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Introduction
In this blog, let us start by explaining Treasury Organization and its function with an example of money market instrument which most of us are familiar with i.e., Fixed Term Deposit.
To keep this blog short and precise, in our learning journey we will skip some basic master data e.g., business partners, house bank accounts, etc. Additionally, screen shots are only provided for some important fields.
Treasury Organization and function in transaction manager
Typical treasury organization structure consists of Front office, Middle/Back office and Accounting.
- Front office: Exercise deals, deal creation, deal and position reporting, limit check, etc.
- Middle/Back Office: Settlement, matching of deal, netting, correspondence, etc.
- Accounting: Payment, period end valuation, accruals, GL postings, etc.
Transactions/Process Steps
Let us consider hypothetical example of fixed term deposit: HK$250 million at interest rate of 4.3% for 15 days start of term 20th April and end of term 05th May. This example will help to demonstrate posting of interest accrual at month end.
Treasury Deals
Deal Creation, Settlement and Display (Transaction code: FTR_CREATE , FTR_EDIT and FTR_DISPLAY)
Structure
Administration
Payment Details
Cash Flow
Position Indicator
Position indicator shows what will be the account assignment reference with further drill down possibilities to Cash Flow item, update type, etc.
Position flows showing Update Type
After approval (or settlement) – Activity is updated as ‘Contract Settlement.’
Events and its Accounting Entries
After deal creation and settlement, fixed term deposit goes through below events which will generate accounting entries. Screen shots are avoided for simplification purpose.
# | Event | Example Date | Description | Example Accounting Entries (with Amount in HKD) |
1 | Posting flow and generate payment request | 20-Apr-24 | Transaction code: TBB1 1) Post flows for asset increase 2) Generate payment request for paying counter party |
Dr. Asset/Investment Account – 250,000,000
Cr. TRM technical Clearing Account – 250,000,000
|
2 | Perform payment (Clear payment request) | 20-Apr-24 | Transaction code: F111 This will help to create accounting entry for payment |
Dr. TRM technical Clearing Account – 250,000,000
Cr. Outgoing Bank Account – 250,000,000
|
3 | Accrual posting at month end | 30-Apr-24 | Transaction code: TPM44 Accrued revenue for cross month Fixed term deposit. Accrual posting will be posted at month end and reversed in subsequent month.
(Interest amount = Principal amount * Interest Rate * Days/366) (250,000,000 * 4.3% * 11/366 = 323,087.43)
|
Dr. Interest Receivables Account – 323,087.43
Cr. Interest Income – 323,087.43 (Reversal entry is posted in subsequent month)
|
4 | Final repayment, interest income and generate payment request | 05-May-24 | Transaction code: TBB1 1) Post flows for repayment of principal amount at time of maturity 2) Post flow for interest income earned 3) Generate payment request for incoming payment |
Principal repayment posting Dr. TRM technical Clearing Account – 250,000,000
Cr. Asset/Investment Account – 250,000,000
Interest posting Dr. TRM technical Clearing Account – 440,573.77
Cr. Interest Income – 440,573.77
|
5 | Post incoming payment (Clear payment request) | 05-May-24 | Transaction code: F111 This will help to create accounting entry for incoming payment. |
Dr. Incoming Bank Account - 250,440,573.77
Cr. TRM technical Clearing Account - 250,440,573.77
|
Important Configuration
For keeping blog precise, only important configuration is shown here. Additionally, configuration (SPRO) path is not repeated multiple time. Below is the common path for TRM Money market configuration: -
SAP Customizing Implementation Guide -> Financial Supply Chain Management -> Treasury and Risk Management -> Transaction Manager -> Money Market -> Transaction Management.
Product Type
Field/settings | Description |
Product category | The product category is an internal key for financial instruments and predefined in the system. It controls the processing of the financial instruments for product types. |
Default value for transaction | 1) Interest Calculation Method which is ‘Procedure for counting the days for the interest calculation.’ when deal is created. 2) Effective Interest Calculation: This includes effective interest method and calculation type. 3) Facility: - indicates whether the facility is a bilateral (single bank) or syndicated facility (several bank).
|
Transaction Type
Examples of transaction types: Investment, Borrowing, Purchase, Sale
Field/settings | Description |
Transaction Category | Categories of transactions that can be carried out with a certain product category. Transaction categories are predefined in the system |
Number Range Assignments
| Self-explanatory |
Processing | 1) Sequence of processing the deal e.g., Order – Contract – Settlement 2) Automatic posting release 3) Automatic Settlement for Counter confirmation |
Flow Type
Flows describe various payment flows arising from financial transaction. Possible flow types include interest rates, repayments, principal increases, and commissions.
Flow type is assigned to Product Type and Transaction Type.
Field/settings | Description |
Classification | Such as Structure Characteristics, Accrual/deferral, Valuation or Transfer |
Flow Category | Used by the system to interpret the concrete business management significance of flows and conditions |
Relevance setting | Cash Management, Position, Valuation, Posting, P/L and Accrual/Deferral |
Payment management | Outgoing and incoming payments or defaulting individual payment |
Update Types and Assign Usages
Update types carry information about flows to accounting and the securities and futures account management of the Transaction Manager.
Update types are assigned to usage which is required for managing positions or for which specific information may have to be defined for account management.
Assign Flow Type to Update Type
Condition Types and Assign condition type to transaction type
Interest, repayment, or commission are examples of condition types.
Condition types automatically generate flows which are the basis for further processing in FI and Cash management as well as for analysis in Market risk management. Assign a classification, a condition category, and a flow type in condition type.
Assign General Valuation Class – MM Transactions
Valuation class will be defaulted based on company code, product type and transaction type when creating financial transaction (aka deals).
Account determination
SPRO Path: Treasury and Risk Management -> Transaction Manager -> General Settings -> Accounting -> Link to Other Accounting Components…
GL posting is derived with below: -
- Update Type is mapped to Posting Specs
- Posting specs has document type, posting key, account symbols
- Account symbols is mapped to Account assignment reference and GL account
- Account assignment reference Is derived
- Using rule e.g., combination of product category, product type, financial transaction, portfolio, etc.
- Direct Move
- Enhancement
Define Account Assignment Reference Determination (OTC Transactions)
Additional Account Assignments
Example profit center
Allocate Additional Account Assignments to Account Assignment References
Define Account Determination
Posting specification
Assign GL account to Account symbols
Assign Update Types for Accrual/Deferral
Conclusion
Hope after reading this blog, you got information on TRM process steps, accounting entries, important configuration. There are multiple treasury instruments and it can be mapped in the system by relating it with basics such as inflow/outflow of cash, asset or liability, business partner involved (counter party), income/expense, valuation, etc.
Disclaimer
This blog post is my opinion and not linked to any organization. All screen shots are from test systems and any similarity is coincidence.
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