S/4 HANA SIMPLE FINANCE

Nowadays there is a tremendous interest in S/4HANA, especially from current SAP customers. It’s about
what, why and how to go to S/4HANA. This motivated me to start writing a series of blogs on the
subject matter.

In this part 1 of the blog I will explain the what and the why of S/4HANA. In part 2 the How will be
explained further.

Let’s start from the beginning by knowing the product. The What. In the title of this post I say ‘Finance
in S/4HANA’ and not ‘S/4HANA Finance’. That has a reason which you will find out below. This post
expects some entry level knowledge about S/4 HANA and the HANA technology in general. I will dive
into the different S/4 HANA product versions and the Finance specific topics.

The What… Let’s know the product

In 2014 SAP introduced the simple innovations starting in the area of Finance. The new product was
initially named ‘Simple Finance’ and at that time there were already rumors about ‘Simple Logistics’.
The Simple naming convention lasted until the release of Simple Finance 2.0. In 2015 SAP announced
that the name Simple Finance will be changed to S/4 HANA Finance. By doing this, SAP introduced
heterogeneous naming across different product lines. Simultaneously it created a lot of confusion with
all the different release numbers.

Let me try to help you understand the differences. As you can see in the figure below, S/4 HANA
Finance is a different product that S/4HANA (Enterprise Management).

Source: SAP
S/4HANA Finance includes only the finance innovations (replacement of classis FiCo) on to the already
existing system. So everything in logistics will remain as it is. You can imagine that the migration effort
to this product is lower than directly going to S/4 HANA. More about this in the ‘How’ topic.
In S/4HANA 1610, SAP has included all the available functionality of the latest release of S/4HANA
Finance 1605. This means that in terms of Finance S/4HANA 1610 and S/4HANA Finance 1605 are in
sync.

Except for some minor differences which are listed below. This make things a bit easier to understand
later on :).

Source: SAP
The Why… Key differences and innovations in the area of Finance in S/4HANA 1610
Now we have to understand the product. Let’s look at the benefits of S/4HANA for our organization. In
this topic I will hit the key differences compared to classic FiCo in R3.

To make the list comprehensive I will also mention some features which were already included in
Simple Finance 1.0 back in 2014.

One Single Source of truth and all accounts become GL accounts

All actual line items will be stored in the new table ACDOCA. The will be no redundant, aggregate or
total tables anymore. All dimensions of GL, CO, COPA, AA and ML will be in ACDOCA.

In the ACDOCA whe have multidemsional GL, parallel ledgers, parallel currencies, 999,999 line items
and custom defined fields. The chalenges of gathering combined content of several tables to
represents the truth and reconcile the different level of detail stored in the different
components/tables of SAP (e.g. CO= much detail, Fi= less detail) is now somehting of the past.
Source: SAP
The reason of the merge of secondary and primary cost elements is the fact that all actual line items
will now be stored in one single table. The ACDOCA. This also applies on purely (internal) CO postings.
You should not include these secondary accounts in your P&L.

Source: SAP
Parallel currencies and parallel valuation
In S/4HANA 1610 we can now have up to 10 parallel currencies per ledger. Real-time conversion for all
currency types is possible, Zero balance per document is guaranteed for each currency and CO-area
currency is now calculated for all accounts (also non cost element).

Source: SAP
Parallel valuation functionality is significantly enhanced in S/4HANA 1610. SAP now provides two
options to store multiple valuations:

 Parallel valuation updated in parallel single-valuation ledger

 Separate ledger for each valuation
 Transparent separation of posting and reporting based on different regulations

 Parallel valuation updated in multi-valuation ledger

 Separate amount columns in the same ledger
 Reduce memory footprint
 Reduce effort and time for closing

See an example of the 2 methods below.

Source: SAP
Profitability Analysis in S/4HANA 1610
With S/4HANA SAP focuses on the enhancement and integration of Account based COPA. This is the
preferred type of Profitability Analysis. Costing Based profitability analysis is still available and can be
used in parallel, but there will be no integration with the Universal Journal (ACDOCA table).

Below you will find the list of enhancements on Account Based profitability analysis. Critical gaps of
the past are closed.

 Split of Cost of Goods Sold on multiple accounts based on cost component split. This is done
during posting of the Goods issue.
 Split of production variances on multiple accounts. This is done at order settlement.
 3 new quantity fields provided in the line items and a BAdI for conversion of the logistical
quantities to common quantities in Finance.
 Real-Time derivation of market segment information from cost postings (Cost Center, order
etc.)

Summary of the enhancement:

Source: SAP
Unfortunately there are still some limitations which are on the future roadmap. Current limitations of
Account Based profitability analysis:

 Sales conditions which are not posting to GL (statistical) are not supported
 Realignment of characteristics which are changed after posting are partially supported. Not for
all characteristics!
 Creation of sales order generates expected revenue, COGS etc. in profitability analysis is not
supported.

Attributed Profitability Segments

In my opinion, this is one of the greatest enhancements in Profitability Analysis. I was always thinking
why this was not possible in SAP and now it is here! With a couple of additional configuration steps the
‘Attributed PA segment’ can be activated.

Source: SAP
Another good example is when you have a debit memo request in a Time & Material Service order
which has a settlement rule for settlement to COPA. The debit memo request will have an account
assignment to the service order and no profitability segment. That means that you do not have the
profitability segment information until the service order is settled to COPA. With this new functionality
you can have the real account assignment to the service order and an attributed assignment to a
profitability segment. Great stuff!

Event based revenue recognition

The revenue recognition process is now fully integrated with the Universal Journal. There is no
separate storage for Revenue Recognition data anymore.
Cost and revenues are recognized as they occur. The entry of the source document will generate two
postings. An entry for the initial costs and revenue and an entry for the revenue recognition posting.

Source: SAP
There is even a new app ‘Event based revenue recognition’ for monitoring of revenue recognition
postings and manual adjustments.

Source: SAP

Bank Account Management (lite)

In the ‘old’ setup there were house banks and bank accounts in SAP. In S/4HANA basic functions of the
Bank Account Management functionality of Cash Management is brought in to the core. This is called
Bank Account Management Lite.
The main new features and differences compared to the old house bank and bank account setup are
the following:

 Group-wised account management

 Signatory
 Overdraft Limit
 Opening and Closing with approval process
 Easily maintain bank accounts

To highlight the latest point. Bank accounts are now part of master data and can be maintained by
users through a dedicated Web Dynpro or Fiori application. The house banks itself are still created in
customizing. Transaction Fi12 is obsolete and the new transaction Fi12_hbank is introduced for this
purpose.

So the process of creating the house bank and the house bank account are separated and executed in
two different places.

New Asset Accounting

Migrating to New Asset Accounting is a pre-requisite for migration to S/4HANA (Finance). The reason
and motivation behind New Asset Accounting is:

 No data redundancy
 Reconciliation between GL and AA ensured
 Transparent assignment of depreciation area to accounting principle
 Simplified chart of depreciation: only 1 CoD per valuation
 No delta depreciation areas
 Asset balance in real-time (APC posting run not needed)
 Plan values in real-time

Usage of the New Depreciation Calculation Engine is mandatory and the tables ANEA, ANEP, ANEK,
ANLC, and ANLP are not updated anymore in New Asset Accounting.

An example of the new posting logic during integrated asset acquisition with two ledger with two
different accounting principles:
Source: SAP
As you can see a new ‘technical clearing account’ is used to post accounting principle specific
documents. The balance of the technical clearing account is zero.

Embedded Analytics and Reporting

SAP blends transactions and analytics in one system allowing operational reporting on live transactional
data.

I can talk hours about reporting in S/4HANA. With the new data structure (e.g. ACDOCA), all the pre-
delivered Virtual Data Models (VDM’s), the performance of HANA and the modern and state of the art
reporting tools/interfaces, there are so many new possibilities.

The concept of embedded analytics in S/4HANA is to provide pre-defined models across the entire suite
in which the business logic is embedded. So the provided data models are delivering contextual
information rather than raw data.
Source: SAP
In a nutshell I can say that the following reporting tools are mostly used at my customers where I did
S/4HANA implementations:

 Fiori-reporting
 Analysis for Office
 SAP Lumira

Source: SAP
Each tool has its own purpose of course. I can say that with out of the box analytical Fiori apps and the
KPI Modeler in SAP Smart Business together with the Analytical Path Framework already provides a lot
of content and satisfies a lot of customers.

Some examples of Smart Business cockpit and the Analytical Path Framework apps.
Source: SAP
Next to these type of apps, SAP provided multi-dimensional reporting apps. For example the Market
Segment Actuals app in which I can report on my P&L with in addition my Profitability Analysis
characteristics.

Source: SAP
For more flexibility the products from the BO suite (additional license) Analysis for Office and Lumira
can be used. This is worth another separate blog.

After reading this blog I hope you have gained a good understanding of the S/4 product and the key
differences and innovations in the area of Finance. Part 2 will explain the How. With the different
migration scenarios and deployment possibilities.
 Stay tuned! Soon I will also start sharing demo videos on specific topics on an S/4HANA 1610 system.

SAP Product Costing Overview

Overview
•Product Costing is the tool used in SAP for planning costs and
establishing material prices. It helps in estimating the Cost of
goods sold manufactured and COGS of each for each product
unit.
•SAP provides two different types of material costing
process vizMaterial cost estimate with quantity structure
and Material cost estimate without quantity structure.
•Material cost estimate with quantity structure works in
combination of BOM (Bill of Material) and Routing assigned to
it.
Integration
• Product Costing is integrated closely to various SAP modules as
origin of data comes from below SAP module:-
 Material Management (MM) module for material master
record / purchase info record.
 Production Planning (PP) module for Bill of material
(BOM), routing and work center.
 Cost Center Accounting (CO) module as information of
cost centers, its linkage of work center, activity types and
activity wise cost centers help in determining conversion
costs associated with manufacturing process.
•Results from Product Costing can also provide useful
information for various SAP modules :-
  Material Management (MM) module for material and stock
valuation.
 Sales and Distribution (SD) module
 Cost object controlling for calculating variances and WIP

Master Data

Configuration
•Define Cost Component Structure (OKTZ)
•For each of cost component we assign a CE or a group of CE
so that costs can be posted and rolled up to get the product
cost.

•Costing Variant configuration (OKKN) – costing type defines

the purpose of costing and updation of material prices.
Standard cost update will be for legal inventory valuation and it
will update standard price in material master.
•Costing Variant configuration (OKKN) – Valuation variant
determines the strategy sequence to valuate materials.

•Costing Variant configuration (OKKN) – using date control we

can set default values for the validity of the cost estimate,
the qtystructure and valuation date
•Costing Variant configuration (OKKN) – transfer control is
used in transferring the existing cost estimate while costing a
finished good, generally when multi level cost structure exists
and costing is already done for one level.

Costing Run (CK40n)

•Material selection– here we define the materials that need to
becosted in a plant.
•BOM explosion – this step involves exploding of material BOM
after you have selected the material.
•Costing – in this step the actual costing of materials happen,
system creates the qty structure automatically (BOM/routings)
as per the quantity structure control defined in the costing
variant.
•Analysis – in this step, results of costing run is analyzed and cost
estimate is saved.
•Marking – after costing analysis, this step updates the result in
the material master as future standard price.
Release – updates the cost estimate in material master as
current standard price, the stock value of material is changed
and the new standard price for valuating material movements is
active
SAP CO-PA (Profitability Analysis)
In order to sustain and thrive in this contemporary and dynamic environment rapid and timely
decision making is more essential then to make right decision.Organization profitability is one the
core parameter to assess when it come to designing organization goals, objectives and strategies to
achieve them. In this blog, I am going to discuss the tools incorporated in SAP ERP to analyze
organization profitability.

The two useful tools provided by SAP to analyzed profitability of an organization are Profitability
Analysis (CO-PA) and Profit Center Accounting (EC-PCA).
Mention below are the usage of both applications,
Profit Center Accounting (EC-PCA)
If an organization wants to analyze its internal Profits and loss
department wise or as per different areas within your
company, then its is recommended to used Profit center
accounting.
EC-PCA can be used by companies in any branch of industry
(mechanical engineering, chemical, service industries and so
on) and with any form of production (repetitive manufacturing,
make-to-order manufacturing, process manufacturing).
The profit-relevant data is displayed by period.
Profit Center Accounting uses Period
accounting and Cost-of-sales accounting.
Profitability Analysis (COPA)
CO-PA is used to help organization to analyze its profitability
as per market segments by extracting sales, profit/loss and
cost related data from other modules like SD , Production and
MM.
CO-PA can be used by companies in any branch of industry
(mechanical engineering, wholesale and retail, chemical,
service industries and so on) and with any form of production
(repetitive manufacturing, make-to-order manufacturing,
process manufacturing).
The data can be analyzed by period, or by order or project.
Profitability Analysis uses Cost-of-sales accounting
method.
In EC-PCA we structure the units which we want to evaluate as
Profit centers. You can create profit center according to region
( branch offices, plants) function (production, sales), or
The market segments are structured like product, customers,
orders , other characteristic and Organization units such as
company codes or business area wise.It support management in
decision making by provided in-depth reports from market
oriented viewpoint

Customer+ Product= Market Segment (niche marketing)

product (product ranges, divisions).

Periodic Accounting Vs Cost of Sales Accounting (Perpetual Accounting)

In Period Accounting, WIP Offset and Change in inventory account is used to calculated Inventory
Changes in Balance sheet. The COGM and COGS is not calculated here since the expenses are not
segregated so the production cost is not easily identified. The inventory is calculated through
formula,

Inventory Changes in B/S = Opening Inventory – Ending Inventory (Physical Count)

In Cost of sales accounting, we segregate all expenses at time of entry functional area/department
wise like Production, Sales and Marketing and Research and Development. So,here cost of Function
area “Production” is our COGM. COGS is calculated through formula,
COGS = (Opening Inventory – Ending Inventory (Physical Count)) + COGM (Production
Functional Area Cost)
The figure below illustrates the example of Period Accounting and Cost of Sales Accounting,
Account based Vs Costing based CO-PA
Profitability Analysis is one the most vital and valuable functionality provided by SAP Controlling
module. It helps the management to analyze it Profitability from various dimension, develop its
strategy and make decisions by collecting and analyzing all the useful data from other functions like,
Material Management, Sale and Distribution, Production and Finance.
There are two types of CO-PA in SAP and we can used the both of these types simultaneously,
1- Account based CO-PA
In account based CO-PA, COGS is recorded in CO-PA at the time of billing in SD along with
revenue generated from Invoice document generated here.
2- Costing based CO-PA
In case of Costing based CO-PA, the COGS is directly extracted from the Sales and distribution
module through condition type ‘VPRS’.
The below figure shows the flow of data from other modules in both types of CO-PA,
Chart below shows the difference between the Costing Based and Account Based CO-PA,

Account-Based PA Costing-Based PA

Account-Based PA uses cost and revenue elements Costing-Based PA uses Value fields to group cost and revenue

elements.

No reconciliation issues Reconciliation issues : Reconciliation between FI and COPA.

Delivery: In SD, COGS is updated in FI immediately but not in

COPA during post good issue.

Billing: During billing COPA is updated with COGS and revenue

entry.

Due to above reason reconciliation issues arouses, as delivery is

done in one period and billing in a different period. So, CO-PA

updates the COGS during billing not at delivery.

Incoming Sales Order data cannot be mapped in account Incoming Sales Order data whose delivery for period is not yet
based CO-PA taken place would be transfer through SD Condition types to

analyze anticipated sales. (optional)

Cost component split is not possible COGS can be split in to cost components

Variance analysis not possible Variance analysis is possible

Uses standard tables EC-PCA Following tables are generated with operating concern.

COEJ : Actual CE1xxxx : actual line item table

COEP : Planned CE2xxxx : plan line item table

COSS/COSP : segment Level CE3xxxx : segment level

Only below table is generated, CE4xxxx : segment table

CE4xxxx : segment table

Incoming Sales Order data whose delivery for period is not Incoming Sales Order data cannot be mapped in

yet taken place would be in transfer through SD Condition account based CO-PA.

types to analyze anticipated sales with record type A.

Below figure shows the two different Profit and Loss statement constructed through using account
based and costing based CO-PA,
CO-PA Simplifications in S/4 HANA

Previously in ECC, costing based CO-PA is recommended as it has more advantages over account
based CO-PA. Now in S4 HANA third generation platform, most of the advantages of costing based
COPA is combined with account based CO-PA. We can construct Profit and loss statement with
contribution margin calculations now in account based CO-PA.
Now in S4/ HANA, most of the benefits of Costing based CO-PA is included in Account based CO-
PA. that why it is recommended to use Costing based CO-PA in S4/ HANA.
The chart below shows the pros and cons of account based vs costing based CO-PA in S4/ HANA,

Account based CO-PA Costing based CO-PA

Costs and Revenue elements are used to transfer The Value Fields are used to mapped the costs to the of G/L

data from FI to Account based CO-PA. Same as before. accounts and SD condition types etc.

No reconciliation problem. FI and Account based CO-PA both Reconciliation is not guaranteed in S4 HANA.

are reconciled in S4 HANA as before. Example, if the delivery took place in one period and its

At the time of delivery, COGS is recorded in CO-PA. billing is done in next period

At the time of billing, revenue and discount is recorded in CO- then at the time of billing the COGS is transferred to CO-PA

PA.

Cost Component split data can be sent to costing based CO-PA Cost Component split data can be sent to

which is not possible in ECC. Costing based CO-PA as before

Variance Analysis which was previously possible Variance analysis according variance category is

only for total Variance in Account based CO-PA, now is possible possible same as before

to analyze by variance category wise as in costing based CO-PA.

Incoming Sales Order data cannot be mapped in account based Incoming Sales Order data whose delivery for period is not

CO-PA. yet taken place would be in transfer through SD Condition

types to analyze anticipated sales with record type A.

Absorption Costing Vs Variable Costing

In the field of accounting, variable (direct) costing and absorption (full) costing are two different
methods of applying production costs to products or services. The difference between the two
methods is in the treatment of fixed manufacturing overhead costs.

Under the direct costing method, fixed manufacturing overhead costs are expense during the
period in which they are incurred.
Under the full costing method, fixed manufacturing overhead costs are expense when the product
is sold.
The figure below illustrates the structure of Absorption and Variable costing method,
CO-PA Organization Structure
In order to used functionality of CO-PA (Profitability Analysis), the operating concern must be create
which is highest hierarchical unit in combined FICO module. The structure and assignment of
operating concern, controlling area and company code is shown in the figure below,

The Operating Concerns contains the list of characteristics and value fields,

Characteristic:
Characteristic defines the level at which you see the report. e-g; company code, sales area ,
customer and product. Following are the types of characteristics in CO-PA,

Fixed Characteristics: When we generate an operating concern there are some fixed characteristic
which already generated in operating concerns.
e-g; Product, Company Code and sale area etc.

Predefined Characteristics: We can include more characteristics in an operating concern. These

characteristics are already present in the field catalog and explicitly added to operating concern.
e-g; Sales Employee and Material group.

Customer -defined Characteristics: In field catalog we can also defined our own characteristics
and from there we include them in our Operating Concern.
Profitability Segment Characteristics (Segment-Level Characteristics): Profitability segment is
a unique combination of selected characteristics. i-e; Only the characteristics selected for the setting
will be used in profitability segments as shown below.
T-Code: KEQ3
Example;
Char Description CostBased+AcctBased

ARTNR Product X

KNDNR Customer X

ProdA / Customer 1 = Proft seg 1

ProdB / Customer 1 = Proft seg 2

ProdA / Customer 2 = Proft seg 3

Value Field (Costing based CO-PA):

Value Field (only for Costing based CO-PA) defines the key figure you want to see in the report. It
can be either an amount or a quantity field. Example, if you want to see customer wise revenue/ cost
of sales / profit. Here customer is the characteristic and revenue/ cost of sales / profit are the value
field.
VV010 Revenue,

VV030 Customer discount,

VV100 Outgoing Freight,

VV130 Internal sales commission,

VV140 COGS,
VV150 Material Input,

VV250 Mat OH,

VV400 Production costs,

VV700 Sales Quantity,
VVIQT Invoiced Quantity,

Flow of Actual Data

In costing based CO-PA, the data is transferred and recorded by the record types. The figure below
illustrates the record types for the different transactions in costing based CO-PA.
Record type Description

B FI –> CO-PA

C CO –> CO-PA

IO settlement to CO-PA

MM Production Variances

F SD Billing Data

A Incoming Sales Order

CO-PA Integration with Sales Order Management

Transfer of Sales and Distribution Billing: (T-Code: KE41)
Assignment of SD condition to value field. Sales and distribution data is directly transfer CO-PA
using SD condition types mapping with CO-PA value field without valuation,
Transfer of Incoming Sales Order (T-Code: KE41):
Assignment of SD condition to value field. Sales and distribution data is directly transfer CO-PA
using SD condition types mapping with CO-PA value field without valuation,

The activation of data transfer for Incoming orders would be done at following transaction,

 Activation on the Entry date

 Transfer with the delivery or planned settlement date

Direct Posting from FI/MM (T-Code: KEI2) :

If the company want to transfer the cost of training for specific Product e-g; sedan cars only, then it
has to create and assign profitability segment sedan cars while making FI general ledger posting of
training cost to Prof. segment field in FI transaction (FB50).
If we want to post to dual cost object like cost center and profitability segment, in that case the
profitability segment is the real object and cost center is statistical.
Similarly, as in case of FI direct posting, the characteristic found in the financial document generated
from Material Management module updates the profitability segments in CO-PA module. e-g; price
difference, transfer inventory difference and expense from revaluation of materials.
To transfer actual data from FI/MM to costing based CO-PA, we need to do define PA transfer
structure in which we define source cost elements to target CO-PA value field as shown in
figure below,

Transfer of Overhead
Order and Project settlement (T-Code: KEI1) :
To transfer actual data from Order or Project to costing based CO-PA, we need to do define PA
transfer structure as in case of posting from FI/MM, in which we define source cost elements to
target CO-PA value field and assigned that PA transfer structure to settlement Profile of an
order/project as shown in figure below,
Assessment Cycle in CO-PA (T-Code: KEU1):
If we want to allocate any costs from cost centers like Marketing Cost center to the any CO-PA
characteristic like product e-g Sedan cars we use assessment cycle to allocates costs. The
Assessment cycle contains number of segments, which describes the receivers, senders,
assessment cost element, CO-PA value field/ PA transfer structure and tracing factors as shown in
the figure below,

Assessment costing element we assign in segment is to used to record cost on receiver profitability
segment in account based CO-PA. While the CO-PA value field or PA transfer structure assigned in
segment is used for costing based CO-PA.

Allocating Process in CO-PA (KEU1):

Notice that here you transfer the valuated process quantities and not the activity type quantities as
with cost centers.

When you create the process allocation, you can specify a profitability segment as the receiver by
selecting the Profit segment field. Then, when you press ENTER, the system displays a dialog box in
which you can specify the characteristic values to which you want to allocate the process.
The process quantity is then valuated using the planned price for that process and credited to the
cost center as actual data with the allocation cost element that was assigned to the relevant
business process.

In account-based CO-PA, the costs are debited with the same allocation cost element. For costing-
based CO-PA, you need to assign this allocation cost element to the required value field in the PA
transfer structure CO.

Top Down Distribution for Actual Data:

Top down distribution of actual data is a periodic function that enables you to distribute this
aggregated data to extensive levels, such as the division level or the customer level in CO-PA,
based on reference information, such as the data from the previous year.
In case of information like revenue, sales deduction and COGM which are entered at extensive level
like customer/ Product. Some information like freight invoices or insurance expense can only be
entered at summarized level at company code or sale organization level which is needed to be
distributed to extensive levels like Product/ Customers in order to generate report or analyze
profitability at segment level. This splitting of summarized costs would be done through Top Down
distribution.

Transfer from Cost Object CO/ Production Order variances (KEI1):

After the completion of Production order/ Process or at the end of period we calculate production
variances and settle it to accounting as well as CO-PA through allocation structure (for accounting)
and PA transfer Structure (for CO-PA) as shown in figure below.

The PA transfer structure consists of one or more lines called assignment lines. In these lines we
define the source cost element group and variance category for a value field of the operating
concern.

All Cost elements can either group into a cost element group or we can define a number of groups
for materials, internal activities, business processes, and other overhead costs elements.

The cost component of the standard cost estimate is linked to value fields. So, make sure that
current standard cost estimate is selected for valuation in CO-PA. Also, the variance flag must be
selected in settlement profile assigned to relevant Production Order.

Note: Only Target variance in version “0”, is settled to CO-PA.

CO-PA Characteristic Derivation

Derivation supplements or overwrites certain automatically mapped characteristic values.
A derivation strategy is a sequence of steps, where each step uses one derivation technique to
calculate one or more values for one or more characteristics, respectively.
Some derivation steps are created by the system at generation time, of which some are modifiable.

Example;

Char Description CostBased+AcctBased

ARTNR Product X

KNDNR District X

Prod A / District North = Proft seg 1

Prod B / District North = Proft seg 2
Prod A / District South = Proft seg 3

Prod B / District South = Proft seg 4

Now, for above Profitability segments we do characteristic derivation like,

Segment 1: Sedan car in North

Segment 2: Hatchback car in North
Segment 3: Sedan car in South

Segment 4: Hatchback car in South

CO-PA Valuation
Valuation is optional functionality in costing based CO-PA which is used to extract or calculate
additional information in CO-PA which is not available at the time of data transfer to CO-PA.
A valuation strategy can contain CO-PA costing sheets, Sales Order Management pricing
procedures (in planning), product costing calls, and user exit calls, in a sequence that can be
customized.

Example:
Sale deduction like commission, cash rebates which are not available in the invoice and calculated
in CO-PA as provision. Special direct costs like transporting and packaging are also calculated or
provisioned in CO-PA.

Valuation Strategies and Techniques

The various valuation techniques that populate the value fields in different ways are:
• 1- From Product Costing, cost components are mapped to value fields.•

2- With costing sheets, condition types are mapped to value fields.

• 3- Value fields are updated directly through user exits.

Valuation using Material Cost Estimates:

Through valuation, the product cost estimate information for CO-PC can be transferred into CO-PA,
through cost component values. This function is used, so that cost-of-sales can be analyzed
extensively in CO-PA and multiple margin values can be calculated and analyzed in CO-PA.

With Out valuation COGS/COGM is determined from Material master standard price

Cost component split is not possible

With Valuation Without ML/Actual Costing: COGS/COGM is determined from Planned cost estimate
Cost component split is possible

With ML/Actual Costing: COGS/COGM is determined from Actual cost estimate

Cost component split is possible
In configuration, cost components are mapped to value fields. Each component can be map to its
own value field or multiple components to a single value field.You can also map the fixed and
variable portions of a component to separate value fields.
Valuation using Costing Sheet :
The SD condition types are mapped with the CO-PA value fields to fetch the data of sales at the time
of SD billing. It is an real time valuation which took place at the time of actual transaction and
document with record type F is generated in costing based CO-PA during billing. The two condition
type mainly use are base condition type and calculation condition type

Base condition types form the basis of calculation and assigned to the value field which is populated
through other means.
Calculation condition types is populated through calculations on the lines in the costing sheets that
represents subtotals of amounts, such as base amount. These condition types actually populate the
value fields with values.

In this article I have tried to explain the functionality of Profitability Analysis in detail. The blog
provides the overview of different tools for analyzing organization profitability and the detail
functionality of costing based CO-PA as it was most diversified tool to analyze profitability among
others in SAP ERP. To gain more knowledge on the topic it is suggested to read the links mention in
references. In my next blog, I will discuss the CO-PA Planning.

Hope you found this article useful. The time you took to read this blog is highly appreciated.

S/4 HANA and its differences with ECC

Single source of truth

S4H combines the data structures of different components (for FI , AA , CO , CO-PA and ML) into a single line item
table ACDOCA, called as Universal journal . It eliminates several aggregate and index tables. Now, data needs to be
inserted only a single table instead of several tables thus reducing the data foot print drastically.
MATDOC is also a new line item table for inventory management and it eliminates 26+ tables. Material documents
will be stored in MATDOC but not in MKPF or MSEG tables.

Merger of CO and FI
In ECC , FI GL accounts are mapped to CO primary cost elements . In S4H, only one field of
universal journal is used to store both GL account and cost element. Cost elements (both primary
and secondary) are now GL accounts and hence created / maintained (in FS00) with relevant Cost
element category. Reconcilation (as in case of CO to FI) is not needed now. Period end closing also
will be faster.

New GL
S4H is technically very similar to new GL of ECC due to its data structure. Customers using classic
GL need not use Document split or parallel ledger. However, new GL’s functionality (Parallel ledger)
is a pre-requisite for new Asset accounting .

CO-PA
Account based CO-PA is now the default option with Costing based CO-PA as optional. Both options
can be run simultaneously. Refer URL http://scn.sap.com/docs/DOC-65828 for more details.

Business partner
All customer and vendor master need to integrated / migrated as Business partner . Probably, SAP
is trying to align the concept of business partner as in other SCM applications like APO , EWM , TM
etc as these SCM applications also will be natively integrated with core of S4H in future releases.
Customer-vendor integration (CVI) is a mandatory step. Refer URL https://websmp201.sap-
ag.de/~sapidp/012002523100007374172016E.pdf for more details.
Extension of Material number field : Material number can now be 40 characters from existing 18. It is
a optional feature. Impact of this extension on custom coding, interfaces, other SAP applications
need to be evaluated before switching on 40 characters. Refer note 2267140 for more details.
Credit management
ECC’s FI-AR-CR is replaced by credit management of FSCM (Financial supply chain management) .
FSCM-CR is based on a distributed architecture which allows interfaces with external credit rating
agencies. Traditional FI-AR-CR credit control setting requires high degree of manual work.
However, FSCM-CR has advanced features like

 Credit rule engine for automatic risk scoring & credit limit calculations
 Automatic update to master data on approval of credit limit etc.
 Work flow for credit events etc

Material ledger
Activation of material ledger (ML) is mandatory. ML valuates inventory in multiple
currencies. Traditionally inventory is mainly valuated with a single currency in SAP ERP. ML allows
valuation in two additional currencies. Today’s global organizations operating in different countries
desire to valuate inventory in multiple currencies. Like for example, a company in Norway dealing
with oil needs to maintain their books in Norwegian currency (NOK), they will also like to evaluate
their inventory in USD as oil is traded in international market in USD. This functionality is available in
Release 1511 of S/4 HANA.

Revenue recognition
ECC SD revenue recognition is being replaced by SAP Revenue Accounting and Reporting (RAR)
due to new accounting standard released jointly by the Financial Accounting Standards Board
(FASB) and the International Accounting Standards Board (IASB). New guide line is also in IFRS 15
issued in 2014.
Existing SD revenue recognition of ECC is based on Generally Accepted Accounting Principles (US-
GAAP), International Accounting Standards (IAS) / Financial Reporting Standards (FRS) and it
provides the option of recognizing the revenue based on an event (like Goods issue, proof of
delivery ) or over a period of time (based on specific set of dates) apart from standard way of
realizing revenue on billing. New standard introduces the 5 step model (Identify the contract,
separate performance obligations, determine transaction price, allocate transaction price and
recognize revenue). SAP’s new Revenue Accounting and Reporting (RAR) solution is in S4H. for
fundamental changes with IFRS 15 and also to meet the requirement of parallel accounting and cost
recognition .