SAP PROCURE TO PAY CYCLE:

OBYC Transaction type:

Material Requirement planning->Vendor selection->request for quotation->Purchase requisition->purchase order-

>Goods receipt-> Invoice receipt→ Vendor Payment Bank statement upload

Inventory Acc-Debit GR/IR debit Vendor Account debit Bank outgoing acct DR

GR/IR account credit vendor credit Bank outgoing acct credit Bank Main AC CR

GR/IR account is used because we have to GR or IR received or not. And other thing is GR and IR issue dates might
defer so to get all this clarity we need intermediate account.

Importance Parameters of MM – FI Integration are

Company Code and Plant Assignment: T-code: OX18

Valuation Level: It can be Plant level or Company code level- T-code: OX14

Moment Type: SAP Good Movement Types are 3 digital identifying the Type of SAP Good Movement.
Movement Type is very important. Actually, it controls the adjustment of inventories, the GL related account and even
the screen layout for MIGO transaction.
Moment Type for Goods Receipt starts with 1xx like 101- GR for Purchase Order
Moment Type for Goods Issue starts with 2xx like2101- GI for Cost Center
Plant to Plant and Storage Location transfer (3XX)

Material Master: T-Code: MM03

1. Basic Data – Client Level
2. Purchasing, MRP, Costing Data – Plant Level
3. Sales Data – Sales Organization Level (Tax indicator is at country level)
4. Storage Data – Storage Location Level
5. Accounting Data – Valuation Area Level
6. Warehouse Data – Warehouse Number Level
7. Storage Type Data – Warehouse Number and Storage Type level
Transaction Keys or Event Keys: A transaction/event key is a key to differentiate account determination by business
transaction. For example, we must differentiate general ledger account posted by goods receipt transaction and posted by invoice
receipt transaction.

Valuation String: Value string keys are for SAP internal usage. It is just a pointer to the transaction event key which is
necessary for automatic account determination. Movement types are linked to transaction keys via valuation string in
OMWN T-code.

Valuation Grouping Code or Valuation Modifier: you can have different GL accounts for plant 1 and 2 or you can group
together plant 1 and 2 to have a single GL account. for this scenario, you have to group together the valuation area(plant)
with the help of valuation grouping code (valuation modifier). So, you can have same GL account in both the plants. You
group together plants/valuation area in OMWD and assign the GL account for this grouping in OBYC.

Account Modifier or General Modifier: Account Modifier or Account Grouping Code is a three-character code
especially used to differentiate the offsetting accounts for consumption postings which could be different in cases for
Trans/event Keys GBB & PRD.

For example, if you issue goods to a cost center 201 movement type the TRS/Event key that is affected is GBB and
similarly if you issue goods for sale to a customer again the transaction event key is GBB. The account modifier
helps you to identify the different G/L accounts automatically for making the offsetting posting.

Valuation Class: Define Valuation Classes: The Valuation class is a group of material with the same G/L account. -
When you create a material master record, you must assign the material to a valuation class. The valuation class is
assigned to a material at the plant level. The account category reference is assigned to a material type.

When we do material posting for a valuated material, below flow happens.

1. Movement type and other attributes like special stock indicator, movement indicator etc are determined based on
business transaction like goods receipt for PO, production order etc.(OMWN). This is defined by standard SAP.

2. Transaction key/event and account modifier is identified based on movement type and other standard attributes in step
1 (OMWN) Transaction keys (1) are used to determine general ledger accounts used by the system.

3. Valuation grouping code(collection of valuation areas) activation is checked from OMWM

The level at which materials are valuated is known as valuation area. Valuation category is the criteria on
which material is split valuated. Valuation type specifies the features of a valuation category.

4. If active, for the given valuation area, valuation grouping code is identified from OMWD

5. For the identified transaction or event, check if valuation grouping code is active or not in OBYC (Click the rules button
for the transaction key)

6. Valuation class is determined from material master.

7. Based on the above identified attributes, select the G/L account from OBYC.

Create Purchase Requisition:

A purchase requisition is a request that is made to the purchasing organization to procure a

certain list of materials. It is an internal document and remains within the organization. Purchase
requisition needs approval from the purchasing organization.
Transaction Code: ME51N

To release Purchase requisition

Transaction Code: ME55

Create Purchase Order

Transaction Code: ME21N

Procurement starts with creating a purchase order, i.e., a formal document given to vendors and it includes a
list of goods and materials that are to be procured. ... Accordingly, purchase orders can be created for
different types of procurement

Create Inbound Delivery

Transaction Code: VL31N

The inbound delivery is a document containing all the data required for triggering and monitoring the
complete inbound delivery process. This process starts on receipt of the goods in the yard and ends on
transferal of the goods at the final put away, production or outbound delivery

Extended Warehouse Management (EWM) advanced shipping notification (ASN)

However the Finance Team wants to see the material in transit in accounting. The rationale is that the material is
owned by the company as soon as the material is placed aboard the ship by the vendor, as per the terms of the
purchase order.
As such at the time of inbound delivery accounting entry:

Goods-in-transit Dr.

Inward Shipment Clearing Cr. (or any interim provision account).

Upon actual goods receipt the above entry should also be reversed automatically:

Goods-in-transit Cr.

Inward Shipment Clearing Dr. (or any interim provision account).

Step 11: Create Good Receipt

In this test, before we can create a good receipt for the purchase order, we should maintain the purchase order’s
item to delivery complete.

Transaction Code: ME22N

Select the ‘Deilv Compl.’ checkbox and save the change.

Transaction Code: MIGO

The FI documents will be created when we create a good receipt for the purchase order.

Transaction Code: MIGO

Create Invoice Receipt

Transaction Code: MIRO

The document can be displayed by transaction code MIR4.

After the posting successful finish, the ‘Purchase Order History’ tab will appear in the related purchase order, we
can check it by transaction code ME23N.

Step 1: Define Purchase Organization

One company may have more than one purchase organization, different purchase organization takes responsibility
for purchasing different materials or services.
Transaction Code: OX08

We can use the ‘New Entries’ button to create a new purchase organization.

In this blog post, we will use the purchase organization ‘ZJC0’.

Step 2: Define Purchase Group

‘Purchase Group’ will be used in the material master data.

Transaction Code: OME4

We can use the ‘New Entries’ button to create a new purchase group.

In this blog post, we will use the purchase organization ‘ZJC’.

Step 3: Define Plant

Transaction Code: OX10

We can use the ‘New Entries’ button to create a new plant.

In this blog post, we will use the plant ‘ZJP1’.

After we create the plant, we should assign the storage location information to the plant.

Transaction Code: OX09

Step 4: Maintain FI Master Data For The Vendor

Before we can create a Business Partner with the vendor roles, we should maintain the FI master data for the new
vendor.

a. Company

Path: SPRO-Enterprise Structure-Financial Accounting-Define company

Company ‘ZJC3’

b. Company Code

Path: SPRO-Enterprise Structure-Financial Accounting-Edit, Copy, Delete, Check Company Code

Company Code ‘ZJC3’

c. Reconciliation Account

Transaction Code: FS00

We should create a new reconciliation account for the vendor under the company code.

In this blog post, the reconciliation account is ‘100100’. As a vendor reconciliation account, the ‘Recon. Account for
Acct Type’ field should select ‘Vendors’.

Step 5: Maintain Vendor Data

As mentioned in my last blog post, there is no separate transaction code (TCODE) to maintain customer and vendor
data in the S/4 HANA system, the things have been moved to Business Partner (BP). We should create a new
Business Partner with Vendor roles (FLVN00, FLVN01) for this vendor.

Transaction Code: BP

The simple steps:

a. Create a new Organization

b. Select Customer role FLVN01 from the role list.

Select the ‘Purchasing’ button from the top-right screen.

Maintain the ‘Purchase Organization’ data in the poped screen.

In my test, it looks like the screenshot below.

Data in the tabs should be maintained based on the requirements. Save the changes after you maintain the data.

c. Select FI Customer role FLVN00 from the role list.

Select the ‘Company Code’ button from the top-right screen.

Using the company code and reconciliation account which we created in step 4 in the poped screen.

Step 6: Maintain Material Master

As mentioned, the food trading company will buy 10 bags of rice from the vendor. We should create the material
master data for rice.

Transaction Code: MM01

Maintain material master data can be a big work. There are a lot of fields can be used in MM01 to meet the business
requirements. In this blog post, I will use the most basic functions to maintain the material master data.

a. Select Industry Sector and Material type

b. Select the views

c. Input the organization level data, using the data which we created in the previous steps.

d. Maintain basic data in the tab ‘Basic Data 1’.

Business Unit of Measure: BAG

Weight information:

e. Maintain purchasing data in the tab ‘Purchasing’

f. Maintain price information in the tab ‘Accounting 1’.

This is just an example.

After we click the ‘Save’ button, the system may ask us to maintain the values of other fields, this is based on the
existing system configurations.

Step 7: Link The Objects

After the objects are created, we should maintain the relationship between them. Please carefully check the
assignments and make sure all the objects which just created have been linked correctly before we start the
‘Procure-to-Pay’ process. Different error messages will appear in the ‘Order to Cash’ process if the links are not
maintained correctly.

The assignments can be done in the path: SPRO-Enterprise Structure-Assignment

a. Assign company code to company

b. Assign plant to company code

c. Assign purchasing organization to company code

d. Assign purchasing organization to plant

Step 8: Create Purchase Requisition

A purchase requisition is a request that is made to the purchasing organization to procure a

certain list of materials. It is an internal document and remains within the organization. Purchase
requisition needs approval from the purchasing organization.

We can create a purchase order based on a purchase requisition, or we can create a purchase order directly. This is
dependent on different requirements.

Transaction Code: ME51N

Input the necessary fields (item, material, quantity, purchase group, plant, etc.)and save the change. After that, a
new purchase requisition will be created.

The item’s release strategy can be found from the tab ‘Release strategy’. Please be aware, the different systems
may have different release strategies.
An example:

Before we can use the purchase requisition to create a purchase order, we should make sure the item has been
released.

Transaction Code: ME55

Step 9: Create Purchase Order

Transaction Code: ME21N

As mentioned, we will create a purchase order from the purchase requisition which we created in step 8.

a. Click the ‘Document Overview On’ button at the top left screen (if it shows ‘Document Overview Off’ button then
ignore this step)

b. Select ‘Purchase Requisitions’ from the list

Input the purchase requisition document number on the new screen and click the ‘Execute’ button.
Drag the purchase requisition number to the ‘Shopping Cart’ label.

c. Header level data

Input the vendor number and other organization data which we created in the previous steps.

d. Item level data

The ‘Plant’ field should also be filled.

I am using value ‘K’ (Cost Center) in the ‘Account Assignment Cat.’ field in this blog post, this value should be
changed based on different requirements.
e. Item detail data

After we create a new line item, we should also maintain the line item detail data for the line item.

‘Account Assignment’ tab:

As we are using ‘K’ (Cost center) as ‘Account Assignment Cat.’ for the line item, the fields under the tab should be
filled. Controlling related configuration is out of the scope of this blog post, I will introduce it in another blog post.

‘Confirmations’ tab:

Before we can create the inbound delivery document, the item should be confirmed in the purchase order.
Conformation control is based on customization.

After we finished the changes, we can click the ‘Save’ button and a new purchase order will be created.

Step 10: Create Inbound Delivery

Transaction Code: VL31N

As mentioned in step 9, the item under the purchase order should be confirmed before we can create the inbound
delivery based on the purchase order.

a. Input the ‘Vendor’ and ‘Purchase Order’ information and check the ‘Delivery Date’ value. Click the ‘Continue’
button to the next screen.
b. Fill the ‘Delivery quantity’ field, check other fields and save the change.

Step 11: Create Good Receipt

In this test, before we can create a good receipt for the purchase order, we should maintain the purchase order’s
item to delivery complete.

Transaction Code: ME22N

Select the ‘Deilv Compl.’ checkbox and save the change.

Transaction Code: MIGO

Selecting ‘Goods Receipt’ and ‘Purchase Order’ from the dropdown lists. Fill the empty field on the right side with
the purchase order number which we created in step 9.

Check the material information under the ‘Material’ tab.

Input the quantity value under the ‘Quantity’ tab.

Check the plant value under the ‘Where’ tab.

I will use movement type ‘101’ in this blog post.

After we fill/check the data, click the ‘Item Ok’ checkbox and click the ‘Post’ button.

Step 12: Check FI Invoice

The FI documents will be created when we create a good receipt for the purchase order.

Transaction Code: MIGO

Selecting ‘Display’ and ‘Material Document’ from the dropdown lists. Input the material document number created in
step 11 in the empty filed.

Clicking the ‘FI Documents’ button.

The FI documents information can be found from the popup window.

We can double click the document number to view the document.

Step 13: Create Invoice Receipt

Transaction Code: MIRO

Input the ‘Invoice date’ and the purchase order number which we created in step 9.
Check the values and click the ‘Post’ button.

The documents (MM document and A/P Invoice) will be created if there is no issue appeared in the posting.

The document can be displayed by transaction code MIR4.

Click the ‘Follow-On Documents’ button, the correspondence A/P invoice will be displayed.

If the A/P invoice is not cleared (automatic payment not configured) then the invoice should be cleared by
transaction code F-53 (‘Post Outgoing Payment’).

After the posting successful finish, the ‘Purchase Order History’ tab will appear in the related purchase order, we
can check it by transaction code ME23N.

Conclusion
In the blog post, we go through the simple ‘Procure to Pay’ process from building the master data ( ‘Purchase
Organization’, ‘Purchase Group’, ‘Plant’, ‘Company’, ‘Company Code’, ‘Business Partner’) and the transaction data
(documents) from the beginning. I advise you to do the configurations and postings by yourself, this will help you to
have a better understanding of ‘Procure to Pay’ processing.

Material Management is the Costing unit for Org, they spent money so each and every activity which spent
money should be captured by the Finance People.

1. Movement Types:
Used to enable the system to find the predefined posting rules determining how the accounts of financial
accounting system are to be posted & to update the stock fields in the material master data.(Goods Receipt,
Goods Issue, etc)

All Material Movements in MM happens with respect to a Movement type.

Goods Receipt – Movement type-101

Goods issue to production Order- Movement Type-261

Scrapping of Goods- Movement Type-551

Goods Delivered to the customer- Movement Type-601

Initial Upload to Stock- Movement Type-561

Material Master-Valuation class- Movement type-Transaction key

2. Valuation Class:

Every Material will have a Valuation Class field. Valuation class could be Finished goods, Semi finished Goods
and Raw Materials etc. Combination of Valuation class+ The Movement types determines the GL accounts.

Type of Valuation Class:

3000 – Raw Materials

7900 – Semi finished Goods

7920 – Finished Goods

Raw material procures with Valuation Class 3000 and go for processing , converted to semifinished product
with Valuation Class 7900 and finally Finished products converted with Valuation Class 7920 which you can
sale Finished products by creating a sale order(VA01).

3. Transaction key:

Used to control the storage or filing of documents & assignment of documents.Used to differentiate b/w various
transactions such as goods movement that occur in inventory.

BSX – Stock Posting / Inventory Posting

PRD – Price difference

GBB – Offsetting entry for stock posting

WRX – GR/IR Clearing

FRI – Freight Clearing

4.Valuation Modifier: Valuation modifier is also called as valuation grouping code. Use OMWM to activate
Valuation Grouping code.

OMWD– Assign Valuation Grouping code to Valuation area.

Valuation grouping code is used to group the valuation area to minimize the effort, In SAP using two types of
valuation area

1.Company Code, 2. Plant, But the SAP recommends you to use the val;uation area at plant level, because
valuation will be differ from one plant to another, if need we can maintain the valuation area at company level
also,The valuation grouping code makes it easier to set automatic account determination. Within the chart of
accounts,based on our requirement to define individual account determination for certain valuation areas or,to
define common account determination for several valuation areas

we can maintain the valuation group code in OMWD for the valuation area as Plant or Company within the
chart of account

Note: It is mandatory to maintain Valuation Modifier. As Valuation area cannot be assigned directly to account
determinations. Even if you have only one valuation area, it should be assigned to a Valuation Modifier.

5. Material Type:
Each material should assign material type in Material master record used to update whether changes made in
Quantity are updated in material master record & change in value also updated in stock account.

ROH: Raw materials are always procured externally and then processed. Since raw materials cannot be sold,
a material master record of this material type contains no sales data.

HALB: Semifinished products can be procured externally (sub-contracting) as well as manufactured in-house.
They are then processed by the company. A material master record of this material type can contain both
purchasing and work scheduling data.

FERT: Finished products are produced by the company itself. Since they cannot be ordered by Purchasing, a
material master record of this material type does not contain purchasing data.

DIEN: Services are procured externally and cannot be stored. A material master record of this material type can
always contain purchasing data

HAWA: Trading goods are always procured externally and then sold. A material master record of this material
type can contain purchasing and sales data.

FI-MM: The integration between FI-MM happens in T-code OBYC.

Step1: First you send a Purchase Order to the Vendor.

Here there won’t be any accounting entry as this is simply like telling the Vendor what goods you want, its
quantity and the date of delivery etc.,

Step 2: When GR is posted .

When you receive Goods you CAN NOT make the following entry

Inventory A/c Dr

To Vendor A/c

because, some of the goods you have received may be damaged or may not be upto the mark or for any other
reason goods may reject, so before posting it to Vendor A/c we keep it in separate place till we verify the goods.
And the actual entry will be:

Inventory A/c Dr (Transaction Key BSX @ OBYC)

To GR/IR A/c (Transaction Key WRX @ OBYC)

Here the goods received is Debited to inventory and Credited to a temporary A/c i.e., GR/IR a/c

Step 3: You will post an Invoice to the Goods received.

Here you will post the invoice after you are satisfied with the goods received, the entry will be

GR/IR A/c Dr

To Vendor A/c

Now the goods are moved from GR/IR A/c and Vendor is Credited. Now you got the final entry of Goods to
Vendor Account i.e.

Inventory A/c Dr

To Vendor A/c

i.e., Inventory A/c was Debited and Vendor A/c was Credit and GR/IR A/c is Dr and also Credited hence its
balance became ‘Zero’, and it has to be Zero always.

Step 4: Payment to Vendor.

Vendor A/c Dr

To Bank Clearing A/c

Step 5: At the time of Bank Statement upload:

Bank Clearing A/c Dr

To Bank Main A/c