Nilkamal: - Suppose you all are agents of LIC. You have sold insurance policy to your customers and the customers paid the respective premium. Now, who is going to verify that premium amount, whether it is correct or not?
Rinky: - Sir, the Actuarial will verify it.
Nilkamal: - Ok, now after that verification, the premium needs to be debited to the Bank Account. Now, do we need to create any other account to avoid any confusion in the near future?
Chaitanya: - Yes, Sir, a Premium Suspense Account is opened on a temporary basis to maintain the free-flowing order of transactional entries.
Nilkamal: - Exactly! The entries in this case will be ‘Banks ….To Premium Suspense’ and ‘Premium Suspense ….To Premium’. The credit part and debit part of Premium Suspense in both the entries will nullify each other to provide you the final entry ‘Bank …. To Premium’. For performing this final entry, a General Ledger Book is sufficient, but to track the records of all temporary accounts like ‘Premium Suspense’ in this case, you need a separate index, which is popularly known as Charts of Accounts (COA). Now, this index is maintained serially in the systematic form of liabilities, assets, incomes and expenses. Basically, COA is a framework for recording all values which flows in order to get an orderly rendering of financial statements.
Dulal:- Sir, is there any difference between COA of SAP FI module and that of SAP CO module.
Nilkamal: - in SAP FI module, COA consists of expense and revenue accounts for financial accounting. In SAP CO, COA consists of cost and revenue element for controlling.
Sarita: - I am not understanding anything, now.
Nilkamal: - Ha ha ha…ok, let me draw a big square on the whiteboard. Now, divide that big square into small four squares. The first square is Expense (E), the second square just below it is Liabilities (L). The third square just beside the first square is Income (I). The fourth square just below the third square is Assets (A). This big square will display all results. If you do an entry in General Ledger, then you have to take the 1st and 2nd square. That is, the Expense (E) and the Liabilities (L) are required to do an entry in a General Ledger. If you want the valuation of your retained earnings, then consider the 2nd and 4th square, which are the Liabilities (L) and the Assets (A). Always remember that these retained earnings are the backbone of your financial statements in the form of Balance Sheets or P&L report. Expense (E) and Income (I) is the Profit and Loss index, which is the 1st row of the big square. The second row of the big square, which is the Liabilities (L) and the Assets (A), is the Balance Sheet Index. The path for editing the Charts of Accounts is:- SPRO -> SAP Reference IMG -> Financial Accounting -> General Ledger Accounting -> G/L Accounts -> Master Data -> Preparation -> Edit Charts of Accounts List. The transaction code is OB13 and the table name is T004.
Suhash: - but, Sir, whenever we are selecting the ‘New Entries’ button, there is a form, whose status is showing as ‘Blocked’.
Nilkamal: - Yes, it has to be there. Whenever someone edits the chart of accounts of a company, the Finance Manager of that company verifies it. The editing of the COA List will only get completed if the Finance Manager grants the permission to do it, after verifying it. Oho! I forgot to tell you one thing that for a Group company like ITC, TATA, Reliance or Birla, Charts of Accounts (COA) are maintained separately for each company under that group, but not entirely for a Group, e.g. Reliance Power & Infrastructure and Reliance Petroleum will have separate COA of their own. Reliance Group cannot have a single COA of that entire group. Now, we need to assign company codes to COA. The path for that is :- SPRO -> SAP Reference IMG -> Financial Accounting -> General Ledger Accounting -> GL Accounts -> Master Data -> Preparation -> Assign Company Code to Chart of Accounts. The transaction code is OB62. In the next class, we will learn about Country Chart of Accounts.
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