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Hello SAPers!

Here is another post, where I'd like to share a couple of details about SAP's functionality. This time about handling of down-payments. I hope you'll find something interesting for you.

1. Introduction

Down-payment is a special payment that the company receives prior to goods issue to customer or is sending to vendor before goods / service receipt. Consequently, we can distinguish between incoming and outgoing down-payments.

SAP specifics for down-payments processing implies use of Special GL indicators (SGL-indicator). SGL-indicator in the case of down-payment can be considered as a special attribute of transactional data that re-routes the posting from regular AP/AR reconciliation account to a dedicated reconciliation account for down-payments (i.e. down-payments made / down-payments received). Separate reconciliation account for down-payments is not a mere technical feature, but as a rule legal requirement.

Certain countries for example Ukraine or Russia consider down-payments as events which increase companies’ VAT liability / credit. Therefore, certain customizing and master data prerequisites should be met to ensure that these events can be accounted for correctly in SAP.

This post explains the functionality behind calculation / posting of VAT on down-payments on so called “gross basis”. “Gross basis” is not official accounting term, rather a popular description behind the approach. This approach assumes that total amount of down-payment is a sum of tax base + VAT amount.

Accounting postings for typical vendor down-payment process would be as follows*:

* Notes:

  • This example assumes tax rate of 20 %;

  • Input VAT amount is posted to in correspondence with “VAT on down-payments made” account, which can be considered as clearing account;

  • “Deferred” input VAT represents a temporary GL account, which might be used in some countries to account for VAT amounts before they are re-posted to “target” GL account i.e. before input VAT can be considered as deductible. This reposting can be made via deferred tax transfer programs or by special localization-specific program. This topic by itself is very broad and cannot be covered as part of this post.

Accounting treatment for incoming down-payments is similar:

2. Overview of customizing

Posting scheme for VAT on down-payments requires configuration of clearing accounts for VAT on down-payments. Configuration of automatic accounts determination can be reached via t-code OBXB or via the following menu path:

SPRO → Financial Accounting (New) → Accounts Receivable and Accounts Payable → Business Transactions → Down-Payments Made → Define Account for Tax Clearing.

Relevant transaction keys for VAT on down-payments are MVA – for incoming down-payments and VVA for outgoing down-payments:

Add account modification A and clearing GL account for input VAT:

Do the same for output tax clearing:

Account determination for clearing VAT accounts can be universal (i.e. the same GL account will be used regardless of vendor’s / customer’s reconciliation account) or can be dependent on account modification. Go posting rules’ settings and activate checkbox “Input/output tax clearing” to enable account modifications:

Once account determination is maintained, proceed to customizing of special GL indicators in t-code FBKP or via the following menu path:

SPRO → Financial Accounting (New) → Accounts Receivable and Accounts Payable → Business Transactions → Down-Payments Made → Define Alternative Reconciliation Account for Down Payments.

As a rule, most companies use SGL-indicator A for down-payments, but other indicators might be used as well. Check which of them are relevant for your company and if they have type “Down payment / down payment request”:

Indicate account modification A for those vendor reconciliation accounts, which are subject for VAT calculation. If you have several account modifications, you can have different account determination for example for local vs. foreign down-payments.

Perform similar customizing for customer down-payments:

3. Master data prerequisites

So far, the setup is complete from configuration point of view. But there are a few prerequisites for master data of GL accounts / tax codes that are involved into the posting:

Prerequisites for incoming down-payments:

  • Reconciliation GL account for incoming down-payments should have tax category +B;

  • Posting of incoming down-payment should involve tax code with type “A” (i.e. output tax);

  • Clearing account for output VAT on down-payments should have tax category “>” and should not be managed on open items basis.

Prerequisites for outgoing down-payments:

  • Reconciliation GL account for outgoing down-payments should have tax category -B;

  • Posting of outgoing down-payment should involve tax code with type “V” (i.e. input tax);

  • Clearing account for input VAT on down-payments should have tax category “<” and should not be managed on open items basis.

Tax categories of GL accounts can be checked in t-code FSS0, whereas settings of tax codes can be verified in t-code FTXP.

4. Examples in the system

Example of incoming down-payment can be found below*:

* Note: just in case, transaction key UAM is a custom key for output VAT, instead of standard key MWS.

Example of customer invoice can be found below:

Example of clearing of customer’s open items can be also found below:

I hope that you have learn something useful once you reached this sentcen. I’m looking forward to your comments and remarks.

Best regards, 

Bohdan Petrushchak
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