level at which the material is valued. Material can be valued either
at plant level or at company code level. Hence valuation area is either plant or company code.
Consider a scenario; a company code has 3 plants.
If valuation area is set as company code, then the price of material in all 3 plants will be same and
material in all 3 plants will be posted to same set of GL accounts.
If valuation area is set as plant, then material price in each plant can be different and material can be
maintained using a separate set of GL accounts.
Standard practice is to keep valuation area as plant.
If multiple plants to use the same set of GL accounts, then valuation areas (plants) can be grouped
together. GL account to be mapped to this group in OBYC.

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Benefit of using valuation grouping code or valuation modifier is reduced number of entries to be
maintained in OBYC.
Using valuation modifier is optional. Depending upon business requirement it may or may not be
used in account determination.

General modifier
General modifier is used only with three transaction keys (GBB, PRD & KON)
General modifier help to post to different GL accounts with the same transaction key.

Valuation class:
Valuation class is used in automatic account determination.
Valuation class is maintained in material master.

Let's take an example and understand above concept:

From the nature of business transaction, system automatically determines the material movement
type involved.
From movement type, system automatically determines the transaction key and general modifier
involved in posting the accounting document.
The material involved in the transaction belongs to a particular plant. From plant, valuation modifier
is identified.
From material master, valuation class is identified. (Every material is assigned to a valuation class
and this assignment is done in materiel master)
Now system searches for combination of valuation modifier, general modifier, valuation class and
mapped GL account. This combination is maintained in T code OBYC.

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Example:
When goods receipt (GR) is posted against purchase order (PO), System automatically determines
that movement type 101 is involved.
From movement type 101, system knows transaction key involved is BSX, WRX & PRD.
From movement type, account modifier if involved is identified.
From plant, valuation modifier is identified.
From material, valuation class is identified.

Below accounting entry is posted:

DR. Inventory account (GL account mapped under transaction key BSX)
CR. GR/IR clearing account (GL account mapped under transaction key WRX)
DR/CR. Price difference account (GL account mapped under transaction key PRD)

1) What is credit memo??When is it used?

A credit memo is a document issued by a seller to a buyer, indicating a reduction in the

amount owed due to returns, discounts, or other reasons.
 A credit memo is used to correct errors in invoices or to provide refunds to
customers.
 It is typically issued when goods are returned by the customer or when there is a
pricing discrepancy.
 Credit memos can also be used to adjust the amount owed by a customer for
future purchases.
 They are important for maintaining accurate financial records and ensuring
customer satisfaction.
 Examples of credit memo usage include issuing a credit for damaged goods,
granting a discount for late delivery, or correcting an overcharge.

2) Documents used to procure using Central purchase Organisation?

Purchasing organization
An organizational unit responsible for procuring materials or services for one or more plants and for
negotiating general conditions of purchase with vendors. The purchasing organization assumes legal
responsibility for all external purchase transactions.
Purchasing group The purchasing organization is further subdivided into purchasing groups (buyer
groups), which are responsible for day-to-day buying activities.
A purchasing group can also act for several purchasing organizations.
Structure

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Assignments of Organizational Levels "Plant", "Purchasing Organization", and "Company Code"
 Plant - purchasing organization/company code
In the SAP system, a plant must be assigned to one or more purchasing organizations.
Furthermore, a plant must always be assigned to a company code.
 Purchasing organization – company code
A purchasing organization can (but need not) be assigned to a company code.
If you do not assign a company code to a purchasing organization, the latter can engage in
procurement operations for every company code.
A prerequisite for this is that the plant for which procurement is carried out is assigned to
the purchasing organization.
Organization of Purchasing
Centralized/Distributed Purchasing
You can organize your purchasing function in the following ways:
 Centralized purchasing, with just one purchasing organization
 Distributed purchasing, with a number of different purchasing organizations each
responsible for different plants
The following graphic illustrates the different ways of organizing your purchasing function in the SAP
System:

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For more information on the organizational structure of an enterprise's purchasing function, see the
Implementation Guide (IMG) for the Enterprise Structure (section Maintaining a Purchasing
Organization ).

Reference Purchasing Organization

Depending on the way your system is set up, either a central purchasing department can exist side
by side with, but separate from, local purchasing departments, or local purchasing departments can
make use of contracts and conditions created by the central purchasing department. The latter
situation can be replicated with the aid of Reference Purchasing Organizations.

Advantages of a Reference Purchasing Organization

A reference purchasing organization can negotiate a comprehensive contract that can be used by
other purchasing organizations.
The purchasing organizations responsible for procurement in the individual plants can issue release
orders against this Centrally Agreed Contract, thus availing themselves of its more favorable terms
and conditions.

3) Movement types and transaction event keys in Subcontracting process?