With the bringing together of the controlling and management accounting applications in the Universal Journal, the functionalities of general ledger accounting are available in controlling (and vice versa).
Knowing this, let’s discuss the accounting entities that are important for accounting and controlling reporting in SAP S/4HANA.
First, let’s look at the ledger, which enables parallel valuations for a company code. We can also use this in controlling by showing a parallel value flow based on different valuations—for example, for depreciation or revenue recognition. Both are dependent on the underlying accounting principle. And then we have an innovation: the extension ledger enables you to enter different and additional costs based on the Universal Journal structure, and it contains commitments.
Then we come to the currencies. Based on Universal Journal, you now have a set of parallel currencies in every single journal entry, which is identical by design in the general ledger and controlling.
And lastly, another important reporting attribute is, of course, the general ledger account.
In general ledger accounting, the ledger is the entity via which all business transactions are recorded and in which all general ledger accounts are systematically kept. Based on the ledger, you get your financial statement. You can manage several parallel general ledgers—for example, to be able to get financial statements according to different accounting principles, like local Generally Accepted Accounting Principles (GAAP) and then International Financial Reporting Standards (IFRS) as the common accounting principle.
The ledgers and their parameters per company code are defined in the following Customizing menu path: Financial Accounting > Financial Accounting Global Settings > Ledgers > Ledger > Define Settings for Ledgers and Currency Types. You’ll arrive at the screen shown below.
There are two ledger types, which we’ll discuss next: the standard ledger and the extension ledger.
The standard ledger is relevant for general ledger reporting. The figure above shows three parallel ledgers: 0L, 2L, and 3L. There is always exactly one ledger marked as leading (with a checkmark in the Leading column). In our example, Ledger 0L is the leading ledger.
The postings in the leading ledger are regarded as primary and are the default for postings in other ledgers if there is no own/different valuation in this ledger. All company codes are assigned to this leading ledger per default. Especially the logistic applications rely on the leading ledger—for example, when they read actual costs for a cost object like a project to calculate a percentage of completion (PoC) or if the customer billing is based on the expense postings to the customer project.
Further parameters are defined in the same IMG activity. You mark a ledger—0L in this example—then select Company Code Settings for the Ledger, then double-click company code 1010. You’ll arrive at the screen shown here.
Here you can specify the following:
Fiscal Year Variant
A restriction to know when specifying the fiscal year variant: For a cross-company-code controlling area assignment, it must be equal in all assigned company codes.
Pstng Period Variant
This describes the posting period (e.g., the beginning and end dates of the period).
The accounting principle can be assigned on the ledger level or on the ledger company code level. If you maintain it generally on the ledger level, you need not maintain it here.
You also can define several currencies, which are stored in parallel in the Universal Journal.
When you create a ledger, the system automatically creates a ledger group with the same name. To simplify work for general ledger accounting processes, you can group standard ledgers together in a ledger group. With this ledger group, you can enter one manual journal entry and it will be posted in all assigned ledgers at the same time in parallel.
With the accounting principle, you control the valuation in several financial applications— for example, foreign currency valuation, asset deprecations, WIP, and revenue recognition.
You can display the accounting principle by following IMG menu path Financial Accounting > Financial Accounting Global Settings > Ledgers > Parallel Accounting > Define Accounting Principle. You’ll arrive at the screen shown in the following figure.
Where you have a common accounting principle such as US-GAAP or IFRS, this accounting principle can be used for every posting by assigning the accounting principle directly to a ledger (see USGP to Ledger 3L in the first figure). But you don’t need a ledger for every accounting principle that you support. You can meet the financial reporting needs of your local subsidiaries by assigning the accounting principle to the combination of company code and ledger (see German local GAAP DEAP to Company Code 1010 and Ledger 0L in the second figure).
Next to the standard ledger in SAP S/4HANA, there is now a new type of ledger available: the extension ledger. It covers management accounting requirements.
When you work with the Universal Journal, the postings for controlling and legal reporting are both stored in the general ledger. On the one hand this is, as already mentioned, a big advantage because there’s no reconciliation needed. On the other hand, for some business processes you want to apply different figures or additional information in your internal controlling view. For this, you have the extension ledger.
Here you can enter controlling-specific journal entries in addition to the legal bookkeeping: other costs or additional costs. These journal entries are only relevant for cost accounting reporting; they do not influence the legal reporting, which is exclusively based on the standard ledger.
While the standard ledger contains the different journal entries for all business transactions, the extension ledger contains management-relevant journal entries only. The extension ledger only stores the delta entries that are posted specifically to the extension ledger. This setup assumes that all postings in the underlying standard ledger are part of the extension ledger reporting, thus avoiding redundant data storage.
For every extension ledger, you need to assign a standard ledger. For example, in the first figure shown previously, ledger 0C is assigned to standard ledger 0L, or to another extension ledger, and ledger 0E is assigned to extension ledger 0C. The extension ledger setup in our example is visualized here.
When you run a report for an extension ledger, the journal entries of the extension ledger and the underlying standard ledger are always displayed together. So when you run a report for ledger 0E, you get a report with the commitments posted in ledger 0E and the actuals as an aggregation of the management adjustments in ledger 0C, plus all the journal entries posted in the legal ledger 0L.
There are several controlling purposes covered with the extension ledger.
Provisioning of Controlling Reporting
For your internal controlling reporting, you want to apply different values or enhanced cost component information:
- First you can post delta values in the extension ledger to adjust the costs or margins for specific management objects. An example could be to transfer revenues between profit centers or to add costs to a cost center.
- You want to include statistical sales conditions in a sales scenario in your contribution margin reporting.
- You use for these use cases an extension ledger of type Management Accounting—in our example, ledger 0C.
If you activate commitments, they are now persisted in an extension ledger of type Commitment/Prediction—in our example, ledger 0E. Commitments are triggered when a purchase order or a purchase requisition is created.
With predictive accounting, you want to enable the prediction of future financial data based on available operative documents already in the system, like sales orders or purchase orders. For example, for a sales order prediction you might create the journal entries for the goods issue and billing expected in the future in the prediction ledger of type Commitment/Prediction (ledger 0E here).
Extension Ledgers and the Universal Journal
With the extension ledger, you continue following the approach that all documents are stored in the Universal Journal and thus have the same fields and structures. With this, comparability and transparency are ensured because prediction and commitment documents have the same structure as the actual values.
The same is true for management adjustment postings, which are posted as deltas to the legal postings in the underlying standard ledger.
In financial accounting, in addition to the transaction currency, the local currency (the company code currency) and the group currency (defined by controlling area) is calculated by default for every journal entry. There are eight freely definable currencies also available.
For an example of what this looks like for a company code, see the next figure. The local currency, derived from the country, Germany, is defined as euros. The global currency, USD, is derived from the controlling area because in this example the organization has its headquarters in the US.
You can check the currency setup for all processes and functions in financial accounting in Customizing by following menu path Financial Accounting > Financial Accounting Global Settings > Ledgers > Ledger > Define Settings for Ledgers and Currency Types. Then select Company Code Settings for the Ledger in the dialog structure. You’ll arrive at the screen shown in the figure above.
With the integration of controlling and financial accounting in the Universal Journal, the currency setup is the same for all postings and thus available for controlling too. This means that if you purchase goods in a local currency, you’ll see the same document in the transaction currency, local currency, group currency, and any other currencies entered on the screen shown above, and the conversion will be made at the time of posting.
The challenge comes when you enter transactions for allocations, settlements, and so on because the secondary cost postings originally only supported the controlling area currency (usually the group currency) and object currency (usually the local currency). Work is in progress to ensure that the currencies are used consistently in financial accounting and controlling. When looking at assessment and distribution cycles, universal allocation, overhead calculation, and settlement, you’ll see that these processes all support multiple currencies from SAP S/4HANA release 2020.
However, the activity rates are still only available in two currencies, so any additional currency will be converted at the time of posting. Top-down distribution and allocation to margin analysis using universal allocation also support multiple currencies, but the legacy transactions, Transactions KE28 (Execute Top-Down Distribution) and KEU5 (Execute Assessment), currently only support two currencies. Asset accounting, the Material Ledger, and actual costing currently support three currencies.
The Universal Journal has revolutionized business financials by marrying together financial and management accounting processes. This post introduced you to the financial reporting structure in SAP S/4HANA Finance enabled by the Universal Journal.
Editor’s note: This post has been adapted from a section of the book Controlling with SAP S/4HANA: Business User Guide by Janet Salmon and Stefan Walz.