Integration of Materials Management with Financial Accounting in SAP

Faisal Mahboob currently works in the UK as a freelance consultant in SAP MM/SRM. He has over 8 years of experience in SAP both on the technical and functional side of MM, and has been involved in numerous projects. Over the years, he has worked with almost every industry sector and every kind of work related to SAP MM, be it implementation, support, upgrade, or global roll-out.

* ... Preface ... 15 * 1 ... Introduction ... 19 * 1.1 ... Business ... 19 * 1.2 ... Enterprise Resource Planning ... 20 * 1.3 ... Procurement and Finance ... 20 * 1.4 ... Purpose of this Book ... 22 * 1.5 ... Scope of the Book ... 23 * 1.6 ... Summary ... 23 * 2 ... Overview of SAP ERP ... 25 * 2.1 ... The Building Blocks of SAP ERP ... 25 * 2.1.1 ... Financials ... 26 * 2.1.2 ... Logistics ... 27 * 2.1.3 ... Human Resources ... 28 * 2.1.4 ... Materials Management ... 28 * 2.2 ... Integration of Materials Management in SAP ERP ... 30 * 2.3 ... Analysis and Resources for Materials Management ... 31 * 2.3.1 ... SAP Easy Access ... 32 * 2.3.2 ... SAP Customizing ... 32 * 2.3.3 ... SAP Library ... 35 * 2.3.4 ... SAP Service Marketplace ... 37 * 2.4 ... Summary ... 40 * 3 ... Overview of the Materials Management and Financials Relationship ... 41 * 3.1 ... Elements of Materials Management ... 43 * 3.1.1 ... Purchasing ... 44 * 3.1.2 ... Inventory Management ... 48 * 3.1.3 ... Material Valuation ... 49 * 3.1.4 ... Logistics Invoice Verification ... 50 * 3.1.5 ... GR/IR Account Maintenance ... 51 * 3.2 ... Elements of Financial Accounting ... 52 * 3.2.1 ... General Ledger ... 52 * 3.2.2 ... Accounts Payable ... 52 * 3.2.3 ... Asset Accounting ... 53 * 3.3 ... Relationship between the Elements of Materials Management and Financial Accounting and Controlling ... 54 * 3.3.1 ... Commitments in Procurement ... 54 * 3.3.2 ... Elements of Financial Accounting and Controlling in a Purchase Order ... 57 * 3.3.3 ... Accounting Documents for Goods Receipt ... 58 * 3.3.4 ... Accounting Documents for Invoices ... 59 * 3.4 ... Troubleshooting Techniques ... 61 * 3.4.1 ... Introduction to Technical Elements ... 61 * 3.4.2 ... The Troubleshooting Approach ... 63 * 3.4.3 ... The Technical Analysis ... 64 * 3.4.4 ... Debugging ... 64 * 3.5 ... Summary ... 67 * 4 ... Basics of Configuration and the Processes in Procurement ... 69 * 4.1 ... Enterprise Structure ... 69 * 4.1.1 ... Definition ... 71 * 4.1.2 ... Assignment ... 75 * 4.1.3 ... Materials Management Enterprise Structure ... 78 * 4.1.4 ... Financial Accounting Enterprise Structure ... 80 * 4.2 ... Processes in Procurement ... 81 * 4.2.1 ... Procurement Cycle ... 84 * 4.2.2 ... Procurement of Stock Material ... 87 * 4.2.3 ... Procurement of Consumable Materials ... 88 * 4.2.4 ... Procurement of External Services ... 89 * 4.3 ... Master Data ... 91 * 4.3.1 ... Material Master ... 91 * 4.3.2 ... Vendor Master ... 95 * 4.3.3 ... Master Data in Purchasing ... 97 * 4.4 ... Documents in Procurement ... 99 * 4.4.1 ... Purchase Requisition ... 99 * 4.4.2 ... Request for Quotation and Quotation ... 100 * 4.4.3 ... Purchase Orders ... 102 * 4.4.4 ... Outline Purchase Agreements ... 108 * 4.4.5 ... Purchasing Info Records ... 111 * 4.5 ... Summary ... 111 * 5 ... Procurement of Stock and Consumable Materials ... 113 * 5.1 ... Procurement of Stock Material ... 113 * 5.1.1 ... Stock Material within Document Flow ... 114 * 5.1.2 ... RFQs/Quotations ... 121 * 5.1.3 ... Conditions and Calculation Schema ... 124 * 5.1.4 ... Purchasing Info Record ... 128 * 5.1.5 ... Stock and Valuation ... 130 * 5.1.6 ... Material Valuation Procedure ... 132 * 5.1.7 ... Stock Valuation in Inventory Management and LIV ... 134 * 5.2 ... Procurement of Consumable Materials ... 138 * 5.2.1 ... Purchase Requisition and Purchase Order ... 138 * 5.2.2 ... Blanket Purchase Order ... 141 * 5.3 ... Procurement of External Services ... 144 * 5.3.1 ... Procurement Cycle for External Services ... 144 * 5.3.2 ... Service Entry Sheet, Its Acceptance, and Its Invoicing ... 147 * 5.4 ... Subcontracting ... 152 * 5.4.1 ... Subcontracting in Purchasing ... 152 * 5.4.2 ... Subcontracting in Inventory Management ... 153 * 5.4.3 ... Subcontracting in Logistics Invoice Verification ... 154 * 5.4.4 ... Technical Elements of Subcontracting ... 155 * 5.5 ... Summary ... 156 * 6 ... Conditions, Price Determination, and the Basics of Material Price Changes ... 157 * 6.1 ... Conditions and Price Determination ... 157 * 6.1.1 ... Elements of Condition Techniques ... 157 * 6.1.2 ... Price Determination ... 168 * 6.1.3 ... Header and Group Conditions ... 176 * 6.1.4 ... Special Condition Types and Special Functions ... 178 * 6.1.5 ... Subsequent Settlement ... 181 * 6.2 ... Basics of Material Price Changes ... 184 * 6.2.1 ... Control of Material Valuation ... 185 * 6.2.2 ... Valuation Structure ... 187 * 6.2.3 ... Changes in Material Valuation ... 189 * 6.3 ... Summary ... 190 * 7 ... Balance Sheet Valuation ... 191 * 7.1 ... Lowest Value Determination ... 192 * 7.1.1 ... Lowest Value Determination Based On Market Prices ... 193 * 7.1.2 ... Lowest Value Determination Based On Range of Coverage ... 195 * 7.1.3 ... Lowest Value Determination Based On Movement Rate ... 197 * 7.1.4 ... Lowest Value Determination: Loss-Free Valuation ... 201 * 7.2 ... LIFO Valuation ... 201 * 7.2.1 ... LIFO Methods and the Layer Versions ... 204 * 7.2.2 ... Quantity and Index LIFO Procedures ... 206 * 7.2.3 ... Pool LIFO Valuation ... 212 * 7.2.4 ... Lowest Value Comparison ... 213 * 7.3 ... FIFO Valuation ... 214 * 7.3.1 ... FIFO Configuration ... 215 * 7.3.2 ... Procedures for FIFO Valuation ... 217 * 7.4 ... Summary ... 217 * 8 ... Material Price Change ... 219 * 8.1 ... Value Changes in Inventory Management ... 219 * 8.1.1 ... Goods Receipt for Purchase Orders ... 220 * 8.1.2 ... Account Postings: Planned Delivery Costs ... 222 * 8.1.3 ... Delivery Free of Charge ... 223 * 8.1.4 ... Value Changes in Transfer Postings ... 224 * 8.1.5 ... Initial Entry of Inventory Data ... 229 * 8.1.6 ... Goods Receipt Reversal ... 231 * 8.2 ... Value Changes in Logistics Invoice Verification ... 237 * 8.2.1 ... Subsequent Debit/Credit ... 238 * 8.2.2 ... GR/IR Clearing Account Maintenance ... 240 * 8.3 ... Value Changes Resulting from Cash Discounts ... 242 * 8.3.1 ... Gross Goods Receipt -- Gross Invoice Receipt ... 243 * 8.3.2 ... Gross Goods Receipt -- Net Invoice Receipt ... 244 * 8.3.3 ... Net Goods Receipt -- Net Invoice Receipt ... 245 * 8.4 ... Revaluation ... 245 * 8.4.1 ... Price Changes in the Previous Period Only ... 247 * 8.4.2 ... Price Changes in the Previous and Current Period ... 247 * 8.5 ... Posting to a Previous Period ... 248 * 8.5.1 ... Posting Goods Movements to the Previous Period ... 250 * 8.5.2 ... Posting Invoices to the Previous Period ... 250 * 8.5.3 ... Posting to a Previous Period after a Price Change ... 251 * 8.5.4 ... Stock Shortage in the Current Period ... 252 * 8.6 ... Summary ... 254 * 9 ... Accounts Payable Invoice from Materials Management ... 255 * 9.1 ... Logistics Invoice Verification ... 255 * 9.1.1 ... Functional Basis ... 256 * 9.1.2 ... SAP Functional Design ... 256 * 9.1.3 ... Checkpoints and Real-time Issues ... 258 * 9.1.4 ... Technical Elements ... 259 * 9.1.5 ... Troubleshooting Tips ... 259 * 9.2 ... Incoming Invoice ... 260 * 9.2.1 ... Functional Basis ... 260 * 9.2.2 ... SAP Functional Design ... 260 * 9.2.3 ... Checkpoints and Real-Time Issues ... 262 * 9.2.4 ... Technical Elements ... 264 * 9.2.5 ... Troubleshooting Tips ... 265 * 9.3 ... Invoice Verification Online ... 266 * 9.3.1 ... Functional Basis ... 266 * 9.3.2 ... SAP Functional Design ... 267 * 9.3.3 ... Invoices for a One-Time Vendor ... 272 * 9.3.4 ... Duplicate Invoice Check ... 275 * 9.3.5 ... Checkpoints and Real-Time Issues ... 277 * 9.3.6 ... Technical Elements ... 278 * 9.3.7 ... Materials Management, Financial Accounting, and Controlling Interface for Transaction MIRO ... 280 * 9.4 ... Invoice Parking ... 280 * 9.4.1 ... Functional Basis ... 280 * 9.4.2 ... SAP Functional Design ... 281 * 9.4.3 ... Integration with Financial Accounting ... 283 * 9.4.4 ... Checkpoints and Real-Time Issues ... 284 * 9.4.5 ... Troubleshooting Tips ... 285 * 9.5 ... Prepayment ... 285 * 9.5.1 ... Functional Basis ... 285 * 9.5.2 ... SAP Functional Design ... 286 * 9.5.3 ... Checkpoints and Real-time Issues ... 287 * 9.5.4 ... Troubleshooting Tips ... 288 * 9.6 ... Invoice Verification in the Background ... 289 * 9.6.1 ... Functional Basis ... 289 * 9.6.2 ... SAP Functional Design ... 290 * 9.6.3 ... Technical Elements ... 291 * 9.6.4 ... Checkpoints and Real-Time Issues ... 292 * 9.6.5 ... Troubleshooting Tips ... 293 * 9.7 ... Account Determination ... 293 * 9.7.1 ... Principles of Financial Accounting Integration in an SAP System ... 293 * 9.7.2 ... Functional Elements of Account Determination ... 294 * 9.8 ... Purchase Account Management ... 295 * 9.8.1 ... Postings at Receipt Value ... 295 * 9.8.2 ... Postings at Stock Value ... 296 * 9.9 ... Direct Posting ... 297 * 9.9.1 ... Posting to SAP G/L Accounts ... 297 * 9.9.2 ... Posting to a Materials Account ... 298 * 9.10 ... Posting Taxes ... 299 * 9.10.1 ... Types of Taxes ... 299 * 9.10.2 ... Proposal Logic for Tax Codes ... 302 * 9.10.3 ... Settings for Taxes in Customizing and in Master Data ... 303 * 9.10.4 ... Technical Flow and Architecture ... 304 * 9.10.5 ... Technical Details of Tax Calculations ... 305 * 9.11 ... Cash Discount ... 305 * 9.11.1 ... Cash Discount Base ... 306 * 9.11.2 ... Cash Discount Postings ... 306 * 9.12 ... Summary ... 310 * 10 ... Variances and Blocking of Invoices ... 311 * 10.1 ... Invoice with Variances ... 311 * 10.1.1 ... Quantity Variance ... 312 * 10.1.2 ... Price Variance ... 316 * 10.1.3 ... Quantity and Price Variance ... 320 * 10.1.4 ... Order Price Quantity Variance ... 325 * 10.2 ... Invoice Blocking ... 329 * 10.2.1 ... Functional Basis ... 329 * 10.2.2 ... SAP Functional Design ... 329 * 10.2.3 ... Checkpoints and Real-Time Issues ... 336 * 10.2.4 ... Technical Elements ... 337 * 10.2.5 ... Troubleshooting Tips ... 338 * 10.3 ... Invoice Release ... 339 * 10.3.1 ... Functional Basis ... 339 * 10.3.2 ... SAP Functional Design ... 339 * 10.3.3 ... Checkpoints and Real-Time Issues ... 342 * 10.3.4 ... Technical Elements ... 343 * 10.3.5 ... Troubleshooting Tips ... 344 * 10.4 ... Delivery Costs ... 345 * 10.4.1 ... Planned Delivery Costs ... 345 * 10.4.2 ... Unplanned Delivery Costs ... 350 * 10.5 ... Total-Based Differences ... 354 * 10.5.1 ... Functional Basis ... 354 * 10.5.2 ... SAP Functional Design ... 354 * 10.5.3 ... Checkpoints and Real-Time Issues ... 356 * 10.5.4 ... Technical Elements ... 357 * 10.6 ... Invoices for Purchase Orders with Account Assignment ... 357 * 10.7 ... Entering Invoices in a Foreign Currency ... 360 * 10.8 ... Summary ... 361 * 11 ... Additional Functionalities in LIV ... 363 * 11.1 ... Valuation and Account Determination ... 363 * 11.1.1 ... Influencing Factors ... 364 * 11.1.2 ... Organizational Level Dependency ... 365 * 11.1.3 ... Account Determination of Stock Materials ... 366 * 11.1.4 ... Account Determination of Consumable Materials ... 372 * 11.1.5 ... Simulation ... 375 * 11.2 ... Automatic Settlements ... 376 * 11.2.1 ... Evaluated Receipt Settlement (ERS ... 377 * 11.2.2 ... Consignment and Pipeline Settlement ... 380 * 11.2.3 ... Revaluation ... 382 * 11.2.4 ... Invoicing Plan Settlement ... 386 * 11.3 ... Messages in Logistics Invoice Verification ... 387 * 11.3.1 ... Areas of Messages ... 388 * 11.3.2 ... Message Schema ... 389 * 11.3.3 ... Outputting Messages ... 390 * 11.4 ... Credit Memos, Returns, and Reversals ... 390 * 11.5 ... GR/IR Clearing Account ... 394 * 11.6 ... Summary ... 398 * 12 ... Conclusion ... 399 * 12.1 ... Lessons Learned ... 399 * 12.2 ... Additional Resources ... 402 * ... Appendices ... 403 * A ... Optimizing the Integration between Materials Management and Financial Accounting ... 405 * A.1 ... Screen Layout ... 405 * A.2 ... Validation ... 407 * A.3 ... Substitution ... 409 * A.4 ... Technical Elements of Validation and Substitutions ... 409 * A.5 ... Enhancements ... 412 * B ... Commonly Used Abbreviations ... 415 * C ... References ... 417 * D ... Useful Links ... 419 * E ... The Author ... 421 * ... Index ... 423