Reconciliation Accounts and Special G/L Indicator

Most SAP people might be asking, what is a reconciliation account and special general ledger indicator in SAP Financial Accounting? Well, my dear readers surely you will be enlightened by this article.

First, you must understand the definition of general ledger. General ledger is the main accounting record of a business which uses double-entry bookkeeping. In SAP, the central task of G/L accounting is to provide a comprehensive picture for external accounting and accounts. Transactions that have a financial impact are captured by the general ledger. The transactions could be orinated from other modules. Example, posting of goods receipt (MIGO) performed by purchaing personnel (MM module) have already a financial impact. It increases the inventory balance and increases the GR/IR clearing account. The accounting journal entry the transactions MIGO create is debit (dr) Inventory account (G/L) and credit GR/IR clearing accounts (G/L).
The general ledgers summarize all financial transactions of a Company. It is the the basis of the preparation of the Company's Financial Statements.

Now, let's dig it further. Reconciliation Accounts are G/L accounts that receive postings from a subsidiary ledgers. Meaning, transactions data are not posted directly to recon accounts. Example of recon accounts are Accounts Receivable, Accounts Payable and Fixed Assets G/L. For accounts receivable G/L the subsidiary ledger is the customer account. All transactions with the customers are posted directly to the customer account and the recon account is automatically updated. How this thing happen? Well, when you create a customer account you specify under the Company Code data the reconciliation account.

So, all normal transactions to the customer e.g. sale of goods are posted to the recon account defined in the customer master data. Next question would be, what G/Laccount should be updated for postings of customer down payment (advance collection)? For proper accounting, downpayment should not be posted to Accounts Receivable - trade. It should be posted to different G/L account e.g. Advances from customer. Well, how would the said transaction be posted to Advances accounts.

This is one of the cases where the idea of special G/L indicator comes in. With the use of special G/L indicator you can specify in the set-up what G/L account advances transactions be posted. Standard posting key of customer transaction with special G/L indicator are 09 (dr) and 19 (cr). The system will always require you to indicate the special G/L indicator when you use the said posting keys.

Cheers, more tips to be posted!

"Understand and Configure Chart of Accounts"

Before configuring any part of the FI Enterprise Structure, it is vital to have already drawn out and agreed upon what the Company's structure will look like. Settling on a chart of accounts with the users in the client sites is one of the first big thing challenge to overcome in a project.

Before beginning design sessions on the chart, it is essential that both the consultant and the client personnel responsible for design decisions have a clear understanding of the differences between Financial Accounting (FI) and Controlling (CO) in SAP. The main purpose of FI is for external legal reporting purposes to outside authorities (SEC, Bureau of Internal Revenue, etc.). Whereas, the main reporting purpose of CO is for internal management reporting. This is often a very difficult nuance for usres to grasp and understand.

With SAP, you don't need thousands of accounts or any logic other than grouping logic (e.g. all Cash accounts are in the 100000 to 199999 range) built into the G/L account number. The easiest way to configure a chart of accounts is to copy an existing chart of accounts:

IMG > Financial Accounting (New) > General Ledger Accounting (New) > Master Data > G/L Accounts > G/L Account Creations and Processing > Alternative Methods > Copy G/L Accounts > Copy Chart of Accounts.

Transaction Code: OBY7

Alternatively, you can create your chart of accounts from scratch. First, you need to create your chart of accounts name and properties with the path below:

IMG > Financial Accounting (New) > General Ledger Accounting (New) > Master Data > G/L Accounts > Preparations > Edit Chart of Accounts List.

Transaction Code: OB13

Then create your G/L accounts manually:

Menu Path: Accounting > Financial Accounting > General Ledger > Master Records > G/L Accounts > Individual Processing > In Chart of Accounts.

Transaction Code: FSP0.

"Company Code vs Controlling Area"

What's the difference between Company Code and Controlling Area?

Company Code
It is the smallest organizational unit in FINANCIAL ACCOUNTING (FI) for which a complete set of accounts can be created. It is the central organizational unit of external accounting within the SAP system. Normally, a company code is created for each company (legal entity). It is a mandatory and pre-requisite that at least one company code must be defined before implementing the Financial Accounting component. All business transactions relevant for Financial Accounting are entered, saved and evaluated at company code level. Therefore, it is at company code level wherein a complete set of financial statements (Balance Sheet, Income Statement, Statement of Cash Flows) can be created.


Controlling Area
Controlling Area in SAP is an organization that represents a closed system used for cost accounting purposes. It is an organizational unit in the Controlling (Management Accounting) separate and has different functions with that of the Company Code. One ore more Company Codes can be assigned to a Controlling Area.