Module 3 Revenue Cycle Assignment



Assignment Learning Objectives:

Primary Learning Objectives:

o Review a typical purchasing cycle of transactions while observing how an ERP system handles a typical purchasing transaction

o Work through procedures involved in a test of transactions, similar to an auditor

o Investigate the various types of application controls in an ERP system

Secondary Learning Objectives:

o Observe the integration between the materials management (MM) and the financial accounting (FI) modules of SAP

o Learn about how a suspense account (the GR/IR account) is used

o Look at some of the basic settings needed in the FI module to allow the system to function properly

Please note an abbreviated form is provided to record answers to this assignment.

The objective of this assignment is for you to become familiar with the steps and the documents involved in a typical purchasing transaction and also investigate how the SAP system is set up and operates for this type of transaction. We will be using the financial accounting (FI) and the materials management (MM) modules of SAP. You start by examining the master data in the system. As you should already know, the chart of accounts is of central importance to any accounting information system. Thus, you look at the chart of accounts and other settings used to configure the financial accounting system. You then create master data for a new material and a new vendor and then link these together using an information record. Then you will run through a transaction in which you purchase the material just created from the vendor also just created. As the various steps of the purchase are recorded in SAP, you will examine the affected accounts in both the FI and MM modules. In auditing terminology, this is one example of a test of transactions. You will be looking at typical business-to-business transactions and concentrating on the internal controls within the SAP system and the way the system is configured.

Keep in mind this business process is normally done by more than one person to properly segregate duties and maintain authorization controls. However, in this exercise you will do all of the steps from your individual SAP logon. As stressed in this course, the segregation of duties is a very strong control. Hence, the different people involved in the business process would have unique authorizations set up in the system and few, if any, people would be allowed to execute all of the roles you will assume in this assignment.

Since this course deals with accounting information systems, we want you to pay particular attention to the controls designed into the SAP system. These controls are a very important part of an integrated ERP information system. The controls embedded within SAP are a vital part of the system and essential to the system functioning properly. Throughout the assignment you are asked to identify the internal controls you observe in SAP. For some of these controls, you are asked what type of application control it is. You are to select from the following list of possible application controls:

• Field check

• Sign check

• Limit check

• Range check

• Size (or capacity) check

• Completeness check

• Validity check

• Reasonableness test

For each of the following steps you will also be noting the nature of the accounting entries involved in each transaction step.

You will perform the following tasks:

Examine the chart of accounts

Examine the account settings for financial accounting use

Create a material master, vendor master, and linking information record.

Check the inventory and accounting records at this point and after each following step:

• Create a purchase order for the material

• Receive the material

• Receive the invoice from the vendor

• Make payment to the vendor

Write down the journal entries the system made

For all of the following work you will use your own company code. This company code is based on the SAP number assigned to you by your instructor. In addition, your instructor will give you a logon and initial password to a specific SAP instance and client. Whenever you see the value XX in the assignment you will substitute your assigned SAP number. Be sure to use only your assigned SAP number. For this assignment, the company code will be 90XX. Whenever you are requested to enter a company, be sure to enter only your company code.

Step 1: Understanding the chart of accounts is a very important part of the overall understanding of the accounting process within any organization. So first we will look at the chart of accounts for the company and also see how it is configured in SAP.

Menu Path: Accounting ( Financial accounting ( General ledger ( Master Records ( G/L Accounts( Individual processing ( Centrally (This is transaction code FS00)

Note: In subsequent steps the transaction code is noted in parentheses after the menu path.

Make sure your company code is correct (90XX). If it isn’t, select the Change Company Code icon (3rd from the right) and change the Company Code and then select the account you want to examine.

We start by looking at the following accounts:

001001 Cash

002001 Accounts Payable

005001 Cost of Goods Sold – Resale Merchandise Sales

001115 Goods Rcvd/ Invoice Rcvd (This account is incorrectly categorized as an asset. This error is carried through into SAP’s chart of accounts. See addendum for explanation.)

Tasks 1.1 – 1.6 For each of the above accounts under the first tab (Type/description)

examine the entries in the “Control in chart of accounts” box including the Account group and selected radio button. Now explain why each account has the values that are present. (Note: The answers to these questions are very straightforward, but think about why the system needs to know this information to function properly.)

1.1 1001 Cash: ________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

1.2 2001 Accounts Payable: ______________________________________________

_____________________________________________________________________

_____________________________________________________________________

1.3 Before going to the next account, analyze the Accounts Payable account closer. This account is special. Look at the Control data tab and note what the Reconciliation account is. What is this all about?

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

1.4 5001 Cost of Goods Sold: ____________________________________________

_____________________________________________________________________

_____________________________________________________________________

1.5 1115 Goods Rcvd/ Invoice Rcvd: ______________________________________

_____________________________________________________________________

_____________________________________________________________________

1.6 Now analyze the Goods Rcvd/ Invoice Rcvd account closer. This account is necessary because of timing differences in the real world. This is termed “suspense” or holding account. Briefly explain how entries would be made to this account (i.e. what transactions are made and how they are recorded?) and why all transactions in the account should eventually be zeroed out. (If you don’t grasp this concept yet, you may wait to answer this part until you do some of the later transaction steps.)

______________________________________________________________________

______________________________________________________________________

Step 2: Examine System Settings

In this step you look at one of the important settings in the system, the fiscal year variant. You will be looking at how the company set up the system to handle its specific processing requirements. This is termed SAP configuration.

Go to transaction code SPRO

Select: SAP Reference IMG

Expand: Financial Accounting

Select: Financial Accounting Global Settings

Expand and select: Fiscal Year

Select the green check mark next to: Assign Company Code to a Fiscal Year Variant

Write down the fiscal year variant for your company code. _____

Go back to the previous screen and select the green check mark next to: Maintain Fiscal Year Variant (Maintain Shortened Fisc. Year)

2.1 What is the fiscal year variant for your company code (90XX) and what does this mean from the point of view of the accounting system?

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

2.2 The university would use fiscal year variant V6. Explain why this is the fiscal year variant for the university.

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

Next, start the processing steps involved in a purchasing transaction. The company is going to order a good which is not currently part of our inventory. In addition, since your company has not previously purchased these selected goods, nor used this selected vendor, you have to create a master record for the material and a master record for the vendor.

Step 3: Create a Material Master record for a Finished Product

The material master record contains all the data required to define and manage a material. In SAP, this is formally part of the Materials Management (MM) module. However, some important accounting information is also contained within this record. For example, product cost and pricing information and also tax information are contained within the material master record.

The master record consists of individual views and the individual views are presented in the form of tabbed pages. These views are organized on a departmental basis. Each department has its own view which permits easy access and maintenance. In other words, data is integrated from engineering, manufacturing, sales and distribution, purchasing, accounting and other departments. This master data is used as a source of data for purchase order processing throughout the procurement cycle. For simplicity, you are ordering a finished good the company will subsequently sell. Just a reminder: When you see an “XX” enter your assigned SAP number.

Logistics ( Materials Management ( Material Master ( Material ( Create (Special)( Finished Product (MMF1)

Create Raw Material: Initial Screen

| Field |Input |

|Material Number |Big_TrophyXX (XX = assigned number) |

|Industry Sector |Retail |

Click on the Select Views button [pic] on the application tool bar

Select the following views:

• Basic Data 1

• Purchasing

• Purchase Order Text

• General Plant Data/Storage 1

Accounting 1

Click on the Continue Icon [pic]

Organization Level pop-up window

| Field |Input |

|Plant |90XX |

|Storage Location |10 |

Click on the Continue Icon

Basic Data 1:

| Field |Input |

|Material description |Big Trophy with horse and rider XX |

|Base Unit of Measure |EA |

|Material Group |00706 |

|Gross Weight |3 |

|Weight Unit |LB |

|Net Weight |3 |

Before committing the data, answer the following questions:

3.1 What type of application control is used on the field “Base Unit of Measure”? (Pick from the list of controls on pages 1 & 2 of this assignment.)

____________________________________________________________________________

3.2 What type of application control is used on the field “Gross Weight”?

_____________________________________________________________________________

Click on the Enter Icon [pic]

Purchasing:

| Field |Input |

|Purchasing Group |AXX |

Click on the Enter Icon [pic]

Purchase Order Text

• No information is needed here

Click on the Enter Icon [pic]

Plant Data/Storage 1

• No information is needed here

Click on the Enter Icon [pic]

Accounting 1:

| Field |Input |

|Valuation class |7920 |

|Price Control |S |

|Moving Price |32 |

|Standard Price |30 |

3.3 How is the standard price used in the accounting system? (Think about what you did in your cost/managerial accounting class.)

___________________________________________________________________

• Click on the Enter Icon [pic]

• Click on “Yes” [pic] when asked to Save

Write down the message on the status bar. ___________________________________

Step 4: Create a Vendor Master record (we will buy the finished product from this vendor)

Logistics ( Materials Management ( Purchasing ( Master Data ( Vendor ( Central ( Create (XK01)

On the Create Vendor: Initial Screen

|Field |Input |

|Vendor |96XX (XX = assigned number) |

|Company code |90XX (if default is 80XX, change to 90XX) |

|Purchasing organization |90XX |

|Account group |LIEF |

• Click on the Enter Icon [pic]

On the Create Vendor: Address (to find the address field you may need to click on the fields to see the field name)

| Field |Input |

|Title |Company |

|Name |Your last name XX |

|Search term |XX (assigned number) |

|Street address |Make up your own |

|Postal code |95929 |

|City |Chico |

|Country |US |

|Region |CA |

|Language |English |

As an experiment, enter the Region “CO” instead of “CA” and then

Click the Next Screen icon [pic] or Enter icon [pic] to go to next view

Note the error and then change the Region back to the correct value of “CA” and click the enter icon.

4.1 What did the system do as an application control? That is, how did the system know this was wrong?

___________________________________________________________________

___________________________________________________________________

On the Create Vendor: Control

* No Information needs to be entered

Click on the Next Screen icon [pic] or on enter icon [pic]

On the Create Vendor: Payment Transactions

* No Information needs to be entered

Click on the Next Screen icon [pic] or on enter icon [pic]

On the Create Vendor: Accounting Information Accounting

|Field |Input |

|Rec. Account |2001 |

|Sort Key |001 (posting date) |

|Cash mgmnt group |A1 (domestic pmt.) |

4.2 The “Rec. Account” is a very important entry. Explain this entry. (Hint: This links back to the account you looked at in the chart of accounts.)

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

Click the Next Screen icon [pic] or enter icon [pic] to go to next view

On the Create Vendor: Payment Transactions Accounting

|Field |Input |

|Payment terms |0001 |

|Tolerance group (in payment |3000 |

|terms) | |

Note: There are two tolerance groups and only the first one (payment terms) is set up to be used.

4.3 What is a tolerance group and how would it be used as an application control? What type of application control is tolerance group?

________________________________________________________________________

________________________________________________________________________

Hint: Create an additional session and look at transaction code SPRO

Select: SAP Reference IMG

Expand: Financial Accounting

Select: Financial Accounting Global Settings

Expand and select: Document

Expand and select: Line item

Select the document icon next to: Define Tolerance Groups for Employees

Click on the page arrow icon [pic]

On the Create Vendor: Correspondence Accounting

* No information needs to be entered

Click on the Next Screen icon [pic]

On the Create Vendor: Purchasing Data

|Field |Input |

|Order currency |USD |

|Payment terms |0001 |

4. What are the payment terms from this vendor? As this vendor’s new customer, your company may be able to negotiate better terms in the future. What factors would probably be important to getting more favorable terms?

• Click on Next Screen icon [pic]

On the Create Vendor: Partner Function

* No data needs to be entered

• Click on Save [pic] icon to save the data.

Write down the message on the status bar. ____________________________________

The creation of a material and a vendor would allow us to order those goods from that vendor. However, in SAP, to deal with the many to many relationship between the good and the vendor, you need to create an information record. That is the next step in the process.

Step 5: Create an Information record for Vendor/Material

Logistics ( Materials Management ( Purchasing ( Master Data ( Info Record ( Create (ME11)

|Field |Input |

|Vendor |96XX |

|Material |Big_TrophyXX |

|Purchasing Org. |90XX |

|Plant |90XX |

Click on the Enter Icon [pic]

You will get a warning message as shown in a yellow highlighted box.

5.1 What is this message telling us? What kind of a system control is this?

____________________________________________________________________________________________________________________________________________________________

Click on Enter Icon to continue. [pic]

On Create Info Record: General Data screen, click on Purch. Org. data 1 [pic] button

On Create Info Record: Purch. Org. data 1 view, enter

|Field |Input |

|Pl.Deliv.Time |2 (days) |

|Purch. group |AXX |

|Standard qty. |10 |

|Minimum qty |5 |

|Net price |30 |

The above data defines the relationship between the good and the vendor.

5.2 Explain how the above data can be a strong control in the purchasing process.

• Click on Save [pic] icon to save the data.

Write down the Information record number shown on the status bar. ______________________

Step 6: Check status of various accounts.

In an ERP system, business transactions are simultaneously recorded in all of the affected areas of the business in real time. To understand this, you will determine which accounts should be affected by the following transactions. In this case, the following accounts should be checked:

Check inventory in materials management

Check inventory in the general ledger

Check cash in the general ledger

Check accounts payable in the general ledger

Check goods received/invoice received account in the general ledger

Check accounts payable in the subsidiary ledger

These checks should be done after each step of the transaction. It is easiest to open a series of SAP sessions to do this checking and then refresh the screen after each business transaction step. (Sometimes there is an icon to refresh the screen, sometimes you must use F3 to go back, then go forward into the screen again.)

Check MM inventory: Transaction: MMBE (double click on your item or scroll to the right to see all fields in the inventory inquiry screen or enter the name of material, then click “execute”. Detailed display provides more information on the status of the stock)

Check GL Cash, GL Inventory, GL AP and Goods Received/Invoice Received – All of these can be seen from: Transaction: S_ALR_87012301 or S_ALR_87012291 Enter the Chart of Accounts code: A321 and the company code: 90XX and click “execute”.

Check sub-ledger: Transaction: FBL1N

| |MM Inv. Qty |GL Cash |GL Inv. |GL AP |GR/IR |Vendor Sub-ledger |

|After Step 5 | | | | | | |

|After Step 7 | | | | | | |

|After Step 9 | | | | | | |

|After Step 11 | | | | | | |

|After Step 13 | | | | | | |

Enter the balance in each of these accounts, (not the change in value), after each step noted. You will be completing this table as you go through the subsequent steps. (Note: on some of the above transactions if there is no value in the account, you may get an error message when trying to display the balance. This is normal and simply means the balance in the account is zero.)

Step 7: Create a Purchase Order to buy the Finished Product

Logistics ( Materials Management ( Purchasing ( Purchase Order ( Create ( Vendor/Supplying Plant Known (ME21N)

On the Create Purchase Order screen:

|Field |Input |

|(Field) (will be defaulted) |Standard purchase order |

|Vendor |96XX |

|Document date |Today’ date |

Note: If the screen looks like the following, click on Header [pic] and Item Overview [pic] icons to expand those areas.

[pic]

Click on the Org. Data [pic] tab page, enter the following data:

|Field |Input |

|Purchasing org. |90XX |

|Purchasing group |AXX |

|Company code |90XX (if default is 80XX, change to 90XX |

Click on Enter. [pic] (If you get an error message, hit Enter. [pic] again and enter the data for the purchasing group)

Click on Enter [pic] again. You may get another warning.

Click on Enter [pic] again to continue.

(You may have to click on the yellow document, then the item overview icon (blue document) appears. Click on the item overview document icon.)

Enter the following data under item overview area:

|Field |Data |

|Material |Big_TrophyXX |

|Quantity requested |50 |

|Delivery date |Today’s date |

|Plant |90XX |

|Storage location |10 |

Click on Save [pic].

Write down purchase order number ___________________.

Step 8: Repeat the checks in step 6 and record the information in the table.

Step 9: Receive the Product from the Vendor

Logistics ( Materials Management ( Inventory Management ( Goods Movement ( Goods Receipt ( For Purchase Order ( PO Number Known. (MIGO)

Goods Receipt Purchase Order screen appears.

[pic] [pic]

|Field |Input |

|Purchase Order |Purchase order # from step 7 |

|Delivery Note |XX |

Click on Enter [pic] and all the data will be copied from the purchase order

Select Item OK box [pic] to confirm the receipt. (this is at the bottom of the screen)

Click on Post [pic].

If you get “generation successful, but you must call up the function again”, go out of the function, then into MIGO again, then re-enter the information if not still present, then click “execute” then click Item OK, then post.

Write down the Material document number ___________________.

Step 10: Repeat the checks in step 6 and record the information in the table.

Step 11: Receive the Invoice from the Vendor

Logistics à Materials Management à Purchasing à Purchase Order à Follow-on Functions à Logistics Invoice Verification (MIRO)

Note: If a small window appears asking for company code, enter 90XX as company

code. If the company code shown is not your company code select

Edit ( Switch company code and enter your company code.

|Field |Input |

|Invoice date |Today’s date |

|Posting date |Today’s date |

|Under PO reference tab | |

|Purchase Order/Scheduling Agreement |Purchase order # from step 7 |

Click on Enter [pic], the information will be copied from the purchase order to the invoice

• Enter Amount (in Basic data tab) same as the Balance shown in the right corner

Click on Enter [pic], the Balance should be 0.00 and the light should be green.

Click on Post [pic].

Write down the Invoice number ___________________.

Step 12: Repeat the checks in step 6 and record the information in the table.

Step 13: Make the Payment by Cash to the Vendor

Accounting à Financial Accounting à Accounts Payable à Document Entry à Outgoing Payment à Post (F-53)

|Field |Input |

|Document Date |Today’s date |

|Posting Date |Today’s date |

|Company Code |90XX |

|Currency/Rate |USD |

|Under Bank Data area | |

|Account |1001 (Cash Account) |

|Amount |Amount of payment |

|Under open item selection area | |

|Account (the vendor number) |96XX |

|Automatic search |Select |

Click on Process Open Items [pic] Button

The Not Assigned amount should be 0.00 [pic].

Post the transaction. [pic]

Write down the document number. ____________________________

Step 14: Repeat the checks in step 6 and record the information in the table.

Step 15: Write down the journal entries the system made

By using the information contained within the table in step 6, construct all of the journal entries made by SAP for these transactions. For each journal entry, show the step number of the transaction, the accounts debited and credited and the dollar amounts involved. Use the following format:

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Accounting Information Systems

Module 3 - Assignment

Purchasing Example Using SAP ERP

Last revised 12/01/2007

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