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.
Dummy Profit Center
The standard system design ensures that all documents in GL that are intended to post to PCA would always post to PCA. The Profit Center is defaulted (in most cases) from its assignment to the object that is processed. Hence, for example, if expenses are debited to a Cost Center, the system posts the document to the Profit Center assigned to the Cost Center master data. By an internally coded logic, if the system does not derive the Profit Center, then the system will assign the “dummy Profit Center”. The dummy Profit Center is configured at Controlling Area level for Class EC-PCA.
[IMG] Controlling > Profit Center Accounting > Basic Settings > Controlling Area settings > Maintain Controlling Area settings
Hence, it should be ensured that all objects in SAP have Profit Centers assigned to them. This can be checked regularly using the Assignment Monitor. Use the below menu to access the transaction.
Accounting > Controlling > Profit Center Accounting > Master Data > Assignment Monitor.
It is a good idea to run this monitor as regularly as possible.
Users should review the postings in dummy Profit Center and clear them out to the correct Profit Centers. They should also take corrective action to see which objects / transactions caused these postings; with an idea to prevent recurrence in future.
Process to take corrective action for postings in dummy Profit Center depends on the cause of the posting:
|Cause of incorrect posting||Description of cause||Correction process|
|Payables/ Receivables||Offsetting line item posted to dummy Profit Center; hence split line item posted to dummy as well||
|Stocks||Profit Center not assigned to Material Master||Assign Profit Center and re-process 1KEH (Transfer Stocks)|
|Expenses||Profit Center not assigned to cost objects posted against P&L line items||Reverse original document; assign Profit Center to cost object; repost original document|
|Non Sub Ledger Balance Sheet and non cost element P&L||The default Profit Center (in Table T8A30) is dummy||Make the Profit Center field mandatory during data entry for these GL accounts|
In newGL Profit Center Accounting, if the system is not able to derive a Profit Center, it will leave the field blank. However, it is recommended that you make the Profit Center field mandatory for all postings. If this field is mandatory and Profit Center is not derived, then the system will flash an error message. This will allow you to generate a full Trial Balance for each Profit Center.
Defining Document Splitting rules, use of constants (or defaults in EC-PCA terminology), and other concepts of Profit Centers in newGL are described in detail in these blogs.
Balancing of Profit Center trial balance
Profit Center Accounting is originally intended to report on profitability of Profit Center(s) or lines of responsibilities or geographical locations.
The ability to move key Asset and Liability balances to EC-PCA would enable users to compute the Return on Investment in each such Profit Center(s).
Users have the flexibility to define additional Balance Sheet accounts in Table T8A30 (Transaction Code 3KEH) to allow the balances on these accounts to flow into EC-PCA. This will allow users to define “Investment” as comprising the key Asset and Liability accounts plus the additional Balance Sheet Accounts defined in T8A30.
Table T8A30 also fulfilled a key requirement of many users – to enable generation of a fully balanced Trial Balance (i.e. where the total debits tie to the total credits) by Profit Center. With SAP moving away from the object Business Area and asking SAP customers to use object Profit Center, users were looking for a way to generate Trial Balance and reports by Profit Center similar to the reports Business Areas could deliver.
However, Classic EC-PCA is a SAP delivered Special Purpose Ledger. This meant that EC-PCA would not follow the principles of double-entry accounting (you could post a debit without a corresponding credit). An example is when a user posts a Vendor Invoice for business expense, the expense line posts to EC-PCA real time. EC-PCA Profit Center trial balance at that point is not balanced; because it received a debit but not a credit.
If all design, configuration and processing were successful; the user might be able to generate a balanced trial balance at Controlling Area level. However, at individual Profit Center level, the trial balance is not balanced. This is because many of the line items would post to default Profit Center (Table T8A30) or might post to dummy Profit Center.
In Classic EC-PCA, the only way the Profit Centers could be balanced is by posting a manual Journal in FI or as a PCA document to offset the balance of all Profit Centers. This, of course, assumes that ALL line items in FI have posted to EC-PCA.
NewGL has a functionality called zero-balancing that ensures that every document that posts in FI is balanced to zero for Profit Center. Once the relevant configuration is done, every financial document posted in newGL will post additional self-balancing line items to balance out the Profit Centers within that document. This functionality ensures that Profit Centers are balanced in real time.
To understand this functionality in detail, I would suggest you read the blog on zero-balancing.
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 blog has helped 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.
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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.