Enterprise structure in Material Management

The enterprise structure in Materials Management in SAP ERP consists of the organizational units from
Financial Accounting, Logistics - General, and Materials Management, and the relationships between
them:
 Company Code - The company code is the smallest legal organizational unit that represents an
accounting unit for which you can have an independent accounting department within external
accounting.
 Plant - The plant is an organizational unit used to divide an enterprise according to production,
procurement, maintenance, and materials planning. It is the place where materials are produced or
goods and services are provided.
 Storage Location - The storage location is an organizational unit that allows the differentiation
of material stocks within a plant. Inventory management on a quantity basis is carried out at the
storage location level in the plant.
 Purchasing Organization - A purchasing organization is an organizational level that negotiates
conditions of purchase with vendors for one or more plants. It is legally responsible for
completing purchasing contracts.

There is l:n (one to many) relationship between client and company codes, company codes and plants,
and plants and storage locations. This means that there can be multiple company codes per client,
multiple plants per company code, and so on. The client is decided when you log into the system;
therefore, there is only one client for an enterprise structure.

Plant are usually not directly assigned to company code, but to purchasing organization. The relationship
between plants and purchase organizations is many to many. However plant can be assigned to company
code with condition that plant and company code have the same country. Relation between company code
and plant is 1:n, means that more than one plant can be assigned to company code.

The relationship between company codes and purchase organizations is l:n and it may not exist,
depending on your choice of cross-company code procurement. If you decide to have one purchasing
organization that supplies multiple company codes, there is no assignment of purchasing organization to
company code and link between purchasing organization and company code will not exist. Also you can
have more than one purchasing organization supply only one company code.

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Definition and assignment of purchasing organization, plant and storage location are tasks to be
completed as a part of material management configuration.

Vendor Master Data

The vendor master record contains all the data you need to manage your vendors: Vendor’s personal and
business details (like name, address, language, and phone numbers), tax information, bank details,
account control data, and payment and purchasing data. Besides FI, these records are also used in
Materials Management (MM). The master data controls how business transactions are recorded and
processed by the system. You can prevent inconsistencies in master data by maintaining it centrally.

It is necessary to create a master record for each account that is required. Master records control how data
is entered and processed for your vendors:
 As default values when you post items to the account. For instance, payment terms you specify in
the master record are defaulted during document entry.
 For processing business transactions. For instance, bank details and the types of payment method
(check or bank transfer) are necessary for automatic payments.
 For working with master records. You can prevent certain users from accessing an account by
setting up authorization groups.

The data in a vendor master record is grouped into three areas, which enables each company code and
each purchasing organization to store its own information for doing business with specific vendor.

The breakdown of these three areas is:

 General data
Applicable to every company code and every purchasing organization in your company, the
general data includes the vendor’s name, address, language, telephone number and bank details.
 Company code data
Specific to an individual company code, the company code data includes information like the
reconciliation account number and payment terms.
 Purchasing organization data
Relevant to the purchasing organization of your company, this data includes information such as
requests for quotations (RFQ), purchase orders (PO), and invoice verifications. Unless the MM
application component is active, you will not be able to enter and use data relating to this.

In order to create a master record, you must specify an account group. The account group determines the
characteristics of the master record as the type of number assignment, whether the account is for one-time
vendors, what fields are to be displayed, and more. Each of the master records is uniquely numbered via a
number range interval with internal or external number assignment.

Creation, change and delete Vendor Master Records

To be able to process transaction to vendor accounts, vendor master record has to be created for each
vendor. This part also presents integration between FI and MM modules as same data is used FI
document posting and purchasing in MM. When master record is created, it is possible to change it
afterwards (update new address, new bank account, etc.) and if it is not in use anymore, it is possible to
delete it.

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Create Vendor Master record

It is possible to create a vendor master centrally, both for accounting and purchasing, by entering the
required data in one step. Alternatively, you may create a master record only in the company code for
accounting purpose alone. Your third option is to create a master record with reference to an already
existing master data in the system, or create a new. The system prevents creation of duplicate masters
using the Search-ID (Match Code) functionality configured on the vendor’s address data.

Use this option when you want to create both the accounting and purchasing data in one step.
 Use transaction XK01 or the SAP Easy Access menu path SAP MENU > ACCOUNTING >
FINANCIAL ACCOUNTING > ACCOUNTS PAYABLE > MASTER RECORDS >
MAINTAIN CENTRALLY > CREATE.
 On the resulting initial screen enter a suitable account group, company code, and purchasing
organization:

If you plan to copy data from an existing master, enter the appropriate details in the REFERENCE block.
Note that no vendor-specific data (such as the address) is copied from the reference. If you have already
maintained the general data and want to copy only the company code data, specify only the company
code of the reference master record. Likewise, when you create the data for the purchasing organization,
only the corresponding data is copied from the reference. If you have not yet created the general data,
note that only language and the country are copied from the reference master to the new master record.

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Because the system automatically copies the account group from the reference master record, do not enter
an account group for the new master record if you want to use the same account group of the reference
master record. However, be sure to specify the account group in the initial screen, if you do not want the
account group of the reference master record to be copied to the new master record.

If you do not maintain the company code or the purchasing organization data, then you will create the
vendor master only in the general area. However, if you specify only the company code (but not the
purchasing organization), then the master data is created both in the general and company code areas. If
you only enter a purchasing organization (but not the company code), then the master data is created in
general and purchasing segments.

If you specify vendor account as one-time vendor account, you can use a single master record for several
one-time vendors, no data specific to a single vendor is stored in the one-time master record. When you
post to a one-time account, the system automatically takes you to a master-data screen in which you will
enter the vendor-specific master data (name, address, bank details, etc.) that will be stored separately in
the document. As in a regular vendor master record, you need to create the one-time vendor master record
using the specific account group in which the vendor-specific fields, such as name, address, and bank
address data are suppressed from display, since you will be maintaining this data only when you actually
enter the document. Processing (creating, displaying, changing, blocking, and deleting) of one-time
vendor master records will be the same as that of the regular master records .

General Data section

General Data section is used to store data valid for all company codes. On the address screen, you enter
the basic data for you company such as title and company name.

The search term is a short and easy to remember name for the vendor that you can define yourself. It can
be used to make a quick reference to the vendor that you want to use.

In the Address section you can enter normal address information for the vendor and the information that
you need for communication with the vendor like the telephone and fax numbers and the language that he
prefers to use. By clicking on OTHER COMMUNICATION… button you can additional contact.

Number of fields which are mandatory to be filled in is determined per account group during
customization.

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On the Control screen you have a possibility to enter Tax numbers or VAT number which can be used as
search elements in search help screen.

You can specify customer number in Customer field if you require clearing between the customer and
vendor. The customer number is used by the payment and dunning programs for clearing open items. For
line item display, the link to the customer line items is established using this number. As the customer
number is populated in vendor master data for specific vendor, field Vendor is required to be filled in for
specific customer in customer master data.

An industry is a distinct group of companies with the same basic business activity. The industry key is
used in selecting data for evaluations (for example, a vendor master data list). You can specify industries
such as trade, banking, service, manufacturing, health care, public service, media, intercompany and so
on.

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On the Payment transactions screen, you can enter the information that is necessary for making payments
to the vendor. The most important information on this screen is the bank details. For each vendor, you can
specify as many banks as you want. To pay a vendor by bank transfer using the payment program, you
must specify:
 Bank country - The country in which the bank is located.
 Bank-key - This is the key to the master data of the bank: name, address and control data (such as
the Swift-address and the bank number). The value of the key can be set to the value of one of the
control fields, for example the bank number. This can be misleading because two fields contain
the same data. In certain countries the bank account number itself is not unique, but only in
conjunction with the bank number (for example the Sort code). This bank number obtains the
system from the bank details using bank-key, it is not the bank-key itself.
 Bank account - The number under which the account is managed at the bank. Combination of
bank key and bank account present unique information that helps identifying bank account per
bank, as same bank account number can exist in different bank, but combination between bank
key and bank account cannot.
 IBAN if vendor is located in EU. This field is optional.

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When you enter your vendor’s bank address, the system checks whether master data already exists for this
bank. If not, the system will present you the maintenance screen for bank master data.

You can specify Alternative payee by entering the account number of the vendor with whom automatic
payment transactions are carried out. The field is only needed if payments are not to be made directly to
the vendor to whom the payable is owed. The same applies to bank collections of receivables.

For example, you are using alternative payee field when in case of factoring, where vendor payables should
be paid directly to the bank.

The alternative payee specified in the general data area is used by every company code. If you specify an
alternative payee in both areas, the specification in the company code area has priority.

To always make vendor payments to an alternative payee, proceed as follows:

 Create a vendor master record for the alternative payee. Block this account against posting.
 Specify the account number of the alternative payee in the Alternative payee field within the
payment transactions section of the vendor master record.

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When making payments for this vendor, the payment program will always access the name, address and
bank details of the alternative payee.

Company Code data section

Data stored in this section is valid only for specific company code. Fields in this section can be changed
without affecting vendor master records created in other company codes.
On the accounting information screen, you have to enter the information that is necessary for the
accounting department.

The reconciliation account is the link to the General Ledger. All the vendor accounts with the same
reconciliation account form a sub-ledger. In accounting there are main three types of sub-ledger account
like vendor, customer and asset. For vendor, customer and asset separated vendor master account,
customer account and asset account will be there. When you post items to a sub-ledger, the system
automatically posts the same amount to a reconciliation account in the general ledger.

Example: When posting an invoice of 450 EUR to the vendor account of vendor B, SAP automatically posts
the same amount on the reconciliation account 160000 in the General Ledger. The reconciliation account
160000 is defined in the master data of vendor B.

The reconciliation accounts ensure that the balance of G/L accounts is always zero. This means that you
can create balance sheets at any time without having to transfer totals from the sub-ledgers to the General
Ledger. You have to specify a reconciliation account in every vendor master record.

You can use the reconciliation accounts to make settings:

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  You can use the reconciliation account to configure the screens for posting items to customer or
vendor accounts. Using the reconciliation account you could, for example, suppress the fields for
entering exchange rate hedges if these types of transaction are not made.
 You can also use the reconciliation account to specify which currencies you can use when posting
to the corresponding customer or vendor accounts.

You can specify Cash mgmnt group field which will be used for grouping in liquidity forecast report. In
Cash Management, customers and vendors are allocated to planning groups by means of an entry in the
master record. This planning group reflects certain characteristics, risks or the type of business
relationship in relation to the inflow or outflow of cash.

For Sort Key field the system uses a standard sort sequence for displaying line items. Among other things,
it sorts the items according to the content of the Allocation field. This field can be filled either manually
or automatically (by the system) when a document line item is entered. For this purpose, the system
requires rules that determine which information is to be taken from the document header or from the
document line item and placed in the field. The rules can be stored in the master record of an account
which enables you to determine the standard sort sequence on an account-specific basis

In the Payment transaction Accounting tab you can specify fields such as payment terms, payment
methods and house bank if needed.

The Payment Terms are arrangements made with a business partner concerning the payment of goods
supplied or services performed. In the vendor master record, the payment term specifies the payment term
that is normally used for this vendor, means due date of document that is to e paid. During Invoice
posting in Accounts Payable accounting, this payment term is defaulted, but it can be changed.

The Payment Methods specifies a procedure by which payments are normally made for this vendor. For
example, bank transfer or checks. Payment methods are used as parameters during creation of payment
proposal and all payment methods specified will be included in payment program.

House Bank is used if the customer/vendor is always to be paid by the same house bank. The bank

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selection of the payment program is cancelled with this entry.

In this section you can also block and unblock vendor for payment transactions. If vendor is blocked for
payment in the vendor master, all posted invoices will be automatically blocked after the posting.

Purchasing Organization Data

Integration between Financial Accounting and Material Management modules begins with the vendor
master that stores financial accounting as well as purchasing data. The purchase order to the vendor uses
purchasing data, whereas its financial accounting data is used at the time of invoicing.

A vendor can have various functions in its interaction with your company. For example, during the
procurement transaction, the vendor is first the order recipient, then the supplier of goods, then the
invoicing party, and finally, the payee. Whatever partner roles the vendor adopts, it falls under the
purview of either purchasing or accounting. The vendor master is therefore maintained by purchasing and
accounting. You use partner functions to define the rights and responsibilities of each business partner in
a business transaction. For example, vendors can adopt various roles during procurement such as
alternative payee, ordering address, invoice presenter, vendor, and goods supplier. You must maintain
purchasing and accounting data for entering invoices in the system before you can order from a vendor.

The vendor master is divided into three areas:

 General Data
 Company Code Data
 Purchasing Organization Data

As first two areas are described in details in Master data section, only purchasing organizational data will
be described into details.

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Information maintained in Purchasing organization section of vendor master data will be used during
creation of purchasing documents, such as purchase order:
 Order currency presents key for the currency on which an order placed with a vendor is based.
 Terms of payment presents key for defining payment terms composed of cash discount
percentages and payment periods. This key has priority over the payment terms maintained in
vendor master data – company code section for logistic invoices (invoices posted in reference to
purchase order)
 Incoterms specifies certain internationally recognized procedures that the shipper and the
receiving party must follow for the shipping transaction to be successfully completed.
 Minimum ordering group that presents minimum value specified for purchase orders issued to the
relevant vendor.
 Schema group vendor determines which calculation schema (pricing procedure) is to be used in
purchasing documents containing this vendor number.
 Sales data presents section where you can maintain information about contact person on vendor
side as well as telephone number

In Control section you would be able to make settings that will control creation of purchasing documents
such as posting allowed only if specific goods receipt is in place, invoices or credit memos can be created
only automatically using Evaluated Receipt Settlement (creation of invoices on behalf of vendors),
automatic creation of purchase orders etc.

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In Default data material section you can maintained purchasing group that presents person or group of
people responsible or certain number of vendors and planned delivery time that will be used to count
delivery date during purchase order creation.

Change Vendor Master record

Depending on the fields that need to be changed Vendor Master record can be changed centrally using
transaction XK02, only company code data using FK02 or purchasing organization data using MK02
transaction.

If you have created master records in one company code and require the same master records in another
company code, you can distribute the newly created master records to other company codes. Use
transaction FK15 to send or transaction FK16 to receive such data. Alternatively, use SAP Easy Access
menu path SAP MENU > ACCOUNTING > FINANCIAL ACCOUNTING > ACCOUNTS PAYABLE
> MASTER RECORDS > COMPARE > COMPANY CODES > SEND/RECEIVE.

Deleting and blocking Vendor Masters

Deleting vendor master data is a customizing activity. Use transaction OBR2 or menu path SAP
CUSTOMIZING IMPLEMENTATION GUIDE > FINANCIAL ACCOUNTING (NEW) > ACCOUNTS
RECEIVABLE AND ACCOUNTS PAYABLE > VENDOR ACCOUNTS > MASTER DATA >
DELETE VENDOR MASTER DATA. You will not be able to delete the master data if any of the
transaction data relates to a master. Also, you will not be able to delete the masters for company code that
has already become productive. You can link customers and vendors in FI, or your customer can also be
your vendor and vice versa. If you reference a customer or vendor by another (customer or vendor), delete
the referenced master record after deleting the referencing master record. Start the program SAPF047 to
generate link information of such referenced records, before actually carrying out the deletion.

You can use transaction OBR2 to delete G/L account, customer, and vendor master records. However, we

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recommend that you use this only in the test phase of an implementation. Instead of deleting, you can
block master record for posting for specific company code by using transaction FK05 and mark it for
deletion in FK06. By default, the only effect this deletion flag has is to cause a warning to be issued every
time you subsequently try to post to this account, but it will allow posting(unless you change message
control and mark it as error message), so that is why master record needs to be blocked at first place.

Material Master
The material master is your company’s main source of material-specific data and contains descriptions of
all materials your enterprise procures, produces, and keeps in stock. Because it can be used by all of the
areas such as Purchasing, Inventory Management, Materials Planning, and Invoice Verification, the data
in the material master is subdivided into various views, including the following:
 Purchasing data for ordering
 Inventory management data for posting goods movements and managing physical inventory
 Accounting data for material valuation
 Material requirements planning (MRP) data for material requirements planning

Furthermore, material master data is organized based on organizational units such as client/company
code, plant, and storage location. It decides whether the material master should store different values of a
particular organizational unit.

In the different views - such as Basic Data 1, Purchasing, MRP4, and so on you can store various fields.
The views are organized according to the organizational units client/company code, plant, and storage
location. The views maintained at the client/company code level, for example, are valid for all of the
plants and storage locations.

You can use SAP menu path: Logistic > Material Management > Material Master > Material > Display >
Display Current or transaction MB03 to display material. For the integration between Financial
Accounting and Material Management the most important view is Accounting 1.

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Besides information about material code, description and organizational unit, on Accounting 1 view you
would be able to see information about:
 Unit of measure which is used for managing the stock, valuation class that presents the key for
account determination in different
 Currency in which material value is shown
 Valuation class used as a key for account assignment for different transactions which include
movement of material
 Price control indicator which shows how price of material is maintained. There are two possible
indicators:
 S - Standard price - Standard price is fixed without taking goods movements and
invoices into account. It is usually used for semi-products and final products which will
be sold to customers.
 V - Moving average price is dynamic and changes in consequence of goods movements
and the entry of invoices and is used to valuate a material. Therefore, it is used for
procured materials as prices of the materials change on the market. The moving
average price is calculated by dividing the value of the material by the quantity of
material in stock. It is automatically recalculated by the system after each goods
movement or invoice entry.
 Price unit which presents number of units to which the price refers
 Moving and standard price which present current price of material. Depending on price control
indicator, this values may change automatically (movement average price) or manually (standard
price)
 Total stock presents sum of all valuated stocks of the material that are subject to the same
valuation criteria
 Total value presents the value of all valuated stocks of the material that are subject to the same
valuation criteria. It is calculated based on formula: Total stock value = total stock quantity *
material price

Besides Accounting 1 view, Accounting 2 view will show price that is used for valuation of material for
tax purposes and price that is used for valuation of material for commercial purposes.

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Material master views Costing 1 and Costing 2 are used for maintaining information in terms of
integration of Controlling and Material Management, where Sales Organization views contain data used
or integration of Material Management and Sales and Distribution.

Create Purchase Requisition (PR)

In SAP, purchase requisitions help control costs and ensure smarter buying by having both the purchase
and the vendor checked by the procurement department prior to converting a purchase requisition into a
PO to send to a vendor to order the goods or service.

By using approved vendors, the company can negotiate better discounts or prices, reduce the risk of poor
quality goods or late deliveries, and ensure reliable future purchasing. Once approved by either the line
managers and/or the procurement department, a purchase requisition can be automatically converted into
a PO.

You can generate purchase requisitions via SAP menu path: Logistic > Material Management >
Purchasing > Purchase Requisition > Create or using transaction ME51N.

Like a PO, a purchase requisition includes a header, an item overview, and item details. In the line item
overview area enter specification of material you would like to procure: material code, quantity, for which
plant is needed, which purchasing group and purchasing organization will be responsible for buying.

You can also enter preferred vendor if you know it already upfront.

If purchase requisition is created for service or consumable materials without material master, you can
choose item category K – Cost Center where you will have to maintain account assignment manually in
ACCOUNT ASSIGNMEN tab of item details.

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When you enter all the data, you can click on SAVE button to create purchase requisition. This will not
create any additional financial document, but only commitment in controlling.

In most of the cases purchase requisition must be approved. For approval of purchase requisition, you can
use SAP menu path: Logistic > Material Management > Purchasing > Purchase Requisition > Release >
Individual Release or using transaction ME54N.

When it is approved, based on purchase requisition, purchase order can be created.

Create Purchase Order (PO)

You can create purchase order by accessing application via SAP menu path Logistic > Material
Management > Purchasing > Purchase Order > Create or using transaction ME21N.

When purchase requisition is created, you can flip it into purchase order. By accessing SELECTION
VARIANT button on tree menu positioned on the left side of the screen, you can choose MY
PURCHASE REQUISITIONS to open all purchase requisitions created by you. To flip it to PO, you can
simply drag purchase requisition number to the basket positioned in upper part of the screen next to
ORDER TYPE field. Most of the information in the purchase requisition will transfer to the PO, and
many of its settings will come from the vendor master data.

Purchase order screen is consist of tree parts:

PO Header - contains data relevant to the whole document - for example, vendor, organizational data,
dates, release strategy, validity period, status, and other items that apply to the whole document.

PO item overview - contains a description of the items ordered, plus the quantity, price, unit of measure,
account assignment, and other details specific to each item. It also contains the account assignment
category and item category, which work together with the PO document type to define the purchase type
and to determine what type of cost object, if any, to expect.

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The item category determines the field selection and whether any additional tabs in the item detail are
required - for example:
 A blank item category is the standard category and can be used for materials and consumables. It
allows for invoices and GRs.
 Item category B provides the Limits tab, which can be used in conjunction with the framework
order PO type to create a blanket PO. In this case, no GR is allowed, but there is a time limit on
what can be invoiced.
 Item category D is used for services, and therefore both the Services and Limits tabs are available
if you want to list different services, give limits for any unknown services, or enter service entry
sheets
 A stock material may have no cost object, because it will go to the balance sheet and the account
assignment will come from the material master, so the account assignment category is normally
blank. Consumables that post directly to a cost center normally have assignment category K.
 Use account assignment category A if you want to post directly to a fixed asset (without using an
investment measure).
 If you post to a fixed asset via a WBS element, use account assignment category P, or use F if via
an investment/internal order.
 If you use internal orders for employees or for marketing/advertising projects to better analyze
costs, use account assignment category F.

The PO item detail - contains more information about each item, such as account assignment details,
whether a GR is required, the GR type, the PO history, and so on. You also may see additional tabs, as
mentioned previously, depending on the item category. This data can be different for each PO line.

When data from purchase requisition is transferred into purchase order and or additional fields are
populated you can click on SAVE button to create purchase order. In case of errors, system will issue
error message in status bar and will not allow creation of purchase order.

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Like purchase requisition, creation of purchase order does not create any financial document, but only
commitment. As a document, it is then sent to vendor to create ship goods or provide service.

When it is created you can display purchase order via SAP menu path Logistic > Material Management >
Purchasing > Purchase Order > Display or using transaction ME23N. When you click on OTHER
PURCHASE ORDER button from the toolbar and enter your purchase order you can see in STATUS tab
what is status, how many units of quantity you should receive and how many is already invoices.

Status is updated with posting of any goods receipt or invoice.

You can also notice that in PO line item detail screen tax PURCHASE ORDER HISTORY is missing.
This tab will be active after first goods receipt or invoice will be posted.

Create Goods Receipt (GR)

Assuming that a vendor accepts an order and supplies the required goods or services, the next stage
usually involves posting the receipt of the goods or services so that when the invoice arrives, SAP can
check that the amount invoiced matches what was received.

Even in the case of fluids or grains, goods have a precise quantity, be it measured in pieces, kilos, liters,
or so on. With inventory items, the quantity is critical, but even for consumables you want to make sure
you physically receive the quantity that you ordered, even if it is only one item. Therefore, you enter the
delivery information and quantity into SAP as a GR. For services, there is a slightly different process
available using a service entry sheet, which, unlike the GR, allows you to enter values as well as
quantities.

Many settings passed from the purchase requisition/info record or the PO affect the GR. A GR can be
valuated or non- valuated. You can block or allow over-deliveries, and invoices may be linked to
individual deliveries or just to PO line items.

At the GR stage, the value is only required for the accrual; the amount actually payable will be the
amount on the invoice. Enter the quantity, and SAP will take the most accurate value available to post to
the G/L account. Because the goods are usually posted before the invoice, the value will tend to come
from the only available source at that point, which is the PO. If the invoice is posted first, then SAP takes
the value from the invoice. The only exception is for materials valued at a standard cost, for which the GR
will take the standard cost instead.

Use non-valuated GRs when you wish to record the quantity, but not necessarily the value, when the

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goods are received. You can still check the quantity received, but you will not have an accrual posted to
the account.

For example, if you are posting directly to a fixed asset, depending on the local tax/financial reporting
requirements, you may not want the asset to be capitalized until the invoice has been received.

The GR settings (some of which will default in from the vendor master data) are in the DELIVERY tab of
the PO item detail. This process should not be confused with two-way matching in which there is no GR
at all (in this case, the Goods Receipt box in the DELIVERY tab of the PO should not be selected). Two-
way matching directly com-pares the invoice with the PO but does not check whether the goods or service
has been received. Perhaps for low value items you do not want a formal GR process, but for larger items,
you may nevertheless want to add an additional approval workflow to ensure that you are not paying for
something you never received.

You can create Goods Receipt accessing menu path: Logistic > Material Management > Inventory
Management > Goods Movement or using transaction MIGO.

On the screen you can enter purchase order for which you would like to create GR. After pressing
ENTER you will notice that information from PO is transferred to GR. You can also notice movement
type 101 – Goods Receipt in right upper part of the screen.

You can choose quantity which received in case or partial deliveries. After doing that make sure that
ITEM OK checkbox for each line in the bottom part of the screen is active as without this GR for certain
line will not be posted.

After it is posted, PO status is automatically updated for delivered quantity and value.

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Goods receipt is visible on purchase order in PURCHASE ORDER HISTORY tab (WE).

If you double click on line with material document number you will access material document details.

After creation of goods receipt two document are created: material document and accounting document.

You can access material document via SAP menu path: Logistics > Material Management > Inventory
Management > Material Document > Display or using MB03 transaction. After entering material
document number and year, document will be displayed.

By clicking on ACCOUNTING DOCUMENT you will be able to access financial posting.

When you need to make a correction to a GR, assuming the correction takes place within a reasonable
time period, the options are relatively straightforward via the dropdown menus, where you can select
return deliveries, cancellations, subsequent deliveries, and so on. For corrections of goods receipt same
transaction (MIGO) can be used, but with movement type.

Logistic invoice verification

When you receive an invoice for goods or services that relates to a PO, you can enter it using transaction
MIRO also accessible via SAP menu path: Logistics > Materials Management > Logistics Invoice
Verification > Enter Invoice. This transaction allows you to pull in data from the PO - for example,
vendor, quantity, description, and account assignments, as well as information about the receipt of any
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goods or services.

Transaction MIRO copies information to the invoice screen to save retyping, but the posted invoice must
match the invoice received, not the PO. If the invoice is incorrect, a credit note will resolve any errors.
The PO itself remains unchanged even if you change a quantity or price in the invoice, although the PO
history updates after saving the invoice.

On the upper part of the screen you can see TRANSACTION field. This field shows document that will
be posted and 4 options are available:
 Invoice – Document issued by vendor that indicates the quantities and costs of the products or
services provided and needs to be paid.
 Credit Memo – Document which decreases quantity and value of already posted invoice.
 Subsequent Debit – Value adjustment document used in cases where invoice price needs to be
adjusted to higher (for example vendor sent invoice with lower amount than it should be). This
document does not affect quantity.
 Subsequent Credit - Value adjustment document used in cases where invoice price needs to be
adjusted to lower (for example vendor sent invoice with lower amount than it should be). This
document does not affect quantity.

After entering header data such as invoice date, invoice reference, total amount, you can enter PO in field
positioned above line item overview screen. When it is entered, al PO lines will be automatically derived
together with vendor and vendor specific fields derived from vendor master data.

You have to always enter input tax during logistic invoice verification. If there is one tax rate applied for
while invoice, you can fill tax code field on the header level. Otherwise you can maintain different tax
code for each PO line. Tax code also can be derived from the purchase order in case it is maintained there
during creation. TO auto-calculate tax amount mark CALCULATE TAX checkbox.

In right upper part of the screen you will see balance. System does not allow you to post invoice with
imbalance. You would have to change your amounts to be able to post invoice.

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Next to BASIC DATA tab there are a couple of more tabs that you can use to maintain additional
information related to payment details, tax base amount or add additional text.

When balance is zero or within tolerances for small price differences, you can post invoice by pressing
POST button from menu bar. When it is posted, the system produces both a material document and a
financial document. The material document shows the detail of the invoice based on the information in
the PO, whereas the financial posting shows the credit to the vendor account and the debits to the relevant
costs, inventory, fixed assets, and tax accounts.

Purchase order status is updated according to invoice quantity posted, which helps to see availability on
certain PO.

Purchase order history is also update for invoice document (RE-L). By double clicking on it, you will be
able to access material document.

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By clicking on FOLLOW-ON DOCUMENTS and choosing accounting document you will be able to
access financial invoice and see accounting posting – credit line on the vendor and debit line on GR/IR
clearing account and tax account in case tax rate is more than 0%.

In case of incorrect posting, you can reverse logistic invoice via SAP menu path: Logistics > Materials
Management > Logistics Invoice Verification > Further Processing > Cancel Invoice Document or use
transaction MR8M. You can also use MIRO transaction and post Credit Memo with same quantity as on
the invoice. In both cases additional document will be created which needs to be manually cleared on
vendor account.

Note that you can only reverse invoice if there is no credit memo or subsequent credit/debit document
already posted for the same PO line. If this is not the case, adjustment documents need to be reversed
before cancelling the invoice.
For value adjustments, like it was previously mentioned, use Subsequent Debit or Subsequent Credit
adjustment document. You can use these documents only in case invoice is already posted. For materials
with standard price, value adjustment will be posted to price difference account and for materials with
MAP, correction amount will be posted on stock account. For invoices related to consumable materials
and services, adjustment posting will be made on G/L account maintained in ACCOUNT ASSIGNMENT
tab during PO creation.

Delivery cost posting

Delivery costs and other charges can be entered in the PO or in the invoice depending on what
information is known, and there are several different fields available in both. This section will discuss the
different ways to enter delivery costs and other charges and how the postings are made to the G/L
account.

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If delivery costs are agreed upon prior to creating a PO, then they can be added directly in the PO. If
required, they can be set as a separate PO line item, posted to the freight/delivery costs account, or
included in the related item using conditions so that the costs become part of the valuation of the goods
for the GR or added to the relevant cost account. They can be a fixed amount, quantity dependent, or
based on a percentage of the good's value. If the delivery costs are in the condition record and price
differences arise, then they are treated in the same way as other price variances.

It is often a case that delivery cost related to goods are charged by different vendor than the one providing
goods (for example transport of goods can be done by separate transportation company). In is possible to
have different vendor for delivery cost maintained in PO conditions than the one PO is created for.

To post logistic invoice related to delivery costs you can use same transaction for logistic invoice
verification – MIRO. If delivery costs in maintained on PO condition level, you have to change indicator
above line items overview to:
 Planned delivery costs – in case invoice received is related only to delivery costs, but not for
goods.
 Goods/service item+ planned delivery costs – in case invoice received is related to goods and
additional delivery costs.

After posting of invoice, delivery cost will be posted to G/L account defined as account assignment for
transactions FRE and FR1 in transaction OBYC.

There is another way to post unplanned delivery costs or other charges to whatever account you choose,
but in this case it will not be related to a specific line item if there is more than one. Choose the G/L
Account tab in MIRO transaction.

Here you can enter G/L account and maintained other line item fields.

Tolerance Limits
In the Procure to Pay life cycle procurement part ends when Account Payable processor/Invoice clerk

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posts the vendor logistics invoice in SAP using MIRO transaction. It is tedious job for invoice clerk
manually to verify each and every invoice line item is conforming to agreed price or quantity in PO. SAP
provides systemic way of verifying this kind of discrepancies and block the invoice for payment using the
2 digit key called “Tolerance key”, where lower and upper tolerance limits for all possible discrepancies
can be maintained. If tolerance limits are exceeded, invoice will be automatically locked for payment with
payment block R.

There are 2 kinds of invoice matching in SAP which are controlled by tolerance keys:
 3 way match - Invoice line item is checked against corresponding purchase order and good
receipt documents item for price and quantity matching

 2 way match - Invoice is checked against only to PO price/qty if there is no goods receipt planned

Tolerance Limits:
 SAP tolerance limits work only for MIRO transaction
 Invoice posted in FB60 is not subject to tolerance keys limit check
 Tax amount is not included during tolerance check

During posting, when you adjust PO line according to invoice amount, if adjustment exceeds any of
tolerance limits defined, system will allow posting but will issue warning message that invoice will be
blocked . Balance indicator in MIRO transaction will change color to yellow.

There are many tolerance keys supplied by SAP and most important will be described in the next sub-
sections.

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Tolerance key BD – Small price differences posed automatically

The system checks the balance of the invoice against the absolute upper limit defined. If the upper limit is
not exceeded, the system automatically creates a posting line called expense/income from small
differences, making the balance zero and allowing the system to post the document without blocking it for
payment.

Example: If tolerance key BD is maintained for 2 EUR and invoice amount do not exceed GR
amount for more than 2 EUR, system will not show imbalance error even if balance will not be
zero. Posting will be allowed and difference amount will be automatically allocated to G/L
account for small price differences.

Tolerance key DQ - Exceed amount: quantity variance

This tolerance key has both absolute and percentage limits. If a goods receipt has been defined for an
order item and a goods receipt has already been posted, the system multiplies the net order price by
(quantity invoiced – (total quantity delivered – total quantity invoiced)).

If no goods receipt has been defined, the system multiplies the net order price by (quantity invoiced –
(quantity ordered – total quantity invoiced)).

Tolerance key PP - Price Variance

The system determines by how much each invoice item varies from the product of quantity invoiced *
order price. It then compares the variance with the upper and lower limits defined (absolute limits and
percentage limits).

When posting a subsequent debit/credit, the system first checks if a price check has been defined for
subsequent debits/credits. If so, the system calculates the difference between (value of subsequent
debit/credit + value invoiced so far) / quantity invoiced so far * quantity to be debited/credited and the
product of the quantity to be debited/credited * order price and compares this with the upper and lower
tolerance limits (absolute limits and percentage limits).

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  Save your settings after maintaining values and repeat steps for all tolerance keys you want to use
for your company code.

GR/IR Clearing Account

If goods and services were posted directly to accounts when received, it would be difficult to accrue for
items received but not yet invoiced and to manually check that the quantity received matched the final
invoice. Therefore, an interim or intermediate account is used in SAP called the GR/IR account (goods
received versus invoices received).

The first posting to appear in the financial accounts is usually (but not always) the GR, followed by the
invoice, and so on. Documents such as the GR and invoice do not update the commitments per se, but
when updating the G/L they will remove any related amount from the outstanding commitments.

When goods are received, either the material inventory accounts or the costs accounts will be debited
depending on the type of purchase and the GR/IR account will be credited. When the invoice is received,
the GR/IR account will be debited and the vendor and applicable tax accounts will be credited. In this
section, we will look at the behavior of the GR/IR account in relation to different postings, the use of
subsequent postings, and the two methods of posting credits in SAP.

The GR/IR clearing account links the account postings during goods receipt with those during the posting
of invoices. If the goods receipt quantity equals the invoiced quantity and vice versa, the GR/IR clearing
account should be completely cleared. However, there may be reasons for an outstanding balance on the
GR/IR clearing account, which include the following:
 Quantity differences between goods receipt and invoice receipt for a purchase order result in a
balance on the GR/IR clearing account.
 If the quantity invoiced is larger than the quantity received, the system expects additional goods
receipts for this purchase order to clear the balance.

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  If the quantity received is larger than the quantity invoiced, the system expects additional
invoices for this purchase order to clear the balance.

If no additional goods or invoices will be received, you must clear the balance manually. This can be
done in a number of different ways:
 You can return the extra goods to the vendor.
 You can cancel the invoice and post a corrected invoice or a credit memo for the surplus posted
quantity.
 You can clear the GR/IR clearing account manually.

Not all procurement document created have impact to GR/IR clearing account. Below table shows what
are the documents where offsetting entry on GR/IR account is created:

GR/IR Account Maintenance

Part of the accrual process involves posting goods receipts (GRs) and invoices initially to a GR/IR
account, which should clear to 0 once the final transaction has been posted. Problems occur when a
transaction does not clear in full.

Because there is usually a timing difference between the GR and the invoice, problems are not always
easy to spot. Especially after new implementations, the finance department tends to be primarily
concerned with migrating data, checking daily postings, and getting all the other processes up and running
smoothly. Unfortunately, the GR/IR account balance is then left to accumulate.

By the time controllers realize that the timing differences are not clearing, it is often too late to delve into
the details, and accountants may be forced to write-off items for which they can no longer trace what has
happened. Requesting credit notes and posting missing GRs becomes much harder as time passes,
especially when the stock is affected.

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The GR/IR clearing account is usually cleared at the end of a period or the fiscal year. If there is no
difference between invoice and goods receipt, open items on GR/IR account can be cleared automatically
by using transaction F.13 or accessing it via SAP menu path: Accounting > Financial Accounting >
General Ledger > Periodic Processing > Automatic Clearing > Automatic Clearing Without Specification
of Clearing Currency. Not all items can be cleared automatically. Following items cannot be cleared:
 Noted items
 Statistical postings and special G/L transactions of the type bill of exchange
 Items with withholding tax postings
 Down payments can only be cleared if down payment clearing for the same amount has been
posted

This program can be run in the test mode without creation of financial documents. When TEST RUN
checkbox is deactivated, financial document will be posed after execution. Automatic clearing can be
scheduled as a regular batch job executed without manual intervention.

For order items for which no additional goods receipts or invoices are expected. you can do this with the
help of transaction MR11 which can be accessed from the SAP Easy Access menu path Logistics >
Material Management > Logistic invoice verification > GR/IR Account Maintenance > Maintain GR/IR
Clearing Account.

On the selection screen company code and posting date should be entered. As manual clearing will clear
differences for particular purchase order, possibility to enter purchase order number or date range in
which purchase order is created is also available.

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After populating selection screen click on EXECUTE. System will show you list of all purchase order
based on selection criteria you chose that can be cleared.

Select purchase orders for which you would like to clear differences. To view purchase order you can
select PURCHASE ORDER button and system will automatically take you to Display purchase order
screen where you can see purchase order details. To clear differences press POST button.

When you run transaction MR11 the system creates the settlement documents and updates the purchase
order history. The account postings are thus made based on the assumption that the system doesn't expect
more invoices or goods receipts against the purchase order in question.

For materials with MAP control, the offsetting posting to clear the GR/IR clearing account is made to the
stock account, unless there is no stock coverage. If the material stock is smaller than the quantity to clear,
the system only partially credits/debits the existing stock. The remaining amount is posted to a price
difference account. For a material with a standard price, the system makes the offsetting posting to the
price difference account. For a purchase order item with account assignment, the system makes the
offsetting entry to the consumption account. You can also clear differences for delivery costs.

The Financial Accounting document that posted with transaction MR11 contains amounts in only the
local currency (the company code currency). The value for the MR11 posting depends on all goods
receipts and all invoices posted for the purchase order item. A transaction currency other than the
company code currency does not make sense for transaction MR11 because the transaction currencies of
the goods receipts and invoice receipts may differ.

The settlement documents created with transaction MR11 can be reversed with transaction MR11SHOW.

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