ACCOUNTS PAYABLE:

AP is a sub-module of SAP FI used to manage and record accounting data for all the vendors. It handles
vendor invoices, approvals, payments and other allied activities.
Any postings made in accounts payable is updated in general ledger as well.
The chief processes covered in the submodule are:
a. Maintain vendor master data
b. Invoice handling
c. Payments
d. Accounts analysis of reconciliation
e. Reports

Procure to pay cycle:

1. Determination of requirement =
Identifying the need for goods or services.
Creating and submitting a purchase requisition with details like quantity, specifications, and timelines.
Getting necessary approvals to proceed with procurement.

2. Source Determination
Identifying potential suppliers to fulfill the requirement.
Referring to the vendor master list or conducting market research for new vendors.
Evaluating suppliers based on criteria like price, quality, delivery terms, and past performance.
Finalizing the supplier and updating procurement records if necessary.

3. Vendor Selection
Sending Request for Quotation to shortlisted vendors to obtain pricing, terms, and conditions.
Comparing vendor responses based on price, quality, delivery timelines, and compliance with
requirements.
Discussing terms to achieve the best value and mutual agreement.
Choosing the vendor that best meets the organization's criteria and confirming the partnership.
Ensuring the selected vendor is approved in the system before proceeding.

4. PO Processing
Creation of Purchase Order (PO): A formal document is created, detailing:
Items/services required.
Quantities, prices, and terms.
Delivery and payment schedules.
The PO is reviewed, approved, and sent to the selected vendor.
The PO is logged into the system for tracking and reference.

5. PO Monitoring
Monitoring the PO to ensure the vendor delivers on time and as per agreed terms.
Regular follow-up with the vendor to address delays or discrepancies.
Updating the PO in case of changes in requirements, delivery schedules, or other terms.
Keeping stakeholders informed about the progress and ensuring alignment with the project schedule.

6. Goods Receipt
Receipt of Goods/Services: The delivery is received and inspected for quantity and quality against the
Purchase Order (PO).
Goods Receipt Note (GRN): A document is created to confirm the receipt in the system.
Stock Update: Inventory is updated for the received goods, or a service entry is made for received
services.
Issue Resolution: Any discrepancies (shortages, damages) are communicated to the vendor for
resolution.

7. Invoice Verification
Invoice Submission: The vendor sends an invoice for the delivered goods/services.
Two-Way Matching: Matching the Invoice with the Purchase Order (PO) to verify: Pricing, terms, and
conditions.
Three-Way Matching: Matching the Invoice with the PO and the Goods Receipt Note (GRN) to ensure:
Quantity and quality of goods match the receipt and PO.
Discrepancy Handling: Resolving mismatches before proceeding to payment.

8. Payment Processing
Approval Workflow: The verified invoice is routed for approval as per company policy.
Payment Scheduling: Payment is scheduled based on the agreed terms (e.g., due date, early payment
discount).
Payment Execution: Payment is made via the chosen method (e.g., bank transfer, cheque).
Accounting Updates: Vendor accounts are updated in the system, and the transaction is recorded for
audit purposes.

What Documents Result from ‘Procurement Processes’?

In Materials Management (MM): PR: Purchase Requisition (manual or automatic using MRP) PO:
Purchase Order
In Financial Accounting (FI): Invoice Verification Vendor Payment (manual or automatic)
Both MM and FI areas: Goods Receipt You may also group these documents into
(1) Order documents, (2) GR (Goods Receipt) documents, and (3) IR (Invoice Receipt) documents.
While GR/IR documents can be displayed both in MM and FI views, the order documents can only be
viewed in MM view.

Journal entries:
1. When a Purchase Order is Issued =
No journal entry is recorded as it is a commitment, not a financial transaction.

2. When Goods/Services are Received

Inventory/Expense Account DR.
GR/IR Account CR

3. When an Invoice is Received

If the invoice matches the Goods Receipt and Purchase Order: No additional entry is required, as liability
is already recorded during goods receipt.
In case of direct invoice without prior goods receipt:
Dr Expense Account/Asset Account
Cr Accounts Payable

4. When Payment is Made

Dr Accounts Payable
Cr Cash/Bank

5. Adjustments for Discounts (If Any)

If an early payment discount is availed:
Dr Accounts Payable
Cr Cash/Bank
Cr Discount Received
Example: For ₹50,000 liability, with a 2% discount (₹1,000):
Dr Accounts Payable ₹50,000
Cr Bank ₹49,000
Cr Discount Received ₹1,000

6. Returns or Adjustments
If goods are returned to the vendor:
Dr Accounts Payable
Cr Inventory/Expense Account

7. Accrued Liabilities (For Services Rendered but Not Yet Invoiced)

Dr Expense Account
Cr Accrued Liabilities

Reconciliation Account
A Reconciliation Account is a general ledger (G/L) account used in accounting systems, such as SAP, to
ensure that the data in sub-ledgers (e.g., Accounts Payable, Accounts Receivable) is always synchronized
with the general ledger i.e sundry creditors, debtors.
Purpose of Reconciliation Accounts
Centralized Reporting:
Real-Time Updates
Simplified Auditing

Where to Maintain Reconciliation Accounts

Reconciliation accounts are maintained in the General Ledger (G/L) in the Chart of Accounts of the
accounting system.
Steps to Maintain Reconciliation Accounts (SAP Example)
Assign G/L Accounts:
Define specific G/L accounts for vendors, customers, or assets, e.g.:
Vendors: Reconciliation Account for Accounts Payable.
Customers: Reconciliation Account for Accounts Receivable.
Assets: Reconciliation Account for Asset Accounting.
Link to Sub-Ledgers:
Assign reconciliation accounts to vendors, customers, or asset master records.
This ensures that all transactions posted to these sub-ledgers automatically update the reconciliation
accounts.
Transaction Posting:
When posting an invoice or payment, the system records the transaction in the sub-ledger and updates
the corresponding reconciliation account.
Vendor master configuration:
1. Creation of Vendor Account Groups:
Meaning : Vendor account groups classify vendors based on their business nature
Purpose: Classify vendors (e.g., domestic, foreign).
Steps: Go to transaction code OBD3.
Define account groups and assign attributes like field statuses.
Save your changes.

2. Create Number Range for Vendor Accounts:

Meaning: Number ranges are unique identifiers assigned to vendors.
Purpose: Assign unique IDs to vendors.
Steps: Use transaction code XKN1.
Create an internal or external number range with a starting and ending number.
Save the number range.

3. Assign Number Range to Vendor Account Groups:

Meaning: Links the account group to a specific number range.
Purpose: Link number ranges to specific vendor groups.
Steps: Go to transaction code OBAS.
Assign the created number range to the relevant account group.
Save your assignment.

4. Define Tolerance Group for Vendors:

Meaning: Tolerance groups set limits for posting differences (e.g., invoice discrepancies).
Purpose: Set limits for payment/invoice discrepancies.
Steps: Use transaction code OBA3.
Define tolerance limits for payment differences (e.g., amount or percentage).
Save the tolerance group.

5. Creation of Vendor Master Data:

Meaning: Enter detailed information about each vendor (e.g., name, address, bank account, and payment terms).
Purpose: Store vendor details (e.g., name, bank details).
Steps: Use transaction code XK01 for creation or MK01 for purchasing-specific data.
Enter general data, company code data, and purchasing organization data.
Save the master data.

6. Creation of GL as Reconciliation Accounts:

Meaning: GL accounts act as reconciliation accounts to link vendor sub-ledgers with the general ledger.
Purpose: Link vendor sub-ledgers with the general ledger.
Steps: Use transaction code FS00.
Create a GL account and assign it as a reconciliation account for accounts payable.
Save the GL account.

Unit testing:
1. Post Vendor Invoice
Purpose: Record a vendor’s invoice for goods or services received.
Use FB60 (or MIRO for purchase orders).
Enter vendor details, invoice amount, and relevant GL accounts.
Save to generate an accounting document.

2. Display Document
Purpose: View the details of a posted document (e.g., vendor invoice or payment).
Use FB03.
Enter the document number and company code.
Review document details like vendor, amount, and posting date.

3. Vendor Line Item Display

Purpose: Display open and cleared items in a vendor’s account.
Use FBL1N.
Enter vendor number, company code, and document status (open/cleared/all).
Review transactions such as invoices, payments, or credit memos.

4. Outgoing Payment
Purpose: Process payments to vendors for invoices due.
Use F-53 for manual payment
Enter payment details like vendor number, bank account, and amount.
Post the payment to clear the vendor invoice.

Payment Types in SAP

1. Standard Payment:
Full settlement of the invoice.
Example: Pay ₹10,000 for a ₹10,000 invoice; the invoice is cleared.
2. Partial Payment:
Pay part of the invoice, leaving the rest open.
Example: Pay ₹4,000 for a ₹10,000 invoice; ₹6,000 remains open.
3. Residual Payment:
Pay part of the invoice, and the remaining balance is created as a new open item.
Example: Pay ₹7,000 for a ₹10,000 invoice; the original invoice is cleared, and ₹3,000 is recorded as a new open
item.

Credit Memo
A credit memo is issued to reverse or reduce a previously recorded vendor invoice, typically due to
overcharges or returned goods.

Steps in Credit Memo Process

1. Post Vendor Invoice
Meaning: Record the original invoice from the vendor.
Purpose: Create a liability for goods or services received.
Steps:
Use FB60 or MIRO (for purchase orders).
Enter vendor details, invoice amount, and relevant accounts.
Save to post the invoice.

2. Check Vendor Line Item

Meaning: Verify the posted invoice and outstanding balance.
Purpose: Ensure the original invoice is correctly recorded.
Steps:
Use FBL1N to display vendor line items.
Filter for open or cleared items and verify the invoice details.

3. Post Credit Memo

Meaning: Record the credit memo to reduce the liability.
Purpose: Adjust the vendor account for overcharges or returns.
Steps:
Use FB65 or MIRO (with reference to purchase order).
Enter vendor details, credit amount, and reasons (e.g., overcharge).
Save to post the credit memo.

4. Post Outgoing Payment

Meaning: Process the payment for the adjusted amount.
Purpose: Pay the vendor after accounting for the credit.
Steps:
Use F-53 to initiate payment.
Select the open invoice and credit memo to calculate the net amount.
Post the payment.

5. Clear the Credit Memo

Meaning: Link the credit memo to the invoice or payment for reconciliation.
Purpose: Ensure the vendor account reflects accurate balances.
Steps:
Use F-44 to manually clear the invoice and credit memo.
Select both items and process clearing.

Example
Original Invoice: ₹10,000
Credit Memo Issued: ₹2,000 (overcharge adjustment)
Payment: ₹8,000 (net amount after adjustment)
This process ensures the vendor account accurately reflects the adjusted liability and payment status.

Down Payment:
Down payments are advance payments made to vendors before the receipt of goods or services
Special GL Transactions in SAP
To facilitate the recording of the down payment as a special GL transaction, a link must be created between the
standard reconciliation account and special GL account.
Special GL transactions are related to subledger accounts (e.g., AR/AP) but are posted separately from the general
ledger (GL). These transactions require specific Special GL Indicators (e.g., F for Down Payment Request, A for
Down Payment) and use unique posting keys (e.g., 09, 19, 29, 39) to process them.
Types of Special GL Transactions:
Free Offsetting Entries: Down payments made or received.
Statistical Postings: Guarantees recorded for reference.
Noted Items: Down payment requests or reminders.

1. Post Vendor Down Payment

Purpose: Record the advance payment to the vendor.
Use F-48 to post the down payment.
Enter vendor details, down payment amount, and Special GL Indicator (A) for down payments.
Specify the bank account and save the document.

2. Display Vendor Line Item

Purpose: Verify the down payment in the vendor account.
Use FBL1N to display vendor line items.
Filter by open or cleared items and select Special GL Transactions to view the down payment.

3. Post Vendor Invoice

Purpose: Record the vendor’s invoice for goods or services received.
Use FB60 (or MIRO for purchase orders).
Enter vendor details, invoice amount, and relevant accounts.
Save the document.

4. Clear Down Payment

Purpose: Adjust the down payment against the posted invoice.
Use F-54.
Select the down payment and the corresponding invoice.
Post the clearing to match the two transactions.

5. Post Outgoing Payment

Purpose: Pay the vendor for the remaining balance after adjusting the down payment.
Use F-53 to post the payment.
Enter vendor details, bank account, and balance amount.
Save the payment.

6. Clear Vendor Account

Purpose: Final reconciliation of vendor account to ensure all items are cleared.
Use F-44.
Select all open items (invoice, down payment, and outgoing payment).
Post the clearing to balance the account.

Example
Down Payment Posted: ₹5,000
Vendor Invoice: ₹10,000
Balance Paid: ₹5,000
Outcome: Vendor account is fully cleared.

Payment Terms Process in SAP

1. Define Terms of Payment
Meaning: Payment terms specify due dates and discounts for vendor invoices.
Purpose: Automate invoice due dates and discount calculations.
Use OBB8.
Define terms (e.g., 10% discount if paid within 15 days).
Save the payment terms.

2. Assign Payment Terms to Vendor

Meaning: Link payment terms to specific vendors.
Purpose: Ensure payment terms are automatically applied to vendor transactions.
Use XK02 to update vendor master data.
Enter payment terms in the Payment Transactions tab.
Save the changes.

3. Create Discount Received Account

Meaning: A GL account to record discounts received from vendors.
Purpose: Track savings from early payments.
Use FS00 to create a discount received account.
Assign it to the appropriate chart of accounts.

4. Assign Discount Received Account for Automatic Posting

Meaning: Configure SAP to post discounts automatically to the correct account.
Purpose: Automate accounting for early payment discounts.
Use OBXI.
Assign the discount received account to the Account Key SKT in automatic posting rules.

Unit testing:
1. Post vendor invoice
2. Outgoing payment
Accounts Receivable:

SAP Order-to-Cash (OTC) Process

Order-to-Cash (OTC) is a critical business process in SAP that integrates Finance (FI) and Sales (SD). It covers the
entire process from customer inquiry to payment receipt, including sales order creation, delivery, and billing.

Steps in the OTC Process:

Customer Inquiry (VA11): Customer asks for product/service details (no accounting entry).
Quotation (VA21): A price quote is sent to the customer (no accounting entry).
Sales Order (VA01): Customer places an order (no accounting entry, commitment to deliver).
Post Goods Issue (PGI) (VL01n): Goods are picked and shipped to the customer.
Accounting Entry:
Debit: Cost of Goods Sold (COGS)
Credit: Inventory
Delivery (VL01n): Goods are delivered to the customer.
Accounting Entry:
Debit: Revenue
Credit: Customer account
Billing (VF01): Invoice sent to the customer.
Accounting Entry:
Debit: Accounts Receivable
Credit: Sales
Receipt of Money (FB50): Payment is received from the customer.
Accounting Entry:
Debit: Bank Account
Credit: Customer account

Configuration in OBYC: Involves mapping accounts and processes for inventory, sales, and payment transactions.

Accounting Impact:
PGI: Inventory is credited, and COGS is debited.
Delivery: Revenue is debited, and customer account is credited.
Billing: Accounts receivable is debited, and sales is credited.
Payment: Bank account is debited, and customer account is credited.

Summary:
OTC integrates sales order, goods delivery, billing, and payment receipt, with specific accounting entries at each
stage, ensuring a smooth flow of goods, invoicing, and payment, while connecting SAP's FI and SD modules.

Customer Master Configuration

1. Creation of Customer Account Groups
Meaning: Classifies customers into groups (e.g., retail, wholesale).
Purpose: To manage customer data based on categories and customize master data fields.

2. Create Number Range for Customer Accounts

Meaning: Defines the number range for customer account IDs.
Purpose: Ensures unique identification of customer accounts.

3. Assign Number Range to Customer Account Groups

Meaning: Links a specific number range to each customer account group.
Purpose: Organizes customer accounts by unique number ranges per group.

4. Define Tolerance Group for Customer

Meaning: Sets limits for payment discrepancies (e.g., write-offs).
Purpose: Controls automatic handling of small payment differences.

5. Creation of Customer Master Data

Meaning: Creates a record for each customer with relevant data (name, address, payment terms).
Purpose: Stores and manages customer-specific information for transactions.

6. Creation of GL as Reconciliation Accounts

Meaning: Assigns General Ledger accounts for customer transactions.
Purpose: Ensures customer transactions are reconciled with the GL.

Unit Testing
1. Post Customer Invoice
Meaning: Records the sale of goods or services to a customer.
Purpose: Updates the accounts receivable with the amount due.

2. Display Document
Meaning: Allows viewing of posted documents (e.g., invoices).
Purpose: Provides details of the posted transaction for review.

3. Customer Line Item Display

Meaning: Displays individual transactions (invoices, payments) for a customer.
Purpose: Tracks outstanding and cleared items for each customer.

4. Incoming Payment
Meaning: Records payments made by customers.
Purpose: Updates customer accounts and financial records with received payments.
Special GL Indicator for Down Payment
A Special GL indicator is used in SAP to handle specific transactions that are not part of the
regular accounting flow, such as down payments. Down payments are advanced payments
made by a customer before the final sale is completed.

Steps in the Down Payment Process

Post Customer Down Payment

Meaning: A down payment is posted when a customer makes an advance payment before
receiving the goods or services.
Purpose: To record the advance payment in the accounts receivable and track it separately
from the final invoice.
Go to transaction F-29 (Post Down Payment).
Select the customer, enter the amount, and choose the Special GL indicator for down payment.
Post the entry to record the down payment in the system.

Display Customer Line Item

Meaning: This step allows you to view the line items related to a customer, including down
payments and invoices.
Purpose: To track the status of customer transactions, such as down payments and invoices,
and check the outstanding balance.
Go to FBL5N (Customer Line Item Display).
Enter the customer number and display the items (including down payments and open
invoices).

Post Customer Invoice

Meaning: The customer invoice is created once the goods or services are delivered, specifying
the total amount due.
Purpose: To record the amount the customer owes after delivery of goods or services.
Use FB70 (Post Customer Invoice).
Enter the customer, invoice details, and the amount for the goods/services.
Post the invoice to update the accounts receivable.

Clearing Down Payment

Meaning: The down payment is cleared when the final invoice is posted, adjusting the
customer’s balance.
Purpose: To offset the down payment against the final invoice, reducing the total amount the
customer needs to pay.
Go to F-39 (Clear Down Payment).
Select the customer and the down payment to clear it against the open invoice.
Post the clearing document.

Incoming Payment
Meaning: This is the actual payment made by the customer for the invoice.
Purpose: To record the receipt of funds from the customer and update the accounts receivable
balance.
Use F-28 (Post Incoming Payment).
Enter the customer, the payment amount, and allocate it to the open invoice.
Post the payment to update the customer’s account.

Clear Customer
Meaning: This step clears the customer’s account by matching payments and invoices, resulting
in a zero balance.
Purpose: To ensure that all outstanding items for the customer are cleared, and the account is
reconciled.
Use F-32 (Clear Customer).
Select the open items (invoices, down payments, payments) and clear them.
Post the clearing document to reconcile the customer’s account.

1. Define Terms of Payment

Meaning: Specifies the conditions for customer payments, such as due date, discount period, and payment
methods.
Purpose: To standardize payment expectations and manage cash flow by defining how and when payments should
be made.
Steps:
Go to SPRO > IMG > Financial Accounting > Accounts Receivable and Accounts Payable > Basic Functions > Payment
Terms.
Create payment terms by defining the number of days for payment, discount percentages, and due dates.

2. Assign Payment Terms to Customer

Meaning: Links the defined payment terms to specific customers for their invoices.
Purpose: Ensures that the customer’s invoice is processed according to the agreed-upon payment terms.
Steps:
Go to XD02 (Change Customer Master Data).
In the "Company Code Data" section, assign the relevant payment terms to the customer.

3. Create Discount Allowed Account

Meaning: A General Ledger (GL) account used to record any discounts allowed to customers for early payments.
Purpose: To track the amount of discount given to customers when they make early payments.
Steps:
Go to SPRO > IMG > Financial Accounting > General Ledger > Master Records > G/L Accounts > Create.
Create a GL account to record the discount allowed.

4. Assign Discount Allowed Account for Automatic Posting

Meaning: Links the discount allowed GL account to the system so that discounts can be automatically posted when
a payment is made.
Purpose: To ensure that any discount given is automatically posted to the appropriate account during the payment
processing.
Steps:
Go to SPRO > IMG > Financial Accounting > Accounts Receivable and Accounts Payable > Automatic Payment
Transactions > Define Settings for Automatic Postings.
Assign the discount allowed GL account to the relevant posting area.
GST Configuration
1. Create Condition Type
Meaning: Condition types are used to define the method of calculating taxes, such as GST rates (e.g., standard
rate, reduced rate).
Purpose: To configure the conditions under which taxes are applied during transactions.
Steps:
Go to SPRO > IMG > Sales and Distribution > Basic Functions > Pricing >
Condition Types.
Create a new condition type for GST (e.g., ZGST for GST tax).
Define the calculation parameters (percentage rate, tax category, etc.).

2. Define Account Key / Transaction Key

Meaning: Account keys are used to link the tax code to specific GL accounts for tax postings.
Purpose: To ensure that tax amounts are posted to the correct General Ledger accounts.
Steps:
Go to SPRO > IMG > Financial Accounting > Financial Accounting Global Settings
> Tax on Sales/Purchases > Basic Settings > Define Tax Accounts.
Define account keys for different tax categories (e.g., input tax, output tax).

3. Define Tax Procedure

Meaning: The tax procedure defines the rules for calculating GST, including the tax codes, calculation logic, and tax
rates.
Purpose: To configure how taxes will be calculated based on transaction types, tax categories, and other
conditions.
Steps:
Go to SPRO > IMG > Financial Accounting > Financial Accounting Global Settings
> Tax on Sales/Purchases > Basic Settings > Define Tax Procedures.
Create a tax procedure (e.g., TAXINN) for GST.
Specify the rules for tax calculation, including the condition types and account keys.

4. Assign Tax Procedure to Country

Meaning: This step links the tax procedure to the relevant country to apply the GST calculation rules.
Purpose: To ensure that GST is calculated according to the local rules and regulations for each country.
Steps:
Go to SPRO > IMG > Financial Accounting > Financial Accounting Global Settings
> Tax on Sales/Purchases > Basic Settings > Assign Tax Procedures to
Countries.
Assign the defined tax procedure to the relevant country (e.g., India).

5. Create Tax Code

Meaning: Tax codes define how GST will be calculated for specific transactions (e.g., GST rates of 5%, 12%, or 18%).
Purpose: To configure different tax rates that can be used in customer or vendor invoices.
Steps:
Go to SPRO > IMG > Financial Accounting > Financial Accounting Global Settings
> Tax on Sales/Purchases > Basic Settings > Define Tax Codes.
Create tax codes (e.g., SGST, CGST, IGST) for the respective GST rates.

6. Create GL Account
Meaning: GL accounts are used to record GST-related transactions, including input and output taxes.
Purpose: To track GST liabilities and receivables for tax reporting.
Steps:
Go to SPRO > IMG > Financial Accounting > General Ledger > Master Records > G/L
Accounts > Create.
Create separate GL accounts for input tax (e.g., 12345 for SGST) and output tax (e.g., 67890 for CGST).

7. Define Tax Account

Meaning: Tax accounts define where GST-related amounts (input and output) should be posted in the General
Ledger.
Purpose: To ensure that tax amounts are posted to the correct GL accounts during financial transactions.
Steps:
Go to SPRO > IMG > Financial Accounting > Financial Accounting Global Settings
> Tax on Sales/Purchases > Basic Settings > Define Tax Accounts.
Assign the GL accounts for input and output taxes (e.g., SGST, CGST, IGST accounts).

GST Unit Testing

1. Post Vendor Invoice (Inclusive and Exclusive)
Meaning: A vendor invoice records a purchase transaction, and the GST can be calculated either on an inclusive or
exclusive basis.
Purpose: To ensure that GST is correctly applied in the transaction based on the tax code and calculation method.
Steps:
Go to FB60 (Post Vendor Invoice).
Enter vendor details, items, and amounts.
Select the appropriate tax code (e.g., SGST/CGST for inclusive or exclusive tax).
Post the invoice and verify if the GST is calculated and posted to the correct GL accounts.

2. Outgoing Payment
Meaning: An outgoing payment records the actual payment made to the vendor, and it reflects the GST impact in
the financial system.
Purpose: To clear the open vendor invoice and update the GL accounts for the payment and taxes.
Steps:
Go to F-53 (Post Outgoing Payment).
Enter the vendor and payment details.
Allocate the payment to the open invoice and post the payment.
Verify if the GST-related GL accounts are cleared properly.