FI MM IntegrationAnd MM Overview1. SAP Enterprise StructureSAP enterprise structure is organizational structure that represents an enterprise in SAP R/3 system. It consists of some organizational units which, for legal reasons or for other specific business-related reasons or purposes, are grouped together. Organizational units include legal company entities, sales offices, profit centers, etc. Organizational units handle specific business functions. Organizational units may be assigned to a single module (such as a sales organization assigned to Sales and Distribution (SD) module, or to several modules (such as a plant assigned to Materials Management (MM) and Production Planning (PP) module).SAP R/3 system can represent a complex enterprise structure. Its flexibility can integrate the structure of an enterprise by linking its organizational unit. Enterprise structure design is a fundamental process in a SAP implementation project. The design is mainly determined by the business scenarios performed in an enterprise. Once the design is determined, it will affect many things such as how to perform a transaction and generate reports on SAP system. Although its possible, it requires great effort to change the enterprise structure. So , we must ensure that the enterprise structure designed in the SAP implementation project can accommodate all business scenarios and enterprises requirements for current and future situation.From MM and FICO view, the typical enterprise structure can be seen as following image.

A Client is the highest-level element of all organizational units in SAP R/3 system. The client can be an enterprise group with several subsidiaries. An SAP client has its own master data (Data which is used long-term in the R/3 System for several business processes such as customers, materials, and vendors master data). In SAP, a client is represented by a unique 3-digit number.

A Company Code is a unit included in the balance sheet of a legally-independent enterprise. Balance sheets and Profit and Loss statements, required by law, are created at company code level. The Company Code is the smallest organizational unit for which we can have an independent accounting department within external accounting, for example, a company within a corporate group (client). In SAP, a company code is represented by a unique 4-digit alpha-numeric for a specific client. It is the central organizational element of Financial Accounting. At least there is one company code in a client. We can set up several company codes in one client in order to manage various separate legal entities simultaneously, each with their own balanced set of financial books. Besides company code, in FICO module there is also another important organizational unit which is Controlling Area. The Controlling Area is the business unit where Cost Accounting is carried out. Usually there is a 1:1 relationship between the controlling area and the company code. For the purpose of company-wide cost accounting, one controlling area can handle cost accounting for several company codes in one enterprise.

A plant is the place of production or simply a collection of several locations of material stocks in close physical proximity. A plant is represented by a unique 4-digit alpha-numeric for a specific client. Plant is used in Material Management (MM), Production Planning (PP), and Plant Maintenance (PM) module. A plant is assigned to one company code.

A Storage Location is a storage area comprising warehouses in close proximity. A Storage Location is represented by a unique 4-digit alpha-numeric for a specific plant. Material stocks can be differentiated within one plant according to storage location (inventory management). Storage locations are always created for a plant.From MM perspective there another important organizational unit: Purchasing Organization.1.1. Purchasing Organization.Its an organization unit that has responsibility to companys purchasing requirements. It negotiates purchasing conditions (price, discount, and other things) with vendors. A Purchasing Organization is represented by a client-unique 4-digit alpha-numeric.A company can have one or more purchasing organizations.If a company centralizes its purchasing activities, it only needs one purchasing organization. It means that it only has one purchasing condition for a material with a vendor at a certain time.If a company decentralizes its purchasing activities, it will need more than one purchasing organizations. It means that it can have more than one purchasing conditions for a material with a vendor at a certain time. For example, after negotiating with a vendor, a head quarter purchasing organization buys a material with 100 USD price. That company has a branch at other state/region that is assigned to other purchasing organization. The branch can purchase the same material to the same vendor, for some reasons, with different price e.g. 105 USD.1.2. Facts about Purchasing Organization: A purchasing organization must be assigned to one or more plants. A purchasing organization can be assigned to one company code. A purchasing organization can also exist without being assigned to a company code. Since each plant must be assigned to a company code, the company code can be determined via the plant. One plant can have one or more Purchasing Organizations. Each purchasing organization has its own info records and conditions for pricing. Each purchasing organization has its own vendor master data. Each purchasing organization evaluates its own vendors using MM Vendor Evaluation. Possible organizational forms of Purchasing Organization in a SAP client: Corporate-group-wide purchasing A purchasing organization is responsible for the purchasing activities of different company codes. In this case, we do not assign a company code to the purchasing organization. We assign plants from different company codes to the purchasing organization. Company-specific purchasing: A purchasing organization is responsible for the purchasing activities of just one company code. In this case, we assign a company code to the purchasing organization. The purchasing organization may procure only for this company code. we assign only plants of the company code concerned to the purchasing organization. Plant-specific purchasing: A purchasing organization is responsible for the purchasing activities of one plant. In this case, we assign the plant and the company code of the plant to the purchasing organization. The purchasing organization may procure for this plant only.2. Accounting (FICO) Journals of SAP Material Management (MM) Transactions

SAP R/3 is an Enterprise Resource Planning (ERP) software that makes an enterprise able to integrate all of its business processes so it can be run more efficient. It can reduce the duplication of data and process. Data recorded by one department can be used by other departments in a real-time process. As an example we will explain the typical business process in an enterprise.2.1. Typical business processes in an enterpriseDemand for finished products from customer will be recorded by Sales department in a sales order document. Sales order data can be analyzed by Inventory department. If there are not enough finished products in current stock, the sales order can trigger a production order that request the Production department to start producing the finished products. In order to produce the finished products maybe it requires some raw materials that have to be bought from vendors. The production order can trigger a purchase requisition for the raw materials. The purchase requisition will be processed by Procurement department to be a purchase order that is sent to vendor. Vendor will deliver the raw materials and Inventory department will receive them. Accounting department will record the vendors invoice and Finance department will process the payment. Once the raw materials are available, the Production process begins. Then the finished products will be delivered to the customer, and Finance department will send invoice to the customer.All of the above processes need man powers that are managed by HR department and paid by Payroll Accounting department.

All of the above processes can be recorded by SAP R/3 in: Sales and Distribution (SD) module. Production Planning (PP) Material Management (MM) module. Finance & Controlling (FICO) module HR ModuleCertain transactions in the above example also trigger accounting business process. FICO module posts accounting documents for some transactions that have an accounting effect in SD, PP, and MM module, such as finished products issue for sale to customer, raw materials receipt from vendor, etc. These processes will affect the financial reports such as Balance Sheet and Profit & Lost Statement.

In this blog-post, we will explain the way MM transactions affect the FICO module. First, we will explain basic accounting business process principle that used in FICO module.

2.2. Accounting Business Process Basic PrincipleAccounting is the systematic process of measuring the economic activity of a business to provide useful information to those who make economic decisions (internal or external parties of an enterprise). It records all economic transactions (usually, but not always, involves money) in a systematic and generally accepted way. The transaction records are organized and presented in certain forms of reports. The most used reports in financial accounting business process are Balance Sheet and Profit & Lost Statement.

Balance SheetThe balance sheet shows an enterprises Assets, Liabilities, and Equity at a specific time (such as Balance Sheet on December 31, 2007). It is sometimes described as a snapshot of the business in financial terms.Asset = Liabilities + EquityAssets are valuable resources that a firm owns or controls, such as: Cash Bank account Inventory Account Receivable Fixed Asset Intangible AssetEtcLiabilities are obligations of the business to convey something of value in the future, such as: Account Payable Notes PayableetcEquity refers to the owners interest in the business, such as: Capital stock Retained earning Current year net profit/loss (in traditional accounting that is without a real-time software such as SAP, there is no current year net profit/loss account. The Balance Sheet is usually prepared at the end of fiscal period, such as December 31 every year. All of the profit/loss in that year from Profit & Loss Statement, after deducted by dividend that given to shareholders, will be recorded as an addition to Retained earning account. But, in SAP system, the current year net profit/loss from Profit & Loss Statement is directly recorded in balance sheet under equity, without waiting transferred to retained earning account, so it is possible to have a snapshot of enterprise balance sheet at any time along the year, not have to wait until the end of year.)2.3. Profit & Loss StatementThe Profit & Loss Statement summarizes the earnings generated by an enterprise during a specified period of time (such as Profit & Loss Statement in year 2007).It contains at least two major sections: revenues and expenses.Revenues are inflows of assets from providing goods and services to customers, such as: Sales to customers. Gain from foreign currency exchange transaction.etcExpenses are the costs incurred to generate revenues, such as: Cost of goods sold (COGS) include raw material consumption, etc General and administrative expenses include salaries, rent, and other items Tax expenseetcThe difference between revenues and expenses is net profit (or net loss if expenses are greater than revenues).Relationship between Balance Sheet and Profit & Loss Statement :Balance Sheet and Profit & Loss Statement are all based on the same underlying transaction information, but they present different views of an enterprise. They should not be thought of as alternatives to each other but as a complement.

The balance sheet represents an expansion of the accounting equation and explains the various categories of assets, liabilities, and equity. The profit & loss statement explains changes in financial position (that is, assets and liabilities) that result from profit generating transactions in terms of revenue and expense transactions. The resulting number, net profit, represents an addition to the equity in the enterprise. This relationship is called articulation.2.4. DEBIT and CREDIT rules in accounting journal

Name of accountDebitCreditIncreases in Assets are recorded by debits.Decreases in Assets are recorded by credits.Increases in Liabilities and Equity are recorded by credits.Decreases in Liabilities and Equity are recorded by debits.Revenues increases equity, therefore revenue are recorded by a credits.Expenses decreases equity, therefore expenses are recorded by a debits.Accounting journals of MM TransactionsThe MM transactions which have effect to accounting (FICO module) are transactions that involve valuated-materials (and also non-valuated-materials for GR for PO transaction), such as: Goods Receipt (GR): GR for initial entry for stock balance (movement type: 561) GR for Purchase Order/PO (movement type: 101) GR other/without PO (movement type: 501) Goods Issue (GI): GI to cost center (movement type: 201) GI to sales order (movement type: 231) GI to asset (movement type: 241) GI for sales (movement type: 251) GI to order (movement type: 261) GI for scrapping (movement type: 551) Invoice Receipt Transfer material to material (movement type: 309) if the receiving material has different valuation class with the supplying material GR Subcontract PO GR for Subcontract PO material (movement type: 101) and GI for component material provided to vendor (movement type: 543) Physical Inventory difference posting GR for gain on physical inventory count (movement type: 701) GI for loss on physical inventory count (movement type: 702)3. SAP MM Automatic Account DeterminationThere are many transactions in Material Management (MM) that relevant for Accounting. These transactions must be recorded in accounting documents that contain the postings made to the G/L accounts in Financial Accounting (FI). The mostly used MM transactions that relevant for FI can be seen at Accounting Journals of SAP Material Management (MM) Transactions.For those transactions, as far as possible, the SAP R/3 System should determine automatically the G/L account numbers that are involved in the accounting journal. By doing so, we can minimize the inputs and error possibilities made by MM end-users who perform the transactions as they dont determine the G/L account numbers.We can do this by Automatic Account Determination process in MM configuration (T-code: SPRO). The automatic account determination process must be done together with Accounting Department.3.1. The influencing factors that determine how SAP chooses the G/L account numbers that are involved in the accounting journal for MM transactions are:3.1.1. Chart of accounts of the company code We must assign a chart of account to each company code. Several company codes can use the same chart of accounts. This process must be done in FICO configuration.. SAP R/3 determines the chart of account affected by MM transaction from the company code or plant entered by user when performs a transaction.We must define the automatic account determination individually for each chart of accounts.

3.1.2. Valuation grouping code of the valuation area See Material Valuation to know more about valuation area. The Valuation grouping code is a key to differentiate account determination by valuation area within a chart of account. Valuation grouping code is also called Valuation modification. SAP screenshots of How to activate the valuation grouping code(T-code: SPRO / OMWM):SPRO menu:IMG Materials Management-Valuation and Account Assignment Account Determination Account Determination Without Wizard-Define Valuation Control

A valuation grouping code consists of a group of valuation areas that can have same account determination in a specific chart of account. It is a tool that enables us to configure the automatic account determination with a minimum of effort. If we activate the valuation grouping code in configuration process, we have to assign a valuation grouping code to each valuation area. SAP Screenshots of How to define valuation grouping code (T-code: SPRO / OMWD):SPRO menu: IMG Materials Management-Valuation and Account Assignment Account Determination Account Determination Without Wizard Group Together Valuation Areas.

By activating and using the valuation grouping code, we dont have to configure account determination for each valuation area (that is a plant or company code) if we dont want to differentiate it for each valuation area. If we want the automatic account determination within a chart of accounts runs differently for valuation areas, we can assign different valuation grouping codes to these valuation areas. We must define the automatic account determination individually for every valuation grouping code within a chart of accounts. It applies to all valuation areas which are assigned to this valuation grouping code. For example, if we want to differentiate the account determination for a group of two plants with another group of other three plants in a company code (where the valuation level is plant), we can assign a valuation grouping code for the group of two plants and another valuation grouping code for the group of other three plants. By doing so, we just have to configure the account determination for the two valuation grouping codes, no need for five valuation areas (plants). SAP R/3 determines the valuation area and the valuation grouping code affected by MM transaction from the company code or plant entered by user when performs a transaction.3.1.3. Valuation class of materialThe valuation class is a key to differentiate account determination by materials. For example, we can post a goods receipt of a raw material to a different inventory account than if the goods receipt were for finished-product. We can do this by assigning different valuation classes to the raw material and finished-product and by assigning different G/L accounts to the posting transaction for every valuation class. If we dont want to differentiate account determination according to valuation classes we dont have to maintain a valuation class for a transaction. The valuation class must be entered in the accounting data view of material master data for a valuated-material. The allowed valuation classes for a material depend on its material type. More than one valuation class can be allowed for a material type. More than one material type can be allowed for a valuation class. The relationship between valuation classes and material types is established by the account category reference. The account category reference is a compilation of valuation classes. A material type is assigned to only one account category reference.

SAP screenshots of How to define valuation classes (T-code: SPRO / OMSK)SPRO menu: IMG Materials Management-Valuation and Account Assignment Account Determination Account Determination Without Wizard-Define Valuation Classes.

3.1.4. Transaction/event key (internal processing key) The Transaction/event key is a key to differentiate account determination by business transaction. For example, we must differentiate G/L account posted by goods receipt transaction and posted by invoice receipt transaction. Posting transactions are predefined for those inventory management and invoice verification transactions relevant to accounting. Posting records, which are generalized in the value string, are assigned to each relevant movement type in inventory management and each transaction in invoice verification. These contain keys for the relevant posting transaction (for example, inventory posting and consumption posting) instead of actual G/L account numbers.We do not have to define these transaction keys, they are determined automatically from the transaction (invoice verification) or the movement type (inventory management). All we have to do is assign the relevant G/L account to each posting transaction.

3.1.5. Account grouping(only for transaction: offsetting entries, consignment liabilities, and price differences) Account grouping is a key that allows us to subdivide number assignments for each transaction key in account determination.

Account grouping is also called general modification. Since the posting transaction Offsetting entry for inventory posting is used for different transactions (for example, goods issue, scrapping, physical inventory), which are assigned to different accounts (for example, consumption account, scrapping, expense/income from inventory differences), it is necessary to divide the posting transaction according to a further key: account grouping code.

An account grouping is assigned to each movement type in inventory management which uses the posting transaction Offsetting entry for inventory posting. Under the posting transaction Offsetting entry for inventory posting, we must assign G/L accounts for every account grouping, that is, assign G/L accounts.

If we wish to post price differences to different price difference accounts in the case of goods receipts for purchase orders, goods receipts for orders, or other movements, we can define different account grouping codes for the transaction key.

Using the account grouping, we can also have different accounts for consignment liabilities and pipeline liabilities.

3.2. Configure Automatic PostingsAutomatic Postings are postings made to G/L accounts automatically in the case of Invoice Verification and Inventory Management transactions relevant to Financial and Cost Accounting.When entering the goods movement, the user does not have to enter a G/L account, since the SAP R/3 System automatically finds the accounts to which postings are to be made using the influence factors as explain above.SAP Screenshots of how to configure automatic posting (T-code: SPRO / OBYC): Posting made in the case of goods receipt (GR) to purchase order (PO): Inventory accountGR/IR Clearing Account500500We need to update the BSX transaction key (Inventory posting) with the GL code Inventory account.SPRO menu: IMG Materials Management-Valuation and Account Assignment Account Determination Account Determination Without Wizard Configure Automatic Posting.

Enter Chart of Account which we want to configure its account determination, then enter the G/L account affected by the transaction as below:

We also need to update the WRX transaction key with the GL code GR/IR Clearing account.

Enter Chart of Account which we want to configure its account determination, then enter the G/L account affected by the transaction as below:

posting made in the case of goods issue to cost center:Inventory accountMaterial consumptionexpense account500500We have configured the inventory posting transaction in the previous section (GR to PO).Now, we have to configure transaction key GBB. GBB key is used for various offsetting posting entries. Within GBB transaction there are various account grouping (general modification). In this case we need to update general modification VBR with the material consumption expense account.

Enter Chart of Account which we want to configure its account determination, then enter the G/L account affected by the transaction as below:

4. Material Price Change Transaction (MR21) in detailsSometimes we need to change the value (price) of our inventory material in order to adjust it to a certain condition.Maybe, it because the current standard price (for material with price control procedure S) has been differed too greatly with the statistical moving average price (MAP). For a material with price control procedure S, SAP R/3 system also calculates its moving average price and save it as statistical-MAP at accounting view on material master data. This statistical MAP has no influence in material valuation.Or, for a material with price control procedure V, we maybe need to change the price of a material because it has no movement transaction for a long time period and we want to revaluate it to the current market price (You can read our previous article to understand more about Material Valuation in SAP ).This material price change transaction usually occurs in manufacturing or trading companies. This transaction is an accounting transaction, not material transaction. It will post an accounting document but will not create a material document. It will change the price of a material at accounting view on material master data but will not change the quantity of it.The T-code for the transaction is: MR21.The typical accounting journals for this transaction are: If the new price is higher than the old one.For example, current material price is 5000, and we want to revaluate it to 6000. This transaction will increase the material value by 1000.Inventory accountRevenue from material revaluation10001000 If the new price is lower than the old one. For example, current material price is 5000, and we want to revaluate it to 4000. This transaction will decrease the material value by 1000.Inventory accountExpense from material revaluation10001000In the end, this transaction will result the same to the Balance Sheet and Profit & Loss Statement. Its because as long as the business operation of the company runs, the material that revaluated by this transaction will be used, either for internal consumption or for sales. Lets assume that there is no other transaction for this material.

For first condition (new price > old price) The typical accounting journal for consumption is:Inventory accountMaterial consumption expense account60006000 The first journal will decrease the Asset by 6000 (the new material value), so it will result 0 in Inventory account. The second journal will decrease the current year profit, so it will decrease Equity, by 6000. It will result -6000+1000 (from revenue from material revaluation account when material price change transaction was done) =-5000 (decrease in Equity).It is the same with if there is no material price change transaction before.Inventory accountMaterial consumption expense account50005000 For second condition (new price < old price) The typical accounting journal for consumption is:Inventory accountMaterial consumption expense account40004000 The first journal will decrease the Asset by 4000 (the new material value), so it will result 0 in Inventory account. The second journal will decrease the current year profit, so it will decrease Equity, by 4000. It will result -4000-1000 (from expense from material revaluation account when material price change transaction was done) =-5000 (decrease in Equity).It is the same with if there is no material price change transaction before.Inventory accountMaterial consumption expense account500050005. Materials Planning in SAP ERP- OverviewMaterials planning is one of the key of good inventory control systems. The objective of materials planning is to monitor stocks to ensure material availability. As a leader in ERP software, SAP R/3 also has a special materials planning function that works like and even better than other inventory control software. With materials planning in SAP, we can determine automatically which material is required, the quantity required and when it is required. By doing so, we can prevent lacking of materials when we need it.Materials planning in SAP can automatically create procurement proposals for purchasing and production (planned orders, purchase requisitions or delivery schedules). This target is achieved by using various materials planning methods which each cover different procedures.An example of how SAP materials planning and other SAP functionalities can help company to excel its business.Sales and Distribution (SD) module of SAP receives demand from customer. Sales department will create a sales order (SO) or sales forecast which contain the information of what, how many, and when Finished Goods are needed by the customer. The SO or sales forecast will be considered as an independent requirement in SAP. This requirement will trigger materials planning process for finished goods.SAP will compare the requirements with finished goods current stock. If the requirement fulfillment will result in shortage of stocks (according to certain calculation of materials planning procedure for the finished goods), materials planning will automatically create procurement proposal, such as planned order. Planned order can be converted into production order (if finished goods are produced internally) or purchase requisition (if finished goods are procured externally). In addition, materials planning can also create purchase requisition directly as a procurement proposal (no planned order).If the finished goods are produced internally, the production order/planned order created will be considered as dependent requirement for their components and/or raw materials. SAP will determine these dependent requirements by using the information from Bill of Materials (BOM) of finished goods. These dependent requirements will also trigger materials planning for the components and/or raw materials. SAP will compare the requirements with components/raw materials current stock. If the requirement fulfillment will result in shortage of stocks (according to certain calculation of materials planning procedure for the components/raw materials), materials planning will automatically create procurement proposal, such as planned order. Planned order can be converted into production order (if components are produced internally) or purchase requisition (if components/raw materials are procured externally). In addition, materials planning can also create purchase requisition directly as a procurement proposal (no planned order).If the finished goods/components/raw materials are procured externally, the procurement/purchasing department will process the purchase requisition into Purchase Order (PO).Production Order and Purchase Order will result in materials availability when we need them, so we can fulfill the customer demand on-timeThe prerequisite for implementing all materials planning procedures is the Inventory Management must function well and should always be up-to-date. If this prerequisite is not met, then materials planning will fail to achieve its objective to monitor stocks to ensure material availability.5.1. Materials Planning Procedures in SAPIn this article we will explain in detail about materials planning procedure in SAP R/3. Its basic concept is similar with other inventory control software, but SAP R/3 has its own unique procedures for materials planning.Basically, there are two types of standard materials planning procedures in SAP, which are:5.1.1. Traditional Material Requirements Planning (MRP) In traditional SAP MRP system, sales order, planned independent requirements, reservations, dependent requirements that are created by BOM explosion, and so on are planned directly as requirements. The materials planning procedure will create procurement proposal only if these requirements will result in shortage of material stocks at a certain time. There are no other requirements that can trigger a procurement proposal. This procedure is used in PD-MRP MRP Type in standard SAP R/3. MRP is especially useful for the planning of finished products and important assemblies and components (A materials).5.1.2. Consumption Based Planning (CBP)Consumption-based planning (CBP) is a materials planning procedure based on past consumption values that determine future requirements by using forecast or other statistical procedures.Originally, in CBP, planned independent requirements or dependent requirement will not be considered in the net requirements calculation. Instead, it is triggered when stock levels fall below a predefined reorder point or by forecast requirements calculated using past consumption values. So, all the planned independent or dependent requirements in a certain period of time should have been considered before (when set the reorder point or calculate the requirement forecast).Consumption-based planning procedures are simple materials planning procedures which we can use to achieve set targets with relatively little effort. Therefore, these planning procedures are used in areas without in-house production and/or in production plants for planning both B- and C-parts and operating supplies.5.1.2.1. There are three procedures in Consumption Based Planning (CBP), which are:5.1.2.1.1. Reorder point planningIn reorder point planning, SAP checks whether the available stocks are below the reorder point that has been set for the material. If they are, SAP will create procurement proposal.We can determine the reorder point manually (VB-Manual reorder point planning MRP Type in standard SAP R/3) or, it can also be calculated automatically using the material forecast (VM-Automatic reorder point planning MRP Type in standard SAP R/3).The reorder point should cover the average material requirement/consumption expected during the replenishment lead time (procurement processing time + planned delivery time + GR processing time). Besides the average consumption, we also should consider safety stock. The safety stock exists to cover both excess material consumption within the replenishment lead time and any additional requirements that may occur due to delivery delays. Therefore, the safety stock is included in the reorder level.

The following values are important for defining the safety stock: Past consumption values (historical data) or future requirements Vendor/production delivery timelines Service level to be achieved Forecast error, that is, the deviation from the expected requirementsIn standard SAP R/3 system, besides VB Manual Reorder Point and VM Automatic Reorder Point MRP Type, there are also other MRP Types that have reorder point as its basis to calculate requirement with additional procedure which count external requirement (sales order and manual reservation) as a requirement. The MRP Type are: V1-Manual reorder point with external requirements and V2-Automatic reorder point with external requirements.

5.1.2.1.2. Forecast-based planning In forecast-based planning, historical data is used in the material forecast to estimate future requirements. These requirements are known as forecast requirements and are immediately available in planning.The forecast, which calculates future requirements using historical data, is carried out at regular intervals. This offers the advantage that requirements, which are automatically determined, are continually adapted to suit current consumption needs.This procedure is used in VV-Forecast-based planning MRP Type in standard SAP R/3.5.1.2.1.3. Time-phased materials planningIn time-phased planning, historical data is also used in the material forecast to estimate future requirements. However, in this procedure, the planning run is only carried out according to predefined intervals. If a vendor always delivers a material on a particular day of the week, it makes sense to plan this material according to the same cycle, in which it is delivered. This procedure is used in R1-Time-phased planning MRP Type in standard SAP R/3.Besides all procedures that have been explained above, in SAP R/3 system we can create other procedures according to our own needs. We can do it through configuration with SPRO T-code.

6. Accounting (FICO) Journal of MM Goods Receipt (GR), Invoice Receipt (IR) Transactions, MM Goods Issue, Transfer Posting, and Physical Inventory Difference Transactions6.1. GR for initial entry for stock balance (movement type: 561).T-Code used: MIGO or MB1C.We must carry out an initial entry of stock balances when implementing the MM module of SAP R/3 System in order to transfer physical warehouse stocks or book inventories from an existing inventory accounting software into the SAP R/3 System as book inventories.Typically, a traditional accounting software program usually has an inventory sub module which records the inventories values in the balance sheet. But its not an online accounting software which record the inventory movement transaction in real-time basis like SAP does. Usually, this accounting software records the material movements transaction once in a certain period, e.g. once a month after get the information from other department.

In the GR for initial entry for stock balance transaction, no physical movements actually take place.The the typical accounting journal is:Inventory accountInitial inventory clearing account10001000The initial inventory clearing account then will be cleared against other appropriate accounts by FI module.6.2. GR for Purchase Order (PO) (movement type: 101).T-Code used: MIGO or MB1C.In a PO, the field that determines the accounting journal is account assignment category field. The account assignment in a PO is usually adopted from Purchase Requisition (PR).The account assignment category determines: The nature of the account assignment (cost center, sales order, and so on) . Which accounts are to be charged when the incoming invoice or goods receipt is posted. Which account assignment data you must provide. The most used Account Assignment Categories (AAC).AACDescriptionRequired account assignment dataAAssetMain asset number and sub-numberKCost centerCost center and G/L account number InventoryMaterial numberFor PO with account assignment A (Fixed Asset) the typical accounting journal is:Fixed asset accountGR/IR Clearing Account60006000The first journal will increase the Asset and the second journal will increase the Liabilities (GR/IR is a liabilities account), and the Balance sheet stays balance (Asset = Liabilities + Equity).The goods receipt/invoice receipt (GR/IR) clearing account is posted to whenever you receive goods that have not been invoiced yet or whenever you receive invoices for goods that have not been delivered yet.

For PO with account assignment K the typical accounting journal is:Expense accountGR/IR Clearing Account1010The first journal will decrease the Current year net profit (so it will decrease Equity) and the second journal will increase the Liabilities (GR/IR is a liabilities account), and the Balance sheet stays balance, since decrease in equity is balanced by increase in liabilities and asset stays the same (Asset = Liabilities + Equity).For PO with account assignment (blank) the accounting journal depends on price control procedure of the material received. (see material valuation for detail on price control procedure). If price control is S (standard price), the typical accounting journal is:Inventory accountGR/IR Clearing Account550500assumption:Revenue from price differences accountstandard price= 55050The first journal will increase the Asset by 550 and the second journal will increase the Liabilities (GR/IR is a liabilities account) by 500. The third journal will increase the net profit (so it will increase Equity) by 50, and the Balance sheet stays balance (Asset = Liabilities + Equity). If price control is V (moving average price), the typical accounting journal is:Inventory accountGR/IR Clearing Account500500The first journal will increase the Asset and the second journal will increase the Liabilities (GR/IR is a liabilities account), and the Balance sheet stays balance (Asset = Liabilities + Equity).See material valuation to understand the effect of materials price control procedure to the accounting journal on Goods Receipt transaction.In the end, the accounting journal for price control procedure S and V will result the same to the Balance Sheet and Profit & Loss Statement. It is because as long as the business operation of the company runs, the material that received by this PO will be used, either for consumption or for sales. Lets assume that there is no other transaction for this material.The typical accounting journal for consumption for price control S is:Inventory accountMaterial consumption expense account550550 The first journal will decrease the Fixed Asset by 550 (same amount with the increase of the Asset when GR is done, so it will result 0 in Inventory account). The second journal will decrease the current year profit, so it will decrease Equity, by 550. It will result -550+50(from revenue from price differences account when GR is done) =-500 (decrease in Equity).The typical accounting journal for consumption for price control V is:Inventory accountMaterial consumption expense account500500 The first journal will decrease the Asset by 500 (same amount with the increase of the Asset when GR is done, so it will result 0 in Inventory account). The second journal will decrease the current year profit, so it will decrease Equity, by 500.6.3. GR Subcontract PO. T-Code used: MIGO or MB1C.In subcontract order processing, the vendor receives materials (components) with which it produces the finished-product. The following are involved: We order the finished-product using a subcontract order (subcontract PO). The components that the vendor needs to manufacture the finished-product are specified in the purchase order, and we provide them to vendor. When we send the component to vendor, in Inventory Management, we transfer those components from unrestricted-stock to special stock (stock of material provided to vendor). These special stocks are still shown as our stock in MMBE (T-code for stock overview). This transaction will not post the accounting journal. The vendor performs its service and delivers the ordered material (the finished-product). GR is done for the finished-product, and automatically the consumption of the components is posted.The typical accounting journal when GR is done is:Inventory account (fin.-product)Inventory account (comp. mat)1000800GR/IR clearing account200Assumption: The vendors fee (PO value) =200; the component value=800.The first journal will increase the Asset by 1000, and the second journal will decrease the Asset by 800. The third journal will increase the Liabilities (GR/IR is a liabilities account) by 200, so the Balance sheet stays balance, Asset (1000-800) = Liabilities (200) + Equity (0).6.4. Invoice Receipt (IR) T-Code used: MIRO or MIR6 and MIR7. The typical invoice accounting journal is:GR/IR Clearing account Vendor account (Account Payable)1000 1000 The goods receipt/invoice receipt (GR/IR) clearing account is posted to whenever you receive goods that have not been invoiced yet or whenever you receive invoices for goods that have not been delivered yet.See material valuation to understand the effect of materials price control procedure to the accounting journal on Invoice Receipt transaction.The vendor account (account payable) will be followed up by finance department using FI module to payment processing. The typical accounting journal of the payment processing is:Vendor account (Account Payable)Cash / Bank account10001000 6.5. GR other/without PO (movement type: 501) T-Code used: MIGO or MB1C. The the typical accounting journal is:

Inventory accountOther revenue account1000 1000

6.6. Goods Issue(GI) T-Code used: MIGO or MB1A.The Goods Issue transaction will trigger cost accounting process. Cost accounting will record the expense occurred from the goods issue transaction whether it will be charged to cost center, cost of goods sold, or other objects.The required field that must be filled in all Goods Issue process: Material number which will be issued Quantity issued Plant from where the material issued Storage location from where the material issuedA goods issue leads to a reduction in inventories stock. GI to cost center (movement type: 201) The additional required field: Cost center number. The typical accounting journal is:

Inventory accountMaterial consumptionexpense account10001000 GI to Sales Order (movement type: 231) The additional required field: Sales Order number. The typical accounting journal is:

Inventory accountCost of Goods Soldaccount10001000After the sales processed, usually the finance department will bill (invoice) the customer (using SD Module T-Code: VF01), the typical accounting journal for this billing process is:Customer account (Account Receivable)Revenue from sales10001000 GI to Order (movement type: 261)The additional required field: Order number.The typical accounting journal is:

Inventory accountMaterial consumptionexpense account10001000 GI for sales (movement type: 251)The additional required field: Cost Center.The typical accounting journal is:Inventory accountMaterial consumptionexpense account10001000 GI to asset (movement type: 241) The additional required field: Asset number. The typical accounting journal is:Inventory accountFixed asset account10001000 GI for scrapping (movement type: 551) The typical accounting journal is:Inventory accountMaterial scrappingexpense account1000 1000

6.7. Transfer material to material (movement type: 309) T-Code used: MB1B The receiving and supplying materials might be had same valuation class, that is, same inventory G/L account, or different valuation class, that is, different inventory G/L account.

The typical accounting journal is:Inventory accountInventory account(receiving mat)(supplying mat)10001000

6.8. Physical Inventory difference posting GR for gain on physical inventory count (movement type: 701) The typical accounting journal is:Inventory accountOther revenue account10001000 GI for loss on physical inventory count (movement type: 702) The typical accounting journal is:Inventory accountOther expense account1000 10007. Material valuationIt is one of the must-known topics for all SAP Material Management (MM) learners, especially for MM consultant, FI consultant, and FI & MM administrator in a company. In a company, the material valuation procedure must be determined together with accounting department. It determines, among other things, how a material transaction recorded in accounting journal.The first thing that we should know in material valuation is the Valuation Area. It is the organizational level at which material is valuated. In SAP R/3 system, there are two possible organizational level at which material is valuated:1) Plant. When stock is valuated at plant level, we can valuate a material in different plants at different prices. Valuation must be at this level in the following cases: If we want to use the application component Production Planning (PP) or Costing If our system is a SAP Retail system

2) Company Code. When stock is valuated at company code level, the valuation price of a material is the same in all of a companys plants (that is, in a company code).

SAP recommends that we set material valuation at Plant level.We can define the valuation level in configuration process with T-Code SPRO and will be valid for whole client. The configuration process can be seen at these screen shots:

If weve never defined this before, the Valuation Level screen will be editable, but in this example it is not editable because it has been defined before.Defining the valuation level in Configuring is a fundamental setting, and is very difficult to reverse.The transactions in Inventory Management that can affect the valuation price of material in accounting record (depending on the type of price control) are: Goods Receipts. Goods Issues. Transfer Postings (for example, a stock transfer between two plants or a transfer posting from one material to another). Postings in Invoice Verification.We must create the accounting data for each valuation area for all valuated materials so the above transactions can be carried out for those materials. In the accounting view of material master data, we can get an overview of the present valuation.Valuation of goods receipts depends on the price control procedure we set in the material master record. In the R/3 System, material valuation can be carried out according to the moving average price procedure (V price) or the standard price procedure (S price).

In the standard price procedure (price control S), the system carries out all stock postings at a price defined in the material master. Variances are posted to price difference accounts.In the moving average price procedure (price control V), the system valuates goods receipts with the purchase order price and goods issues with the current moving average price. The system automatically calculates the latter upon every goods movement by dividing the total value by the total stock quantity. Differences between the purchase order price and the invoice are posted directly to the relevant stock account if there is sufficient stock coverage.Characteristic of Price Control S: All stock postings are made at a standard price. The system posts all differences from the standard price to an account Expense/Revenue from price difference. Exact values are available for cost accounting / controlling purposes (All goods issues, such as issues to a production order, are valuated at the same standard price. This allows better analysis of the costs of production orders). In the accounting view, we can display differences between the delivered price and the standard price. We can change material prices if required (generally at the end of period). This causes the system to re-valuate the total stock for a valuation area.

7.1. Posting at Standard Price.A receipt posted to a stock account is generally posted at the standard price. Differences between the order price and the standard price are posted to an Expenses/revenue from price differences account (2).Differences between the invoice price and the order price are posted to an Expenses/revenue from price differences account (3).The moving average price is also recorded in the material master when the material is valuated at a standard price. It indicates the extent to which the standard price differs from the delivered price.Characteristic of Price Control V. Receipts are valuated at their actual price (as per purchase order, invoices,) The system modifies the price in the material in the material master according to the delivered price. Issues are generally valuated at the current material price. The data used for cost accounting / controlling purposes therefore contains price fluctuations. Only in exceptional circumstances does the system post at a difference to the Expenses/Revenues from price differences account (The system makes a posting to an Expenses/revenue from price differences account for a material valuated at a moving average price only in the case of a debit or credit when the stock coverage in the company code is smaller than the quantity to be debited or credited, e.g.: When we reverse an invoice, the account movements made when the invoice was posted cannot always simply be reversed. For example, if there was sufficient stock coverage when we posted an invoice with a price variance for a material with moving average price, but when we reverse the invoice, there is insufficient stock coverage, the R/3 System posts the price difference in the credit memo to a price difference account, although the price variance was debited to the stock account when we posted the invoice) We can change material prices if required (generally at the end of period). This causes the system to revaluate the total stock for a valuation area.

7.2. Postings at Moving Average Price.

Receipts to the stock account are posted with the value Quantity x Order price. The moving average price is recalculated after every transaction and is therefore adjusted in line with delivered prices (2)/(4).Differences between the order price and the invoice price are debited to the stock account, as the invoiced quantity is in stock (3).The difference between the order price and the invoice price is only posted for the 50 pieces in stock. For the remaining 50 pieces that are not in stock, the difference between the order price and the invoice price is posted to an Expenses/revenue from price differences account (6).