The Business Area in SAP is the highest organizational cost structure unit. You can specify it either as per Functional lines, Product lines or as per responsibilities assigned region-wise.
Below are some quick questions that may help you understand this term better. you can also read them to prepare for your SAP FICO job interviews.
A Business Area in SAP corresponds to specific business segments of a company and may cut across different Company Codes (Product Lines). They can further represent various responsibility areas, such as Branch Units, plant engineering, automotive, etc. Also, its configuration is optional (not mandatory).
Example,
‘0001- Plant engineering
‘0002- Automotive
Business areas we primarily use to facilitate external segment reporting across company codes, covering the company’s main areas of operation (product lines, subsidiaries).
You can assign all balance sheet items, such as fixed assets, receivables, payables, material stock, and the entire P/L statement directly to business areas. You should assign banks’ capital and taxes only manually (indirectly) to business areas, not directly for this reason. Although, it is impossible to create legally-required financial statements, tax, and tax reports at the business areas level. Balance sheets and P/L statements at the business area level only are suitable for use in internal reporting.
To be able to create a balance sheet and P/L statement, we need to update the data for each business area in the transaction figures in the general ledger. Therefore, we have two different procedures to do this.
When posting the original document, the system supplies the business area with the proper information.
You create a customer invoice. The system can allocate the sales revenue to exactly one business area. The receivables inherit this business area.
| Account | Business Area | Amount |
|---|---|---|
| Customer/receivable | UN1 | 200 |
| Revenues | UN1 | 200 |
When we make an adjustment posting in the general ledger in a second step, the system changes the business area used in the original posting to the correct value. Particularly when we didn’t enter the initial value. This may sometimes distribute the posting to several business areas.
You create a customer invoice. The system must allocate the sales revenue to several business areas. We post the receivables without a business area and make a transfer posting for the receivable in a second step.
| Account | Business Area | Amount |
|---|---|---|
| Customer/Receivable | 700 | |
| Revenues | UN1 | -300 |
| Revenues | UN2 | -400 |
| Account | Business Area | Amount |
|---|---|---|
| Receivable | -700 | |
| Receivable | UN1 | 300 |
| Receivable | UN2 | 400 |
You cannot directly assign G/L account master data to a business area. You must enter the business area either manually or derive from that entered in the CO account assignment object.
Though we have certain business transactions for which automatic procedures exist. These analyze documents/ transaction figures in the system and use them to create new documents (Foreign Currency valuation). Subsequently, they assign the line items generated to the business areas entered in the documents/transaction figures that were read.
This section describes the role played by the “business area” organizational unit within Asset Accounting.
The system allocates Assets to a single business area in its master record. Further, it automatically posts every posting to an asset balances sheet account in that business area. Consequently, the business area for an asset is passed on to all line items connected with the asset. Therefore, you do not need to make a manual assignment to a business area at any point.
Asset Dr -UN1- 5000
Vendor Cr- UN1-5000
The asset balance is reduced by the depreciation amount in the value adjustment (accumulated depreciation) account with the business area of the asset. Also, the expense line items receive the business area of that asset.
| Account | Business Area | Amount |
|---|---|---|
| Depreciation | UN1 | 100 |
| Accumulated Depreciation | UN1 | -100 |
Here the system clears the asset amount and any existing depreciation with the business area of the asset. It assigns the asset’s business area to the expenses line item.
| Account | Business Area | Amount |
|---|---|---|
| APC | UN1 | -5000 |
| Depreciation | UN1 | 100 |
| Loss in Scrapping | UN1 | 4900 |
This segment describes the role played by the “Business area “organizational unit within the Accounts Payable and Accounts Receivable systems.
You cannot allocate customer or vendor master records to a business area. Thus, you usually determine the business area from the business area allocated to the related G/L account posting and do not need to enter it manually.
The business area for G/L account items has to be either manually entered or derived from the SAP CO allocation object that you enter.
In an invoice, the customer/vendor item takes the business area of the expenses or revenue postings. If the business area has been entered in the document, it is copied into the line item automatically.
However, if there is more than one business area in the document, the customer/vendor items remain unallocated. Also, a transfer posting is made at a later date to the receivables or payable account.
Furthermore, the system checks that any business area entered in the customer/vendor item is the same as that in the offsetting G/L account item and issues an error message if this is not the case.
In customizing, you can set the status of this message or even suppress it from display entirely.
Noteworthy, the taxes are always posted without a business area. Subsequently, at a later date, the system makes a transfer posting from the tax account to the business areas allocated to the revenue or expenses account.
| Account | Business Area | Amount |
|---|---|---|
| Customer/Receivable | UN1 | 230 |
| Revenue | UN1 | -200 |
| Output Tax | -30 |
For customer/vendor items in payment documents, the procedure is the same as it is for the items in the invoice that they clear. Therefore, these items take the business area from the invoice.
Cash discount and exchange rate difference postings take their business area from the customer/vendor item they originated from. If this item was posted without a business area and then later has one specified via a transfer posting in the general ledger. You must make this allocation yourself retroactively for both the cash discount and exchange rate difference posting.
Bank items are currently posted without a business area (unless one is entered manually). There is also no standard function that allocates the bank items to the business area of the cleared customer/vendor items.
| Account | Business Area | Amount |
|---|---|---|
| Bank | 224 | |
| Customer/Receivable | UN1 | -230 |
| Cash Discount paid | UN1 | 6 |
The system cannot automatically derive the business area of the underlying item with down payments since the invoice that belongs to the down payment is not entered until later.
The business area in the customer/vendor item from the invoice is therefore not entered automatically and has to be entered manually.
The bank item is currently posted without a business area. There is no standard function that allocates the bank item to the business areas of the customer/vendor items.
| Account | Business Area | Amount |
|---|---|---|
| Bank | 100 | |
| Customer/Receivable | -100 |
Account assignment objects in Cost Accounting are allocated to a single business area in the master record. When you post to an account assignment object in Cost Accounting, the system automatically determines the business area. You do not have to assign the posting to the business area manually.
Costs that have initially been allocated to an allocation object in Cost Accounting (default cost center) and therefore also to a default business area are later broken down by certain distribution keys to final recipients (such as cost centers). The allocation object is then relieved of the costs.
Materials are assigned to a business area based on the combination of division and plant. Every time a material is posted, the relevant material stock account is automatically assigned to the business area belonging to that account.
The business area from the other line items is either (depending on the business transaction in question) derived from the account assignment object posted in Cost Accounting or from the material involved. You do not need to manually assign a business area.
The notable thing about the business transactions being examined here is that they generate a posting record that makes a posting to the material stock account (or the account representing this account) and whose offsetting posting has no business area in it. In this case, the offsetting item takes the business area from the material.
Additional, automatically-generated items that are directly linked to a certain material (price differences, exchange rate differences, freight charges) are also assigned to the same business area as the material.
The payable (vendor) is only allocated to a business area if there is one specified for the material. If more than one is specified in the invoice, the payable is posted without a business area.
Goods Receipt
| Account | Business Area | Amount |
|---|---|---|
| Material Stock | UN1 | 1250 |
| Price Difference | UN1 | 50 |
| GR/IR | UN1 | -1300 |
Invoice receipt
| Account | Business Area | Amount |
|---|---|---|
| Vendor/Payable | UN1 | -1300 |
| GR/IR | UN1 | 1300 |
We draw Financial statements per business area for internal reporting purposes. It will help if you put a “tick mark in the check box in the configuration against the company for which you want to enable business area financial statements.
When we post transactions in SAP FI we can assign the same to a Business Area so that the system captures the values per business area for internal financial statements.
Yes, you can derive the business area from other account assignments, for example, cost center and Asset Master. We need to define the business area in the master record of Cost Center & Asset Master.
Using a Cross Company code transaction, one should be able to post to different Business Areas cutting across various Company Codes. Also, any number of Business Area-Company code combinations are possible.
Though the Business Area in SAP is an optional setting in FICO or S/4HANA Finance, it is essential for a consultant to have good knowledge. This is because a company may demand it in their plant or business to configure. Secondly, it is part of the Cost Structure which is a must-have skill for SAP Functional-consultants. Hence, this is when you must possess relevant skills to work on it.
Additionally, you may have questions on business areas in SAP Finance Interviews.
You should have a good configuration knowledge of the business area in SAP in order to perform the task that your client delegated.
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