“K” Account Assignment in PO Documents




SAP MM Tutorial: Account Assignment “K” in PO Documents

Account assignment field in the SAP R/3 Purchase Order document determines how the accounting journals will be posted in the case of Goods Receipt/GR (if the GR-non-valuated indicator was not set in the PO) or Invoice Receipt/IR (if the GR-non-valuated indicator was set in the PO).

It determines the G/L account for debit entry in the accounting journal for GR or IR transaction. You can read our previous article to understand more about accounting journal basic concept.

Account assignment in a PO item can be adopted from Purchase Requisition (PR) item or can be entered by buyer/purchaser if the PO item does not refer to PR item.

The possible entries for account assignment field in a PO or PR item:
1. “A” for Asset
2. “K” for Cost Center
3. “ “ for Inventory

Account Assignment “K” (Cost Center)
We use “K” account assignment to order an expense item (material or service). In Accounting, Expensesare defined as the costs incurred to generate revenues.
An expense item in PO is an item that expected to be fully consumed immediately after Goods Receipt process in order to generate revenues (directly or indirectly), such as consumable materials and services (tissue, fuel, electricity, car repair services, etc).The difference between Revenues and Expenses is company’s Net Profit (or Net Loss if negative). Revenues usually come from company’s sales activity, such as products or services sales.Revenues will result a positive cash flow (or increase other asset, such as Account Receivable) and will increase Equity (Retained earning or current year profit account), so the Balance Sheet remains balance.Expenses will result a negative cash flow (or increase Liabilities, such as Account Payable) and will decrease Equity (Retained earning or current year profit account), so the Balance Sheet remains balance.
To understand more about basic accounting concept, you can read our previous post.In accounting, there is a concept of offsetting expenses against revenue on a basis of “cause and effect” that is called matching principle. According to this concept, Expenses are incurred for the purpose of producing revenue. In measuring net income for a period, revenue should be offset by all the expenses incurred in producing that revenue. In other words, expense should be recorded when it contributes to generate revenue (when it is consumed to generate revenue), not at other time/period.

In SAP R/3 system, PO or PR item with “K” account assignment will need two additional data to be entered:

 

  • G/L Account number. We have to determine the expense G/L Account number that will be posted when we do GR (if the GR-non-valuated indicator was not set in the PO) or Invoice Receipt/IR (if the GR-non-valuated indicator was set in the PO). Usually, companies post different expense into different G/L Account, such as: employee salaries expense, cost of raw materials, administration expense, marketing expense, etc.
  • Cost Center. Cost center determines which group or department of a company that will be charged the expenses occurred when we do GR (if the GR-non-valuated indicator was not set in the PO) or Invoice Receipt/IR (if the GR-non-valuated indicator was set in the PO) in term of budgeting process (in SAP Controlling/CO module).

If the GR-non-valuated indicator was not set and GR is done for a PO item with “K” account assignment, the accounting journals are:

Expense Account

GR/IR account
1000



1000





And then when invoice receipt transaction is done, the accounting journals are:

GR/IR account

Account Payable
1000



1000





If the GR-valuated indicator was not set and GR is done, there is no accounting journal posted, and then when invoice receipt transaction is done, the accounting journals are:

Expense Account

Account Payable
1000



1000





Account payable is a reconciliation account, means that it reconciles several vendors.


2 thoughts on ““K” Account Assignment in PO Documents

  1. Pingback: Procurement Cycle - Purchase Order Processing | iERP.us - Integrated ERP Software Solution Guide: SAP ERP

  2. Pingback: Accounting (FICO) Journal of MM Goods Receipt (GR) and Invoice Receipt (IR) Transactions | iERP.us - Integrated ERP Software Solution Guide: SAP ERP

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