Background
Correct estimation and posting of liabilities accrued to third parties which have not yet been charged to Profit and Loss account constitutes an important month end activity for financial accountants. This is necessary to ensure that expenses are accounted for in the correct period in financial statements.
As a result an important period end activity for financial accountants is to review all open account assigned purchase orders and estimate and record the amount the expenses that should be attributed to the same. This is necessary because the expenses are not booked in the system until the actual goods receipt takes place. However, these being actual committed expenses should be accounted for.
The financial accountant would typically perform the following steps every month end :
1) 1) Review all open account assigned purchase orders and quantities/amounts still to be delivered under each of them.
2) 2) Estimate the amount of accrued expenses that should be charged to the current period profit and loss account.
3) 3) Pass the following journal entry on the last day of the period.
Expense A/C DR (Profit and Loss Account)
Accrued Expense/Liability A/C CR (Balance Sheet Account)
4) 4) Reverse the above journal entry on the first day of the following period.
The S/4 HANA Accrual Engine, Accruals Accounting offers flexible configuration options for calculation and posting of the accruals, provides the option for the review process for the monthly accrual amounts, and supports monitoring and the approval of accruals.
Prerequisites
The following roles are involved in running the accruals process in S4 HANA Cloud.
In the app “Manage Workflows for PO Accruals Review”, make the following settings:
Define Threshold Variants
The Lower and Upper threshold variants for purchase order accruals are set up in Manage your solution -> Configure your solution under SSCUI 102503.
Any items below the Lower Threshold Amount do not require review. Any items above the Upper Threshold Amount must be reviewed manually. All items that fall between the two thresholds are automatically reviewed.
Process
Assuming there are open Purchase orders posted for a period for which accruals need to be computed, the following steps should be executed by the General Ledger accountant during month end.
1) 1) Transfer Purchase Orders (Optional):
In this activity, you transfer purchase orders to the accrual engine.
This activity must only be performed if the system already contains purchase orders prior to the activation of this scope item. This action must only be performed once.
Open the app “Schedule Accrual Jobs” and choose “New”.
Select Job Template : Accrual Engine for POs- Transfer Purchase Orders to Accrual Engine
Enter the following parameters and “Schedule”.
1) 2) Propose Period Accruals:
In this activity, you schedule the purchase order accruals.
Open the app “Schedule Accrual Jobs” and choose “New”.
Select Job Template: Accrual Engine for POs- Propose Period Amounts.
Enter the following parameters and “Schedule”.
As seen in above screenshot, you can propose the accruals amounts by Purchasing document (Accrual Object) or Purchasing document Item number (Accrual sub object).
Through the Accrual Item type, you can propose accruals amounts to be based on Plan minus actual, Actual costs or Planned costs. Select from the drop down your desired option.
1) 3) Review Purchase Order Accruals by Purchaser:
In this step, the Purchaser will review all proposed accrual amounts for purchase order items which have been triggered to his/her inbox after the previous step. If needed, the Purchaser can revise the accrual amount, assign a reason for the same and confirm.
4) Review Purchase Order Accruals by Cost Accountant:
In this step, following the four-eyes principle, the final review of the purchase order accrual amounts will be done by the Cost Accountant by the following process.
Open the app “Review Purchase Order Accruals – For Cost Accountant”.
Enter the following and click on “Go”.
Fiscal period, Year , Company Code , Review Type = E .
Those Accrual Items which are equal to or above the threshold amount defined in configuration will be displayed.
Those accrual items which haven’t been reviewed yet will feature in the “Unreviewed” tab.
Go to the ‘Unreviewed tab” and click on the Edit button.
Enter revised Accrual Cost whereby percentage will be calculated automatically or vice versa and assign an adjustment reason.
Finally “Confirm and Save”.
1) 5) Post period Accruals:
In this step, the General Ledger Accountant posts the periodic accrual amount.
Open the app “Schedule Accrual Jobs” and choose “New”.
Select Job Template: Accrual Engine for PO s- Periodic Posting Run.
Enter the following parameters and “Schedule”.
1) 6) Analyze Accrual postings:
The Accruals postings can be verified through the “Analyze Accrual posting” app.
Click on the Document Number and navigate to the accounting document through “Manage journal entries”.
Conclusion
Details of the Purchase order Accruals process can be obtained under Scope item 2VB in SAP Best Practices Explorer. The applicable country version should be selected.
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