SAP General Ledger Period-End Closing

SAP General Ledger Period-End Closing

The financial closing cycle in SAP General Ledger is the most important period for FI. In this blog, I will explain the financial month-end and Year End closing Processes. It also includes the opening and closing periods, balance carryforward, sub-ledger reconciliation, foreign currency valuation and GR/IR clearing.

Financial Year Closing Process Possibilities

SAP S/4 HANA provides many possibilities for a company to improve the financial closing process. Regarding the standard closing procedure, SAP S/4 HANA provides a dashboard called SAP Financial Closing Cockpit for SAP S/4 HANA.

SAP S/4HANA Financial Closing Cockpit

Many companies track, monitor, and control their closing steps according to a period-end closing schedule in a spreadsheet. Instead of a spreadsheet, you may use the SAP Financial closing cockpit for SAP S/4 HANA. Before you can use it efficiently, you should get to know its functionality and configure it to your needs. 

Opening and Closing Periods in SAP General Ledger

In SAP S/4 HANA Finance, you can open and close periods in Financial accounting by using the menu.

Here is the path:-

Accounting=> Financial Accounting=> General Ledger=> Environment=> Current Settings=> Open and Close Posting Periods.

Transaction Code: FAGL_EHP4_T001B_COFI

After you click Open and Close Posting Period, the Determine Work Area Entry Screen appears as below.

Open & Close Posting Period Variant

Variants	Description
A	This is the account type where you can find these possible values (Valid for all account types ) A (Asset) D (Customers) K (Vendors) M (Materials) S (General Ledger accounts) V (Contract accounts)
From Acct	Enter the account number range for which you want to change the periods
To Account	Define a range of account numbers starting with the from account number and ending with the to account number
From Per.1	Enter a posting period from which you want to open the posting period
Year	Enter the Fiscal Year for which you want to open the posting period
To Per.1	Define a range of posting periods for which you want to enter posting periods
Year	Define a range of years for which you want to open posting periods

After you fill in these fields, click the Save button.

Sub-ledger Reconciliation in SAP General Ledger

General Ledger contains all journal entries posted to accounts. On the other hand, a sub-ledger contains a detailed record of transactions of an individual account.

A sub-ledger refers to a detailed transaction of an individual account.

Use of Sub Ledgers in SAP General Ledger

Subsequently, a sub-ledger contains detailed transactions of an individual account. The system posts these accounts to the general ledger after accumulating them over time.

For Example.

The accounts receivable sub-ledger contains information related to all the issued invoices and payments received from the customer. Consequently, all the issued invoices and cash receipt entries are summarized and posted to the general ledger in two separate journal entries. Thus, the general ledger contains only the accumulated data so you cant find details for each transaction.

Learn Period-end Closing in SAP GL with:- SAP S/4HANA Finance Training

Error handling in SAP General Ledger period end closing

As this is a manual process in SAP S/4 HANA, there is always the possibility of human errors. Hence, to fix these errors, it’s extremely important to perform a reconciliation of the general ledger and sub-ledger balances on a periodical basis.

How to know if there are errors?

If during reconciliation, you see both balances match, that means there are No Errors.

However, if you see differences in both balances, then you need to reconcile the items after analyzing and correcting them, if necessary.

Some of the discrepancies in reconciliation you may see as:-

• Some items are included in the sub-ledger but not in the general ledger or vice versa.
• Some items may be posted in the general ledger through a journal entry and are not recorded in the sub-ledger.

Accounts receivable and accounts payable are two of the most important accounts that you need to reconcile every month.

Accounts Receivable or Accounts Payable reconciliation

You should follow the following steps to perform an A/R and A/P reconciliation.

Compare balances of the general ledger account and sub-ledger account

Analyze the general ledger and sub-ledger balances to identify any differences. While analyzing you should also check for transactions of an unusual nature such as nonrecurring transactions.

Since it may have a higher risk of errors than recurring transactions performed regularly. Thus, you need to check the sales journal (Receivables) and purchase journals (Payable) to detect entries posted to the wrong accounts, double-posted entries, transposition errors and so on.

Investigate and evaluate the root cause for the difference

If you find some differences between the general ledger and sub-ledger balances, the next step is to determine the reason for these discrepancies. The most common reasons include – 

• Items are posted to the general ledger, but not to the sub-ledger
• Items are posted to the sub-ledger, but not to the general ledger

Make the necessary adjustments on the SAP General Ledger, Sub-Ledger or both

After you find the reason for the difference, make the appropriate adjustments to the general ledger or sub-ledger. You also need to see the reasons and the reconciliation to correct the errors, omissions, transportation errors and so on.

Make the relevant checks to compare and confirm the adjusted balances

Compare the general ledger balance to the sub-ledger balance. If the balances are reconciled, then the reconciliation process is considered completed. However, if any difference remains, continue to check again the sub-ledger and journals that are part of revenue and expense cycles. This subsequently, helps you to identify the reason for the difference and adjust it.

Foreign Currency Valuation

If you want to create your financial statement, first you have to perform foreign currency valuation with all necessary configurations which makes it possible to evaluate account balances in the reporting currency.

Goods Receipt/Invoice Receipt Clearing

The GR/IR clearing process involves calculating the price variance between the goods receipt and invoice receipt. These are further allocated to inventory, price difference or the assignment object. It is mainly based on the valuation procedure in the material master and the settings in the purchase order line item.

Subsequently, the system stores the values in the general ledger and GR/IR clearing and periodically settles them using GR/IR clearing function.

Watch Video:- Practical Guide on GR/IR Clearing Concept

A Key Note

You should maintain the GR/IR account and analyze it regularly. Here the system makes the match between goods receipts and invoice receipts. Moreover, it is based on the purchase order number, order item, order type, an indicator of invoice verification and material/delivery costs.

Balance Carryforward

Balancing carryforward postings in the general ledger is the last step in the closing process before you usually start financial reporting steps.

This balance carryforward transaction transfers the balance of the general ledger account, including sub-ledgers, local ledgers and special ledgers to the new fiscal year.

After this procedure is executed it automatically transfers postings from the previous fiscal year to the new fiscal year. This further ensures that net profit/loss is accurately reported in the balance sheet. The program can be run multiple times but usually, it is executed only once at year-end closing.

The system performs balance carryforward as follows.

• Balance sheet accounts along with additional account assignments are transferred to the same accounts in the new fiscal year.
  • Consequently, it ensures that the closing balance of the balance sheet in the old fiscal year is the same as the opening balance in the new fiscal year.
• P & L accounts are accumulated and carried forward to the retained earnings account, which must be maintained for all the summarized P & L accounts.
  • Consequently, it ensures that the closing balances and opening balances of the P & L accounts are zero. Before transferring P & L, you have to be sure that the P & L account type is specified in the master record. In this way, you can set retained earnings to account for each chart of accounts.

Summary

In this blog, you learned the general ledger accounting process from record to report. You are now able to set up and change general ledger master data and process any kind of transaction in the general ledger, especially journal entries. You also got some deeper knowledge of financial closing activities such as period control, sub-ledger reconciliation and balance carryforward processing.