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As financial performance is crucial to the success of a company, stakeholders nowadays expect financial forecasts in unprecedented accuracy and detail. Wouldn’t it be exciting to have an intelligent ERP solution that reliably and transparently predicts your company’s performance without having to extract data first?
Well, our intelligent ERP solution SAP S/4HANA Cloud has turned this future vision into reality. Based on its universal journal, the software provides unique financial visibility when it comes to historic and even future financial performance data. It allows you to execute granular business process simulations and to analyze your predicted postings just like your actual ones. Moreover, it enables you to identify presumed exceptions and opportunities, thus allowing you to take necessary actions before they become a reality. Thanks to predictive accounting, you can immediately analyze the impact of new incoming sales orders or currency fluctuations for expected profits on your financial performance.
In this blog, I will illustrate the concept of predictive accounting in SAP S/4HANA Cloud and what is required to be able to use this innovation.
What are the Enablers of Predictive Accounting?
Before we dig deeper, it’s important to understand that there are two key innovations in SAP S/4HANA Cloud which bring this magic to live: The first cornerstone is the universal journal which stores all postings – such as expenses or revenues – in one common place. The beauty of this is that you can directly drill down from the profit and loss statement or the balance sheet to the individual journal entries in the general ledger and display the corresponding line items.
The second pillar is the concept of the extension ledger. This is a special ledger which structures the predictive results just like the historic actual data is structured in the general ledger. This allows you to perform all financial processes, e.g. foreign currency valuations, not only with actual data, but also with future results, all based on up-to-date financial data. Predictive accounting utilizes logistical information that is turned into postings in accounting. This way, you can easily forecast what your results at the end of the current period or quarter might look like and why.
Predictive Accounting in Detail
When a sales order is created, predictive accounting in SAP S/4HANA Cloud checks whether delivery and/or invoice are scheduled. If yes, the system simulates goods issue as well as invoices and triggers subsequent financial processes such as splitting of costs of goods sold. The respective simulation results are stored as journal entries in the extension ledger. In the ‘Display Financial Statement’ app for general ledger accountants, you can easily identify the respective documents by a prefix in front of the journal entry ID. Later in the process, when the actual goods issue and/or invoicing take place, the simulated postings are reversed and the actual journal entries for goods issue and invoice are posted.
Predictive accounting in SAP S/4HANA Cloud comes with two special apps for sales accountants. The analytical ‘Incoming Sales Orders – Predictive Accounting’ app allows you to analyze incoming sales orders by slicing and dicing the predictive postings. You can evaluate and analyze predicted revenues, cost of sales, and margins based on time periods and various organizational, customer, product, and accounting attributes. In addition, you can drill down using various dimensions and measures to view more detailed information for incoming sales orders. The app allows you to navigate to journal entries, sales orders, customers, and products directly from the list view. To ensure, for example, that your company meets the expectations of the financial community and makes its numbers, you can identify those sales orders which are particularly important from a revenue perspective and take immediate action if necessary.
Fig. 1: Analytical SAP Fiori App ‘Gross Margin - Presumed/Actual’
The second analytical app is called ‘Gross Margin - Presumed/Actual’ and enables you to display and analyze side by side predicted, actual, and planned revenues, cost of sales, margins, and sales deductions based on incoming sales orders. In addition, you can filter based on time periods and various attributes, such as customer, product, and profit center.
Scope Item Activation
To use predictive accounting in SAP S/4HANA Cloud, you need to activate the non-standard scope item 2FD which is not activated by default.
For more information on SAP S/4HANA Cloud, check out the following links
- SAP S/4HANA Cloud release info: http://www.sap.com/s4-cloudrelease
- Best practices for SAP S/4HANA Cloud here
- SAP S/4HANA Cloud User Community: register here
- Feature Scope Description here
- What´s new Viewer here
- What’s New here
- Help Portal Product Page here
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