Introduction
In Parallel Accounting topic it is important to understand basic things:
- What is parallel accounting?
- What is an Account-Based Approach?
- What is Ledger Based approach?
Of course, you can use only the Configuration Guide to know how to configure parallel accounting topics, but if you would like to improve your knowledge in Parallel Accounting and to understand this topic better, this will be very helpful for you. Let’s answer all of these questions.
What is parallel accounting?
Many of you may know, that all international companies must prepare financial statements based on different accounting principles (Accounting principles – is an accounting standard, e.g. IFRS or Local GAAP). This leads to the general question: why are companies required to file financial statements with different accounting principles?
This happens when the company belongs to a group of companies. For example, Coca-Cola in the USA and Coca-Cola in Russia are separate local branches of one company Coca-Cola. Such kind of company, that has branches in different countries needs to reap several statements:
– one local reposting for this specific location (for example, in the USA – GAAP)
– the second group of reporting (for example IFRS)
In this case, we will use parallel accounting.
Parallel accounting enables valuation and closing transactions for a company code based on group accounting principles as well as additional accounting principles such as local accounting principles.
To implement parallel accounting in your system, for example, you can use parallel ledgers. That is, you prepare financial statements in accordance with local accounting principles and, also per IFRS or US GAAP.
Important to mention here:
- SAP provides two options – parallel accounts and parallel ledgers
- Accounting principles are used for both scenarios
- Ledger (0L) is always used
- If an account-based approach is used, then several accounting principles are assigned to the leading ledger
- If a ledger-based approach is used then the ratio between ledger and accounting principle is 1: 1
What is an account-based approach?
Account-based approach – it is an option of using Parallel Accounting in which Chart of Accounts creates based on different Accounting principles.
The architecture of the Account-based approach can be based on account logic. For example, we decided that all accounts with prefix A will be used for IFRS accounting principle, and all accounts with prefix B will be used for Local GAAP accounting principle.
| Options of how to create Chart of Accounts: Prefix+Account number or Account Number+Suffix | ||||
Options with Prefix: Alphanumeric or Numeric | Account number Last digit | |||
A | 1 | 0 | Xxxxxx (Common accounts) | 0 |
B | 2 | 1 | Zzzzzz (IFRS accounts) | 1 |
C | 3 | 2 | Yyyyyy (local accounts) | 2 |
Example of using Prefix: Example of using Suffix:
A – IFRS 0 – Common accounts
B – Local GAAP 1 – Local GAAP
C – Common accounts 2 – Local Accounts
What is a ledger-based approach?
Ledger-based approach – it is an option of using Parallel Accounting where each Ledger assigns to Accounting principle.
Example of a ledger-based approach:
0L ledger – IFRS
2L – Local GAAP
TX – Local Tax
Configuration steps Parallel Accounting (example on Ledger-Based approach)
1. Prepare Ledgers and Ledger Groups. Maintain one Leading Ledger and non-leading ledgers
| Transaction Code | SPRO |
| Menu Path | IMG-Financial Accounting (New)-Financial Accounting Global Setting (New)-Ledgers |
Example from the system:
Stay in the same configuration step and go to the tab “Company Code Settings” and make the basic settings for the relevant company code.
Example from the system:
2. To complete Step 2, firstly you have to finish Step 4. Step 2: Go to the last tab “Accounting principles for Ledger” and maintain values
Example from the system:
Save the configuration once it is completed
3. Create Assignment Ledger to Ledger Group
| Transaction Code | SPRO |
| Menu Path | IMG-Financial Accounting -> Financial Accounting Global Settings -> Ledgers -> Define Ledger Group |
4. Define Accounting Principles
| Transaction Code | SPRO |
| Menu Path | IMG-Financial Accounting (New)-Financial Accounting Global Setting (New)-Ledgers-Parallel Accounting-Define Accounting Principles |
5. Assign Accounting Principles to Ledger Group
| Transaction Code | SPRO |
| Menu Path | IMG-Financial Accounting (New)-Financial Accounting Global Setting (New)-Ledgers-Parallel Accounting-Assign Accounting Principles to ledge group |
Example:
Save the configuration once it is completed and don’t forget to complete Step 2.
Please, let me know if you have any further questions, I will be glad to help you.
You are also very welcome with your comments. I will be very grateful and appreciate your feedback.
Hope this will help you.
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