1. Unit 1: SAP Business One Standard Financial Processes
Contents:
Standard financial processes
Sales and purchasing processes and their consequences on book keeping

2. SAP Business One Standard Financial Processes: Unit Objectives
After completing this unit, you will be able to:
Discuss some general accounting conventions
Describe the steps in the standard financial processes in SAP Business One
Give examples of the automatic journal entries created during the sales, purchasing and inventory processes
Discuss the financial consequences of the processes on the general ledger

3. SAP Business One Standard Financial Processes: Course Overview Diagram
Topic 1: Standard Financial Processes
Topic 2: Sales and Purchasing Processes

4. SAP Business One Standard Financial Processes: Business Example
You are implementing SAP Business One at a new customer, OEC Computers:
Your main contact in the customer site is Maria the accountant.
Maria asks about the way SAP Business One handles the financial accounting processes.
She wants to make sure she understands the big picture so she can report to the company owners the business results periodically.

5. Standard Financial Processes
SAP Business One Standard Financial Processes
Topic 1: Standard Financial Processes
Topic 2: Sales and Purchasing Processes
System Configuration
Master data
Purchasing
Inbound logistics
Warehouse management
Outbound logistics
Marketing & Sales
Service
Production
Financial controlling

6. Standard Financial Processes: Topic Purpose
After completing this topic, you will be able to:
Discuss some general accounting conventions

7. Finance Basics
Every business transaction is recorded in the company's books.
This allows you:
To manage your company effectively with the option of producing financial reports
To report the business transactions to the authorities.
Every business transaction results with a value exchange:
A certain account increases value and another decreases value, resulting in the recording of balancing debit side and credit side postings.

8. Value Exchange: Question
In a current sales process what happens to the accounts involved in the A/R Invoice?
(Let us assume that this is a non-perpetual inventory system)
A/R Invoice

9. Value Exchange: Answer
A/R Invoice
Debit
Credit
Customer
account
105
Tax account 5
Revenue account
100

10. Some General Accounting Conventions (1)
Each journal entry represents one posted business transaction.
Each line in the journal entry represents one posting to an account (which could represent a customer, vendor or a regular general ledger account).
Each line in the journal entry represents a posting of either a debit or a credit amount (but never both together).
Deposit no
Debit
Credit
Cash clearing account
105
Bank account
In this example, when we deposit cash amounts to the company bank account, the cash clearing account decreases value and is credited and the bank account increases value and is debited.
This corresponds with the Double Entry bookkeeping system, wherein every transaction or event impacts at least two different accounts. In modern accounting this is done using debits and credits.

11. Some General Accounting Conventions (2)
Each journal entry must include debit and credit amounts; therefore, a journal entry must include at least two lines.
There is no limit on lines in a single journal entry.
A journal entry must be balanced. That is, the total credit and debit amounts in a journal entry must be equal
Deposit no
Debit
Credit
Check clearing account
105
300
205
155
Bank account
765
Total
In this example, the check clearing account is credited 4 times because the deposit includes 4 checks (the business received from different customers).
The bank account is debited in the total value of those 4 checks.
The debit and credit amounts are equal and the journal entry is balanced.

12. The Account Balance (1)
The account balance represents the difference between the total debit transactions and the total credit transactions recorded for that account.
The transaction summary or the balance of a certain G/L account or business partner is the initial information the accounting system can provide about the business.
Customer XXXX7
Debit
Credit
Origin
105 Debit
A/R Invoice
600 Debit
400 Debit
705 Credit
Incoming Payment
200 Debit
100 Debit
Account Balance
700 Debit

13. The Account Balance (2)
Previously, we mentioned that in each journal entry a certain account increases value and another decreases value, resulting in the recording of balancing debit side and credit side postings.
The effect on the account balance:
Assets, Expenses, and Drawings accounts are generally in debit.
Liability, Revenue, and Capital (Equity) accounts are generally in credit.

14. The Account Balance and the Account Type
Debit Accounts
Credit Accounts
▲= increase
▼ = decrease
Typical Balance
Assets ▲
Bank Account,
Accounts Receivable ▼
Liabilities
Accounts Payable
Equity/ Capital
Reserves
Expenses
Rent,
Electricity
Revenues
Sales Revenue
Balance Sheet
Accounts
Profit and Loss
Accounts
For assets:
Debit transactions always increase the asset value.
Credit transactions always decrease the asset value
For liabilities:
Credit transactions always increase the liability.
Debit transactions always decrease the liability.

15. Value Exchange and the Account Balance
The two accounts increase their values: ▲
(Let us assume that the customer is tax exempt and that this is a non-perpetual inventory system)
A/R Invoice
Debit
Credit
Customer
account
440
Revenue

16. Sales and Purchasing Processes
SAP Business One Standard Financial Processes
Topic 1: Standard Financial Processes
Topic 2: Sales and Purchasing Processes
System Configuration
Master data
Purchasing
Inbound logistics
Warehouse management
Outbound logistics
Marketing & Sales
Service
Production
Financial controlling
In this topic we review the sales and purchasing processes discussed in TB1000 and focus on their consequences on bookkeeping.

17. Sales and Purchasing Processes: Topic Purpose
After completing this topic, you will be able to:
Describe the steps in the standard financial processes in SAP Business One.
Describe the automatic journal entries created during the sales and purchasing processes.
Discuss the financial consequences of the processes on the general ledger.

18. Automatic Journal Entries: Reflection Question
In a standard sales process which documents affect the accounting
system?
Standard
Sales Quotation
Sales Order
Delivery
A/R Invoice
Incoming Payment
Deposit

19. Automatic Journal Entries: Answer
In a standard sales process which documents affect the accounting
system?
Standard
Sales Quotation
Sales Order
Delivery
A/R Invoice
Incoming Payment
Deposit
When managing perpetual Inventory

20. Examples of Automatic Journal Entries: A/R Invoice
In the sales process  A/R Invoice, which account is debited and which is credited?
(Let us assume that this is a non-perpetual inventory system)
Sales Quotation
Sales Order
Delivery
A/R Invoice
Debit
Credit
Customer account
105
Tax account 5
Revenue account
100
In SAP Business One, a journal entry is automatically posted from many documents during the sales, purchasing and inventory processes, such as A/R and A/P invoices.

21. Examples of Automatic Journal Entries – Incoming Payment
In the sales process  Incoming Payment, which account is debited and which is credited?
Sales Quotation
Sales Order
Delivery
A/R Invoice
Incoming Payment
Possible Payment Means
Check
Credit card
Cash
Bank transfer
*BOE
Debit
Credit
Cash clearing account
105
Customer
*BOE - Bill of Exchange. This option is relevant for Italy, Portugal, Spain and France and activated by default.

22. Examples of Automatic Journal Entries – A/P Invoice
In the purchasing process  A/P Invoice, which account is debited and which is credited?
(Let us assume that this is a non-perpetual inventory system) )
Purchase Order
Good Receipt PO
Outgoing Payment
A/P Invoice
Debit
Credit
Vendor
105
Tax account 5
Expense account
100

23. Financial Settings: Reflection Question
How does the system “know” which accounts to use automatically?
G/L Account Determination
Control Accounts

24. G/L Account Determination
G/L Account Determination – defines default G/L accounts related to a specific business process:
Sales
Purchasing
General (for example, Period End Closing)
Inventory – three available options to choose the default G/L method for an item:
At the warehouse level
At the item group level
At the item level
You need to make decisions about G/L Account Determination together with the client accountant.
When you implement SAP Business One you define default G/L accounts to be used when transactions are created. Administration  Setup  Financials  G/L Account Determination.
G/L Account Determination: the window is divided into four tabs. Each tab contains the definitions for G/L accounts related to a specific business process: Sales, Purchasing, General, and Inventory.
When you choose a pre-defined Chart of Accounts template, most of the defaults are already defined. You can change them if required.
When choosing a G/L account in the G/L Account Determination window it appears in green in the Chart of Accounts.
Whenever you add a document that posts a journal entry, A/R Invoice for example, the system determines the G/L accounts to be used from the default accounts.

25. G/L Account Determination - Example
The Revenue default G/L account is defined in the G/L Account Determination window, under the Sales tab.
Revenue account
A/R Invoice
Debit
Credit
Customer
account
105
Tax account 5
Revenue account
100

26. Control Accounts Accounts Receivable Customer Accounts Receivable =
A/R Invoice
Control Account
Debit
Credit
Accounts Receivable
Customer
105
Tax account 5
Revenue account
100
In the G/L Account Determination window you also define the Control Accounts: Accounts Receivable for the Sales process, Accounts Payable for the Purchasing process.
A control account links the business partner sub-ledger accounts to the general ledger.
You need to define a G/L account as a Control Account in the Chart of Accounts.
Whenever you post a document to a business partner, the system automatically register the journal entry to:
The Business Partner Master Data account balance.
The control account balance. (You cannot post journal entries directly to a control account).
In an A/R Invoice, for example, when the customer is debited the Accounts Receivable account is also debited.
This journal entry appears now in both accounts balances (the customer and the control account).
Note, that the Business Partner Master Data balances do not appear in the Chart of Accounts.
The receivable and payable control accounts accumulate the customers and vendors transactions in their balances.
Hence, the Chart of Accounts presents the complete financial status of the company. As well as the Financial Reports (P&L, Balance Sheet).
Some transactions, such as transactions with bills of exchange, must be posted to special control accounts. Therefore, you can assign these special accounts to predefined transaction types, such as Open Debts, Assets Account, Down Payments Receivable/Payable or other (country-dependent).
In the G/L Account Determination window you can select if you want to assign different control accounts to different customers or vendors.
Assigning control accounts to each customer or vendor is done in the Business Partner Master Data window. Choose Business Partners  Business Partner Master Data  Accounting tab  General tab  Accounts Receivable/Accounts Payable field. If this option is not selected, the control accounts defined in the G/L Account Determination window are used for all customers and vendors.
You also have the ability to change the default control account in marketing documents. Choose the Accounting tab  Control Account field.
If you are working with several control accounts, the system can display the business partner balances separately for every control account. Business Partners  Business Partners master Data  open the linking arrow in the Account Balance field and choose the View by Control Account button.

27. Exercise - Control Accounts
Go to Reports  Financials  Financial  Balance Sheet.
Run the report.
Locate the Accounts Payable in level 5.
Go to level 1 and check that the report is balanced.
How is the report balanced?

28. The Automatic Journal Entry Value
How does the system “know” the value to be credited and debited in an automatic journal entry created by an A/R Invoice?
(Let us assume that the customer is tax exempt).
A/R Invoice
Debit
Credit
Customer
account
440
Revenue

29. Value Calculation – Invoice – Sales Process
Purchasing Price List = 100
Reseller Price List = 110
Retail Price List = 120
Star Trek Computers = Reseller Price List
Reseller Price List
= 110
Unit Price * Quantity = Total Value
110 * 4 = 440
Let us refresh our memory with some of the topics from the Logistics course TB1000. Here is a common scenario of how prices are set in SAP Business One during the sales process:
Our customer Star Trek Computers asks for an offer on 4 portable media players.
Jean creates a sales quotation. She chooses the customer and then the item. The price per unit appears in the quotation. How?
The Item master data includes 3 optional prices for this item. Each one of them is represented in a different Price List.
Star Trek Computers is a reseller customer and so his default price list as defined in his master data record is the Reseller Price List.
Therefore, in the Sales Quotation, the unit price for a portable media player is 110, the Resellers Price List.
Jean enters quantity of 4.The total value of the quotation is 440 (assuming there are no additional items in the quotation and that no discount or tax amounts are added).
Star Trek Computers faxes us a Sales Order based on the Sales Quotation.
In SAP Business One, jean copies the Sales Quotation to a Sales Order.
2 days later Joe, the warehouse manager, dispatch the company truck with the weekly devilries, including 4 portable media players for Star Trek Computers.
Later on the day, the accountant copy the Delivery to an A/R Invoice.
Since no change was done to the price during the Copy To process, the Invoice total value is 440 and these are the Credit and Debit amounts in the automatic journal entry created by the A/R Invoice.
Sales Quotation
Sales Order
Delivery
A/R Invoice

30. Value Calculation – A/P Invoice – Purchasing Process
Purchasing Price List = 100
Reseller Price List = 110
Retail Price List = 120
Coconut Devices = Purchasing Price List
Purchasing Price List = 100
Unit Price * Quantity = Total Value
100* 10 = 1000
Purchase Order
Good Receipt PO
A/P Invoice
In the Purchasing process a common scenario of how prices are set would be:
Joe, the warehouse manager, issues a Purchase order of 10 portable media players. He chooses the vendor Coconut Devices and then the item - portable media player. The price per unit appears in the Purchase Order. How?
Since Coconut Devices is a vendor, his default price list as defined in his master data record is the Purchasing Price List.
Therefore, in the Purchase Order, the unit price for portable media player is 100, the Purchasing Price List from the portable media player item master data.
Joe enters a quantity of 10. The total value of the Purchase Order is 1000 (assuming there are no additional items in the Purchase Order and that no discount or tax amounts are added).
Joe s the Purchase Order to the vendor.
Few days later Joe receives a delivery including 10 portable media players from Coconut Devices.
In SAP Business One, he copies the Purchase Order to a Goods Receipt PO.
A week later, the Invoice from Coconut Devices arrives via mail and the accountant copy the Goods Receipt PO to an A/P Invoice.
Since no change was done to the price during the Copy To process, the A/P Invoice total value in and these are the Credit and Debit amounts in the automatic journal entry created by the A/P Invoice.
Debit
Credit
Vendor
1000
Clearing acc.

31. Value Calculation – Inventory Process
Purchase Order
A/P Invoice
Good Receipt PO
Debit
Credit
Clearing acc.
1000
Inventory acc.
100 * 10 = 1000
Unit Price * Quantity = Total Value
Item Cost
Purchasing Price List = 100
Calculated Value
= 90
Reseller Price List = 110
Retail Price List = 120
Sales Quotation
Sales Order
A/R Invoice
Debit
Credit
Cost of Goods Sold acc.
360
Inventory acc.
Delivery
Let us go one step back, to the Goods Receipt PO that Joe entered based on the Delivery he got from the vendor.
Assuming the company runs perpetual inventory, an item cost value is being calculated automatically in each stock transaction.
More details on Perpetual Inventory will be provided in the last Unit of the course.
When Joe entered the Goods Receipt PO to SAP Business One, the Purchasing Price List value (100 per unit) affected the unit price in the Goods Receipt PO and also the item cost value.
The item cost value is calculated automatically, behind the scene, according to the valuation method chosen for the item (Moving Average, FIFO, Standard). The calculated item cost value after the Goods Receipt PO was 90.
Joe entered a quantity of 10 portable media players. Therefore, the total value of the journal entry created by the Goods Receipt PO was 1000 and these are the Credit and Debit amounts registered to the inventory default accounts.
The value of the journal entry linked to the Delivery sent to the customer is 360. That is, quantity of 4 items multiplied by the Item cost value at that moment (90).
Remember that the total value of the Invoice based on that Delivery was 440. It was calculated according to the Reseller Price List (110) that is defined as the default price list in the customer master data record.
90 * 4 = 360
Item Cost * Quantity = Total Value

32. The Financial Process in SAP Business One
Financial Settings
Sales and Purchasing process
Automatic Journal Entries
Manual Journal Entries
Reconciliations
Period End Closing
General Ledger, Chart of Accounts and Reports
Chart of Accounts
G/L Account Determination
A/P Invoice
Outgoing Payment
Good Receipt PO
A/R Invoice
Payment
Deposit
Let us review the steps that occur regularly in the financial process in SAP Business One (most steps, except the financial settings, are recurring and could happen in a different order. This is an example of a common scenario):
Financial Settings - when you implement SAP Business One you define: Chart of Accounts and default G/L accounts to be used when transactions are created in the different business process: Sales, Purchasing, Inventory and more. You need to make these decisions together with the client accountant.
Sales and Purchasing processes - the financial consequences of the steps in the sales and purchasing processes are Automatic journal entries and system reconciliations.
Automatic Journal Entries - are posted from many documents, such as A/R and A/P invoices.
Manual Journal Entries – for business transactions that are not represented in forms or documents. The accountant enter transactions like loan, rent, or payroll using Manual Journal Entry. The Journal Entry file contains all the accounting transactions: automatic and manual.
Reconciliations – Internal system reconciliations are created automatically:
In a Business Partners Master Data - Invoice/ Payments, Invoice/ Credit Memo;
In a G/L account - Payment/ Deposit.
Internal user reconciliation – for example, when an advanced payment needs to be reconcile with the Invoice.
Period End Closing – a process that transfer the balances of the Profit and Loss accounts to a Balance Sheet account – the retained earnings account when a fiscal year or posting period ends.
In some localizations (Italy, Spain, France, and Portugal) you can also transfer the balance sheet account balances from one fiscal year or period to another.
There is a list of tasks required while preparing for Period-End Closing.
General Ledger, Chart of Accounts and Reports – all the previous steps affect the Journal Entry file, the account balances (refer to the next slides) and the financial reports. like in the examples we reviewed:
When we discussed the control accounts that link the business partner accounts to the general ledger.
The Business Partner Master Data balances do not appear in the Chart of Accounts.
The receivable and payable control accounts accumulate the customers and vendors transactions in their balances.
Hence, the Chart of Accounts presents the complete financial status of the company. As well as the Financial Reports (P&L, Balance Sheet).
Another example, is the Period End Closing – that transfer the balances of the Profit and Loss accounts to a Balance Sheet account and hence affect the Profit and Loss and the Balance Sheet results.