Accrual Engine

Solution Management ERP FinancialsSAP AG

© SAP AG 2009. All rights reserved. / Page 2

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Simple ExampleGiven: Value + time intervalTask: Distribute value over time interval

1000 800 1200 700 1100 500 1400 1100 800 1100 1100 1200

12,000

Perio

d 1

Perio

d 2

Perio

d 3

Perio

d 4

Perio

d 5

Perio

d 6

Perio

d 7

Perio

d 8

Perio

d 9

Perio

d 10

Perio

d 11

Perio

d 12

What Are Accruals?

D CP&L D CAccrual

12 000 (1)

800 (3) (3) 8001 200 (4) (4) 1 200

1 000 (2) (2) 1 000

Simple Posting Example

Accounting: Accruals = Periodic postings

Contract business transactionsInsurance, Leasing etc.

Contract-like business transactionsBonds with fixed interests, Magazine Subscriptions etc.

Any periodic postings based on an amount or valueProvisions for awards

Accrual Engine: Where Are Accruals Needed?

AccrualEngine

Input:Contract-like information

Output:Periodic postings

Accrual Engine: What it does

Contract-like data is transferred to the Accrual Engine.The Accrual Engine makes periodic postings to Accounting based on this data.The Accrual Engine is an engine and as such is not visible to the end userThe Accrual Engine is surrounded by applications that define the business content and usethe Accrual Engine. This can be compared with the engine in a car: The driver works with thecar, not with the engine itself.Accrual Engine applications are defined and delivered by SAP. They cannot be defined bycustomers.

AccrualEngine

SDPLeasing

ManualAccruals

Real Estate

IBSMedia

(future)

Provisions forAwards

Input Output:Periodic Postings

Accrual Engine: A Generic Tool

Accrual Engine: Some Features

Highly flexible tool

Storage of all relevant dataInput (contract-like information incl. history!)Output (posted accruals)

Accrual Engine = ‘Accrual sub-ledger’

Mass data processing, performance optimizedParallel processing available (via server group)

Accrual Engine: Processes

Basis Data (Accrual Objects)

AccrualMethod

Trigger Calculation ofAccruals

Periodic:Calculate Accruals

Calculation

Create/Change

Basis Data

R

Posting

R

CreateAccounting Documents

Transfer Datato Accrual

Engine

R

Build Delta toalready posted

values

Posted Values(Accrual Engine Documents)

PostDocument

R R

Calling Application

R

Accrual Engine

Reporting Reporting

Process A:Create/Change

Basis Data

Process B:Calculateand PostAccruals

Accrual Engine: Structure of Basis Data

Accrual Object

Accrual Subobject

Accrual Subobject

Accrual Subobject

Accrual Item

Assignment

Parameters

Cost center, business area, profit center, ...

Customer-defined fields like ‘Product Group’,...

Start-date and end-date of time interval foraccrual

Does not carry any information; links accrual sub-objects

Each combination of- Accrual Type (costs, revenues,...) and- Accounting Principle (IAS, US GAAP, ...)defines an Accrual Item:The total value to be accrued, the total quantityto be accrued and the Accrual Method(linear/periodically, linear/daily) can be enteredat this level.

Header

...

Accrual Item

Accrual Item

...

Accrual Methods

SAP delivers a number of accrual methodsLinear, periodicallyLinear, daily with 365 daysLinear, daily with 360 days...

Accrual methods are ordinary function modules

Customers can define their own accrual methods

Customer-Defined Parameters

Customer-defined parameters are additional fields that can be entered by userswhen creating or changing accrual objectsCustomer-defined parameters are entered at the accrual sub-object levelThe values entered here can be used in

Accrual MethodsThe parameters can contain additional information that can be used incustomer-defined accrual methodsAccount DeterminationThe parameters can also be used in Accrual Engine account determinationBAdIsParameters can be used in BAdIs for modifying documents before they aretransferred to Accounting

Accounting Docs

The accrual engine creates accrual postings: If the corresponding accrual type iscustomized accordingly the accrual engine executes one, several or all of thefollowing type of postings:

Opening postingsThe full amount which is to be accrued is posted, usually to an accrual account.This posting is executed, when the accrual object is created.Periodic accrual postingsThese postings post a certain value which is calculated by the accrual method.This value is usually a part of full value (which is to be accrued). It is usuallyposted from the accrual account to a P&L account. These postings areexecuted by the periodic accrual run which is usually started at the end of eachperiod.Final postingsIf the posting of accrual has to be terminated before the full value has been(periodically) accrued, then the remaining value is posted to a certain account.Other types of postings which are less important

Each posting creates an accrual engine document and this document is transferredautomatically to accounting.

Account Determination

When posting Accruals, Accrual Engine documents are created in the AccrualEngine. These documents consist of only one line item without GL accounts andwithout CO assignments like cost center etc.When the Accrual Engine documents are transferred to Accounting (which isusually done automatically when they are posted), an Accounting document withtwo line items is created from the Accrual Engine document.At this point in time, the Accrual Engine account determination is executed to getthe following information:

Start accountTarget accountDocument type

Parallel Accounting

The Accrual Engine supports parallel accounting in two waysParallel accountsThe account determination can be customized in a way that different accounts areused depending on the accounting principle.Parallel ledgers (ledgers in SAP ERP or special ledgers)Ledgers are assigned to an accounting principle. Then postings in accounting willbe performed per ledger.

Accrual Engine: Benefits

Automated periodic calculation of accruals (no recurring entries with fixed values)Automated periodic posting (self correcting!)Simulation tools (e.g. future accruals)Supports multiple GAAPsComprehensive reporting toolsIntegration with BW (Business Information Warehouse)

Applications that use the Accrual Engine

Manual AccrualsProvisions for AwardsLease Accounting

Manual Accruals: Overview

Purpose: Post accruals for contract-like dataCreate ‘contract data’ (accrual objects) manually in the Accrual EngineSAP also delivers an interface for creating accrual objectsStart periodic accrual posting runs

Manual Accruals: Example Insurance Contract

Contract data: Valid from 01 Jan. 2000 until 31 Dec. 2004 (5 years)Annual premium (to be paid by customer): 3,600 EURRevenues: Customer pays 5 x 3,600 EUR = 18,000 EURCosts: Salesman gets 6,000 EUR bonusCosts and revenues must be accrued over 5 yearsMonthly revenues: 300 EUR = 18,000 EUR / (5 x 12)Monthly costs: 100 EUR = 6,000 EUR / (5 x 12)

Manual Accruals: Application Menu

Manual Accruals: Application Menu

Manual Accruals: Create Accrual Object

Manual Accruals: Create Accrual Object

Manual Accruals: Opening Postings

Manual Accruals: Navigation

Place cursorin ‘COSTS’ line

and double-clickor

press ‘TransferAccrual Item’

button

Manual Accruals: Opening Postings

Manual Accruals: Documents in FI

Manual Accruals: Opening Postings

D CAccrued Revenues

18,000 (I.1)

D CAccrued Costs

(I.2) 6,000

D CReceivables

(I.1) 18,000

D CPayables

6,000 (I.2)

D CAccrued Revenues

18,000 (I.1)

(P.1) 300

D CReceivables

(I.1) 18,000

D CRevenues

300 (P.1)

Manual Accruals: Documents in FI

Manual Accruals: Posting Deltas

In each period, the following accruals are calculated:Revenues (Accrual Type RVNUES): 300 EURCosts (Accrual Type COSTS): 100 EUR

In the first period (1/2000) these values were posted correctly.

Now let us assume that by mistake the accrual run in 2/2000 was not carried out.

The next accrual run is carried out in 3/2000.

The Accrual Engine then calculates that in 3/2000 the accrued values should be:Calculated Revenues: 3 x 300 EUR = 900 EURCalculated Costs: 3 x 100 EUR = 300 EUR

In 3/2000, the Accrual Engine then posts the difference between thecalculated values and the values already posted:

Posted Revenues: 3 x 300 EUR - 300 EUR = 600 EURPosted Costs: 3 x 200 EUR - 100 EUR = 200 EUR

Manual Accruals:Example of Derived Accrual Types (1)

Derived accrual types can be used for calculating accruals from other accrualstypes.

Example:Customer gets a discount of 10 %Discount: 18,000 EUR x 10% = 1,800 EURThe discount must be treated differently according to IAS and HGB(German GAAP):

HGB: Discount is posted once when the contract is createdUS GAAP: Discount has to be accrued during the life of the contract.

The monthly accrual value is 1,800 EUR / (5 x 12) = 30 EUR

Manual Accruals:Example of Derived Accrual Types (2)

According to US GAAP, additional accrual postings have to be made forthe discount.These additional postings can be made with the help of derived accrualtypes using the following rule:“In US GAAP, the discount is calculated by taking 10 % of the revenues inHGB”.The following activities have to be performed in Accrual EngineCustomizing:

Create the new accrual type “DISCNT”The above rule is entered in activity “Define Calculation rules for Derived Accrual Types”

Provisions for Awards: Overview

A company grants a number of stock options to selected employeesPurpose: Post provisions (= accruals) for the outstanding options.To do this: Transfer information about outstanding options from HR system to Accountingsystem (Accrual Engine)Afterwards: Calculate and post provisions using the Accrual EngineDifferent calculation (=accrual) methods are possible for calculating the provisions: SAPdelivers two examples as accrual methods:

APB 25 Provisions based on stock pricesFAS 123 Provisions based on Black & Scholes Model

© SAP AG 2009. All rights reserved. / Page 34

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