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SAP MM Tutorial: Account Assignment "A" in PO Documents Account assignment field in the SAP R/3 Purchase Order document determines how the accounting journals will be posted in the case of Goods Receipt/GR (if the GR-valuated indicator was set in the PO) or Invoice Receipt/IR (if the GR-valuated indicator was not set in the PO). It determines the G/L account for debit entry in the accounting journal for GR or IR transaction. You can read this post to understand more about accounting journal basic concept. Account assignment in a PO item can be adopted from Purchase Requisition (PR) item or can be entered by buyer/purchaser if the PO item does not refer to PR item. The possible entries for account assignment field in a PO or PR item: 1. A for Asset 2. K for Cost Center 3. for Inventory Account Assignment A (Asset) We use A account assignment to order a fixed asset item. A Fixed asset is a long-lived asset that is not expected to be fully consumed within one-year period or to be converted into cash within that period, such as: property, plant, equipment, etc. In SAP R/3 system, PO or PR item with A account assignment will need additional data to be entered, that is Asset Number. Asset Number is a code to identify a single fixed asset in SAP. It must be generated first before we can create a PO or PR item with A account assignment. Asset number is created in FICO module of SAP R/3. Asset number is linked with a fixed asset G/L account in the companys
balance sheet. The G/L account is a reconciliation account, means that it reconciles several asset numbers. If the GR-valuated indicator was set and GR is done for a PO item with A account assignment, the accounting journals are: Fixed Asset Account 1000 GR/IR account 1000
And then when invoice receipt transaction is done, the accounting journals are: GR/IR account 1000 Account Payable 1000
If the GR-valuated indicator was not set and GR is done, there is no accounting journal posted, and then when invoice receipt transaction is done, the accounting journals are: Fixed Asset Account 1000 Account Payable 1000
Account payable is also a reconciliation account, means that it reconciles several vendors. The fixed asset will be consumed (expensed) periodically according to companys policy by depreciating process. Usually FI module will run depreciation program every month. There are several methods in depreciation, such as: Straight-Line Depreciation; Accelerated Depreciation the Accelerated Cost Recovery System and the Modified Accelerated Cost Recovery System. Straight Line Depreciation is a depreciation method where equal amounts of depreciation expense will be taken in each period of the asset's useful life. Although it may not provide the most realistic
assessment of the asset's value over time, this method has the advantage of simplicity. Depreciation expense for one period = (Cost of the asset Estimated salvage value)/Estimated useful life For example: Cost of asset = 1000 Estimated salvage value = 40 Estimated useful life = 2 years = 24 months So, the Depreciation expense for one month = (1000-40)/24 = 960/24 = 40 The accounting journals for the depreciation transaction per month are: Depreciation Expense 40 Fixed asset account 40
A company usually has an accounting policy regarding the capitalization of fixed assets, for example: all fixed assets costing $100 or more are capitalized and depreciated. Fixed assets costing less than $100 are fully-expensed immediately (at the end of the month).
Account assignment field in the SAP R/3 Purchase Order document determines how the accounting journals will be posted in the case of Goods Receipt/GR (if the GR-non-valuated indicator was not set in the PO) or Invoice Receipt/IR (if the GR-non-valuated indicator was set in the PO).
It determines the G/L account for debit entry in the accounting journal for GR or IR transaction. You can read this post to understand more about accounting journal basic concept. Account assignment in a PO item can be adopted from Purchase Requisition (PR) item or can be entered by buyer/purchaser if the PO item does not refer to PR item. The possible entries for account assignment field in a PO or PR item: 1. A for Asset 2. K for Cost Center 3. for Inventory Account Assignment K (Cost Center) We use K account assignment to order an expense item (material or service). In Accounting, Expenses are defined as the costs incurred to generate revenues. An expense item in PO is an item that expected to be fully consumed immediately after Goods Receipt process in order to generate revenues (directly or indirectly), such as consumable materials and services (tissue, fuel, electricity, car repair services, etc). The difference between Revenues and Expenses is companys Net Profit (or Net Loss if negative). Revenues usually come from companys sales activity, such as products or services sales. Revenues will result a positive cash flow (or increase other asset, such as Account Receivable) and will increase Equity (Retained earning or current year profit account), so the Balance Sheet remains balance. Expenses will result a negative cash flow (or increase Liabilities, such as Account Payable) and will decrease Equity (Retained earning or current year profit account), so the Balance Sheet remains balance. To understand more about basic accounting concept, you can read this post. In accounting, there is a concept of offsetting expenses against revenue on a basis of cause and effect that is called matching principle. According to this concept, Expenses are incurred for the
purpose of producing revenue. In measuring net income for a period, revenue should be offset by all the expenses incurred in producing that revenue. In other words, expense should be recorded when it contributes to generate revenue (when it is consumed to generate revenue), not at other time/period. In SAP R/3 system, PO or PR item with K account assignment will need two additional data to be entered:
G/L Account number. We have to determine the expense G/L Account number that will be posted when we do GR (if the GR-non-valuated indicator was not set in the PO) or Invoice Receipt/IR (if the GR-non-valuated indicator was set in the PO). Usually, companies post different expense into different G/L Account, such as: employee salaries expense, cost of raw materials, administration expense, marketing expense, etc.
Cost Center. Cost center determines which group or department of a company that will be charged the expenses occurred when we do GR (if the GR-nonvaluated indicator was not set in the PO) or Invoice Receipt/IR (if the GR-non-valuated indicator was set in the PO) in term of budgeting process (in SAP Controlling/CO module).
If the GR-non-valuated indicator was not set and GR is done for a PO item with K account assignment, the accounting journals are: Expense Account 1000 GR/IR account 1000
And then when invoice receipt transaction is done, the accounting journals are: GR/IR account Account Payable
1000
1000
If the GR-valuated indicator was not set and GR is done, there is no accounting journal posted, and then when invoice receipt transaction is done, the accounting journals are: Expense Account 1000 Account Payable 1000