The SAP R/3 system is loaded with many kinds of "Actual" accounting data values that typically create meaning for us when we compare them against "Planned" or "Budgeted" accounting data, or against Monthly, Quarterly, or Annual time periods.

However, within the CO module, "Actual Costs" and "Actual Revenues" offer R/3 report readers an additional meaning not always found in modules such as Profit Center Accounting, Special Ledger, and Costing-Based Profitability Analysis.

This valuable extra context deals with SAP’s concept of "Controllable" vs. "Not Controllable," and can be a source of great confusion for both FI/CO report users and developers. I believe this is due, in part, to the unfortunate use of a common, everyday word ("Actual") to represent a very uncommon, not-everyday relationship, namely the relationship that exists between the R/3 General Ledger (or FI module), and the R/3 Managerial Accounting Ledger (or CO module).

This article aims to clear up this confusion. By way of comparison, I will also identify some cases in R/3’s other accounting modules (Special Ledger, Profit Center Accounting, Costing-Based Profitability Analysis) where the terms "Actual Revenues" and "Actual Costs" both can, and often do, mean something different than what they mean in the CO module!

This article is for you if you create, work with, or use R/3 reports that include any of the following accounting measurements: Revenues, Profits, Costs.

"Why"? Because life is too short for any of us to be dealing with scenes like the one depicted in Figure 1.

As shown in Figure 2 (below), an R/3 profit-related measurement (e.g., "Sales Dollars") can exist in many different places where reporting occurs.

You cannot assume that each of the six boxes shown has identical update rules to the others with regard to the source transactions (in this case, transactions related to "Sales Dollars").

In fact, the opposite is usually true. Each box will likely have unique update rules because each serves a unique reporting purpose for your organization.

Figure 1

Four Co-Workers "Calmly" Search for Reasons Why Their Reports Each Show Different Revenue/Profit/Cost Numbers for Q3 2001

Figure 2

Six Unique Places in R/3 Where a Measurement Such As "Sales Dollars" Can Exist

How Does Each Box Relate to the Others?

Although we don’t have enough space here to discuss the full spectrum of relationships among the various R/3 accounting modules, one very special relationship is both easy to explain and far-reaching in its ability to help you interpret the numbers in your many different kinds of reports.

This relationship is guaranteed to exist between the FI module’s General Ledger and the CO module’s Managerial Accounting Ledger.¹

The SAP terms used to describe this relationship are "Actual Costs (CO)" and "Actual Revenue (CO)."

What Is Meant by the CO Term "Actual," and Why Should I Care?

Figure 3, shows both an American dictionary definition (courtesy of www.dictionary.com), and a sample of how many different SAP R/3 terms include this everyday word — my favorite is "actual plan"!

Here, now, are the definitions from the SAP R/3 online glossary (available at https://help.sap.com, Library Release 4.6 "C") of two of the terms from Figure 3:

• Actual Revenue (CO-PC): "the revenue actually received"

• Actual Costs (CO): "the costs actually incurred"

Hmmm. I don’t see a whole lot in those definitions that suggests anything special about an "Actual Revenue" or an "Actual Cost" in the CO module. But, let’s look a bit closer.

Think for a brief moment about all the different kinds of profit-related things that happen over the period of a month in a typical business.

Figure 4 shows a sample list of these. All the "impacts" listed in the figure are results to your organization’s "Profit" that could happen. Just for discussion purposes, let’s assume that each of the five listed results actually did happen, and that they happened during the month of September, 2001.

• Did somebody in your organization cause that sales revenue?

• How about the interest income?

• Or the service expense?

• Who (if anybody) caused the safety stock to turn into the obsolete inventory expense?

• Who (if anybody) in your company should be held responsible for the change in the USD-to-Euro exchange rate between August ’01 and September ’01?

Figure 4

A Sample List of Things That Happen During the Month Related to "For- Profit" Businesses

CO Reports Rely on the Concept of "Controllable" Revenues and Expenses

In the CO module’s system of profit accounting, not all categories of income and expense are considered to be "controllable." There may be some categories that nobody within your organization can logically be held responsible for. Exchange rate gains and losses, perhaps? Or interest income?

For each Revenue and Expense category, who gets to decide if at least one person in your organization needs to accept/receive responsibility?

The Accounting managers of the business do!

And, then? Well, then they tell someone like me, and I tell R/3.² So, each time one of these Revenue or Expense categories is recorded in your company’s General Ledger, the system will insist (it really will be quite stubborn about this) that one … and only one … "owner" of that revenue or expense gets identified and included.

The "owner" can be a Cost Center or a Project or a Manufacturing Order or a Sales Order, or any of the other available CO Managerial Accounting Ledger objects.³ And, in theory, each of those would have one person — or perhaps one team — responsible for that Cost Center, or that Project, etc.

CO "Actual" Means General Ledger

In the context of R/3’s CO Managerial Accounting Ledger, the term "Actual" means that the Revenue or Expense originated as a posting in the FI General Ledger. In fact, it is impossible to get an "Actual" $1 of Revenue or Expense into the CO ledger unless exactly $1 first posted to a General Ledger P+L account number that you, or I, or the Accounting managers told R/3 represented a "Controllable" kind of profit event.⁴ This important update rule is shown graphically in Figure 5.

Because of the presence of this rule, we can identify some nice equations that will help us to interpret the revenue and expense numbers we see in our Account-Based Profitability Analysis, Cost Center Accounting, Project Systems accounting, Internal Order, Plant Maintenance, and Manufacturing Order reports. I’ve listed three of my favorites, below. But, now that you know more clearly about the FI/CO relationship shown in Figure 5, you probably can think up many others that I missed.

• "Secondary" allocations (e.g., for internal labor charges) always reconcile back to a legally recognized G/L expense — even though the "Secondary" account # does not exist in the General Ledger.

• When the "Billed Sales Revenue" in my Project report does not agree with the "Billed Sales Revenue" in my SIS report, this difference can almost always be explained by bringing a third value into the analysis — the "Billed Sales Revenue" value from "Controllable" General Ledger P+L accounts. This is true thanks to that handy equation we learned in grade school (if A = B and B = C, then A = C).

• When an end user making a G/L journal entry accidentally uses two CO "owners" (e.g., both a Cost Center Number and a Project Number), R/3 will automatically record the debit to one as an "Actual Cost" and to the other as a "Statistical Cost." This may or may not be a desirable R/3 response for you. But the logic behind it should now at least be clear. Each dollar of "Actual Costs" in CO is guaranteed to reconcile back to the G/L. Each dollar of "Statistical Costs" in CO is not. Therefore, it is impossible for R/3 to protect that relationship if it were to allow a $1 debit posted in the G/L to become $1 of "Actual Cost" in both a Cost Center and a Project. Thus, R/3 classifies one of the two CO debits as "Statistical."

Figure 5

One Update Rule Worth Knowing Regarding Postings to Your G/L

When "Actual" Does NOT Mean "General Ledger"

As shown earlier in Figure 3, many SAP terms include the word "Actual." However, only in the case of the CO module does this word signify a fixed relationship to the revenues and expenses posted in the General Ledger.⁵

Figure 6 (below) shows how the R/3 modules "SIS," "Special Ledger," "Profit Center Accounting," and "Costing-Based Profitability Analysis" can receive "Actual" dollar postings that have no relationship whatsoever to the G/L.

These dollars are not fake or phony, necessarily. It’s just that in the context of those modules, the term "Actual" describes a contrast to something other than the G/L.

For example, an "Actual" $1 in SIS might refer to a not-yet-shipped sales order (i.e., "actual" future revenue). Thus, that $1 stands in contrast to (i.e., gets its interpretation context from) sales orders that we expect to get (i.e., planned future revenue). Neither case logically relates to our G/L (which only cares about already-shipped sales orders).

Similarly, you might have an "Actual" $1 in a Special Ledger that relates to a "Cost of Money" entry charged to your company by your Corporate Headquarters. Possibly, no money changed hands — the entry is made merely to measure you against a capital usage budget.

In that case, the $1 properly belongs in your "Actual" Special Ledger profit report. But, that $1 is not appropriate for your General Ledger (which only cares when a legally binding promise to move money in or out occurs).

Figure 6

Six Update Possibilities for $1 That Never Posts to the FI G/L

Conclusion: Two Terms Would Have Been Nice

I would have preferred the folks at SAP to come up with a term other than "Actual" to describe the extremely useful equation they built into the FI-CO data relationship. Maybe "Controllable G/L Cost" and "Controllable G/L Revenue" would have been easier for me to explain to R/3 users. That way, the very common, everyday word "Actual" could also have existed in the SAP glossary merely to distinguish $1 posted in any module, both from $1 of budgeted Revenue or Expense, and from $1 that originated in your G/L.

Kurt Goldsmith

Kurt Goldsmith is a senior business consultant for Enowa Consulting, specializing in the diagnosis and resolution of productivity-related integration issues between a company’s division of labor (end users, managers, executives) and SAP software (R/3, BW, APO, CRM). He also has a lifetime performance record of one win and two third-place finishes from five career starts as a thoroughbred racehorse trainer.

You may contact the author at kurt.goldsmith@enowa-consulting.com.

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