This is the first blog post in a three-part series on financial accounting using SAP. The material was adapted from Financial Accounting in SAP: Business User Guide, by David Burns. Adapted with permission from SAP PRESS. All rights reserved.

 

Enterprise structures are the bedrock of the SAP FI solution; without them, you couldn’t integrate and configure your program. Learn more about them in this piece from SAP PRESS.

 

You’ve decided to make the switch to Financial Accounting with SAP (SAP FI). Before you actually get the solution up and running, however, it would be wise to understand the basics of the program. After all, without that background info, running SAP FI wouldn’t do you much good.

 

SAP defines the enterprise structure as “the definition of specific organizational units that together represent your company’s business units and divisions.” Enterprise structures are the bedrock of the SAP FI solution; without them, you couldn’t integrate and configure your program. You couldn’t run SAP FI at all.

 

So which enterprise structures do you need in order to run SAP FI? Let’s take a look at them.

 

Company and company codes

 

A company is defined by SAP as “an organizational unit in accounting that represents a business organization according to the requirements of commercial law in a particular country.” This is the highest level of organization for accounting. To get the idea—Alphabet, which oversees many, many businesses such as Google and Calico, could be considered a company. Each of these subsidiary businesses, all doing their own things while united under Alphabet’s organization, is assigned a company code. These identifiers help differentiate each entities’ finances among the large corporate pot.

 

Company codes are usually assigned to legally independent companies, but sometimes are assigned to legally dependent companies if they are operating abroad with external reporting requirements.

 

Credit control area

 

The credit control area serves as the main hub where decisions on customer credit are made. It specifies and checks the limit for each individual customer in both accounts receivable and sales and distribution.

 

This can be done in one of two ways: a decentralized approach or a central management approach. In the former, a separate area is assigned to each company code. This allows credit to be awarded within a singular relationship. But sometimes a customer will be involved with multiple company codes. This is where the central management approach comes into play. This combines all the different iterations of the same customer within different company codes into one control area, streamlining the credit checking and assigning process.

 

Segment

 

Segments are divisions of a company that create revenue. Per GAAP and IFRS, you must be able to provide a balance sheet at the segment level. By identifying segments in SAP FI, you can easily create the necessary financial statements for external reporting requirements.

 

Profit center

 

While segments are used for external reporting, profit centers are internal units. They allow better controlling because you can follow the money in each unit and assign responsibility in accordance with results. Likewise, profit centers that are doing poorly are easier to identify and correct because their inefficiencies aren’t easily masked by the surplus of a well-performing group.

 

Business area

 

Though not as popular as they were in the past, business areas still play an important role in the internal identification of separate areas of responsibility. Similar to segments, business areas build out the balance sheet required by external forces. Under the New G/L, however, business areas and segments are considered so similar that one can be used in place of the other. Segments get the nod.

 

Functional area

 

Functional areas allow you to assign costs to specific areas within the business—things like administration, sales, production, and so on. From there, it’s easy to create profit and loss statements for each aspect of the business, allowing you to dig in and figure out where costs are bleeding and where you can make more.

 

Financial management area

 

Financial management (FM) areas are units that look at the business from a cash budget management and funds management perspective. Company codes are assigned to FM areas, which in turn create the reports.

 

All of these enterprise structures play a key role in SAP FI—but can also be assigned to enterprise structures in other components of SAP ERP, which enables integration. The flexibility of enterprise structures strengthens the solution as a whole and is the reason why SAP FI packs such a punch.  This is why it’s important to understand them before moving on. Now that we’ve covered the basics of SAP FI, next week we’ll move on to something a little deeper: Transaction FB50.

 

This is the first blog post in a three-part series on financial accounting using SAP. The material was adapted from Financial Accounting in SAP: Business User Guide, by David Burns. Adapted with permission from SAP PRESS. All rights reserved.

 

Read the second part of the series here.

Read the third part of the series here.