Assumption for this blog
You should read my blogs on newGL to gain an understanding of the concepts around newGL. I will repeat some of the concepts only so far as they support the purpose of this blog. For detailed explanation, I would suggest you refer to the blogs on newGL.
Hence, for the purpose of this blog, I will assume you are conversant with newGL features. I will assume you have activated newGL and all features within newGL related to Profit Center Accounting (like document splitting, self-balancing, real time COFI reconciliation).
What am I demonstrating
In this blog, I intend to compare newGL Profit Center Accounting with Classic Profit Center Accounting and thereby glean the benefits accruing to customers by activating newGL Profit Center Accounting.
Generating a full Balance Sheet
The process to generate a full Balance Sheet under newGL Profit Center is very different from the process to generate full Balance Sheet under Classic EC-PCA. Under Classic EC-PCA generating a full Balance Sheet is very cumbersome. It involved month end processing of data; technically SAP moves data from GL tables to EC-PCA tables. In the process of moving this data, it has to derive Profit Center on records that did not have a Profit Center assigned to it.
To understand the process better, I will split the discussion into 3 groups:
- Cost Element Profit and Loss Accounts
- Non cost element P&L accounts & Non Sub ledger Balance Sheet Accounts
- Sub ledger Balance Sheet Accounts
The process of populating data into PCA tables is unique to each of the 3 groups because of the unique characteristics of each group.
Cost Element Profit And Loss Accounts
Profit and Loss Accounts that are cost elements require a Cost Center or a cost object to be posted against it. Each such Cost Center or cost object is assigned to a Profit Center. SAP then assigns this Profit Center to the P&L line item. Since the line item has now derived a Profit Center, the line item posts to Classic EC-PCA and to newGL PCA in real time.
The processing logic for this category has not changed between Classic EC-PCA and newGL PCA. In Classic EC-PCA, a separate document is posted to Ledger 8A into EC-PCA. With newGL, there is no need for a separate document because Profit Center is another attribute on the line item that can be reported from newGL.
Non cost element P&L accounts and non Sub ledger Balance Sheet Accounts
For non cost element P&L line items and non Sub ledger Balance Sheet line items, SAP cannot derive a Profit Center in real time because they are not posted to Cost Centers or cost objects. There is no mechanism in Classic EC-PCA to derive the Profit Center from the offsetting line items.
To allow your SAP system to default a Profit Center, user has to update configuration Table T8A30 (transaction code 3KEH) for all GL accounts in the Balance sheet range (excluding Sub ledger GL accounts) and for all GL accounts which are not cost elements.
In the configuration, update table T8A30 from menu path below:
[IMG] Controlling > Profit Center Accounting > Actual Postings > Choose Additional Balance Sheet and P&L Account > Choose Accounts
This Table has two purposes:
- It defines the default value of the Profit Center for all transactions not posted to cost elements
- It defines which accounts have to be posted/ not posted to PCA. If your Balance Sheet account or non cost element Profit & Loss account is not listed here, it will not post to EC-PCA. Hence, it is very important that this Table is updated every time a GL master record is created for a non Sub ledger Balance Account or a non cost element P&L account.
The limitation of this table is that users can specify only one Profit Center per combination of any of the following characteristics (using the Profit Center derivation rules):
- GL account
- Company code
- Valuation area (normally = plant)
- Business Area
This leaves the user with limited options:
- Default one Profit Center for one GL account (with a combination of any other characteristics, if required)
- Default all GL accounts to the dummy Profit Center (this will ensure that the posting occurs in EC-PCA); and in FI make Profit Center as a mandatory field for most Balance Sheet GL accounts (which are not reconciliation accounts). This will ensure that the user will enter the right Profit Center on the transaction during its processing.
Option 1 does not give the client a proper Balance Sheet. All balances in a GL account will appear against one Profit Center. The user will then have to create a Profit Center Distribution cycle to clear out the balances and distribute them to the “correct” Profit Centers.
Option 2 gives a more accurate Balance Sheet and Profit & Loss account. The disadvantage is that the user will have to update the Profit Center during processing of a transaction in many instances. It is recommended that Table T8A30 is created for a complete range of GL accounts required (including GL Accounts that do not exist). The advantage is that the user will be spared of updating this Table every time a GL account is created.
It is a good practice to:
- Define a default constant for all non Sub ledger Balance Sheet Accounts and non cost element Profit & Loss account (Option 1); and
- Define exceptions to this default for specific GL accounts if required by your business (Option 2)
It is possible to define document splitting rules that allow this category of GL Accounts to split based on the Profit Center on the offsetting line items. You could also define that the GL posts to a constant Profit Center. There are restrictions on how and how many constants you can define.
However, it is a good practice to:
- Allow split of business specific GL Accounts like Vendors, Customers, Assets, Inventory
- Define a default constant for all other Balance Sheet Accounts and
- Define exceptions to this default for specific GL accounts if required by your business
In the next blog, I will continue to review the process of transfer of data from General Ledger to Profit Center Accounting, and the dummy profit center and balancing of profit centers.
After working in Classic EC-PCA for several years, I found newGL very refreshing and easy to use. All the technical and “unexpected” errors with Classic EC-PCA are no longer a worrying factor in month end close. One of the key aims of SAP ECC is to expedite month end close by eliminating some of the technical jobs to synchronise databases. That aim is well achieved with newGL Profit Center Accounting. Most of Profit Center Accounting happens in the background.
For customers who are on Classic EC-PCA and want to migrate to newGL, the process is not very straightforward (unfortunately). You should hire expert consultants in the market; you will also require SAP Support during the migration process. However, at the end of it all, the benefits far outweigh the costs of migrating your business to newGL Profit Center Accounting.
I hope this series of blogs helps you understand the benefits of newGL Profit Center Accounting over Classic EC-PCA. Please do leave your comments below whether this article is helpful; and whether you have any suggestions/ comments; or if you would like to share your experience with Classic or newGL Profit Center Accounting.
I strongly recommend you share this blog with your network using one of the social media icons at the top or bottom of this page.
You could subscribe to a newsletter from this blog using the rss icon on the top right of this page.
View my newGL presentation on Slideshare
Rajesh is regarded as an authority in optimising and re-engineering Finance processes for his customers. Rajesh has 12 years experience implementing SAP / IT / BPM Finance solutions for several customers; he was involved in two large global rollouts and has a strong focus on Management Accounting and Reporting primarily Product Costing, Profitability Reporting and Material ledger (Transfer Pricing, Actual Costing). He also has 7 years experience working in the business in Finance and Accounting functions. His business process knowledge combined with his IT expertise enables him to provide his customers with best-of-breed advice on business process / IT implementations.