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 (www.QSandS.com), a consulting firm specializing in SAP S/4HANA, SAP General Ledger, and complex System Landscape Optimization (SLO)-type reorganizations. Mitresh is widely acknowledged as a leading SAP expert, with multiple publications and an SAP-PRESS book to his credit. He has published more than 50 peer-reviewed articles and white papers, and he has given presentations at various SAP conferences and events. Mitresh is the chief solutions architect of General Ledger Migration Optimizer (GLMO), a leading product to accelerate and jump-start the SAP S/4HANA and SAP General Ledger initiatives; SAP Data Reorganization Optimizer (SDRO), an SLO-type product for managing complex system landscape reorganizations; and Group Currency Activation and Conversion (GCAC), a product suite to manage introduction of parallel currencies and conversion of data in a live SAP system. 

Mitresh will be presenting at the upcoming SAPinsider Financials 2018 conference February 12-15, 2018, in Las Vegas. For information on the event, click here

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