Accounting requirments and decissions

1. Parallel accounting #

Parallel accounting requirement is needed to comply with local and international laws, using different GAAP (Generally Accepted Accounting Principles) . 

To meet this requirement the recommended procedure is using ledger approach, or accounts approach.

In the following table you see the differences.

2. Total cost / periodic accounting VS Cost-of-sales accounting #

Total costs or periodic accounting

This approach groups expenses by nature (material costs, personnel costs, depreciation, etc.) regardless of what was sold. You match all costs incurred in the period against revenues of the same period.

Cost-of-sales accounting

This approach groups expenses by function (manufacturing, sales & distribution, administration, R&D). It compares revenues with the costs directly attributable to what was actually sold, it relies heavily on functional areas being assigned to postings.

How to idenfity which approach is active

1. Company code customizing: There’s a checbox field for activate the cost-of-sales accounting (T001-XGSLM).
2. If the Financial Statement Version has funcional area assignments on its items, it’s structured for cost-of-sales accounting.
3. Check if the funcional area field is populated in the FI documents. 
4. If cost objects (cost centers, orders, WBS elements) have a funcional area assigned, it could mean that cost-of-sales accounting is being used.

3. Questions to make decissions #

Answer the following questions to help selecting organizational objects:

• How many accounting principles I need? And If more then one, Which would be the most important? Which would be used for internal or external figure-reporting?
• Does the company structure its Profit and Loss (P&L) statement according to total costs or cost-of-sales accounting?
• Is my company obliged to issue segment reporting?
• Does my company have to issue a consolidated financial statement?