What is SAP R2R?
SAP R2R (Record-to-report) is a financial and accounting management process which ensures that all business transactions are recorded completely and accurately within an accounting system and its sub-ledgers. It includes sales, purchases, payments etc.
Subsequently, all these transactions are ultimately collected and recorded in the general ledger.
Financial Accounting for SAP R2R
From a legal perspective, financial accounting is a compulsory function for any business. It needs to record financial transactions, fulfil tax reporting requirements and meet statutory obligations.
Thus, timely, complete and accurate financial accounting assists management in building better business controls and monitoring the financial situation. It also helps measure profitability and support management for better decision-making.
In this blog,
I have explained the SAP R2R processes such as the activities of sub-ledger closing, reconciliation, period processing, recording and adjusting journal entries and financial reporting. So read on.
Subledger Closing in SAP R2R
A sub-ledger is a ledger that contains all the detailed information from a subset of transactions. The system regularly rolls up all transactions or balances of sub-ledger accounts into the general ledger.
Typical sub-ledgers in financial accounting are:-
- Accounts Receivables
- Accounts Payable
- Fixed Assets Ledgers
In the accounts receivable sub-ledger, the system stores customer invoices and customer payments. It also provides detailed information on the transaction dates, billing information, services given, goods shipped, payment type etc.
With ACDOCA in SAP S/4HANA
In early 1990, all mentioned sub-ledgers were integrated in real-time into the general ledger. Now with SAP S/4 HANA, the system can show the sub-ledger transaction details through general ledger reporting functionalities. This is because the database for all ledgers-sub-ledgers and general ledgers is in one table ACDOCA.
However, the concept of a fully integrated accounting system can work without trouble only if the system is set up correctly and if users enter and maintain master data accurately.
Accounts Payable Reconciliation Account
As you know a vendor is a company supplier from whom you purchase goods or services. Every vendor master record belongs to a sub-ledger account. The system maintains all the vendor transaction details in the accounts payable sub-ledger, which then rolls up into a general ledger account.
In this case, we call this roll-up accounts payable reconciliation account. We can find this reconciliation account in the master record of a vendor account.
Closing Activities in Sub-ledgers
As a prerequisite of the sub-ledger closing, we should record all sub-ledger transactions completely. Depending on the sub-ledger type, there are clearing accounts we need to perform. Such as:-
- Fixed assets clearing
- bank account clearing
- goods receipt/invoice receipt- GR/IR clearing and
- valuation runs – foreign currency valuation, inventory valuation
- Asset depreciation etc.
A reconciliation process with the general ledger is only possible after performing these closing activities in the sub-ledgers.
Reconciliations in SAP R2R
A reconciliation account is a control account to perform the reconciliation between the sub-ledgers and the general ledger. For each entry you post in the sub-ledger, the system updates the same amount automatically to the related reconciliation account.
Further, the SAP FICO in S/4HANA contains several sub-ledgers including accounts payable, accounts receivable and fixed asset accounts. Thus, the system creates each customer, vendor and asset in a separate account in a sub-ledger that is linked with a certain reconciliation account.
For example, when we create a vendor account, the system prompts us to enter a reconciliation account.
In the Control Data tab, the system chooses Vendors for reconciliation account for Account Type. Consequently, you create a reconciliation account for the vendors’ sub-ledger account.
Record and Adjust
After the system reconciles sub-ledgers and closed for a specific period, we can post the general ledger document entries and adjustments. Additionally, some accounting processes are manual, though we can still automate them.
There might be an external payroll system, where personnel expenses and payments to employees we can post manually on a monthly basis. Additionally, we post some provisions, reserves and accruals manually through a journal entry document.
Period Control
It is a procedure that calculates and determines the time portions of start and end dates for asset transactions. You can set a Period control such as for acquisition, retirements, intercompany transfers, revaluations and so on.
You can also define posting periods in the fiscal year variants and open or close these posting periods for posting.
Reporting and Analysis
SAP S/4 HANA offers all the features you need for reporting. Here are some of them for statutory reporting-
- Financial statement – This report allows you to quickly retrieve any balance sheet and profit and Loss statement of any period for any company you held in SAP S/4 HANA Finance. It always includes the comparison to the prior year or any prior period you want to compare with.
- Trial Balance – This report shows you all the account balances of a company for a certain period.
- Compact document journal– This report provides you with a complete list of all financial accounting documents for the period selected.
- Display Document – Here you can view and analyze any posted general ledger document. You just enter the Document number and the relevant fiscal year and you will find it displayed.
- Display Account Line Items– Here you can browse all line items posted to a selected general ledger account.
Role of General Ledger Master Data in SAP R2R
GL Master data remains unchanged over a long period of time and contains information that we require repeatedly in the same way. In financial accounting, there are general ledger accounts, customer accounts, banks and fixed assets. Each type of master data is necessary to operate specific business processes in SAP R2R.
In the general ledger, we manage the following master data through the system:-
- General ledger accounts
- Chart of accounts
- Financial statement versions
General ledger account master data deals with accounting transactions. Especially how the SAP FICO end-user posts them and how then the system processes the posting.
Before starting a posting to an account, the master data of this account must already exist, otherwise, it is not possible to post transactions.
General Ledger Posting Documents
A manual posting in the general ledger will create a journal entry document without any connection to sub-ledgers or any business transactions entered in SAP S/4 HANA.
Generally, the automated functions don’t fully support some accounting processes. Such as provisions, accruals or valuation adjustments for certain assets and liabilities.
Furthermore, we cannot use all general ledger accounts for manual postings.
This is because there are some technical accounts that we can use for manual postings. Such as reconciliation accounts, blocked for manual postings.
While creating a journal entry document, SAP S/4 HANA checks whether debit and credits are balanced and whether all accounting-relevant attributes are entered completely.
Importantly, according to the accounting balancing principle, any posting document should net to a balance of zero.
Document Information in Journal Document Entry
A journal entry document, like any type of transaction entered in SAP, consists of three types of Document Information. These are- Document header information, Document body Information and Other accounting information. Some examples are below:-
- Header Information– company code, transaction currency, posting date, document date, document type and description
- Body information– Debit and credit accounts and amounts, tax codes
- Other accounting information– Profit center, posting line description etc.
Bank Accounting
Bank Accounting is an integral part of financial accounting that deals with all accounting transactions relating to bank account movements.
With the bank accounting functions in SAP S/4 HANA, you can manage all incoming and outgoing payments, account balances and also bank master data.
House Banks Vs. Business Partners for SAP R2R
House Bank– These are the banks with which your company has a bank account and has settled a business relationship to perform any transaction.
In these accounts like usual bank accounts, it’s possible to hold cash, execute outgoing and incoming payments and deposit money.
Business Partner Bank Accounts – These are from the extended master data of the business partner and belong to the business partner.
If the business partner is a supplier, you need the bank account to transfer money to balance open items. However, if your business partner is a customer, you may have the right to direct debit the account of your customer.
Business Partner Bank Data
Business Partners (Vendors or customers) are the external party with whom your company performs bank accounting transactions. These accounting transactions may refer to an outgoing transaction where you send money to your business partner (vendor) or receive an incoming payment from your business partner (customer).
Bank Account Master Record
For every internal bank account which belongs to the company, the SAP FICO Power user set up and links a bank account master record with the respective GL Master.
Therefore, there is a connection bridge between the vendor and customer that allows you to perform the basic business process, purchase and sales.
It does the following for SAP Record to Report:-
- Perform an outgoing payment to the vendor for the provided goods or services.
- Receive an incoming payment from a customer for the goods and services you have provided.
House Bank
The house bank is where the company has settled its bank accounts and is operating a business relationship. The frequently executed business processes include cash deposit, cash holding and debiting or crediting transactions.
Separate ledger for each bank account
In the system, we can identify the house bank with an account ID that serves as a unique identifier. You need to create a separate general ledger account that serves each house bank account.
For reconciling the bank statement in SAP S/4 HANA for each bank account, an SAP S4 HANA Finance consultant needs to create general ledger sub-accounts. The user further reconciles the bank statement. Further, we can link the house bank and bank master data, which the system stores centrally by specifying the country and country-specific key.
General Ledger Integration
In financial accounting, there are two types of general ledger bank accounts:-
- Main Bank Account – which the user links individually with a house bank account and,
- Bank Clearing Account – whose main purpose is for bank reconciliation.
Bank Ledger Account
Each general ledger bank account is specified in the house bank account and each house bank account is specified in the general ledger bank account. They proceed in a bidirectional connection.
Bank General Ledger Clearing Account
The purpose of the bank’s general ledger clearing account is for the reconciliation process. We use these accounts to hold transactions posted in financial accounting but not reconciled with an incoming bank transaction.
The general ledger clearing account is much like a general ledger account.
This is because we use it to manage the open items from the posted transactions with an open status, which will be cleared and offset from another general ledger entry. At that moment, the item will change the status from open to cleared.
For each bank account, we need to create a bank clearing account to post the bank transactions in transition. This also ensures that the primary general ledger bank account always reconciles with the bank statement.
Bank Reconciliation for SAP R2R
The bank reconciliation function is the process during which all the bank statement transactions are settled with all the transactions posted in the general ledger account.
It’s easy to understand how this process works.
We clear all the open items in the general ledger bank clearing accounts and then post the offsetting entries in the main bank accounts.
In the SAP HANA system, the reconciliation process is performed under two approaches-
Automatic & Manual.
Automatic approach – It is called electronic bank statement (EBS) where the system imports all the electronic statements automatically into SAP HANA and then reconciles and matches them.
Manual approach – It is called a manual bank statement, which has the same logic but everything is manually performed by the user.
