Can You Really Post to COGS During a Billing Process?

  • by Mitresh Kundalia, Director — SAP Practice, Quality Systems & Software
  • April 15, 2005
You can post credit memos to the cost of goods sold without creating an imbalance between FI and Profitability Analysis (CO-PA). However, you have to account for the revenue account determination, cost element categories, pricing procedure components, and how signs are handled in FI and CO-PA.
Key Concept
Creating an invoice is the most fundamental and basic revenue recognition process. In typical situations, the invoice posts to revenue (or discount accounts) during the billing. Credit memos are the opposite of invoices. The basic logic remains the same, except the signs are reversed during credit memo processing. However, under certain circumstances companies might want to post to the cost of goods sold (COGS) account, instead of to the revenue account. Typically, this is required when the business purpose of the process is not revenue recognition but costs reduction.

Typically an invoice posts to revenue (or discount accounts) during the billing process. However, in some industries, companies may want to post to the cost of goods sold (COGS) account instead.

For example, in the high-tech and specialty manufacturing industries, it is common to issue credits to customers based on their volume of business. A manufacturer might issue a credit when the customer orders 100 high-tech machine parts or a purchase credit for every tenth specialty product produced. These situations are similar to rebates.

However, the companies want to treat such credits as a cost of doing business and not as a reduction of revenue. Therefore, for such credits to customers, they would like to post credit memos to financials as Cr Customer; Dr COGS.

The workaround I describe here allows you to post credit memos to CO-PA while still keeping FI and CO-PA in balance. First, let me review some background information.

Mitresh Kundalia

Mitresh Kundalia heads the SAP practice at Quality Systems & Software ( QS&S is a leading business and technology consulting firm that specializes in delivering superior IT solutions using SAP products. Mitresh is widely acknowledged as a leading SAP expert and has worked on various SAP assignments, including strategic planning, fresh implementations, upgrades, and post-go-live support projects. With an MBA degree in finance, Mitresh manages SAP projects with a special focus on customer-focused solutions, management reporting, profitability analysis, SAP General Ledger, and business intelligence. He is a regular contributor at SAP events and publications and technical advisor to leading journals.

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