Are Your Stock Balances Correct?

  • by Rohana Gunawardena, SAP Practice Director, Exium Inc.
  • October 15, 2004
The answers to six questions along with a little-known report can help you to keep your R/3 Materials Management (MM) and FI stock balances in sync.
Key Concept
Stock is a major component of a company’s balance sheets, especially for manufacturing companies. Tracking stock balances in plants is a major activity for logistic teams. SAP has two modules dedicated to doing just this — Inventory Management (IM) and Warehouse Management (WM). When you look at the G/L and see the balance on your stock account, you assume that this is the value of all of your stock. However, in some cases the stock shown in the G/L is not an accurate reflection of the actual stock quantities in the plants. This can lead to misstated financial statements. Often this type of misstatement occurs because the MM team implements new business processes that are not reflected in FI.

Recently a client company of mine had a surprise when its auditors asked for proof of the G/L stock balances. When the company researched this data, it found a difference between the G/L stock balances and the quantities of stock on hand according to Materials Management (MM) tables. The company took a simple approach to verifying stock balances, which was to take all stock balances and multiply by the standard price. The client company found two key issues with this approach. First, the simple stock value calculation did not work for my client in R/3. Second, the company had configured a custom process incorrectly, which resulted in stock values not being recorded in the G/L.

In standard R/3 configuration (Releases 1.0 to 4.7), return stock is non-valuated and is only valuated after passing through Quality Management (QM). My client company worked in the retail jewelry trade in which returned items have a high value even if they are broken, so it wanted returns valuated immediately on receipt, not after QM. The company had changed R/3 configuration to do this, but had not updated the configuration of ancillary MM movement types such as cycle count adjustments. The result was all cycle count adjustments of returned stock were non-valuated and over a period of years the small differences had built up to 1 million USD.

I'm going to show you how to use transactions and reports, e.g., MB5L, to validate your G/L to stock balances. I will identify a little-known report, RM07MMFI, and explain how to add this to your system if you do not have it already. Then I'll explain how to correct any imbalance. First, though, to understand why this type of problem can occur, you need to consider the following questions:

Rohana Gunawardena

Rohana Gunawardena heads the SAP practice division at Exium Inc. Exium is a leading business and technology consulting firm that enables companies to achieve their strategic business goals. Exium specializes in delivering superior IT solutions using ERP systems, with a special focus on SAP products. Rohana has been working with SAP since 1992. During his career he has assisted multiple clients on detailed system correction projects, such as correcting inventory balances, controlling area reorganizations, retrospectively activating group currency, and optimizing inter-company accounting transactions. He has spoken at many SAP conferences and has published more than 20 articles in Financials Expert, SCM Expert, and SAPtips on various aspects of SAP. His presentations have focused on Financials module selection, the order-to-cash process, global rollouts, business segment reporting, cross-module integration, and the financial impact of SCM transactions. Rohana is widely acknowledged as a leading SAP expert. Rohana is a Fellow of the Institute of Chartered Accountants in England & Wales. Previously Rohana has worked with the consulting practices of Accenture, Deloitte, and PwC.

Rohana will be presenting at the upcoming SAPinsider Financials 2018 conference October 16-18 in Prague. For information on the event, click here.

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