Chart of Accounts - Concepts

SAP Business One Version 9.3

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PUBLIC

Welcome to the Chart of Accounts topic.

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 Objectives

At the end of this topic, you will be able to:

▪ According to accounting conventions discuss:

▪ The Chart of Accounts structure.

▪ The effect of the standard processes on the Chart of Accounts

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In this session, we will discuss the chart of accounts structure and the effect of standard processes on
the Chart of Accounts.
 Business Scenario

You are implementing SAP Business One at a new customer, OEC Computers.

▪ You discuss with Maria, the accountant, the effect of the sales and purchasing
processes on the chart of accounts and as a result on the financial reports.

▪ Maria says that this structure will help her in presenting the financial reports in a
clear and structured way.

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Imagine that you are implementing SAP Business One at a new customer.
 You discuss with Maria, the accountant, the effect of the sales and purchasing processes on the
chart of accounts, and as a result, on the financial reports.
 Maria says that this structure will help her in presenting the financial reports in a clear and
structured way.

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 Reflection Question: The Chart of Accounts

▪ How are the Business Partner Master Data balances presented in the Chart of Accounts?

Accounts Receivable = Control Account

Control
Debit Credit
Account
A/R Invoice Accounts
Customer 105
Receivable
Tax account Tax account 5
Income Income
100
account account

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How are the Business Partner Master Data balances presented in the Chart of Accounts?
The Business Partner Master Data balances do not appear in the Chart of Accounts.
The receivable and payable control accounts accumulate the customer and vendor transactions in their
balances.
For example, when you post an A/R invoice, the accounts receivable account related to the customer is
used, in addition to the customer account.
Therefore, the Chart of Accounts presents the complete financial status of the company, as well as the
Financial Reports (for example, Trial Balance and Balance Sheet).
 The Chart of Accounts

The chart of accounts is an index of all G/L accounts used by your business.

Chart of Accounts
G/L Account Determination

Sales Incoming
Sales Order Delivery A\R Invoice Deposit
Quotation Payment

Automatic
Journal Entries

Manual Journal
Entries

Chart of
Accounts
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The chart of accounts is an index of all G/L accounts used by your business.
Every G/L account has:
 An account code
 An account description, and
 Additional information that determines the functions of the G/L account.
When you implement SAP Business One you define (or import):
 The Chart of Accounts, and
 Default G/L accounts to be used when transactions are created in the regular business
processes: Sales, Purchasing, Inventory and more.
The documents in the Sales and Purchasing processes create automatic journal entries that are
registered in the Journal Entry file and affect the account balances.
The account balances are also affected by manual journal entries and other accounting transactions,
such as the Period End Closing process that transfers the balances of the Profit and Loss accounts to
a Balance Sheet account.
 Chart of Accounts Structure

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The Chart of Accounts is organized by drawers and levels.

Let us look at this example of a chart of accounts. The chart of accounts varies according to the
company’s localization.
The organization of the chart of accounts follows Generally Accepted Accounting Principles (GAAP).
The Chart of Accounts window organizes your accounts by drawers.
 Chart of Accounts Structure – Balance Sheet Drawers

Bank account
Assets

Accounts Liabilities
Payable Account Balance Sheet

Cap. + Res.

Turnover

General Ledger
Cost of Sales

Operating C.

Non-Operating

Tax + Extr.

#9

#10
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In the General Ledger, we distinguish between Balance Sheet drawers and Income Statement
drawers, also called Profit and Loss.
Let us start with Balance Sheet Accounts:
 The first 3 drawers: Assets, Liabilities, and Equity (or Capital and Reserves) typically hold the
Balance Sheet Accounts, such as the Sales Tax and the Accounts Payable Account.
 The bookkeeping balance of these accounts is kept from one fiscal year to the next.
 The Balance Sheet Accounts – reflect the monitory value of the company - stock, assets, debt,
etc.
 Chart of Accounts Structure – Profit and loss drawers

Assets

Liabilities

Cap. + Res.

Revenue
Turnover
Account

Cost of Sales

Operating C.

Non-Operating
Profit and Loss

Tax + Extr.

#9

#10
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Then, we have the Profit and Loss accounts:

 The next 5 drawers: Revenues (or Turnover), Cost of Sales, Expenses (or Operating Costs),
Financing (or Non-Operating Income and Expenditure), and Other Revenues and Expenses (or
Taxation and Extraordinary Items) typically hold the Profit and Loss accounts, such as the
income or expense accounts.
 The bookkeeping balance of these accounts has to be cleared at the end of each fiscal year
during the Period End Closing process.
 The Profit and Loss accounts reflect the changes in the company value, such as: when you sell
stock – the cost of goods sold account is affected and increases revenues.
Lastly we have two optional purpose profit and loss drawers.
- These drawers have no fixed predefined purpose and in most cases are empty, depended on
localization and chart of account template.
- If needed, each company can designate the additional drawer to a certain accounting area.
 Chart of Accounts Structure in Association with Financial Reports

Financial Reports
Bank account
Assets

Accounts Liabilities
Payable Account
Balance Sheet
Cap. + Res. Drawers

Balance
Revenue Sheet
Turnover
Account

Cost of Sales
General Ledger

Trial
Operating C. Balance

Non-Operating
Profit and Loss
Drawers
Profit and
Tax + Extr. Loss
Statement
#9

#10
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Financial reporting requirements drive most of the initial settings and configuration decisions in the
chart of accounts.
The different financial reports run on the account balances relevant to a selected date range and
present them according to their drawer level:
 The Balance Sheet summarizes the value of the business’ assets liabilities, and owner’s equity
accounts.
 The Trial Balance displays for each account: beginning balance for a particular period, all of the
debits and credits, and the ending balance.
 The Profit and Loss Statement is determined after the end of the fiscal year. The balances of the
expense accounts will be subtracted from the balances of the revenue accounts to come up with
the profit or the loss for the fiscal year.
 Levels in the Chart of Accounts
Assets
Level 2 Level 3 Level 4 Level 5
Liabilities Freehold
Land
Cap. + Res. Land
& Buildings ...
General Ledger

Turnover Tangible
... Buildings
Assets
Cost of Sales
Fixed Plant &
Assets Machinery
Operating C. ... Active
accounts
Non-Operating Formation …
... Expenses
Intangible
Tax + Extr.
... Active
Assets
accounts
Patents,
#9 Current …
and so on
Assets ...
#10

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A chart of accounts arranges a company's general ledger accounts in a hierarchical structure. The top
level in the structure (level 1) consists of sections or groups for different type of accounts (assets,
liabilities, capital and reserves, turnover, and so on).
The system displays the section as a cabinet drawer. Each drawer has a section title. You can change
the drawer title if required. The updated name will then appear in the financial reports.
You can define up to 10 levels. While level 1 is the drawer level, the following levels can be used as
titles for grouping the accounts and for active accounts.
It is recommended to organize your accounts by level in a logical fashion appropriate to your
localization’s financial accounting and reporting processes.
 Levels in the Chart of Accounts
Assets
Level 2 Level 3 Level 4 Level 5
Liabilities Freehold
Land
Cap. + Res. Land
& Buildings Buildings
General Ledger

Turnover Tangible
...
Assets Account
Cost of Sales
Account
Fixed Plant &
Machinery Active
Assets
Operating C. ... accounts Legend
…
Non-Operating Formation Title
... Expenses Account
Tax + Extr.
Intangible Account Default
Assets ...
Active active
Patents, accounts account
#9 Current
and so on …
Assets ...
Active
#10 account
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The system displays titles in blue and active accounts in black. Accounts defined in the G/L Account
Determination (default accounts) are displayed in green.
A title account summarizes all the balances of the active accounts underneath it.
Let us look at this specific example of Chart of Accounts that contains 5 levels:
Levels 2 through 4 can contain either active accounts or titles that combine several active accounts.
Level 5, in this example, contains only active accounts.
Note that only active accounts can be posted to in SAP Business One.
Financial reports display both title and active account balances.
To have a clear and structured view of the company’s financial status in the report, it is recommended
to define all active accounts in the same level. In our example all active accounts are defined in level 5.
 Account Details

Each account is defined in a specific

currency or as suitable for all currencies

Accounts can be to related to a financial

project, making it possible to run
financial reports by project.

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In the chart of accounts, there are many definitions related to the account. We will now cover some of
them.
Maria, the accountant, has added a few new accounts to record various expenses and revenues
related to a big summit they are about to attend. The image shows a travel expense account that Maria
added.
• First Maria chose the account currency. Each account in the chart of account can have a different
currency or can be set as relevant for all currencies. Refer to the course topic: Working with
Currencies to learn more about account currencies.
Maria confirmed that the new account currency is local.
• Then she linked it to a financial project. This enables Maria to generate financial reports filtered
for this project.
Maria entered a new financial project code that was created for this summit.

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 Account Details

If needed, an account can be defined as A warning or blockage validation can be

active only in a certain period defined in the Document Settings window

Minimum and maximum balances can be

defined for accounts for control purposes

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Lastly, Maria chooses Account Details to open the G/L Account Details window of the Summit 17 -
travel expense account. In the Active field, she sets a period in which the account should be active,
starting in March and ending by the end of the year. With this approach, she makes sure no further
transactions can be recorded for the account next year.
Note that by default, all accounts are active without period restriction.

Another useful definition on the G/L Account Details window is the Account Balance Allowed. Maria
opened the G/L Account Details window to enter minimum and maximum balances allowed for the
petty cash account. Maria would like to make sure the account does not fall below a balance of 100
and therefore enters the value 100 in the From field. In addition, once the petty cash balance reaches
5000, she wants to transfer the cash to the company’s bank account. Therefore, she sets the maximum
balance to be 5000.
Maria already defined a blockage validation in the Document Settings window, as shown in the image.

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 Summary

Here are some key points:

The chart of accounts is structured of two types of • Balance Sheet drawers that typically contain balance sheet
drawers: accounts.
• And Profit and Loss drawers (Income Statement) that
typically contains profit and loss accounts.

The different financial reports run on: • The account balances relevant to a selected date range
• And present them according to their drawer, level and type
A chart of accounts arranges a company's general • The top level in the structure (level 1) consists of sections or
ledger accounts in a hierarchical structure: groups for different type of accounts. The system displays the
section as a cabinet drawer.
• The following levels can be used as titles for grouping the
accounts and for active accounts.
• Only active accounts can be posted to in SAP Business One

The chart of accounts contain many definitions related • Account currency

the account like: • Related project
• Limited activity period
• Minimum and maximum account balance

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Here are some key points to take away:

▪ The chart of accounts is structured of two types of drawers:
• Balance Sheet drawers that typically contain balance sheet accounts .
• And Profit and Loss drawers (Income Statement) that typically contains profit and loss accounts.
▪ The different financial reports run on:
• the account balances relevant to a selected date range
• and present them according to their drawer, level and type.
▪ A chart of accounts arranges a company's general ledger accounts in a hierarchical structure:
• the top level in the structure (level 1) consists of sections or groups for different type of accounts.
The system displays the section as a cabinet drawer.
• The following levels can be used as titles for grouping the accounts and for active accounts.
• Only active accounts can be posted to in SAP Business One.
▪ The chart of accounts contain many definitions related the account like:
• Account currency
• Related project
• Limited activity period
• Minimum and maximum account balance

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