SAP FICO Basic Concepts

Purpose 

FI

• external reporting, such as Balance Sheet, Income Statement and Cash Flow
• restricted by legal requirement(accounting principle, such as IFRS and GAAP)
• in term of cost, FI will capture how much was spent

CO

• internal reporting, such as Budget, AP & AR Aging and Manufacturing Cost
• flexible reporting design
• in term of cost, CO will capture how it was spent 

Concepts

FI = every transaction is recorded in debit and credit (GL Account)
CO = copy and transfer GL account (cost element) value to cost object

Example of FICO posting

Not all GL account is copied to CO. Only the GL account that is defined as a cost element in CO. I assume that you already familiar with GL account, but what is a cost element?

Cost Element is master data in CO that is used to carry cost to different cost objects.

Example of cost objects in SAP :

• WBS Element
• Internal Order
• Cost Center 

There are two types of cost element in CO. Primary and Secondary Cost Elements.

Primary = more or less mirror images (copies) of P&L expense accounts, such as Revenue, Material Consumption and General Admin Expenses. It means the GL account number = cost element number. So, before creating the primary cost element, GL account should be created first in FI.

Secondary = used exclusively in CO to identify internal cost flows, such as assessment and settlement. Can be created without GL account in FI.

Mini summary : if the GL that is used in a transaction is defined as a primary cost element, it will be copied and transferred to cost object in CO such as cost center.

Basic Transaction Examples

I will try to post an invoice from vendor using tcode FB60 for advertising expense.

Check the GL account first using FS00.

Click on edit cost element. If it is already defined as a cost element, you will arrive at change cost element : basic screen. 

If not, you will arrive at the create cost element : initial screen. Or to check the cost element, you can go to KA03.

Notice that the cost element number and name/description is same as the GL account.

Now, go to FB60 to post an invoice. Fill the vendor, invoice date, amount, expense GL account and amount.

I get the error message saying that the GL account requires an assignment to a CO object (cost object).

You can double click to see the detail of the error message.

The message tells us that the GL is defined as a cost element and it must always have a CO account assignment (cost object).

But what it really means? Before we answer the question, let's talk about cost object a little bit.

Cost object is a cost collector in CO and used to describe something to which costs are assigned, accumulated and measured.

To make it simple, imagine the cost object as a water tank. It serves as a container of water (cost) and has specific information.

Take a cost center for instance, if you go to KS03 to display a cost center, you will see the information in basic data such as the person responsible, department, etc.

Remember the purpose of CO, it needs to know how the cost/money is spent. So, when a cost is incurred in a cost center, the company will know how much and which department/person responsible that using the money.

If the cost center is the water tank, then the cost element will be the courier/bucket that transfers the water. 

So, the answer of the error message is because we defined the GL account as a cost element and the cost element is just a transfer media, it always needs the cost object as the cost collector in CO. 

Back to the transaction, fill the cost center field. The error will disappear and we can post/save the transaction. Note the document number.

Transaction Report

Go to FB03 and enter the document number of the earlier transaction.

If you see the journal entry, the document in FI deals with debit and credit. You can use other report such as FS10N, FK10N or S_ALR_87012082.

Now go to S_ALR_87013611, enter the controlling area, fiscal year, period, cost center and cost element number.

In this report, we can only see the debit side (same value as in FI) but we will not see the credit side in here.

Why? Because CO doesn't follow the rules of accounting. It only copies the value (cost) that needs to be analyzed/measured. As it is the main purpose of the CO.

So, I hope you get the brief idea of the basic concepts in FICO.