Accounting Basics:

Financial Basics
SAP Business One
Version 10.0

PUBLIC

Welcome to the Financial Basics topic.

1
 Objectives

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

▪ Discuss some general accounting conventions.

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 2

In this topic, we will cover some general accounting conventions and give examples of the automatic
journal entries that are created during the sales processes.
 Business Scenario

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

▪ Your main contact in the customer site is the accountant, Maria.

▪ Maria asks about the way SAP Business One handles the financial accounting
processes.
▪ She wants to make sure she understands the big picture so she can report on
business results.

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 3

Imagine that you are implementing SAP Business One at a new customer OEC Computers. Your main
contact is the OEC Computers accountant, Maria.
Maria is very interested in the implementation and asks you about how SAP Business One handles the
financial accounting process.
She wants to make sure she understands the big picture so she can report business results to the
company owners each period.

3
 Finance Basics

System Configuration

Master data

Warehouse management
Inbound Outbound Marketing &
Purchasing Service
logistics logistics Sales
Production

Financial controlling

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 4

Let us discuss some financial basics.

Every business transaction is recorded in the company's books.
This allows you:
− To manage your company effectively with the option of producing financial reports.
− To report the business transactions to the authorities.
Every business transaction results in a value exchange:
− A certain account increases value and another decreases value, resulting in the recording of
balancing debit side and credit side postings.
 Automatic Journal Entries: Reflection Question

Standard

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

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 5

In other topics we learned about the documents in the sales process and their consequences on
bookkeeping.
To review this process let us try to answer the following question:
In a standard sales process which documents affect the accounting system?
 Automatic Journal Entries: Answer

Standard

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

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC

When managing perpetual Inventory 6

These are the documents in the sales process that create automatic journal entries and therefore affect
the accounting system: the delivery, the A/R invoice, the incoming payment and the deposit. Note that
the delivery only creates an accounting posting if you are using perpetual inventory.
 A/R Invoice Journal Entry

Sales
Sales Order Delivery A\R Invoice
Quotation

Debit Credit

Customer
105
account

Tax account 5

Revenue
100
account
© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 7

In SAP Business One, a journal entry is automatically posted for many documents during the sales,
purchasing and inventory processes.
Now let us assume for a moment that we are in a non-perpetual inventory system in order to keep our
example simple. In that case, in our sales process example, the A/R Invoice automatically creates the
following journal entry:
− There is a debit to the customer account for the total price of the sale.
− There is a credit to the tax account for sales tax and a credit to the revenue account for the sales
price (excluding tax).
You have the option to split the journal entry posting by document lines. That is, rows with the same
G/L accounts are not grouped in the created journal entry. One row in a journal entry is linked to one
row in the marketing document.
To enable this option, in the Document Settings window, under the General tab, choose the Split option
in the Split Journal Entry Posting by Document Lines field.
Let us focus on the debit side. Each transaction registered for the customer affects the customer
account balance. Now let us look at the customer account in more detail.
 The Account Balance

Customer
Debit Credit Origin
XXXX7

105 Debit A/R Invoice

600 Debit A/R Invoice

400 Debit A/R Invoice

705 Credit Incoming

Payment

200 Debit A/R Invoice

100 Debit A/R Invoice

Account
700 Debit
Balance

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 8

This is an example of the customer account.

The account balance represents the difference between the total debit transactions and the total credit
transactions recorded for that account.
The transaction summary or the balance of a certain G/L account or business partner is the initial
information the accounting system can provide about the business.
In the graphic, we see that the total debits are greater than the total credits, so the account has a debit
balance.
Previously, we mentioned that in each journal entry a certain account increases value and another
decreases value, resulting in the recording of balancing debit side and credit side postings.
The effect on the account balance would be:
− Assets, Expenses, and Drawings accounts are generally in debit.
− Liability, Revenue, and Capital (Equity) accounts are generally in credit.
 Account Types

Debit Accounts Credit Accounts

▲= ▲=
increase Typical increase Typical
▼= Balance ▼= Balance
decrease decrease

Bank Account,
Assets ▲ Accounts ▼
Balance Sheet

Receivable
Accounts

Accounts
Liabilities ▼ ▲
Payable

Equity/ Capital ▼ ▲ Reserves

Profit and Loss

Rent,
▲ ▼
Accounts

Expenses
Electricity

Sales
Revenues ▼ ▲
Revenue

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 9

Here, we see the typical account balance of the different account types.
For example, let us look at the value exchange for assets and liabilities.
For assets:
− Debit transactions always increase the asset value.
− Credit transactions always decrease the asset value.
For liabilities:
− Credit transactions always increase the liability.
− Debit transactions always decrease the liability.
We will discuss the different account types in another course.
 Value Exchange: Reflection Question

A\R Invoice

Debit Credit

Customer
440
account
Revenue
440
account

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 10

In a typical A/R invoice, what is the effect of the debit and credit amounts on the involved account
balances?
Once again we will make some assumptions to keep the example simple: Let us assume that the
customer is tax exempt and that this is a non-perpetual inventory system.
 Value Exchange: Answer

A\R Invoice

Debit Credit

Customer
440
account
Revenue
440
account

The two accounts increase their values: ▲

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 11

The answer is that the two accounts increase their values.

The customer account is considered an asset so any debit to this account increases the account’s
value.
A credit to the revenue account, as we saw on the previous slide, increases the account’s value.
Note that you can preview the corresponding journal entry posting and the involved accounts before
you add a document that generates journal entry. You can do so by choosing the Journal Entry
Preview icon from the toolbar or by right click the document and choosing the Journal Entry Preview
option.
 Summary

Here are some key points:

The account balance represents: • The difference between the total debit
transactions and the total credit transactions
recorded for that account.
In each journal entry: • A certain account increases value and another
decreases value
• The debit side and the credit side balance.
Assets, Expenses, and Drawings • Debit
accounts are generally in:

Liability, Revenue, and Capital (Equity) • Credit

accounts are generally in:

© 2020 SAP SE or an SAP affiliate company. All rights reserved. ǀ PUBLIC 12

Here are some key points to take away:

The account balance represents the difference between the total debit transactions and the total credit
transactions recorded for that account.
In each journal entry a certain account increases value and another decreases value and the debit side
and the credit side balance.
Assets, Expenses, and Drawings accounts are generally in debit.
Liability, Revenue, and Capital (Equity) accounts are generally in credit.

12