SAP FICO, Full form and Meaning (stechies.

com)

1. SAP FICO PROCESS OVERVIEW

SAP FICO is one of the most popularly used SAP modules. This is used by companies for handling their financial data.
It is a combination of two modules – SAP FI and SAP CO. As business operations are executed daily, a lot of financial
data is generated. This includes sales orders, transactions, and purchases. The software is also used along with

SAP ECC.
In this post, we will talk about the different features of SAP FICO, its functions, advantages, and implementation.

What is SAP FICO?

SAP FICO consists of two modules - SAP Finance (FI) and SAP Controlling (CO). Both of these modules are
designed for specific functions. The SAP FI module deals with financial accounting and reporting. The CO module deals
with monitoring costs and financial planning. The software aims to assist companies to make the process of financial
planning and analysis easier. All this helps in making better financial decisions.

SAP FICO can be integrated with other SAP Logistics modules, including –

 Sales and Distribution (SD)

 Quality Management (QM)
 Production Planning (PP)
 Materials Management (MM)
 Plant Maintenance (PM)

SAP FI (Finance)

SAP FI can integrate different modules into a single system for the company. This software offers all the features for
handling financial transactions and accounts. The reports generated by SAP FICO are used widely by banks, tax
authorities, managers, and stakeholders. The software also generates financial statements. These include
profit/loss statements and balance sheets.

SAP FI has the following sub-modules that have specific functionalities –

i) General Ledger –This is used to provide a complete report for internal/ external accounting. It contains the
company’s transaction data and lists all the accounts. These can be recorded in sub-modules in real-time.

ii) Accounts Receivable –These are records that are used to manage all customer accounting data. It is also
used to manage customer accounts and transactions. These transactions include invoice payments, down payments,
invoice posting, and customer reports.

iii) Accounts Payable –These records have vendor accounting data. It also consists of data regarding vendor
transactions and vendor accounts.

iv) Asset Accounting –This sub-module is used for managing the company’s assets. This includes all fixed
assets such as heavy equipment, land, and buildings. The module also has asset transactions including sales,
transfers, revaluations, and asset acquisitions.

v) Bank Ledger –This contains all the bank account transaction data. It can merge all transaction data on bank
statements. Then, it can compare the data with transactions stored in the system.

vi) Consolidation –This sub-module allows the company to combine all financial statements from multiple
entities. It also provides a complete view of the firm’s financial health.

vii) Funds Management– It is used for managing the budgets for revenues and expenses.

Special Purpose Ledger– This defines the SAP FI ledgers for financial reporting.

Travel Management– This manages all transactions regarding travel processes. This will include booking trips and
managing travel expenses.

Implementation of SAP FI

To implement SAP FI, it needs to be configured. The Business Manager has to make the primary configurations.
These configurations are required to gather client needs, business requirements, and other configurations. After this,
all financial statements and Master Data is migrated to SAP FI. This configuration process also
requires currencies, fiscal year variants, and charts of accounts.
After the process is over, document posting is posted automatically. This allows companies to observe their financial
status in real-time. This, in turn, enables the company to track all their financial transactions, which also helps in
financial reporting at the end of their financial year.

SAP CO (Controlling)

This module supports monitoring, controlling, and optimization of business processes. It includes facilities for
managing master data. This data covers cost centres, internal orders, cost elements, and other areas. The
main purpose of introducing this module is planning. Companies can compare their planned data and actual business
data to analyze the variances.

The different sub-modules of SAP CO are given below along with their functionalities –

i) Cost Elements –This provides you with an overview of the costs and revenues of the company. These are based on
income statements. Cost element accounting defines the cost origins and also represents different company costs.
Most of these values are transferred from Financial Accounting to Controlling.

ii) Cost Centers Accounting –This sub-module is used for controlling activities. It deals with the expenses associated
with the company’s internal departments. These departments include marketing, production, sales, and HR. The Cost
Center includes only expenses and not revenues.

iii) Profit Centers –It consists of all the cost data about the company’s business lines. This module deals with
expenses and revenues.

iv) Internal Orders –The module is used for managing all expenses of smaller internal projects/ non-fixed assets.

v) Profitability Analysis –Companies analyze their profit and losses using this sub-module. This is a vital process for
decision-making. Measuring product profitability, pricing, and evaluating target markets. This eases the process of
profitability analysis for each region of business. Additionally, customer profitability, distribution channels, and product
types can also be analyzed.

vi) Product Costing –This module deals with all the costs related to the company’s goods and services. This helps in
optimizing business efficiency and manufacturing costs.

Implementation of SAP CO
The implementation of SAP CO is essential for any company to analyze cost data of internal management processes.
SAP CO implementation helps companies to handle the database of business information. A proper implementation will
lead to business reporting and decision making.

Benefits of SAP FICO

The most useful benefits of using SAP FICO are –

 It generates all the accounting data of a business in one place for managing finances
 Other SAP modules such as Material management and Production planning can be integrated with this SAP FICO
for making important decisions
 All transactions generated in the logistics department can be posted in real-time to the Financial Accounting
modules. This helps in handling accounts better and storing these transactions properly
 The SAP FI module can be used to effectively automate credit management and collections
 SAP FI enhances the accounts payable and accounts receivable functions by offering easy invoice payments
 Companies can handle their company’s cash across countries using SAP FI
 With SAP CO, planning, monitoring, and reporting costs is easier
 SAP CO offers procedures for analyzing and observing overheads required for financial reporting
 The SAP FICO software assists companies in improving financial operations

SAP FICO Certification & Career Scope

Having a solid background in SAP FICO helps employees to handle reporting and finance accounting better. It is
important to learn about the business environment, financial planning, and asset accounting. There are several
training paths which you can choose –

 SAP S/4HANA Financial Accounting

 SAP ERP Management Accounting
 SAP S/4HANA Management Accounting
 SAP ERP Financial Accounting
 Treasury Management
 Cash Management

SAP FI – GENERAL LEDGER PROCESS:

Features
The FI general ledger system offers the following functions:

 •Free choice of level: corporate group or company

 Automatic and simultaneous posting of all subledger items in General Ledger Accounting (reconciliation
accounts)

 Simultaneous updating of general ledger and cost accounting areas

 Real-time evaluation of and reporting on current accounting data, in the form of account displays, financial
statements with different financial statement versions and additional analyses.

Essentially, the general ledger serves as a complete record of all business transactions. It is the centralized, up-to-date
reference for the rendering of accounts. The individual transactions can be checked at any time by displaying the
original documents, line items, and transaction figures at various levels, such as:

 Account information

 Journals

 Totals/transaction figures

 Balance sheet/profit and loss evaluations

 2. SAP OTC PROCESS OVERVIEW

This is an imported integration in SAP landscape. Here are the configuration steps in details. Its configuration
happened in transaction code OBYC.

 Inquiry : A customer inquire about the product price and service. This is a very starting point of OTC process. This
process does not have any effect on general ledger accounts and do not have any accounting entries. Once a
customer creates inquiry, an inquiry number is generated. Inquiry is created by transaction code VA11.
 Quotation: Quotation is a price quote given to the customer. A quotation follows inquiry steps. A quotation can be
created via inquiry or without inquiry reference number. A quotation is created by transaction code VA21.
 Sales: According to some SAP experts, Sales order is actually the first step of OTC process. After inquiry and
quotation, once it's gets created. Sales order can be created with reference of quotation or without reference. It does
 not make any accounting book entry and it does not make any change in General Ledger accounts. It is just a
commitment to deliver goods to the customer. SO can be created with transaction code VA01.
 Post Goods Issue: Post goods issue is the steps where goods are being picked by warehouse, packed and shipped to
the customer's given shipping address as per the sales order. We have accounting entries as inventory is being
credited against the cost of goods sales (COGS) debited. General ledger accounts associated with the cost of goods
sales and inventory is affected respectively.
 Delivery: Delivery follows post goods issue (PGI).Delivery is the actual fulfillment of goods to the customer shipping
address. At delivery stage, we have accounting entries in the books. At this stage, we debit revenue account and
credit customer account. Transaction code for delivery is VL01n.
 Billing: At billing stage, we send the bill to customer for the goods delivered. We have accounting entries at this stage
where we debit customer and credit cash account. Transaction code for billing in SAP is VF01.

Technical Configuration Steps in SAP:

As you know, ‘Order to Cash’ (OTC) is a common and important FI (Financial)-SD(Sales&Distribution) integration
scenario. It is good to understand how it works for FI and SD consultants.

In this blog post, I will walk through the simple ‘Order to Cash’ steps with you in the SAP S/4HANA system. Please be
aware, this is just a simple introduction, ‘Order to Cash’ has a lot of useful functions not covered in this blog post.

Image a scenario, there is a food trading company and they have a new customer wants to buy 10 bags of rice. The
customer will pay the food trading company the money after the customer picks up the rice from the food trading
company’s storage.
As a step-by-step guide, I will maintain the necessary objects for the food trading company and the customer from the
beginning and then run the ‘Order to Cash’ process.

Step 1: Define Sales Organization

Path: SPRO-Enterprise Structure-Definition-Sales and Distribution-Define, copy, delete, check sales organization-Define
sales organization

We can use the ‘New Entries’ button to create a new sales organization.

In my test, the Sales Organization is ‘ZJC0’.

Step 2: Define Distribution Channel

Path: SPRO-Enterprise Structure-Definition-Sales and Distribution-Define, copy, delete, check distribution channel-
Define distribution channel

We can use the ‘New Entries’ button to add a new distribution channel record to the list.

In my test, the Distribution Channel is ‘ZJ’.

Step 3: Define Plant

Path: SPRO-Enterprise Structure-Definition-‘Logistics – General’-Define, copy, delete, check plant-Define Plant

We can use the ‘New Entries’ button to add a new Plant record.

In my test, the Plant is ‘ZJP1’.

Step 4: Maintain FI Master Data For The Customer

As above mentioned, this is a new customer, so we should maintain the FI master data for the business.

a. Define company

Path: SPRO-Enterprise Structure-Financial Accounting

Company ‘ZJC1’

b. Edit, Copy, Delete, Check Company Code

Path: SPRO-Enterprise Structure-Financial Accounting

Company Code ‘ZJC1’

Do not forget to assign the Chart of Account, Fiscal Year, Field Status Variant (and ETC.) to the company code.

c. Reconciliation Account

Transaction Code: FS00

We should create a new reconciliation account for the customer under the company code.

In my test, the reconciliation account is ‘100100’. As a customer reconciliation account, the ‘Recon. Account for Acct
Type’ field should select ‘Customers’.
Step 5: Link The Objects

After the objects are created, we should maintain the relationship between them. Please carefully check the
assignments and make sure all the objects which just created have been linked correctly before we start the ‘Order to
Cash’ process. Different error messages will appear in the ‘Order to Cash’ process if the links are not maintained
correctly.

The assignments can be done in the path: SPRO-Enterprise Structure-Assignment

a. Assign company code to company

b. Assign plant to company code

c. Assign sales organization to company code

d. Assign distribution channel to sales organization

e. Assign division to sales organization

The existing divisions can be reused or a new division can be created, this is based on different requirements, in this
blog post, I will reuse the existing divisions.

f. Assign sales organization – distribution channel – plant

Step 6: Maintain Customer Data

As mentioned, this is a new customer, so we should create a new customer master record for the customer in the
system.

There is no separate transaction code (TCODE) to maintain customer and vendor data in the S/4 HANA system, the
things have been moved to Business Partner (BP). We should create a new Business Partner with Customer roles
(FLCU00, FLCU01) for this customer.

TCODE: BP
BP configuration and data maintenance is a big topic, I will introduce it in another blog post.

The simple steps:

a. Create a new Organization

b. Select Customer role FLCU01 from the role list.

Select the ‘Sales and Distribution’ button from the top-right screen.

Maintain the ‘Sales Organization’, ‘Distribution Channel’, ‘Division’ data in the poped screen.

In my test, it looks like the screenshot below.

We can maintain the data in the tabs based on the requirements. After the customer is created, we should come back
to this screen and check the ‘Partner Functions’ tab, we will need to use the customer number which maintained in
this tab to create a sales order.

For example, customer number 3639 (this is different from the BP number) will be used in our test later:

c. Select FI Customer role FLCU00 from the role list.

Select the ‘Company Code’ button from the top-right screen.
Using the company code which we created in step 4.b in the poped screen.

Using the reconciliation account which we create in step 4.c.

Step 7: Maintain Material Master

As mentioned, the food trading company will sell 10 bags of rice to the customer. We should create the material
master data for rice.

Transaction Code: MM01

Maintain material master data can be a big work. There are a lot of fields can be used in MM01 to meet the business
requirements. In this blog post, I will use the most basic functions to maintain the material master data.

a. Select Industry Sector and Material type

b. Select the views

View ‘Accounting 1’ should also be selected.

c. Input the organization level data, using the data which we created in the previous steps.

d. Maintain basic data in the tab ‘Basic Data 1’.

Business Unit of Measure: BAG

Weight information:

e. Maintain tax data in the tab ‘Sales: sales org. 1’

f. Maintain price information in the tab ‘Accounting 1’.

This is just an example.

After we click the ‘Save’ button, the system may ask us to maintain the values of other fields, this is based on the
existing system configurations.

Step 8: Add Stock Of The Material

As mentioned, the trading company will sell 10 bags of rice to the customer. Before we create the sales order, we
should make sure there is enough stock.

In our test, the stock of the material is 0 after it was created, so we should add the stock first.

Transaction Code: MIGO

We may be used transaction code MB1C before, but this transaction code has been obsoleted.

We can add stock by Purchase Order or without Purchase Order. In this blog post, I will use initial stock (movement
type 561) but not Purchase Ordre to add the stock.

a. Receipt without PO (Purchase Order)

b. Input the material number which we created in step 7

c. Maintain quantity information

I want to add 1000 bags of rice for further use.

d. Maintain storage location information

Make sure the ‘Item Ok’ checkbox is selected and click the ‘Post’ button.
After the new material document is posted, the stock will be increased. The stock can be checked by Transaction
Code MMBE.

Step 9: Maintain Item Category

Before we create the sales order to sell the rice, we should make sure the item category is maintained correctly.

As mentioned, we want the goods are deliverable. This should be maintained in the item category.

Transaction Code: VOV7

I will use the item category ‘TAQ’ in the test, so I double-checked the item category.
Step 10: Create Sales Order

After the preparations, we can create a sales order based on the created data.

Transaction Code: VA01

a. Create a standard order (Order Type ‘OR’)

b. Using the customer number which we created in step 6 as ‘Sold-To Party’ and ‘Ship-To Party’

c. Maintain the ‘Sales’ tab

Select the payment term 0002 (pay in 14 days get a 2% discount).

Deliver Plant: ZJC1 (previously maintained)

Using the material which we created in step 7 on the list, maintain the ‘Order Quantity’ and ‘ItCa’ (value ‘TAQ’) and
‘Amount’ fields for the material.

d. Maintain the ‘Shipping’ tab

Step 11: Deliver the goods

After we create the sales order, the next step is to deliver the goods (if the item category is deliverable).

Transaction Code: VL01N

The warning message below may appear.

To fix this issue, we should come back to generate the schedule line for the sales order.

Transaction Code: VA02

Input the ‘Confirm Quantity’ value and save the change.

After that, come back to VL01N and reprocess the sales order. Check the fields and save the change, after that the
outbound delivery document will be created.

Before we can bill the sales order, we should make sure the goods are delivered/picked.

Transaction Code: VL02N

In this blog post, I expect the customer will come to pick the goods by themselves. We should maintain the ‘Picked
Qty’ field under the ‘Picking’ tab and save the change.

The storage location should also be maintained at the same line item.
After that, we should post a good issue for this outbound delivery.

Step 12: Billing The Sales Order

After the sales order is created and the goods are delivered/picked, we can create the invoice for this sale, this is a
very important step to link the sale with Financial function.

Transaction Code: VF01

The delivery document number which we just maintained will auto appear on the list. Select ‘F1 Invoice’ as the ‘Billing
Type’ and today as the ‘Billing Date’ and click the ‘Execute’ button.

If there is nothing wrong, then the screen below will appear. Check the data and click the ‘Save’ button.
Step 13: Release Billing Document to FI Accounting

The document generated at step 12 will not default release to FI accounting. We should manually release it to
accounting.

Transaction Code: VF02

Click the ‘Release to Accounting’ button at the top-right screen.

After the document is released to FI accounting, we can check the FI invoice information by the ‘Display Document
Flow‘ button in VF02.
The FI invoice information can be found from the screenshot below. This invoice is not cleared.

We may face the ‘account cannot be determined’ issue when we release the document to FI accounting, this is
because of the GL accounts (revenue, sales deductions, etc.) were not maintained in transaction code VKOA. The
system cannot determine which GL account should be used to record the revenue and sales deductions and other
values. We should check which chart of account we are using for the company code (assign to the BP FI customer role
FLCU00) and find out which GL account under the chart of account should be used for the purposes and maintained
them in transaction code VKOA (select ‘V’ for the ‘Application’ field, as ‘V’ standards for ‘Sales/Distribution’ at here). I
will not introduce more on this part in this blog post because GL account configuration is quite dependent on business
requirements.

Step 14: Check The Invoice

Finally, the invoice is generated. Let’s take a look at it.

Transaction Code: FB03

G/L Account 100100 is the reconciliation account which we maintained for the Business Partner ‘FI Customer’ role
FLUC00.

GL Account 800000 is the account which I maintained in transaction code VKOA for recording the sales revenues.

The invoice is not cleared, we can find the related open item from transaction code FBL5N under the customer
number which generated in transaction code BP.
Step 15: Process Incoming Payment

The last step in our test is to clear the open invoice by manually processing the incoming payment.

Transaction Code: F-28

Before we can run the payment, we should make sure the bank related configurations have been done in the system.
This configuration is out of the scope of this blog post.

An example:
Click the ‘Post’ button after we input the data.

Input the ‘Amount’ value and click the ‘Post’ button.

A new document is created to clear the invoice.

If we check the sales order billing document again, we will see the invoice status changed to ‘Cleared’.

Conclusion
Finally, we finish the ‘Order to Cash’ process.

In the blog post, I built the master data ( ‘Sales Organization’, ‘Distribution Channel’, ‘Plant’, ‘Division’, ‘Customer’,
‘Company’, ‘Company Code’, Business Partner) and the transaction data (documents) from the beginning. I advise you
to do the configurations and postings by yourself, this will help you to have a better understanding of ‘Order to Cash’
processing.

3. SAP P2P PROCESS OVERVIEW

Technical Configuration Steps in SAP:

As you know, there are two important integration scenarios in the Financial function, one is ‘Order to Cash’ (Financial –
Sales&Distribution integration) and another is ‘Procure to Pay’ (Financial – Material Management integration).

I have introduced ‘Order to Cash’ in my last blog post (the URL can be found from the bottom of this blog post). In this
blog post, I will walk through the simple ‘Procure to Pay’ process in the S/4 HANA system. Please be aware, this is just
a simple introduction, ‘Procure to Pay’ has a lot of useful functions not covered in this blog post.

Image a scenario, there is a food trading company and their customer just called them to buy 50 bags of rice. But the
trading company finds that they do not have enough stock. So they decide to purchase 100 bags of rice from their
vendor and will pay the money to the vendor after they receive the goods.

As a step-by-step guide, I will maintain the necessary objects for the food trading company and the vendor from the
beginning and then run the ‘Procure to Pay’ process. Please be aware, all the steps and data are based on the
system’s existing configurations, the different systems may need different works/steps.

Step 1: Define Purchase Organization

One company may have more than one purchase organization, different purchase organization takes responsibility for
purchasing different materials or services.

Transaction Code: OX08

We can use the ‘New Entries’ button to create a new purchase organization.

In this blog post, we will use the purchase organization ‘ZJC0’.

Step 2: Define Purchase Group

‘Purchase Group’ will be used in the material master data.

Transaction Code: OME4

We can use the ‘New Entries’ button to create a new purchase group.

In this blog post, we will use the purchase organization ‘ZJC’.

Step 3: Define Plant

Transaction Code: OX10

We can use the ‘New Entries’ button to create a new plant.

In this blog post, we will use the plant ‘ZJP1’.

After we create the plant, we should assign the storage location information to the plant.

Transaction Code: OX09

Step 4: Maintain FI Master Data For The Vendor

Before we can create a Business Partner with the vendor roles, we should maintain the FI master data for the new
vendor.

a. Company

Path: SPRO-Enterprise Structure-Financial Accounting-Define company

Company ‘ZJC3’

b. Company Code

Path: SPRO-Enterprise Structure-Financial Accounting-Edit, Copy, Delete, Check Company Code

Company Code ‘ZJC3’

c. Reconciliation Account

Transaction Code: FS00

We should create a new reconciliation account for the vendor under the company code.

In this blog post, the reconciliation account is ‘100100’. As a vendor reconciliation account, the ‘Recon. Account for
Acct Type’ field should select ‘Vendors’.
Step 5: Maintain Vendor Data

As mentioned in my last blog post, there is no separate transaction code (TCODE) to maintain customer and vendor
data in the S/4 HANA system, the things have been moved to Business Partner (BP). We should create a new Business
Partner with Vendor roles (FLVN00, FLVN01) for this vendor.

Transaction Code: BP

The simple steps:

a. Create a new Organization

b. Select Customer role FLVN01 from the role list.

Select the ‘Purchasing’ button from the top-right screen.

Maintain the ‘Purchase Organization’ data in the poped screen.

In my test, it looks like the screenshot below.

Data in the tabs should be maintained based on the requirements. Save the changes after you maintain the data.

c. Select FI Customer role FLVN00 from the role list.

Select the ‘Company Code’ button from the top-right screen.

Using the company code and reconciliation account which we created in step 4 in the poped screen.

Step 6: Maintain Material Master

As mentioned, the food trading company will buy 10 bags of rice from the vendor. We should create the material
master data for rice.

Transaction Code: MM01

Maintain material master data can be a big work. There are a lot of fields can be used in MM01 to meet the business
requirements. In this blog post, I will use the most basic functions to maintain the material master data.

a. Select Industry Sector and Material type

b. Select the views

c. Input the organization level data, using the data which we created in the previous steps.

d. Maintain basic data in the tab ‘Basic Data 1’.

Business Unit of Measure: BAG

Weight information:

e. Maintain purchasing data in the tab ‘Purchasing’

f. Maintain price information in the tab ‘Accounting 1’.

This is just an example.

After we click the ‘Save’ button, the system may ask us to maintain the values of other fields, this is based on the
existing system configurations.

Step 7: Link The Objects

After the objects are created, we should maintain the relationship between them. Please carefully check the
assignments and make sure all the objects which just created have been linked correctly before we start the ‘Procure-
to-Pay’ process. Different error messages will appear in the ‘Order to Cash’ process if the links are not maintained
correctly.

The assignments can be done in the path: SPRO-Enterprise Structure-Assignment

a. Assign company code to company

b. Assign plant to company code

c. Assign purchasing organization to company code

d. Assign purchasing organization to plant

Step 8: Create Purchase Requisition

We can create a purchase order based on a purchase requisition, or we can create a purchase order directly. This is
dependent on different requirements.

Transaction Code: ME51N

Input the necessary fields (item, material, quantity, purchase group, plant, etc.)and save the change. After that, a new
purchase requisition will be created.

The item’s release strategy can be found from the tab ‘Release strategy’. Please be aware, the different systems may
have different release strategies.

An example:

Before we can use the purchase requisition to create a purchase order, we should make sure the item has been
released.

Transaction Code: ME55

Step 9: Create Purchase Order
Transaction Code: ME21N

As mentioned, we will create a purchase order from the purchase requisition which we created in step 8.

a. Click the ‘Document Overview On’ button at the top left screen (if it shows ‘Document Overview Off’ button then
ignore this step)

b. Select ‘Purchase Requisitions’ from the list

Input the purchase requisition document number on the new screen and click the ‘Execute’ button.

Drag the purchase requisition number to the ‘Shopping Cart’ label.

c. Header level data

Input the vendor number and other organization data which we created in the previous steps.

d. Item level data

The ‘Plant’ field should also be filled.

I am using value ‘K’ (Cost Center) in the ‘Account Assignment Cat.’ field in this blog post, this value should be
changed based on different requirements.
e. Item detail data

After we create a new line item, we should also maintain the line item detail data for the line item.

‘Account Assignment’ tab:

As we are using ‘K’ (Cost center) as ‘Account Assignment Cat.’ for the line item, the fields under the tab should be
filled. Controlling related configuration is out of the scope of this blog post, I will introduce it in another blog post.

‘Confirmations’ tab:

Before we can create the inbound delivery document, the item should be confirmed in the purchase order.
Conformation control is based on customization.
After we finished the changes, we can click the ‘Save’ button and a new purchase order will be created.

Step 10: Create Inbound Delivery

Transaction Code: VL31N

As mentioned in step 9, the item under the purchase order should be confirmed before we can create the inbound
delivery based on the purchase order.

a. Input the ‘Vendor’ and ‘Purchase Order’ information and check the ‘Delivery Date’ value. Click the ‘Continue’ button
to the next screen.

b. Fill the ‘Delivery quantity’ field, check other fields and save the change.

Step 11: Create Good Receipt

In this test, before we can create a good receipt for the purchase order, we should maintain the purchase order’s item
to delivery complete.

Transaction Code: ME22N

Select the ‘Deilv Compl.’ checkbox and save the change.

Transaction Code: MIGO

Selecting ‘Goods Receipt’ and ‘Purchase Order’ from the dropdown lists. Fill the empty field on the right side with the
purchase order number which we created in step 9.

Check the material information under the ‘Material’ tab.

Input the quantity value under the ‘Quantity’ tab.

Check the plant value under the ‘Where’ tab.

I will use movement type ‘101’ in this blog post.

After we fill/check the data, click the ‘Item Ok’ checkbox and click the ‘Post’ button.

Step 12: Check FI Invoice

The FI documents will be created when we create a good receipt for the purchase order.

Transaction Code: MIGO

Selecting ‘Display’ and ‘Material Document’ from the dropdown lists. Input the material document number created in
step 11 in the empty filed.

Clicking the ‘FI Documents’ button.

The FI documents information can be found from the popup window.

We can double click the document number to view the document.

Step 13: Create Invoice Receipt

Transaction Code: MIRO

Input the ‘Invoice date’ and the purchase order number which we created in step 9.
Check the values and click the ‘Post’ button.

The documents (MM document and A/P Invoice) will be created if there is no issue appeared in the posting.

The document can be displayed by transaction code MIR4.

Click the ‘Follow-On Documents’ button, the correspondence A/P invoice will be displayed.

If the A/P invoice is not cleared (automatic payment not configured) then the invoice should be cleared by transaction
code F-53 (‘Post Outgoing Payment’).
After the posting successful finish, the ‘Purchase Order History’ tab will appear in the related purchase order, we can
check it by transaction code ME23N.
 1. Conclusion
In the blog post, we go through the simple ‘Procure to Pay’ process from building the master data ( ‘Purchase
Organization’, ‘Purchase Group’, ‘Plant’, ‘Company’, ‘Company Code’, ‘Business Partner’) and the transaction data
(documents) from the beginning. I advise you to do the configurations and postings by yourself, this will help you to
have a better understanding of ‘Procure to Pay’ processing.

(OR)
 1. INTRODUCTION (PROCURE TO PAY PROCESS)

All enterprises and corporate aspire to improve their bottom line. Basically, there are two ways to do it, either to
increase the top line or reducing the cost. Increasing the top line or the revenues in today’s competitive markets is not
a very easy option. That’s why, now a day’s the sourcing and procurement functions are being examined, by the
companies, in order to find ways to cut costs and control spending. Thus, for all such enterprises the procurement
process is very important, so here in this article we will try to focus on the P2P process of an enterprise. For ease of
understanding I have kept the language of the whole article very simple and specific to the topic.

STEP 1: IDENTIFICATION OF REQUIREMENT

This is the first stage, at which the user department (say, Maintenance, Production, Sales and distribution,
administration, accounts etc) identifies their requirements, that is what are the items they require and based upon
which they create a document called as the Purchase requisition /Purchase request (PR). This document normally
contains description of material, quantity, approximated cost, material requirement date, preferred or standard vendor
etc.

STEP 2: AUTHORIZATION OF PR

Then, the PR is to be first approved by the head or the senior authority of the user department. At this stage, the
authority may return the PR to the originator for modification or can approve it.

STEP 3: FINAL APPROVAL OF PR/ROLE OF INVENTORY CONTROLLER

Once the PR has been authorized by user department then it is available to the inventory controller, or the materials
management department, who are responsible for handling all the materials in the organization. Inventory controller
shall review the PR and shall check the open Purchase Orders (PO), any other scheduled or planned delivery for the
material. If there is any planned delivery or any existing open PO then Inventory controller can return the PR or
request the user department to revise the quantity of the material (if required). After the approval of Inventory
controller, the approved PR is available to the Procurement department.

STEP 4: PROCUREMENT

After final authorization of PR, that it is found out that there is no planned delivery of such a material, it is available to
procurement department. The department shall check for any existing contract for the material. If any contract exists
then a call-out shall be generated and shall be sent to the existing supplier. In case no contract exists then the
procurement department shall initiate supplier search and floating inquires.

STEP 5: IDENTIFICATION OF SUPPLIERS

If no already contracted supplier exists, then the procurement department shall interact with the user for the possible
suppliers or search on the internet or use referrals or search data base, etc. to identify the suppliers for the said
material.

STEP 6: FLOATING OF INQUIRES

Once the suppliers are identified, procurement department shall send the Request For Quotations/Proposal (RFQ/RFP)
to the supplier, based upon the PR. RFQ normally contains description, technical specifications of the material,
quantity of the material, term and conditions, delivery date of the material, date of submission of the RFQ, quality
standards, validity of the suppliers offer, etc.

STEP 7: RECEIPT OF TECHNICAL QUOTATIONS

After sending the RFQ/RFP to vendors, the procurement department shall receive the quotations from the suppliers.
These technical quotations contain the information pertaining to the technical specifications of the material, if there
are any. Normally, vendors are instructed to send their quotation in a sealed envelope, mentioning only RFQ reference
number on it. Quotations are normally opened and signed by two or more persons of the procurement department.

STEP 8: TECHNICAL EVALUATION OF QUOTATIONS

Quotations are sent to technical department for technical evaluations of the quotations. Here, technical department
shall shortlist the quotations based on the technical specifications.

STEP 9: RECEIPT OF COMMERCIAL QUOTATIONS

Once the technical evaluation is over, the procurement department shall send the advice to shortlisted suppliers for
commercial quotations. These commercial quotation will contain details about the payment terms, discounts etc.
Quotation comparison statement is prepared by the procurement department to compare all the quotations of the
supplies and suppliers are short listed for negotiations.

STEP 10: NEGOTIATION

Based upon the commercial quotation, the procurement department will short list the suppliers and will invite then for
negotiations. The negotiation can happen on various grounds like, reduction in the prices of the materials, quantity
and price breaks, delivery terms and conditions, freight charges, payment terms etc.

STEP 11: SELECTION OF THE VENDOR

After negotiations with all the selected vendors, the revised quotations are prepared and vendor is finalized for award
of contract based on the weightage to the commercial, technical parameters, previous performance of the vendor,
delivery dates of the material, etc.

STEP 12: AWARD OF CONTRACT

After the vendor is finalized, LOI (Letter of Intent) can be sent to him and he may be asked to deposit security or bank
guaranty before signing the agreement. Agreement can be of Fixed or Blanket (the same can be mentioned in the
RFQ).

STEP 13: PURCHASE ORDER (PO)

The procurement department then shall raise the purchase order against the contracts and then is send to the
supplier. This PO is prepared in reference of the initial document prepared in the process i.e. PR.

STEP 14: PO ACKNOWLEDGEMENT

After receiving the PO the supplier sends the acknowledgement to procurement department and they record the
acknowledgement. If any ERP is being used for procurement functions then supplier can remotely download purchase
orders and can acknowledge the PO.

STEP 15: ADVANCE SHIPMENT NOTE (ASN)

The supplier sends the Advance Shipment to procurement department as soon as he ships the material to the buying
organization. This note normally contains shipping date, transporter’s name, airway bill number, number of packages,
weight of the packages, receiving location address, description of goods, etc.

STEP 16: GOODS RECEIPT

When the goods are received at the warehouse of the organization, the receiving staffs checks the delivery note, PO
number etc and acknowledges the receipt of material. After the material is received the same is checked for quantity
in case of discrepancy the same is reported to the vendor. After the quantity verification the material is kept at
inspection locations and material inspector is called for inspection of material. If material is rejected by the inspector
the same is sent back to the vendor or the vendor is asked for the rectification at the site. The sound material is
moved to respective warehouse locations.

(i)GOODS RECEIPT – ACCOUNTING ENTRY

RECEIVING INVENTORY A/C Dr.

To GR-IR A/C

(Note: With this entry, the goods are received in the organization, hence the inventory has to debited, but since the
invoice is not received yet, thus the vendor cannot be credited, and thus a clearing account is used as GR-IR A/C i.e.
Goods Receipt-Invoice Receipt A/C)

(ii) GOODS ISSUED TO THE DEPARTMENT – ACCOUNTING ENTRY

(Note: As the inventory department issues the goods to the user department, the accounting entry should be passed
on, on the basis of the nature of the material and the use of it.)

(a)If goods are used in consumption:

EXPENSE A/C Dr.

To RECEIVING INVENTORY A/C

(b)or,if goods are used as assets:

ASSET A/C Dr.

To RECEIVING INVENTORY A/C

STEP 17: INVOICE RECORDING

Vendor sends the invoice to accounts department of buying organization for claiming payment. This invoice is entered
in to the system.

(i) INVOICE RECORDING – ACCOUNTING ENTRY

 GR-IR A/C Dr

INDIRECT TAX A/C Dr

To VENDOR A/C

(Note: Since now the invoice is received, thus the vendor is credited, and the clearing account ‘GR-IR A/C i.e. Goods
Receipt-Invoice Receipt A/C’ gets cleared)

STEP 18: PAYMENT TO SUPPLIER

And in the last the supplier is paid as the terms of the payments and the invoice.

(i) PAYMENT TO SUPPLIER – ACCOUNTING ENTRY

VENDOR A/C Dr

To BANK A/C

CONCLUSION

The very processes and documents in procure to pay cycle may differ from company to company, but a generic
process more or less remains the same. During the process we have seen various documents being created and the
accounting entries that happen (if any). These documents and the accounting entries and name of the accounts used
may differ from various ERP or accounting systems, but the basic things remain the same. To conclude, refer to the
image below to understand the flow of the things in a P2P process. The post first appeared on my blogpost at
http://profsaurabhpatni.blogspot.com/2011/07/p2p-process.html