How to Configure Cash-Basis Accounting As a Parallel Ledger

  • by Shankar Kaza, Head of the SAP Financials Practice, Mahindra Satyam
  • January 10, 2014
Learn how to implement cash-basis accounting in the SAP General Ledger. Follow step-by-step instructions of end-to-end configuration of this functionality.
Learning Objectives

After reading this article, you’ll know how to:

  • Implement cash-basis accounting in the SAP General Ledger by defining the non-leading ledger
  • Configure this functionality
Key Concept

SAP introduced a separate ledger functionality called the cash ledger as part of the SAP General Ledger in SAP ERP Central Component (SAP ECC) enhancement pack 4. The cash ledger is composed of a complete and balanced set of accounts as required by and maintained for cash-basis accounting. The cash ledger also works as a non-leading ledger and receives the postings from the leading ledger.

 

Cash-basis accounting is the accounting method in which revenue and expenses are recorded in the period they are actually received or expended in cash. Public sector companies or government bodies are required to keep the books of accounts on cash-basis accounting to meet the statutory requirement under the applicable accounting standards such as International Public Sector Accounting Standards (IPSAS).

Public sector or government bodies need to report the financial figures on a cash basis as opposed to accrual-based accounting, which is a normal business practice. Accrual and cash basis are two primary methods of keeping the books of accounts. Accrual basis is a period basis accounting wherein the expenses and revenues are recognized in the period they occur regardless of whether a cash transaction has occurred and is used by most entities. For example, if a sale is made in October and the payment is expected in November, the revenue from the sale is recognized in October (when it was earned) and the amount due is recorded in accounts receivable on an accrual basis. On the other hand, under the cash-basis method, the revenue is not recorded until November after the actual receipt of cash.

I explain the procedure for addressing the accounting requirements for cash-basis accounting using the SAP General Ledger functionality to create a parallel ledger known as cash ledger. I focus on the cash-basis accounting with the required configuration steps. I also include two scenarios as examples of cash-basis accounting with the cash ledger.

 

Shankar Kaza

Shankar Kaza is has more than 12 years of SAP consulting and management experience, specializing in FI. He has more than 13 years of rich domain experience as head of finance and accounts departments in a cross-section of industries. Currently, he is heading the SAP Financials practice in Tech Mahindra.

 

See more by this author


Comments

1/24/2014 3:33:55 PM
Tom C.

Unfortunately, this solution might not work as well when using EBS/MBS and using Cash Clearing accounts that are flagged as Open-Item Management.

Is there a way around this when your Credit to Cash initially via F-53/F110/F111 goes to an Open-Item Mgt. GL Account and later gets reclassed from that account to the final cash account that is not OI-Managed?

Please log in to post a comment.

To learn more about subscription access to premium content, click here.