This is the part 2 of the series of articles about SAP Enterprise Structure – A Case Study. Read part 1 here.
Enterprise Structure concept in Financial Accounting
Company Code
A Company Code is an organizational unit that represents an independent and legal accounting entity, for example, a company within a corporate group. Financial reports such as Balance sheets and Profit and Loss statements, required by law, are created at company code level.
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.
With SAP FI module, we can generate the financial reports of a company code. A company code’s financial reports can be used for external purpose, such as for external auditors, shareholders/stock exchange commission, tax office, etc.
With SAP FI module, we can generate the financial reports of a company code. A company code’s financial reports can be used for external purpose, such as for external auditors, shareholders/stock exchange commission, tax office, etc.
The general ledger is kept at company code level. All SAP transactions that have impact to the financial reports from all SAP modules (such as FI, MM, HR, etc) will generate accounting journals in company code’s general ledger. The transaction can determine the company code involved either from the user input for the company code (such as in FI module) or from other organizational unit that related to the company code (such as in MM module, company code can be determined from the plant that input by user).
In MM module (Logistics), each plant must be assigned to a company code. A company code can have several plants. Material valuation can be set at company code level or plant level.
Company
For consolidation process in SAP EC-CS module, a company code must be assigned to a company. A company can comprise one or more company codes. A company is an organizational unit in FI module that can represent the holding or the parent of some company codes. It is used in consolidation functions in financial accounting.
Controlling Area
Besides company code and company, 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.
Business Area
Business areas are used for internal purpose. Business areas represent separate areas of operation within one or some companies. The use of Business Areas is optional in SAP FI module.
Business areas are generally company-code independent. We can make postings to them from any company codes.
Business area can be input manually in FI transactions, or automatically determined from the assignment of plant/valuation area and division (which are configured in Logistics function) in MM and SD transactions.
Each business area can generate its own financial reports (such as Balance Sheet and Income Statement).
Since business areas are usually determined automatically from the combination of plant (that usually represents a branch of a company) and division (that usually represents a product line of companies), they can be used:
- To generate financial reports based on the plant (branch).For example: a company code has two branches, which are represented by two plants and two business area. We can post the accounting journals in each branch into each business area. By doing so, we can generate financial reports for each branch. The management can analyze the performance of each branch better. It gives more useful information that can be used in decision making process.Other example: A corporate group has two company codes (‘1000’ and ‘2000’). Each company code has two branches, which are represented by two plants.
- ‘1000’ company code has two plants: ‘1100’ and ‘1200’.
- ‘2000’ company code has also two plants: ‘2100’ and ‘2200’.
‘1100’ and ‘2100’ plants are in the same geographical area, and so are ‘1200’ and ‘2200’ plants.
The management wants to generate internal financial reports for each geographical area (a set of report for the combination of ‘1100’ and ‘2100’ plants, and another on for the combination of ‘1200’ and ‘2200’ plants). We can generate it by assigning the ‘1100’ and ‘2100’ plants into a business area, and ‘1200’ and ‘2200’ plant into another business area. - To generate financial reports based on the division (product line).For example: a company code has two product lines, which are represented by two divisions. We can post the accounting journals of each division transaction into each business area. By doing so, we can generate financial reports for each division. The management can analyze the performance of each division better. It gives more useful information that can be used in decision making process.Other example: A corporate group has two company codes (‘1000’ and ‘2000’). Each company code has two product lines, which are represented by two divisions.
- ‘1000’ company code has two divisions: ‘A1’ and ‘A2’.
- ‘2000’ company code has also two plants: ‘A1 and ‘A2’.
The management wants to generate internal financial reports for each division (a set of report for the ‘A1” division in the two company codes, and another one for the “A2” division). We can generate it by assigning the ‘A1’ divisions in the ‘1000’ and ‘2000’ company codes into a business area, and ‘A2” division in two company codes into another business area.
- To generate financial reports based on the combination of plant (branch) and division.If the management wants to generate internal financial report for each combination of plant and division, we can assign each combination into a business area.For our business scenario, we need two company codes because there are two legal entities: ABCD and EFGH. Each company codes needs to generate its own Financial Reporting such as Balance Sheet, Profit and Loss Statement (Income Statement).
We also need two business areas to represent the branches of ABCD company code in the internal financial reports.The EFGH financial reports are consolidated to its parent company’s financial reports. Thus, ABCD and EFGH must be assigned to the same company. The operational Chart of Account/COA (set of General Ledger Accounts) and fiscal year of ABCD and EFGH needs to be the same.
In the next article, I will explain how to create company in SAP, so stay visiting this blog.Notes:
Actually, I have published this series of posts as an e-book that is sold at SAP Study Materials Store. From now on, I am planning to write the e-book contents on this blog so you can read them for free. But I will write them in a series of post on this blog (could be 20 posts). If you haven’t registered to our feed, you can do it now, so you’ll be notified every time I post the new article on this blog:
Actually, I have published this series of posts as an e-book that is sold at SAP Study Materials Store. From now on, I am planning to write the e-book contents on this blog so you can read them for free. But I will write them in a series of post on this blog (could be 20 posts). If you haven’t registered to our feed, you can do it now, so you’ll be notified every time I post the new article on this blog:
Alternatively, you can read the full contents as soon as you buy the e-book at:
Excellent one!!!Thanks a lot ……….
Easy to read and understand….