SAP FI – All About Financial Accounting and Transactions

SAP FI

SAP Financial Accounting (FI)

In any business, handling financial transactions and generating financial reports are the key factors for decision making and successful running of the enterprise. SAP has designed several modules that focus on different areas of business. One important module is SAP FI, the Financial Accounting module which deals in processing, recording, and maintaining financial accounting transactions within enterprises.  It manages data involved in any financial and business transactions in a unified system and the module functions satisfy external reporting too. The system has the facility to track and report on multiple companies across countries with different currencies. The SAP FI module is very flexible and is suitable for small and large organizations. This module helps one to get real-time financial position of an enterprise in the market. SAP FI software also enables an integration with sales and distribution, materials management, purchasing, and enables the user to drill down to the original transaction, be it a sales order a purchase order or the movement of materials.

SAP FI is part of SAP FICO, and is believed to be the central point of an integrated SAP system because everything that has a financial impact in the other modules actually flows to FI automatically in real time. The financial impact of the transactions in other modules gets posted to FI and hence FI is the supporting skeletal framework of the entire system.

Advantages of SAP FI

SAP FI provides one of the most comprehensive worldwide financial management solutions available today. Using SAP FI, an organization can improve corporate performance. Besides, SAP FI enables you to quickly read, appraise, and respond to changing business situations and come up with effective strategies. Besides enabling faster closing of processes, one can simplify process scheduling, consolidation, collaboration and process workflow. Besides the above, SAP systems also allow for better transparency across units or departments, and improves corporate governance. SAP also provides a greater adherence to federal regulations, accounting standards and provides an improved overall administration of internal controls. It is also integrated with other modules of SAP.

SAP FI also automates credit and collection management, and disputes if any. SAP FI also offers generation of bills and invoices as well as payments electronically, which enhance the traditional accounts payable and accounts receivable functions. SAP FI also has better ability to manage cash across countries, locations or continents. Apart from this, it also allows you to report, assess, and allocate cash in real time, and set up in-house payment centers or banks.

Besides improving financial and managerial reporting, SAP provides the flexibility to report performance according to organization, cost center or business unit, and also improves integration of finance and treasury processes. One can also integrate risk and treasury functions with those of accounting and financial reporting.

Sub Modules of FI

The different financial and accounting functions of FI are achieved through these sub modules:

  • General Ledger (FI-GL): This is the sub-module in which complete financial accounting data are recorded either manually or automatically through integrated processes. Business transactions with a financial accounting impact are directly posted to the FI-GL sub-module on a real-time basis or integrated from other SAP modules and FI sub-modules. Reporting in the General Ledger is also available online with a range of sorting and presentation options.
  • Accounts Receivable (FI-AR): This sub module manages all sales activities and records and administers financial accounting transactions involving customers. All postings in FI-AR are also recorded simultaneously in FI-GL. The components of FI-AR are closely integrated with components of SD and MM which, when properly configured, support an automated Sales Cycle. The FI-AR sub-module contains the following features:
    • A component to control customer credit exposure (Credit Management)
    • A reporting function to monitor customer activity
    • Processes incoming payment
    • A component to monitor customer invoices which are due for payment
  • Accounts Payable (FI-AP): This is the sub module in which the financial accounting transactions involving vendors are recorded and administered. All postings in FI-AP are also recorded simultaneously in FI-GL. The components of FI-AP are closely integrated with components of MM which, when properly configured, support an automated Procurement Cycle. The sub-module contains the following features:
    • A reporting function to monitor vendor activity
    • An Outgoing Payment program, which supports the standard Payment Methods in printed form as well as in electronic form
    • Balance confirmations, account statements and other forms of correspondence with vendors to support business requirements
  • Fixed Assets (Asset Accounting) (FI-AA): Asset Accounting is the sub module in which fixed assets are created and monitored. All postings such as asset acquisitions, transfers and retirements are also recorded simultaneously in FI-GL.  Depreciation expense, interest and replacement values are posted using a batch. As a result of the integration in the R/3 System, FI-AA transfers data directly to and from other systems, like those mentioned below:
    • The Materials Management (MM) or Production Planning (PP) components can post directly to FI-AA.  When an asset is purchased or produced in-house, you can directly post the invoice receipt, goods receipt, and/or the withdrawal from the warehouse to FI-AA.
    • FI-AA or FI-AR can post directly to an asset and a customer account if an asset is sold.
    • FI-AA or FI-AP can post directly to an asset and a vendor account if the vendor invoice is not posted using Material Management (MM).
    • You can pass on depreciation and interest to Cost Accounting (CO) in order to track expenses by cost center and profit center.
    • The Plant Maintenance (PM) component can settle maintenance activities that require capitalization to assets.
  • Special Purpose Ledger (FI-SL): Also known as Special Ledger and previously known as the Extended Ledger, it provides summary information from multiple applications at a level of detail that you as a user can define as per your business needs. FI-SL provides enhanced tools to manage financial data to support legal and managerial reports. Special Purpose Ledgers are defined to meet specific business requirements through the ability to combine, summarize, modify, allocate, and plan data that originate from other SAP modules and external systems.
  • Funds Management (FI-FM): It is the sub module that supports financial checking and control using budgeting techniques.
  • Travel Management (FI-TM): This sub module processes business trip and expense data.  It may be integrated with HR.

Accounts Payable and Accounts Receivable sub ledgers are integrated both with the General Ledger and with different components in the SD module.

Conclusion

All accounting-relevant transactions made in Logistics (LO) or Human Resources (HR) components are posted real-time to Financial Accounting (FI) and data can be also be passed on to Controlling (CO). Apart from this other SAP modules such as, Material Management (MM), Sales & Distribution (SD), Product Planning (PP), can be integrated with FI. So while browsing the SAP FI course, it may be a good idea to check the other SAP modules such as, SAP SD Training, and SAP Materials Management – Purchasing & Material Master Data courses.