New General Ledger and Document splitting

NEW GENERAL LEDGER:

SAP’s Classic GL versus New GL – Different Approaches

 Organizations currently using an SAP version that is pre-ECC5 typically

report their financial position using one or more ledger structures. (SAP
now refers to these as the Classic ledgers) These are usually one or more
of the following:

Classic GL – for legal reporting requirements

 Cost of Sales Ledger – for profit and loss reporting around lines of
business
 Classic Profit Centre Accounting – for management and segment
reporting at profit and loss level and some balance sheet items
 Special Ledger – multi-dimensional and defined at a customer level
 Industry Specific Ledgers – organised around industry specific
requirements e.g. grants or funds management

SAP’s New GL solution has combined the entire separate ledger reporting
dimensions and now provides an integrated financial management approach
that supports:

 Legal reporting requirements

 Management and segment reporting
 Extensibility by industries and customers
 Balanced books for any dimension
 Parallel sets of books
 Fast close leading to a lower cost of accounting management
 Fully international accounting standards compliant with true transparency
The Advantages of New GL – An Overview

SAP’s New GL in ERP6 has a number of advantages over the Classic GL found
in SAP R/3. Some of the advantages include:

 An expanded data structure (e.g. company code, business area, profit

centre, segment and functional area). Additionally, user defined or
customer characteristics can be added to New GL
 The real-time document splitting functionality allows complete financial
statements (lower than company code) for characteristics such as
Business areas, segments, profit centres, etc
 Real-time reconciliation of management accounting (CO) and financial
accounting (FI). Real-time CO-FI integration which eliminates the need for
time-consuming reconciliation and period end tasks
 A single database for financial and management accounting. This
eliminates the need for separate, specialised ledgers and enables faster
reconciliation and closing
SAP New GL allows a number of “books” (ledgers) within the GL.

This is an option for reporting a parallel accounting method in the SAP

system for different currencies, valuations, fiscal years, characteristics, etc.

Company’s view on SAP’s New GL

It is Company’s view that organizations upgrading to/or implementing SAP

ERP6 can gain significant benefits in migrating to/or implementing SAP’s New
GL. Benefits typically include:

 External financial reporting requirements can be met using multiple New

GL characteristics (e.g. legal entity reporting, segment reporting, etc.)
 External financial reporting requirements where different valuation is
required can also be achieved (e.g. IFRS, US GAAP, Tax, etc)
 Internal management reporting requirements for a “balanced set of
books”, lower than legal entity (e.g. profit centre) is enabled allowing for
 balance sheet responsibility and working capital accountability to lower
levels of the organization
 Minimize the use of spreadsheets for financial and management
reporting, providing less manual manipulation of data, better audit trail, etc
 Faster close and more accurate data by less reconciliation effort
required/minimize manual manipulation of data
 Greater visibility, audit trail and understanding of financial data for the
user community

Parallel Accounting

New GL provides Non-leading ledgers for parallel accounting like IFRS and
GAAP. Parallel accounting can also be implemented using Account based
approach which is also available in classic GL.

Reduce TCO (Total Cost of Ownership) by Faster Period Close Activities

Faster Period Close is possible with New GL as,

(a) Reconciliation Ledger is not required

(b) Balance sheet Adjustments are not required

(c) Profit and Loss Adjustment are not required

(d) Activities related to Special Purpose Ledger are not required

(e) Depreciation posting is online instead of a batch session

Parallel Ledgers:

Today, in the current R/3, meeting the requirements of drawing out financial
statements based on other accounting principles like IFRS, US GAAP etc. are
met thorough separate SAP application, i.e. Special Purpose Ledgers.

In the New GL scenario, this is clubbed in FI general ledger itself. Consequently

Ledger concept has come into play.

We are now able to create different Ledgers for different accounting principles.
That is, one ledger for Local GAAP, one for US GAAP, one for IFRS, one ledger
with different fiscal year other than the one being used in the company code
etc. In SAP terminology, these are called Leading Ledger and Non-leading
Ledgers. The ledger for Local GAAP is called Leading Ledger and all others are
non-leading ledgers.

Posting logics to various ledgers:

All FI postings will invariably go to the Leading ledger. All these postings will
also go to the Non-leading ledgers unless otherwise restricted. We can also
carry out Ledger specific postings. That is, we can post some documents only
to certain ledgers, while not posting the same to others.

We have created Non-Leading ledger L3, which is meant for posting with
different fiscal year than the one used for the Company code. That is, in Brazil
company code, fiscal year variant for the company code is April to March (V3).
While postings happen to leading ledger with V3 variant, the same will get
posted with K4 fiscal year (Jan to Dec) in L3.
Difference between leading ledger and non leading ledger in ECC 6.0

New General Ledger has all functions of the Classic General Ledger but has
been enhanced with special ledger functions to create greater flexibility.

 In New G/L, there is one leading ledger for each client that is valid for all
company codes
 You can define only one ledger as the leading ledger – SAP provides the
leading ledger “0L”
 The leading ledger is integrated with all subsidiary ledgers
 Only the values from the leading ledger are sent to CO
 The leading area in Asset Accounting (depreciation area 01) must be
posted to the leading ledger
 Leading ledger uses the (additional) local currencies assigned to the
company code
 Leading ledger uses the GL Total Table: FAGLFLEXT

In each company code, the settings made for the following parameters are
automatically applied to the leading ledger:

 Currencies
 Fiscal Year Variant
 Posting Period Variant

The non-leading ledgers are used as parallel ledger together with the leading
ledger. This can be used to apply different accounting standards, such as
IAS/IFRS or US-GAAP.

 Non-leading ledgers are activated by company code

  You can define additional currencies that deviate from those used by the
leading ledger.
 The currency of the leading ledger is always used as the first currency.
 As a second and third currency of a non-leading ledger, you may only use
currency types that you have already assigned to the relevant company
code for the leading ledger
 You can define a fiscal year variant that differs from the leading ledger. If
you don’t specify a FYV, the FYV of the company code is automatically
used.
 You can also define a posting period variant that differs from the leading
ledger
 Separate document types and number ranges can be defined for non-
leading ledgers by users, to ensure continuity in ledger numbering

DOCUMENT SPLITTING:

In SAP ERP the document splitting is the most powerful tool is widely and most commonly used.
With this function the document splits the line items based on the “Characteristics” we define
in system. Often this function is used to get the financial statements correctly for segment
reporting.
Back to the Basics –

Concept can be explained of document splitting with the help of one of the most basic business
transaction as “Vendor Invoice”. Suppose we have vendor invoice as below which consists of two
expense line items say 10,000 in total with 1,000 of tax component which sums to 11,000.

1. Expense Item 1 for 8,000 where it is assigned to PC – X

2. Expense Item 2 for 2,000 where it is assigned to PC – Y

Account Amount Profit Centre

Vendor A/C -11,000
Expenses 1 8,000 PC – X
Expenses 2 2,000 PC – Y
Input Tax 1,000
If any person is responsible for PC – X wish to analyze the transactions performed for PC – X,
but unfortunately the user can’t – because of, if you look at the transaction the “Vendor
Balance” and “Input Tax” is cumulative and hence is not assigned to any of the profit center
either X or Y.
Now if you look at the transaction above it represents that the total expense is distributed in
the ratio of 80% and 20% and same of Profit Centre of X and Y. So base to this the Vendor
Balance and Input Tax should also have split according to 80%-20% rule.
As per the above image the system should have posted the document as per below financial
transaction entry in system –

Okay so the conclusion for whole exercise is, if the user can post the document as above, the
reporting will be pretty particuar and balanced and there won’t be a problem – issue is re-
solved.
Its easily said that issue will be solved but why any user will separate the line item as per
calculations and split its bases always on its ratio, especially when there are 100’s of line items
sometimes in any document ! And what if system takes care of this?
Well the answer is Yes, and that’s what the document splitting is all about!
Now we will understand the Document Splitting elements and key
concepts –
  Passive Splitting – This type of splitting is mostly occurs when the payment transaction
is posted for a vendor invoice. Now system splits the payment document bases on how
the vendor invoice was split in place already.

 Active Splitting – In Active Splitting the document is split according to mySAP ERP
predefined rules. SAP almost supports all the business process transactions but if it
doesn’t suit to any requirement the own splitting rules can be created.

 Zero Balancing Splitting – When the amounts within financial documents are not able to
balance out to Debit of Profit Centre and Credit of Profit Centre which does not Net
Off as its own, SAP then automatically generates new line item to balance the
document. We will see the example in following section of this scenario.

 Item Category – Item category categorizes the general ledger accounts for document
splitting. In the configuration each GL account is assigned to item category. Just to
name a few like 01000 – Balance Sheet Account, 02000 – Customer, 03000 – Vendor and
so on.

 Business Transaction – Business transaction is real scenario of business processes

happens in organization such as vendor invoice, customer invoice etc.

 Business Transaction Variant – In the SAP, financial postings are derives the item
category for individual line item. Business transaction variant always works in
conjunction with business transaction where business transaction restricts the business
processes to be posted to. System validates a check all postings against the item
category to validate if these postings are allowed by splitting rule if not then
understand this failed.

 Document Splitting Method – Document splitting method works in combination with

business transaction and business transaction variant it determines the document
splitting rule.

 Document Splitting Rule: Document splitting rule determines which item categories will
be split and from which item categories it will derive the account assignment.

Let us see the actual example from system of Document Splitting for
vendor invoice –
If we are posting an invoice from FB60 with two different expenses line item as below with two
different cost centers assigned now system has derived the profit center from its cost centers
mentioned in line item.

Simulate this document to see pre-posting view with line item and associated assignments.
Now press F3 or Back button and come to main screen. Now go to Menu Bar Document –>
Simulate with General Ledger to see the ledger view of this document.

Once clicked on simulate with general ledger, document can be seen as below as “Document
Split” functionality.
Document Splitting – Zero Balancing

As discussed above when system is not able to balance out the transaction entry based on its
own it balances out by “zero balancing” account. System adds the zero balance account at its
own to make balance zero for transaction. We will see the example for this now –
We will post the transaction via FB50.
Now simulate this with General Ledger View as below

If you look at above and notice simulated “General Ledger View” system has automatically
generated the “Zero Balance Clearing A/C.”
Now let us look at the configuration of document splitting –
1. Classify GL Accounts for Document Splitting –
SPRO –> SAP Reference IMG –> Financial Accounting (New) –> General Ledger Accounting (New) –> Business
Transaction –> Document Splitting –> Classify G/L Accounts for Document Splitting
Here in this step GL’s are classified according to item categories according to business
transaction nature. It is recommended that instead of assigned item category to each
individual general ledger account try maintaining the item categories for “Range of General
Ledger Accounts”.

2. Classify Document Types for Document Splitting –

SPRO –> SAP Reference IMG –> Financial Accounting (New) –> General Ledger Accounting (New) –>
Business Transaction –> Document Splitting –> Classify Document Type for Document Splitting
In this step the “Business Transaction” and “Business Transaction Variant” is assigned to
document types. Now almost every financial transaction in considered for document splitting.
3. Define Zero Balance Clearing Account –
SPRO –> SAP Reference IMG –> Financial Accounting (New) –> General Ledger Accounting (New) –>
Business Transaction –> Document Splitting –> Define Zero Balance Clearing Account
In this step we have to define the zero balance clearing account which will be used to generate
and balance out financial entry when it is not possible to balance out at its own, as we have seen
this example earlier.
4. Define Document Splitting Characteristics for General Ledger Accounting –
SPRO –> SAP Reference IMG –> Financial Accounting (New) –> General Ledger Accounting (New) –>
Business Transaction –> Document Splitting –>Define Document Splitting Characteristics for General
Ledger Accounting
This is one of the most important configurations step in document splitting. In this step we
have to define the splitting characteristics. Additionally you can define whether this should be
Zero Balance and Mandatory.
5. Edit Constants for Non Assigned Processes –
SPRO –> SAP Reference IMG –> Financial Accounting (New) –> General Ledger Accounting (New) –>
Business Transaction –> Document Splitting –>Edit Constants for Non Assigned Processes
In this step the constants are defined which helps to assigned the default account assignment
when is not able to derive from any of the sources.

6. Activate Document Splitting

 SPRO –> SAP Reference IMG –> Financial Accounting (New) –> General Ledger Accounting (New) –>
Business Transaction –> Document Splitting –>Activate Document Splitting
Finally, the step to activate document splitting with additional settings like “Inheritance” and
Activation of Document Splitting.
Select check box “Document Splitting” and apply appropriate method. SAP Standard pre-
delivered method is “0000000012”.
Selecting the Inheritance signifies the line items which do not have account assignment will
derive the account assignment from other line item.
Selecting Standard A/C Assgnmnt means system will set the standard account assignment for
non-assigned line items. When this indicator is selected “Constant” needs to be maintained.

Activate of Document Splitting happens at client level but it is always possible to control of
activation and deactivation at company code level.