Showing results for 
Search instead for 
Did you mean: 


Former Member
0 Kudos


Could you please advise as to how the Sub-contracting is handled in SAP. We have done the Goods Receipt and updated the landed cost with Invoice Verification and Subsequent Debit. Now the goods are to be sent to the fabricator for fabrication and would have to be recieved back with value addition equivalent to corresponding credit to the fabricator vendor. Thus the landed cost would get further updated with a corresponding liability to the Vendor. How would the postings be impacted in the GL for the aforesaid scenarios ?

Thanks in advance

Accepted Solutions (0)

Answers (3)

Answers (3)

Former Member
0 Kudos

If I understand correctly your goods didn't pass quality inspection of fabrication. So the fabricator need repair the goods. That means you need do a credit to fabricator and a debit to your loading vendor. The two will be same.

If so the material value won't be changed with subsequent debit and subsequent credit. But account of two vendors will be changed as aspect of FI.

BTW you can modify the vendor to be invoiced in the field 'Inv. Party' of the tab 'Details'.

Former Member
0 Kudos


Sub-Contracting is handled in two ways in SAP -

A) Sub-contracting without payment of excise duty.

B) Sub-Contracting with payment of excise duty.

A) Following is the cycle of sub-contracting without payment of excise duty in SAP -

1) You maintain BOM of the material which you are ordering on the sub-contractor. The materials which you will be supplying to the vendor will be maintained in the BOM. This BOM will be for production use & will have to be released before ordering.

2) If the material you are supplying to the sub-contractor for processing is excisable, then you will have to maintain the details in J1ID with tick at Sub-Contracting. Similarly, if the material you receive from the subcontractor is also excisable then you have to maintain the details in J1ID table. If vendor is excisable then his details are also to be maintained.

3) In the material master of the ordered material, you maintain procurement as F (external procurement) & special procurement as 30 (Sub-Contracting) in MRP views.

4) You raise sub-contracting PO on the sub-contractor with item category as L (Sub-Contracting).

5) You do transfer posting of the child material in transaction MB1B with movement type 541 with reference to the PO you have raised on the sub-contractor.

6) If the material transferred to the subcontractor is excisable, then create subcontracting challan in transaction J1IF01 with reference to the transfer posting document, against which you have transferred the material to the sub-contractor. At this time there is no entry in the excise registers, because the cycle is Sub-contracting without payment of excise duty.

7) The sub-contractor processes the material & sends the processed material back to you.

😎 You post the GRN with reference to the sub-contracting PO for the processed material & in the excise tab select option 'Refer the Sub-contracting Challan'. Then at 'More data' button, you refer the sub-contracting excise challan against which the material was transferred to the sub-contractor. During the GRN Posting, system books the consumption of the child componenets you supplied to the subcontractor. The accounting entries at the time of GRN posting are as below -

Debit Inventory of Semifinished goods = X+Y

Debit processing charges = Y

Credit GR/IR Clearing = Y

Credit semifinished inventory at sub-contractor = X+Y

Debit raw material inventory at sub-contractor = X

Credit raw material inventory at your plant = X

9) You then reconcile the material document with the sub-contracting challan at J1IFQ, by giving the material document number. This is because, you already have referred the challan at the time of posting GRN. If this reference was not done at GRN, then enter the challan number also at J1IFQ.

10) After reconcilation, you complete the challan at J1IF13. The process of posting challan to completing the same is to be done within 180 days because this is legal requirement. Otherwise you have to pay the excise duty on the raw material you supplied to the vendor, if the processed material is not received within 180 days.

11) You then post the invoice of the sub-contractor, which is nothing but for the processing charges for processing the child components.

B) Following is the cycle of Sub-Contracting with payment of excise duty -

1) You maintain master data of BOM & J1ID as mentioned above.

2) You raise sub-contracting PO as mentioned above.

3) You make transfer posting of child components to the sub-contractor as mentioned above.

4) You create Outgoing Excise invoice in transaction J1IS for the child components you suplied to the subcontractor. This actually makes entries in your excise register by reducing the available modvat credit by the amount of excise duty on the child components.

5) The subcontractor processes the material & sends you the processed material alongwith the excise invoice for the processed material.

6) You capture & post the excise invoice in transactionJ1IEX.

7) You post the GRN of the processed material by referring the subcontracting PO. The consumption of the child components is booked at the time of GRN. The accounting entries are same as mentioned above. You refer the exicse invoice at Excise tab be entering the Excise Invoice Number & date (of Sub-Contractor) in the respective fields.

😎 You post invoice of the subcontractor, which now includes the processing charges & the excise duty on the processed material.

Hope this fulfills your requirement



Former Member
0 Kudos


I found ur answer quite good.

Now can you clarify my doubt as well

Can you explain me with an example what account entries get hit during subcontracting process. I mean during 541,542,543,544,545,121,101 movements.

Thank You

Former Member
0 Kudos


Following are the sub-contracting related accounting entries -

1) For 541 movement - No accounting entry. Only transfer posting of stock is done.

2) For 542 movement - No accounting entry. Only transfer posting of stock is done.

3) For 101 & 543 movement (because these two entries are done simultaneously) -

Debit Semi-Finished Inventory at your plant - Rs X+Y

Credit Semi-FInished Inventory at Vendor - Rs. X+Y

Debit Processing Charges - Rs Y

Credit GR/IR Clearing - Rs Y

Debit Raw material Inventory at Vendor - Rs X

Credit Raw material Inventory at your plant - Rs X

4) For 544 & 102 / 122 movements - Reverse entries of above.

Hope this fulfills your query.



Former Member
0 Kudos


Suppose you have semi finish product for which subcontractor consumed one raw material from you,then while doing GR and IR your accounting entries are as follows:--

While making GR:-

1.Dr in Stock accountBSX.OP+RMP

2.Cr in Change in stock accountBSVOP+RMP3.Dr in External activityFRL.OP

4.Cr in GR/IR clearing acctWRXOP

5.Dr in Raw material consumption acctGBB(VBO).RMP

6.Cr in Stock acct of raw martlBSX.RMP

OP:-Operating price or labour price

RMP:-Raw material price.

While making IR:-

1.Cr in Vendor account--OP+Tax or deviation

2.Dr in GR/IR clearing AcctWRXOP

3.Dr. in Tax account(Input)--VST maintained in Tcode OB40-Tax or deviation.

FRL transaction key used for posting your labour cost and same will be credited in your GR/IR clearing acct.

Because in subcontracting you only pay for Subcontractor's Labour charges.

When you send material to subcontractor there is no any accounting entry made.

Because you are just transfering your material from one stock ie unrestricted to another ie stock provided to your subcontractor by using Movt type 541.

But when you make GR of this item system uses background movt type as 543 to consume that raw material for making semifinish product.

Raw material consumption after GR or MIGO it will affect BSX for Raw material consumption Cr and GBB--VBO for subcontractor consumption DR.

reward if it helps



Former Member
0 Kudos

Thanks for the help.

Active Participant
0 Kudos

You check an invoice for a subcontract order in the same way as for a standard purchase order.

Additional account postings do, however, occur if a price variance has occurred.