Objective
In this chapter, we will be looking at how to prepare automatic clearing for Open Items, define maximum exchange rate difference, and perform foreign currency valuation.
Prepare Automatic Clearing.
Create accounts for clearing differences.
Define Maximum Exchange Rate.
Specify settings for Currency Valuations.
Clearing Open Items
Transactions with business partners are said to be open or partially completed until full payments are made and related accounts are cleared. For example, a business partner sends in an invoice; the invoice is posted in the system. At this point, the transaction remains an open item in the account until payment of an equivalent amount of the invoice is made and the account is cleared.
Once payment is made and cleared with the associated open item, the system generates a document number. Only then is the transaction complete.
Account clearing can be carried out in SAP S4 HANA for an individual item or collective items in the system. Document clearing can be carried out manually or automatically using automatic clearing programs. Clearing open items manually means that the user performs the clearing process, whereas in automatic clearing, the system performs the clearing automatically. For the system to carry out clearing automatically, you need to specify certain settings during customizing.
In this activity, we will be looking at how to customize automatic clearing and we will also look at the two options available in SAP S4 HANA on clearing open items in the system.
Posting with clearing: This is when an open item on an account is matched against payment and cleared to bring the account balance to nil. It is also possible to group open items, match them with payment, and clear them simultaneously. The system will mark these items as cleared items and assign a clearing document number and enter the date they are cleared in the system.
Posting with clearing: In SAP S4 HANA, posting with clearing can be performed on an individual or on a group of items at the same time by assigning payment to open items. The net effect should be a nil balance (i.e., open items in the system are cleared with a payment simultaneously). Posting with clearing can be performed on an account type and several currencies at the same time by assigning payment to open items. When you use the posting with clearing option, the net effect should be that the business transactions end up with a zero balance. Open items and payment included in the clearing must be equal. For example, the balance on the account of 1,000USD must be equal to a payment receipt of 1,000USD.
On the contrary, if the open item(s) and a payment is not equal, it is still possible to post the difference in the system. The system will treat the posting as a payment on the account and not as a cleared item. Payment on account is when the item remains in the system as an open item.
Account Clearing: This functions with GL accounts and sub-ledgers managed in open item using an open item procedure. You don’t need to post an item when performing account clearing. All you need to do is to select the items that balance out to zero. When you post them, the system flags the selected items as cleared and enters a clearing document number and clearing date for the cleared items.
Automatic Clearing Customizing
Problem: Your client’s accounting staff want to be able to clear open items in SAP S4 HANA using the automatic clearing function. Your task is to customize the settings that will allow users to clear open items using the automatic function.
In this activity, you will define account types for customers, vendors, and general ledger account, and set the criteria for assignment number (used in relation to sort key, which enables the automatic clearing process in FI), business area and trading partners (used to control vendor/customer payment/transaction) for grouping an account with open items for automatic clearing. Once these settings are made, the system clearing program will look for open items in local currency that equal a zero balance, group them together, and clear them simultaneously. The system will generate a clearing number and clearing date and enter them in the cleared document.
Account type.
Account number.
You also have the option of defining up to five additional criteria in the field table.
You have the choice of creating your own automatic clearing or to copy existing ones supplied by SAP and modify them to meet your requirement.
To customize the automatic clearing program, follow this menu path: IMG: Financial Accounting ➤ General Ledger Accounting ➤ Business Transactions ➤ Open Item Clearing ➤ Prepare Automatic Clearing
Defining additional rules for automatic clearing
Update the following fields:
Chart of Accounts: Enter your chart of accounts in this field. This is the four-digit character you defined in Chapter 2
Account Type: Enter the account type in this field. In SAP S4 HANA, account types are represented by letters such as: – D (customer), V (Vendor), and S (General Ledger), respectively.
From account /to account: Specify account range for each activity type for internal and external number range assignments. For Internal number Assignment use number range: From account - 0 to account - 99999999999 and for External Number range assignment use number range: From account - A to Account - Z
Criterion 1 – ZUONR | Criterion 2 – GSBER | Criterion 3 – VBUND |
Click the Save button at the bottom right of the screen to save your work. When your work is saved, the system will notify you that customizing was saved on the status bar at the bottom of the screen.
Account Type D – Debtors
Account Type K – Vendor and
Account Type S – General Ledger
Criterion ZUONR – Assignment
GSBER – Business Area
VBUND – Trading Partner
In the next activity in this chapter, we will look at how to assign a G/L account for automatic clearing. This is an important aspect of the customizing process, as it gives you the opportunity to see how the G/L accounts are assigned to automatic clearing.
Create Accounts for Clearing differences
Tolerance groups for G/L accounts.
Tolerance groups for employees.
Tolerance for customers/vendors.
You have also defined limits for acceptable payment differences during posting by setting the maximum amount per document that is permitted for posting, the maximum amount employees are authorized to post per open item in customer/vendor account item, and the maximum cash discount an employee is permitted to grant to business partners. During account clearing, the system will check the tolerance groups to ascertain if the differences are within acceptable limits and automatically post the difference to predefined accounts.
In this activity, you will assign a G/L account to a G/L account for posting payment differences. To begin the customizing process, follow this menu path: IMG: Financial Accounting ➤ General Ledger Accounting ➤ Business Transactions ➤ Open Item Clearing ➤ Clearing Differences ➤ Create Accounts for Clearing Differences.
Specifying debit/credit for account determination
Click the Debit/Credit check box in the Accounts are determined based on section of the screen (Figure 6-2). This function allows you to assign G/L accounts for both debit and credit to automatic posting. If you activate the Tax code field, you will also need to specify your tax code. The Tax code you specify will be applied to the G/L account. If you leave your tax code blank, this means that all tax codes can be posted in the G/L account you assign for payment differences. Click the button at the bottom right of the screen to save your work.
Assigning G/L account to for automatic posting
Enter the G/L account you created for G/L account clearing differences for debit transactions (in this activity we used 230110 as our G/L account debit clearing differences) in the Debit field in the account assignment section of the screen. Likewise, enter the G/L account you created for G/L account clearing differences for credit transactions (in this activity we used 280110 as our G/L account credit clearing differences) in the Credit field in the account assignment section of the screen and save your work.
To be able to assign a G/L account, you must first create the G/L accounts for your account assignment for automatic postings for both debit and credit for posting clearing differences. If you have not done this yet, the system will not accept your G/L account. However, to overcome this bottleneck in the interim, press enter on your keyboard several time to force the system to accept the G/L accounts you have entered for your Debit and Credit clearing differences in the interim and save your work.
Define a Maximum Exchange Rate Difference
In SAP S4 HANA, the Maximum Exchange Rate Difference settings per foreign currency is possible. This setting specifies maximum exchange rate deviation allowed between exchange rate for foreign currency and local currency exchange in percentage terms. Maximum Exchange Rate Difference specifications are performed at Company Code level and are company code dependent.
When a document with a foreign amount is entered manually into the system and an exchange rate is entered in the document header, the system performs a validation check for exchange rate deference, calculates the percentage exchange rate deviation automatically, and compares it with the defined Maximum Exchange Rate difference. If the exchange rate difference exceeds the Maximum Exchange Rate deference you defined, the system will issue a warning. This measure ensures that errors are identified and rectified during posting.
A flowchart diagram depicting how Maximum Exchange Rate is processed in SAP S4 HANA
Now let’s explore how this maximum exchange rate difference customizing is carried out in SAP S4 HANA. To define maximum exchange rate difference follow this menu path: IMG: Financial Accounting ➤ Financial Accounting Global Settings ➤ Global Parameters for Company Code ➤ Currencies ➤ Maximum Exchange Rate Difference ➤ Define Maximum Exchange Rate Difference per Company Code.
Specification of maximum exchange rate difference
Search for your company code using the position button at the bottom of the screen, your company code will be displayed on top of the displayed list of all the company codes in the system (you could use the scroll bar on the left side of the screen to look for your company code if you chose to do so instead of using the position button). Enter the maximum exchange rate agreed with your client in the Max.exch.rate dev. (maximum exchange rate deviation) field. In this activity, we used 10%. The model companies used by SAP in the system suggest 10% as the ideal maximum exchange rate deviation.
Save your customizing of Maximum exchange rate deviation by clicking the Save button at the bottom right of the screen.
Check Company Code Setting
We advise that you should check your company code setting at this point. Although this is not a part of your customizing exercise, it will be interesting to see the customizing of your company code so far. This will also give you the opportunity to see the items you missed in your customizing and correct them and to also activate some functions considered important.
Company code global data overview screen
The company code global data details screen
Update the following items:
VAT Registration No: Entering data in this field is optional. Do this only if your company requires it. When you enter your company’s VAT registration number, the system will automatically use this number for VAT correspondence.
Propose Fiscal Year: This field is optional. When you click this checkbox, the system will automatically propose a fiscal year during document entry.
Define Default Value Date: This is setting is also optional. When you select it during document entry, the system will automatically propose a current date when entering a document into the system.
Negative Postings Permitted: When this checkbox is clicked, this will allow you to reserve transactions in the system without posting the reversed document and the associated reversal document. In other words, the original transaction figures in the system will stay the same as above.
Save your company code setting.
Foreign Currency Valuation
Problem: The accounting staff wants to be able to maintain foreign currency and valuate open items in foreign currencies. Your task is to explain to the accounting staff what the exchange rate type is, to define the valuation methods, and to perform other settings that will allow the accounting staff to achieve their objectives.
In SAP S4 HANA to create a financial statement, you need to define Foreign Currency Valuation. The importance of defining Foreign Currency Valuation is that foreign currency balance sheets and open items in foreign currency are valuated as part of foreign currency valuation.
G/L accounts in foreign currency relating to foreign currency balance sheet accounts.
Open items posted in foreign currency.
You also have the option of either performing currency valuation in Group Currency (i.e., parallel currency) or in Company Code Currency.
It is recommended that you use average exchange rate type – M in your valuation method.
In this activity, you will define the valuation method for open item and group together with the specifications needed for balance and individual valuation. Before running your valuation procedure, the required valuation method must be specified.
Exchange Rate Types
Bank selling rate – B (bank selling rate between currency pair).
Bank buying rate – G (bank buying rate between currency pair).
Average rate – M (average between selling rate and buying rate). You can obtain selling rate or buying rate using average rate as the spread. This is done by adding or deducting the spread from the average rate.
Exchange rate types will be discussed further in the next chapter.
Define Valuation Methods
Valuation methods determine the method used to perform foreign currency valuation, which constitutes part of the closing procedures in SAP S4 HANA.
- 1)
Valuation Method for Customer & Vendor.
- 2)
Valuation Method for Bank Balance.
In SAP S4 HANA, you have a list of valuation procedures to choose from. For example, the lowest value principle, the strict lowest value, and so on.
Now let’s create foreign currency valuation methods for open items for customers/vendors maintained in foreign currency. To go to the screen where you do this, follow this menu path: IMG: Financial Accounting ➤ General Ledger Accounting ➤ Periodic Processing➤ Valuate ➤ Define valuation methods.
The initial screen for foreign currency valuation methods
Foreign currency valuation methods for customer/vendor
As part of the customizing valuation method, you need to update the following fields on the screen.
Valuation Method: Enter a four-digit code as the key for your valuation method.
This identifies your valuation method.
Description: Enter a short text description that best describes your valuation
method.
Lowest Value Principle: The valuation calculation is carried out per item total. When this valuation procedure is set, the valuation is displayed only if exchange loss occurs (when the difference between local currency amount and the valued amount is negative).
Strict Lowest Value Principle: Valuation calculation is carried out per item total. The valuation is displayed only if the new valuation has a greater devaluation and/or revaluation for credit entries than the previous valuation.
Always Valuate: Allows revaluation to be taken into consideration.
Revalue Only: With this procedure, revaluation is considered when there is exchange loss.
Document Type: Enter an appropriate document type in this field. This is the key that distinguishes business transactions in SAP ERP. For example, SA is the G/L document type.
Exchange Type for Debit Bal: Enter B (the standard transaction at bank selling rate) in this field. This exchange rate type takes into consideration the valuation of foreign currency items having a positive balance.
Exch.Rate Type for Credit Bal: Enter G (the standard transaction at bank buying rate) in this field. Unlike the standard transaction at bank selling rate, this exchange rate type takes into consideration the valuation of foreign currency items having a negative balance.
Exchange Hedging: By clicking this checkbox, it means that you want the system to value your foreign exchange items at a hedged exchange rate. Hedging is a procedure employed to eliminating risk that may arise from business transactions in foreign currencies.
Determine Exch.Rate Type from Acct Bal: When this radio button is activated currency valuations are carried out based on account balances.
Determine Exch.Rate Type from Inv. Ref: When you click this radio button currency valuations are conducted based on currency valuation based on balance with reference to invoice reference.
Hit enter on your keyboard and save your customization using the Save button at the bottom right of the screen.
The next step in the foreign currency valuation method customization is to create a foreign currency valuation for bank balance. Use this menu path: IMG: Financial Accounting ➤ General Ledger Accounting ➤ Periodic Processing➤ Valuate ➤ Define valuation methods. The Change View “Foreign Currency Valuation Methods”: Overview Screen is displayed. Click the New Entries button at the top of the screen to go to the New Entries: Details of Added Entries screen.
Foreign currency valuation method for bank balance
Valuation method is unique. You cannot use the same valuation key twice. Hence we used a different valuation method identification key for our valuation method for bank balance as opposed to the one we used for the valuation method for customer/vendor.
Prepare Automatic Postings for Foreign Currency Valuation
Exchange rate differences normally arise when valuating open items in foreign currency. The settings here will allow the system to automatically Post Exchange rate differences arising from open items valuation and foreign currency balance to the accounts you specify. This exercise is simply assigning G/L accounts to where you want the system to post exchange rate differences.
A list of exchange procedures for exchange differences
Interest costs (KDB).
Exchange rate difference for open items (accounts receivable/Payable)/GL account.
Interest Costs Using Exchange Rate key (KDB)
When valuating open items, such as business transactions, foreign exchange rate differences can be losses or gains. Exchange rate difference loss is an expense and is posted to the Foreign Exchange Loss account. Likewise, foreign exchange differences realized are posted to the Foreign Exchange Gain account and to a Balance Sheet Adjustment account.
The Interest Costs Using Exchange Rate Key (KDB) process allows you to assign exchange rate loss and gain accounts to your valuation method. It also allows the system to automatically post losses or gains arising from exchange rate differences during open item valuation to the accounts you specify when you customize the exchange rate difference for open items in the G/L account. Let’s look at how to do this. Select Interest costs (KDB) from the list of exchange rate procedures in Figure 6-11 by clicking on it and then click the Choose button at the top of the screen; the Enter Chart of Accounts dialog box will appear. Enter your chart of account ID (in this activity, we used CA10 as our chart of account ID) and click the Continue button at the bottom of the dialog box. The Configure Accounting Maintain: Automatic Posts – Accounts screen is displayed (Figure 6-12). This is the screen where you will assign your automatic posting procedures to the appropriate G/L accounts. Enter the appropriate G/L account for exchange rate difference losses in the Expense account field and the exchange rate difference gain (E/R gains) in the E/R gains account field.
If you have not created the G/L accounts for Exchange rate difference (Expense account and E/R gain account). When you enter a G/L account in any of the fields, the system will tell you that “No matches found.” We advise that you should create the appropriate G/L accounts before attempting this exercise. However, you can bypass this by pressing Enter on your keyboard several times to force the system to accept the G/L accounts numbers you have entered in each of the fields and then you can create the G/L accounts later.
Assigning G/L accounts for automatic posting of exchange rate difference
Leave the first column (the Exchange Rate Difference Key) blank. If you enter a key here, you will have to specify it in the related G/L account master record; otherwise, your foreign currency valuation account will not work.
Enter your GL Account for exchange expense – 230000 in Expense Account column and also enter your GL Account for exchange rate gain – 280000 in E/R gains acct column as above.
Let’s look at how to assign Exchange rate difference for Open items – Account receivable and payable.
Exchange Rate Difference for Open Items/GL Accounts
In the next activity, we will explore how to maintain exchange rate differences for open items for account receivable and account payable for automatic posting to the G/L accounts. We will be going through the steps involved in maintaining exchange rate difference for open items accounts for account receivable and account payable. This will give you an understanding on how to customize exchange rate difference for open items for account receivable and account payable. In your spare time, you can follow the same steps you learned in this activity to define more open items for all your account receivables and payables.
First, let’s look at how to maintain exchange rate difference for open items and the appropriate G/L accounts where the system will automatically post exchange rate difference for account receivable.
The settings you carried out in this activity will allow the system to automatically Post Exchange rate differences to the assigned GL accounts when valuating open items and foreign currency balance for accounts receivable.
You define the exchange rate difference for open items for account receivable using a foreign business partner as an example. Click on Exchange rate Dif: Open Items/G/L Acc – KDF from the list of exchange rate procedures, as in Figure 6-11, to select it and click the Choose button at the top of the screen to proceed to the screen where you will carry out your customization. The Enter Chart of Accounts dialog box appears. Enter your chart of account ID (in this activity we used CA10 as our chart of account ID) and click the Continue button at the bottom of the screen). The Change View “Acct Determination for OI Exch. Rate Differences” Overview appears. Click the New Entries button at the top left of the screen to go to New Entries: Details of Added Entries screen (Figure 6-13) where you will assign your G/L accounts to exchange rate difference for open items.
Update the following fields:
Chart of Accounts: The chart of accounts you enter in this field will allow you to assign the G/L accounts created in this chart of accounts to the appropriate fields (G/L account, Loss, Gain Val.loss 1, Val.gainl and Bal.sheet adj. l) and allow the system to carry out automatic postings to the specified GIL accounts.
G/L Account: Enter a G/L account for account receivable. This is the GIL account to be updated. In this activity, we used a GIL account for Trade Debtor (Foreign).
Loss: Assign the G/L account where losses arising from exchange rate differences are realized and posted.
Gain: Assign the G/L account where gains arising from exchange rate differences are realized and posted.
Val.loss 1: Assign the G/L account where you want losses arising from foreign currency valuation to be posted.
Val.gain 1: Assign the G/L account where you want gains arising from foreign currency valuation to be posted.
Specifications for automatic posting procedures for G/L accounts
List of G/L accounts for automatic posting procedures – Account Receivables
Fields | Values | Description |
|---|---|---|
Chart of Accounts | CA10 | This is defaulted, otherwise, enter it manually from your chart of account |
G/L Account | 141000 | Customer – foreign receivables |
Exchange rate difference realized | ||
Loss | 230000 | Loss from exchange rate differences |
Gain | 280000 | Gain from currency exchange rate differences |
Valuation | ||
Val.loss 1 | 230010 | Loss from currency valuation |
Val.gain 2 | 280010 | |
BS adjustment 1 | 140099 | Customer receivables, domestic (adjustment acct) |
Translation | ||
Loss | 230020 | Loss on translation |
BS Adjustment Loss | 230030 | Clearing-currency translation |
Gain | 280020 | Gain-foreign currency exchange rate differences |
BS Adjustment Gain | 280030 | Clearing gain from exchange rate translation |
After updating the New Entries: Details of Added Entries screen (Figure 6-13), Save your customization.
If you have not created the G/L accounts for posting Exchange Rate Difference for Open Items to GL Accounts, when you enter a G/L account in any of the fields, the system will tell you that “No matches found.” We advise that you should create the appropriate G/L accounts before attempting this exercise. However, you can bypass this by pressing enter on your keyboard several times to force the system to accept the G/L accounts numbers you have entered in each of the fields and then you can create the G/L accounts later. Please refer to Chapter 5 on how to create G/L accounts.
Finally, let’s use the customize exchange rate differences for open items for account payable.
Exchange Rate Differences for Open Items – Account Payable
The setting you make here will allow the system to automatically post exchange rate differences to the assigned G/L accounts when valuating open items and foreign currency balances for accounts payable.
On the Configuration Accounting Maintain: Automatic Posts – Procedure shown earlier in Figure 6-11, Click on Exchange rate Dif: Open Items/G/L Acc – KDF from the list of exchange rate procedures, select it and click the Choose button at the top of the screen to proceed to the screen where you will carry out your customization. The Enter Chart of Accounts dialog box appears. Enter your chart of account ID (in this activity, we used CA10 as our chart of account ID) and click the Continue button at the bottom of the screen. The Change View “Acct Determination for OI Exch. Rate Differences” Overview screen appears. Click the New Entries button at the top left of the screen to go to the New Entries: Details of Added Entries screen (Figure 6-13) where you will assign your G/L accounts to exchange rate difference for open items.
If you have not created the G/L accounts for posting Exchange Rate Difference for Open Items to GL Accounts, when you enter a G/L account in any of the fields, the system will tell you that “No matches found.” We advised that you should create the appropriate G/L accounts before attempting this exercise. However, you can bypass this by pressing Enter on your keyboard several times to force the system to accept the G/L accounts numbers you have entered in each of the fields and then you can create the G/L accounts later. Please refer to Chapter 5 on how to create G/L accounts.
List of G/L accounts for automatic posting procedures – Account Payables
Fields | Values | Description |
|---|---|---|
Chart of Accounts | CA10 | This is defaulted, otherwise, enter it manually from your chart of account |
G/L Account | 160000 | Accounts payable-domestic |
Exchange rate difference realized | ||
Loss | 230000 | Loss from exchange rate differences |
Gain | 280000 | Gain from currency exchange rate differences |
Valuation | ||
Val.loss 1 | 230010 | Loss from currency valuation |
Val.gain 2 | 280010 | |
BS adjustment 1 | 160099 | Accounts payable-domestic, adjustments |
Translation | ||
Loss | 230020 | Loss on translation |
BS Adjustment Loss | 280030 | Clearing-currency translation |
Gain | 280020 | Gain-foreign currency exchange rate differences |
BS Adjustment Gain | 280030 | Clearing gain from exchange rate translation |
Summary
This chapter explained how to clear open items in SAP ERP. As part of the discussion, you learned how business transactions are generated and posted in the system as open items, and how open items are cleared with payments. You learned about various ways of clearing open items in SAP ERP.
These included posting with clearing (when payments are matched with open items in the system to achieve a nil balance) and account clearing (by selecting a group of items and matching them against a payment results in nil balance). We went on to show you how to customize settings for automatic clearing. As part of the automatic clearing configuration, you learned how to define account types for customers, vendors, and G/L accounts and set criteria for assignment, business areas, and trading partners for grouping an account with open items for automatic clearing. You also looked at maximum exchange rate difference settings per foreign currency in a company code. You saw how the maximum exchange rate differences you specify are executed in the system.
You also learned how to check your company code settings in the global parameters to ensure that you did not omit important settings. The process you used was the Negative Posting Permitted checkbox.
It allows you to reverse transactions in the system without altering the original transaction figures.
Before creating a financial statement, it is important that you define foreign currency valuation, so that the foreign currency balance sheet and open items in foreign currencies are valuated as part of foreign currency valuation. You also learned how to define foreign currency valuation and specify the appropriate accounts the system will use during that valuation.
Finally, you looked at how to prepare automatic postings for foreign exchange valuation that will allow the system to post exchange rate differences to appropriate G/L accounts automatically.
The next chapter looks at how to maintain an exchange rate in SAP ERP that will allow you to translate amounts into the appropriate currency. In the process, you will maintain the relationship between currency pair using appropriate ratios.