What are the accounting entries generated by the system during production cycle?

When production people confirm how much raw materials they use: 

Dr Consumption (P&L)  [Process Order]     
Cr Inventory - Raw Materials (BS) 

*This will be the same for all other components of the finished product such as packaging materials or additives. 

When production people confirm how much semi-finished goods / finished goods they have produced: 

Dr Inventory - SFG / FG 

Cr Manufacturing Cost (P&L) [Process Order]

*There will usually be another entries for the manufacturing overhead: 

Dr <Secondary Cost Element>  [Process Order]  

Cr <Secondary Cost Element>  [Cost Center] 

At month-end, the [Process Order] will need go through the settlement process: 

Dr / Cr  Production Variance

Dr / Cr  Manufacturing Cost 

If actual cost of production is higher than the standard cost, then manufacturing cost is credit.   

The production variance is then used to calculate the actual cost. This is done through Material Ledger. If a company doesn't have Material Ledger, this is usually just charged out to COPA and is part of COGS.  

How is standard cost computed when there are co-products and by-products?

(1) Add all the costs of the materials + overhead - product
(2) Whatever is left, split by percentage set in cost apportionment of the main product found in the material master

Example of the computation: 

Let's assume the following for the apportionment: 

Main Product - 670

Co-Product 1 - 322

Co-Product 2 - 8

How does GR/IR works?

Let’s cover some basics first: GR/IR stands Goods Receipt / Invoice Receipt. It covers the process to encapsulate the three-way matching (Purchase order – Quantity and value received – Invoice).

Normal Scenario:

• Purchase order was raised to procure some additional office supplies
• Purchase Order Qty = 10
• Purchase Order Value = 10 RM
• Delivered Qty = 10

When the goods have been delivered and received in the system, the following accounting entries will be generated:

When invoice was received and it matches both quantity and value:

So as you can see, GR/IR serves as your accrual account. Not until your invoice comes, the GR/IR will have a balance.

Across all scenarios, the behavior will be the same - whether business is purchasing asset or inventory: 

However, what if the invoice does not match the goods that were received either in quantity or value. SAP will charge back to whatever account that was previously charged to.

Example, the invoice received for the school supplies totals to 130 instead of 100:

If the material is in price control V and the unit cost is the same and the inventory stock quantity as of posting date is 0, then it will be charged back to purchase price variance account. 

If the material is in price control S and the value of the goods that have been received is different from the standard cost that has been set, then the difference is charged to purchase price variance. This is because standard cost is constant over a period of time.

Example:

• Standard Cost of the material: 15 RM
• Purchase Order Qty = 10
• Purchase Order Value = 10 RM
• Delivered Qty = 10

If you have material ledger activated, then the actual cost (periodic unit price) will be calculated at the month using the purchase price variance accounts. 

Hello, World!

I’ve reached the point in my career that I feel confident in what I do and with what I know. So, here’s this blog to jot down all that I can share with the hope of helping those that are starting out with SAP. As of this writing, I currently am not with the latest S4Hana Version but there are some fundamental things that definitely hasn’t changed over the years regardless of the version.