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Shakeel_Ahmed
Product and Topic Expert
Product and Topic Expert
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Introduction


The Purchase Order Accruals application automates the calculation and posting of accruals and deferrals in General Ledger Accounting.

Data from the Materials Management component is automatically transferred to the Accrual Engine, where it is converted from purchase order items to accrual items. Using this data, the system calculates the accrual or deferral amounts for each purchase order item. Simulations of these amounts are also possible. Periodically, an accrual or deferral run can be initiated to post all accruals or deferrals for the relevant business transactions.

Purchase order accrual process is part of 2VB scope items under finance area. it provides monthly accrual and deferral review, and monitoring with approval capabilities.

Scope Item 63L (Service Entry Sheet Based Accruals) offers similar functionality related to submitted service entry sheets but not approved.

Concepts: Accruals & Deferrals



  • Accruals recognize revenues or expenses before cash is received or paid, reflecting the true economic activity.

  • Deferrals recognize revenues or expenses after cash is received or paid, deferring recognition to a later period.


Supported Purchase Types in System


Supported in Accrual and Deferral:

  • Non-Valuated Material is maintained as per quantity and not based on its value

  • Non-Stock Material are immediately consumed after the procurement and not marinated in stock

  • Valuated Stock Material is generally maintained with Quantity and Valuation

  • Service Masters


 All the above product masters and service masters are supported in Accrual and Deferral Posting with below conditions:

  • Purchase orders with cost centers or projects will be transferred to the Accrual Engine for processing. This generally applies office materials, or the purchasing of services, other consumable purchase orders categorized under

    • Product Type Group (Product/Material Master)

    • Item Category: Blank, E and Consignment

    • Account Assignment Category (Wherever applicable): Cost Center, Project etc.

    • Purchase orders for service which requires a service entry sheet

    • Product Type Group 2 (Service Master).

    • Lean Service PO

    • Enhanced Limit PO with Item Category E




Not Supported in Accrual and Deferral (In Standard):

  • Purchase orders related to Inventory (Valuated GR) Raw Material and Fixed Assets are excluded from transferring to the Accrual Engine as they do not generate expenses. These purchase orders do not impact the profit and loss (P&L) items. It is the case where there is no Cost center or projects/wbs elements in account assignment tab of the Purchase Order.


Available BAdis for Purchase Order Accruals: for further amendments

How Accrual Objects and Items are created in Accrual Engine



  • Creation of Accrual Object

    • Once a purchase order is approved, eligible POs are automatically moved to the Accrual Engine.

    • Each purchase order generates a single accrual object, while sub-objects/items are created based on the number of line items within the purchase order.



  • Start and End Dates of Accrual Objects

    • Scenario 1: If a purchase order is created on August 8, 2023, with a delivery date of October 31, 2023, the system will use these dates for the accrual object. The start of the accrual object's life will be the PO creation date (August 8, 2023), and the end of its life will be the delivery date (October 31, 2023). This applies generally to consumable PO with Product Type Group 2 (with a cost center) and ad hoc service-related or Lean Service purchase orders.

    • Scenario 2: If a purchase order is created on August 8, 2023, with a delivery date range (Schedule Lines) from September 10, 2023, to October 31, 2023, the system will use these dates for the accrual object. The start of the accrual object's life will be August 01, 2023, and the end of its life will be September 10, 2023). This applies generally to Lean Service PO and Enhanced Limit PO with Product Type Group 2.



  • Accrued Expense Consideration

    • If goods or services are not POSTED on the scheduled delivery date or planned dates on the schedule lines (or in the month when the delivery date falls). The system calculates the expected costs based on the quantity in the delivery schedule and the net price in the purchase order item. These costs are then posted as an Accrued Expense.

    • This amount will be expensed monthly until the delivery date, generally by the end of each month.

    • As described in this article, the configuration evenly distributes the amount across the months, regardless of the number of days involved.



  • Deferral Expense Consideration

    • Deferred expenses or deferrals refer to the practice of recording costs in advance but recognizing the expenses for services or consumable products in a future fiscal period or over multiple future periods.

    • If an invoice, goods, or services are POSTED before the scheduled delivery date or planned dates on the schedule lines, the system treats it as a Deferral or Prepaid Expense.

    • This amount will be expensed monthly until the delivery date, usually by the end of each month.

    • As configuration shown in this article, it evenly distributes the amount across the months, regardless of the number of days involved.




Deferred expenses or deferrals mean that a posting for actual costs (for example, an invoice or goods receipt posting) is made in advance, but the expenses of services or consumable products are reported in a future fiscal period or in multiple future periods. Before the actual expense is recorded within a period where the service happens or the product is received, deferrals are posted as an asset and are released or reallocated when the expense is reported. The deferral expense isn't regarded as an actual expense. This type of prepaid expense normally is posted with the following invoices or receipts:

Accrual and Deferral: Process Steps


The purchase order accruals process involves the following job templates and apps:

  • Purchase Order Creation à Accrual Object Creation

    • When a purchase order is released, eligible POs are automatically sent to the Accrual Engine if the Online Integration With MM-PUR is active.









    • If the integration is not active, you can manually transfer the purchase orders to the Accrual Engine using the "Transfer Purchase Orders to Accrual Engine" template in the Schedule Accruals Jobs app.



  • Schedule Accruals Jobs App: Template Propose Periodic Accruals (Optional)


As name suggests this step only proposes amount for Accrual. This step is not applicable for Deferral scenario.





  • Review Purchase Order Accruals - My Inbox -Workflow (Optional)


If you have established a workflow, you can review and approve proposed accrual amounts. You can modify the value based on your assessment.





  • Review Purchase Order Accruals - For Cost Accountant (Optional)


If you have not established a workflow, you can review and approve proposed accrual amounts. You can modify the value based on your assessment.





  • Analyze Accrual Postings App (Reports)

  • Display Purchase Order Accruals App (Reports)

  • Display Line Items in General Ledger App (Reports)


Accrual and Deferral Accounting Postings Occurrences and stages


A. Purchase Order Items Without Valuated Goods Receipts




  • Purchase Order > Line Item > Process Control Tab > Non-Valuated Goods Receipt: Yes


If the GR-Non-Valuated Indicator is selected in the Purchase Order, it means that no financial posting will take place when a Goods Receipt is posted. The only posting will occur when an Invoice Receipt is received.


 



    1. Purchasing consumable material or services without goods receipts:




Goods receipts are not recorded in the system. Accruals are calculated and proposed based on the delivery schedule in the purchase order item or using a linear approach that considers the total value between the start and end date of the purchase order item.






    1. Purchasing consumable material with non-valuated goods receipts




Received materials or services are recorded in the system using non-valuated goods receipts, which means no costs are posted for the goods receipt. Accruals are calculated based on the quantity multiplied by the net price of the purchase order item, using a linearization of the total value between the start and end date of the purchase order item.

B. Purchase Order Items with Valuated Goods Receipts




  • Purchase Order à Line Item à Process Control Tab à Non-Valuated Goods Receipt: No


If the GR-Non-Valuated Indicator is not selected in the Purchase Order, it means that financial posting will take place when a Goods Receipt is posted.


 



    1. Purchasing consumable material with valuated goods receipt postings:




When a valuated goods receipt is entered, the system calculates and posts costs by multiplying the quantity entered with the net price of the purchase order item.


It's important to note that accruals are only necessary if the valuated goods receipt has not been posted despite the material being received. In such cases, the system calculates accruals based on the delivery schedule in the purchase order item, treating all planned deliveries as received. The proposed accrual amount is adjusted by subtracting the costs already posted through the valuated goods receipt.






    1. Purchasing services with service-entry-sheet postings:




When service entry sheets are used, the system posts costs similarly to a valuated goods receipt. In this case, there is typically no delivery schedule in the purchase order item. The system calculates and proposes accruals using a linear approach, which involves linearizing the total value between the start and end date of the purchase order item.



Accounting Entries: with Accrual and Deferral


Instance of the accounting entry could be anything but when once a PO is generating accounting entry it would be like below (Accounting Entry section)

  • Accounting Entries: this scenario involves only accrual expense.


In this scenario, a purchase order was created for 1200 USD with a monthly amount of 200 USD from May 2023 to October 2023. Services were received from the supplier as planned between May and October based on the purchase order. In November, a supplier invoice was received for the full value of the purchase order and posted on November 01, 2023, with a net amount of 1200 USD. This scenario involves only accrual posting.



Different view of the same entries: sorted and totaled on G/L Account







    • How to read Dr./Cr. in these amounts in excel (screen shot)?




Amount with Positive Value = Debit & Amount with Negative (Minus) Value = Credit






    • Review on First Day of Next Perd (in Schedule Accruals Jobs app)




Check the checkbox if you want the reversal of periodic accrual posting to occur on the first day of the next period. If you leave the checkbox empty, the system will post the accrual reversal on the last day of the next period.




  • Accounting Entries: this scenario involves only deferral expense.


In this scenario, if you have a purchase order with a cost of $12,000 and a delivery date in August, but you receive the complete delivery in advance in July, it would be considered a deferral expense because the planned date was in August. You have control at different levels to determine whether such cases should be included in the Accrual Engine Posting or not.



Different view of the same entries: sorted and totaled on G/L Account





  • Accounting Entries: this scenario involves accrual and deferral Expense in the same accrual object.


In this scenario, both accrual and deferral expenses are involved in the same accrual object. For instance, there is a monthly expense of $100 from May 2023 to October 2023. Services were received from the supplier as planned between May and October. In July, a supplier invoice was posted for the full value of the purchase order amount on July 5, 2023, with a net amount of $600.



Different view of the same entries: sorted and totaled on G/L Account



Attention: the accounting entries and explanations provided in this article are mainly based on the system's default settings, including the PO Transfer Variant SDFR for Accrual and Deferral. These standard settings are designed to be suitable for general accounting purposes. However, you do have the option to modify the standard settings to align with your specific requirements.



Key Configurations for Accrual and Deferral



  • Accrual Item Type


For scenarios involving both accruals and deferrals, use SACCRL_D accrual item type. For accruals without deferrals, use SACCRL accrual item type.



 















Accrual Item Type Usage
SACCRL - Subtracts actual costs from planned costs It is used when you only need to post accruals. And no deferral
SACCRL_D - Subtracts recgnzd from plnd costs (use with SDFRL) It is used when you only need to post accruals as well as Deferral.





  • Create and Edit Account Determination



 



    1. 21725000: Accrued Expense

    2. 12561000: Prepaid Expenses

    3. Expense G/Ls are derived from purchase order




Note: BADI_ACE_DOCUMENT_SCHEMA_CLD - Accrual Engine: Modify Journal Entry Line Items (Cloud). With this BADI you can change the logic of you G/L Account determination. There are other BADIs available for these functions.




  • Define Accrual Item Types and Methods for MM Purchase







    • Online Integration With MM-PUR: If you enable the "Online Integration With MM-PUR" option, purchase orders created in materials management will be automatically transferred to the accrual engine.




If you choose not to enable this option, you can still transfer existing purchase orders to the accrual engine using the job template "Accrual Engine for POs - Transfer Purchase Orders to Accrual Engine." You can locate this template in the system.






    • Dflt Var PO Transfer: Review the default transfer variant in the Variants for Purchase Order Data Transfer view. If needed, assign the variant to specific company codes by unchecking the "Dflt Var PO Transfer" checkbox. Double-click the desired variant and go to the Assign Company Code to Transfer Variant view. Enter the variant in the PO Transfer Variant field or select it from the options for each company code.









    • Accrual Classification and Planned Accrual Method are used in combination.






















Accrual Classification Planned Accrual Method  Usage
SDELS - Lifetime dates from delivery schedule SPLN_DELSL - Planned costs based on delivery schedule Used in PO with Delivery date
SPERP - Lifetime dates from performance period SPLN_LIN_P - Planned costs with linear distribution per period Used in PO with Schedule Line (Start of Performance Period -End of Performance Period




    • Based one Purchasing Document Type, Item Category and Accrual Classification you configure your Accrual Items Type and other settings.







  • Define Threshold Variants



You can define threshold limit for Accrual Engine, Approval and Review Process


 

  • Define Reasons for Adjusting Periodic Accrual Amounts


 



Functions in Scope Item 63L - Service Entry Sheet Based Accruals


Scope Item 63L enables the calculation and posting of accruals for service entry sheets submitted against lean service purchase orders. Here are some key points to consider:

  • Scope Item 63L offers similar functionality to 2VB.

  • 63L focuses solely on service entry sheets for services, while 2VB covers both service entry sheets and goods receipts for materials.

  • 63L specifically addresses accrual expenses, whereas 2VB covers both accrual and deferral expenses.

  • In 63L, you can create accrual objects based on service entry sheets that have been submitted but not yet approved, allowing for proposal of the accrual amount. In 2VB, only approved service entry sheets are considered for accrual or deferral calculations.

  • 63L incorporates an accrual review process without an approval workflow mechanism, while 2VB includes both an approval workflow and a review process. However, service entry sheet has its own standard approval workflow.

  • Please explore the details of Scope Item 63L on your own for further information


 

Other key considerations for accrual and deferral postings



  • In Financial Accounting, the Manage Recurring Journal Entries app also allows you to post accruals manually. It is applicable where Purchase order is either not involved or you do not want to use automatic process for accrual and deferral.

  • The delivery date or the start and end of the performance period in purchase order are crucial factors to consider when dealing with accrual and deferral postings. Posting of accrual or deferral will take place or not are governed with these dates.

  • Reversals of accrual and deferral are performed using the Manage Journal Entries function, like other financial transactions. Once a reversal is made, the entry becomes available again for posting in the Accrual and Deferral module.

  • When an expense, service, or material is not recorded on or before the delivery date, an accrual posting will be generated at the end of the month if the delivery date falls within that period.

  • Accrual propose and post can be done on the last day of the month only.

  • When an invoice, service or material is recorded before the delivery date, the deferral expense/prepaid expense will be booked accordingly.

  • Accrual function has standard workflow approval mechanism

  • Accrual function has simulations features also which you can explore further. You can use the Schedule Accruals Jobs app to schedule a job for simulating accrual postings. Select the Job Template ‘Purchase Order Accruals - Simulate Accrual Postings’ for purchase order accruals. In the Parameter step, choosing the Fast Mode checkbox will simulate only new or changed accrual postings since the last run. If you don't select the fast mode, the system will simulate all accrual objects, regardless of changes. Typically, using the fast mode is more time efficient for completing a simulation job.


 

 

Disclaimer: This article is intended solely for educational purposes. When engaging in customer projects or working with SAP S/4HANA Cloud, Public Edition, it is essential to follow and seek guidance from the official SAP documentation available on https://help.sap.com/docs/ for S/4HANA Cloud, Public Edition.

 

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