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.

As a rule, cash and profit-and-loss (P&L) accounts are the only accounts to which postings are made in cash-basis accounting. However, cash-basis accounting does not include any liability, inventory, assets, or other accrual accounts such as depreciation. As in principle under cash-basis accounting, expenses and revenue are recognized only at the time cash is paid or received. In this context, cash is defined as cash on hand, demand deposits and cash equivalents (short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value). Bank borrowings are also considered cash.

Configuration Steps

Now I walk you through the steps necessary to configure the settings required for the solution.

Step 1. Define the Ledger to Be Used As the Cash Ledger

To define the ledgers follow menu path SPRO > Financial Accounting (New) > Financial Accounting Global Settings (New) > Ledger. In the IMG step Ledger > Define Ledgers for General Ledger Accounting, define a ledger that is a non-leading ledger and based on the totals table PSGFLEXT to be used as cash ledger. To define the ledger on the screen named Change View Define Ledgers in General Ledger Accounting: Overview, click the New Entries button or follow menu path Edit > New Entries. Define the ledger with an ID and name. Assign the totals table and save the entry. In my example I created a ledger with an ID named ZT (Test Cash Ledger) and assigned the totals table PSGLFLEXT to this ledger (Figure 1). After I entered this data, I saved it by clicking the save icon. Additionally, the total tables FAGLFLEXT or FMGLFLEXT can also be used. In such cases these tables need to extend with the additional fields ZZRE_ACCOUNT and ZZRE_BUKRS. To include these fields follow menu path Financial Accounting (New) > Financial Accounting Global Settings (New) > Ledgers > Fields > Customer Fields > Include Fields in Totals Table. On the Customer Enhancement: General Ledger Initial Screen (not shown) enter the totals table FAGLFLEXT or FMGLFLEXT. Click the change icon  or follow menu path Customer Enhancement > Change. On the Customer Enhancement: Change General Ledger screen choose the fields ZZRE_ACCOUNT and ZZRE_BUKRS in the field name column and save the data.

Step 2. Assign Scenarios to the Ledger

To assign the scenarios and fields to the defined ledger, follow menu path SPRO > Financial Accounting (New) > Financial Accounting Global Settings (New) > Assign Scenarios and Customer Fields to Ledgers. In the screen named Display View Ledgers: Overview choose the defined ledger (e.g., ZT), expand the Ledgers folder, and click the Scenarios subfolder appearing on the panel on the left side of the screen. In the screen named Change View Scenarios: Overview (not shown), click the New Entries button or follow menu path Edit > New Entries. In the next screen assign the SAP standard scenario PSM_CL and then click the save icon (Figure 2). In case the other table templates (FAGLFLEXT or FMGLFLEXT) are used, assign the corresponding field ZZRE_ACCOUNT and ZZRE_BUKRS to the defined ledger. Click the Customer Fields folder on the left pane and click the Customer Fields subfolder. On the screen Change View Customer Fields: Overview (not shown), click the New Entries button or follow menu path Edit > New Entries and fields. Select the fields ZZRE_ACCOUNT and ZZRE_BUKRS. To save your data click the save icon or follow menu path Table View > Save.  

Step 3. Assign the Ledger to the Company Code

  To assign the ledger to the company code for which the cash-basis accounting is required, follow menu path SPRO > Financial Accounting (New) > Financial Accounting Global Settings (New) > Define and Activate Non-Leading Ledgers. The system shows a pop-up screen with a Work Area dialog box from which you select the ledger from the list (e.g., ZT). Click the Further select cond. button or the green arrow icon  (Figure 3). On the next screen click the New Entries button or follow menu path Edit > New Entries. Enter the company code (e.g., TEST) under the C... column. In case of any requirement for additional currencies, differing fiscal year variant, and posting periods, you enter the details in the rows under C2 and C3 for currencies and fiscal year variant and posting period variant. In my example I keep the same fiscal year variant and posting periods, so the details are not entered (Figure 4).

Step 4. Define the Ledger to Be Used As the Cash Ledger

To define the ledgers you want to use as cash ledgers in G/L accounting, follow menu path SPRO > Public Sector Management > Fund Accounting > General Ledger Accounting (New) > Cash-Basis Accounting and Cash Flow Reporting > Cash-Basis Accounting > Define Payment-Based General Ledger. In the screen named Change View “Define Cash Ledger”: Overview, select the check box beside the name of the ledger under the Cash Ledger column (Figure 5).

Step 5. Classify Cash-Relevant G/L Accounts

In this step, you enter all the G/L accounts you want the system to recognize as cash-relevant accounts. This is necessary to enable the system to identify all the documents relevant for the cash ledger and to handle the line items appropriately. Follow menu path SPRO > Public Sector Management > Fund Accounting > General Ledger Accounting (New) > Cash-Basis Accounting and Cash Flow Reporting > Cash-Basis Accounting > Classify Payment-Relevant G/L Accounts. In the pop-up box enter the chart of accounts or select the chart of account from the list by clicking the possible entries icon next to the field in Work Area and click the green arrow icon . In my example, the chart of accounts is TEST (Figure 6). In the screen named Change View “Cash-Relevant Accounts”: Overview, click the New Entries button and enter the required G/L account. In this screen you can also enter the range of G/L accounts relevant for the cash ledger (Figure 7).

Scenarios

Consider two scenarios that show postings updated in the cash ledger. One scenario is for posting of expenses to the cash ledger with a vendor, and one is for posting expenses without a vendor. In the first scenario you post USD 3333 to Office Supplies by paying cash. For posting you can use transaction code FB50 or FB50L. Figure 8 lists documents generated by the system after  you execute transaction FB50 or FB50L. To view the list follow menu path Environment > Document Environment > Accounting Documents from Display Document screen (transaction code FB03). You create two separate documents: one in the leading ledger and the other in the cash ledger. In my example I created document number 100000001 in the leading ledger ZL (Figure 8), and document number 600000002  in the cash ledger ZT (Figure 9). In the second scenario you post USD 2000 to Office Supplies with an invoice reference crediting to a vendor. You post the document in the leading ledger ZL (Figure 10). This transaction is not relevant for the cash ledger because there is no cash payment. Therefore, no document is posted to ledger ZT. You update the cash ledger when a payment is made to the vendor. Refer to Figure 11 for the payment posting. For payment posting you can use transaction code F-53. After you execute the transaction code F-53, a document is created. In my example the document with number 1500000000 is created by crediting the bank account and debiting the accounts payable and updated in leading ledger ZL. To view the cash ledger document choose menu path Environment > Document Environment > Accounting Documents from Display Document screen (transaction FB03). Refer to Figure 11. Double-click the cash ledger document from the list (Figure 12). Note that the cash ledger is updated only with the G/L accounts relevent for cash-basis accounting showing a debit to bank account and credit to expenses account. The expenses in this case are derived from the original document by the document splitting inheritance functionality.