lost cash discount scenario

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© 2010 SAP AG 1

Quantifying the Amount of CashDiscount Lost

Applies to:

All Business organizations where the Financial Controller wants to analyze how much cash discount is lostdue to non-adherence to payment terms when dealing with Vendors.

Summary

This article explains the Configuration and Process steps involved in quantifying the loss as per themanagement requirement.

Author: Sarma Subrahmanya Tadikonda

Company: Intelligroup Asia Pvt. Ltd.

Created on: 12 August 2010

Author Bio

Sarma Subrahmanya Tadikonda is working as a Principal Consultant with Intelligroup and has been part ofFICO competency since February 2005.



Quant i fy ing the Amount of Cash Discount Lost


© 2010 SAP AG 2

Table of Contents

Introduction ......................................................................................................................................................... 3

Objective ......................................................................................................................................................... 3

Business Requirement .................................................................................................................................... 3

Solution ............................................................................................................................................................... 4

1.

Configuration Related activities ................................................................................................................... 4

1.1

Create net document type ..................................................................................................................... 4

1.2

Define Account for Net Procedure ......................................................................................................... 5

1.3 Define Accounts for Lost Cash Discount. .............................................................................................. 6

1.4 Classify G/L Accounts for Document Splitting ....................................................................................... 7

1.5 Classify Document Types for Document Splitting ................................................................................. 7

2.0 Master Data Related ................................................................................................................................ 7

G L Master Data .............................................................................................................................................. 7

3.0 Business Process .................................................................................................................................... 7

Post an Incoming Invoice and Payment to the Invoice ................................................................................... 7

Disclaimer and Liability Notice .......................................................................................................................... 13





© 2010 SAP AG 3

Introduction

In a situation where a business organization delays the payments for the outstanding line items toVendors, and due to this the organization need to pay the full amount and thereby sacrificing theadvantage of the payment terms.

The organization should reflect on their strategy, should get some data from their system to evaluate &proceed with the best practice of optimizing on cash discounts and thereby reducing cash out-flows.

Objective

The objective of this article is to explain the configuration related activities to be maintained, Masterdata activities and the business process.

Business Requirement

To quantify the amount of cash discount lost for a period.





© 2010 SAP AG 4

Solution

This is broadly divided and discussed as -

1. Configuration Related Activity

2. Master Data Related Activity

3. Business Process

1. Configuration Related activities

1.1 Create net document type

Use

In this step, we define a document type that is to be used when system automatically deducts cash discountsfrom vendor invoices.

Activities

Create a Document type “ZN” with “Net Document Type” as checked in Control Data.

Recommendation

It is recommended to have a separate document type keeping in view of any custom developments thatmay be required in future. Also when you use this document type only the discounts are posted and thevendor liability is recognized after considering the cash discount.

Procedure

Access the activity using one of the following navigation options:

IMG Menu Financial Accounting Accounts Receivable and Accounts

Payable Business Transactions





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Transaction Code OBA7

User Actions and Values Select New Entries from the Application tool bar Area.

Give Document Type ZN

Give Number Range for the document type

In accounts type allowed

select Customer, vendor, G/L Account

In Control data Check

“Net Document Type”

“Negative Postings allowed”

Choose CTRL+S to save the document type

Result Document type ZN is created.

1.2 Define Account for Net Procedure

Procedure



Payable Business Transactions Incoming Invoices/CreditMemos Define Account for Net Procedure





© 2010 SAP AG 6

Transaction Code OBXA

User Actions and Values Enter chart of accounts.

Give the G/L account number.

Choose CTRL+S to Save the entry.

Note: The account should be a clearing account with Balancesheet type and Open Item managed.

Name it as Discount Clearing account.

Result Account for Net Payment procedure was defined.

1.3 Define Accounts for Lost Cash Discount.

Procedure



Payable Business Transactions Outgoing Payments

Outgoing Payments Global Settings Define Accounts for LostCash Discount





© 2010 SAP AG 7

Transaction Code OBXV

User Actions and Values Enter chart of accounts.

Give the G/L account number.

Choose CTRL+S to Save the entry.

Note: The account should be a P & L type.

Name it as Material or Consumption account or the originalpurchase account to which you have booked the Purchaseor you can flow the value to another account as Account

for Cash Discounts Lost. Result Accounts for Lost Cash Discount defined.

Result Movement types for LIFO/FIFO valuations were identified.

Result FIFO Valuation areas were maintained

1.4 Classify G/L Accounts for Document Splitting

In this step the Cash discount clearing account is classified as “01300-Cash Discount clearing” andCash Discount as “40100-Cash Discount (Expense/Revenue/Loss)” Item Categories.

1.5 Classify Document Types for Document Splitting

In this step the document type “ ZN” is assigned with transaction variant “ 0300” with Variant“0001”.

2.0 Master Data Related

G L Master Data

You need to create Two GL accounts.

1. As a Balance sheet Item with Open Item Managed and Line Item Display to post values atthe time of posting the Invoice.

2. As a P&L account type with Line item display to post the values when there is no cash

discount is availed.

3.0 Business Process

Post an Incoming Invoice and Payment to the Invoice

Scenario 1:Post Invoice with payment terms as 0002 from SAP standard where in 3% in 14 Days and 2% in 30days and 45 days net are the payment terms and clear the vendor outstanding amount with thedue date to avail 3% full cash discount.





© 2010 SAP AG 8

If you observe the above entry the discount of 3% was calculated at the time of posting it self and postedto a Clearing account and the vendor liability is shown for the entire amount that is payable as per theinvoice.The expense is booked for a lesser amount as it has already considered the discount amount.Let’s pay the invoice on or before the due date and see what happens.

System calculates the discount amount and posts the discount to the discount clearing account with theprocesses Post with Clearing.Let’s look at the Discount clearing account now using FBL3N.





© 2010 SAP AG 9

Scenario 2:Post Invoice with payment terms as 0002 from SAP standard where in 3% in 14 Days and 2% in 30days and 45 days net are the payment terms and clear the vendor outstanding amount with thedue date to avail 2% cash discount.

If you observe the above entry the discount of 3% was calculated at the time of posting it self and postedto a Clearing account and the vendor liability is shown for the entire amount that is payable as per theinvoice.

The expense is booked for a lesser amount as it has already considered the discount amount.Let’s pay the invoice after 15 days but on or before 30 days of the due date and see what happens.





© 2010 SAP AG 10

System clears the Cash discount clearing account with the full amount and the balance of 1000 that is lostis posted to a Cash discount account.Now let’s see the FBL3N for the Discount clearing account.





© 2010 SAP AG 11

The line items are cleared automatically.

Now let’s check the Cash discount account in FBL3N.

The amount that is showing here is nothing but the amounts lost as discounts for non adherence topayment terms.

Scenario 3:Post Invoice with payment terms as 0002 from SAP standard where in 3% in 14 Days and 2% in 30days and 45 days net are the payment terms and clear the vendor outstanding amount with thedue date of more than 45 days.





© 2010 SAP AG 12

Let’s pay the amount after 30days and see what happens.

Now the system has considered the entire amount as loss on account of non adherence to payment termsand posted the loss to P&L account.Now let’s run the FBL3N for the discount account

Invoice-wise details on how the discounts are fore gone are detailed through the standard report aredisplayed which will supplement organization for suitable decision making.

Note: This document assumes that other related configuration is in place to do this activity.





Disclaimer and Liability Notice

This document may discuss sample coding or other information that does not include SAP official interfaces and therefore is notsupported by SAP. Changes made based on this information are not supported and can be overwritten during an upgrade.

SAP will not be held liable for any damages caused by using or misusing the information, code or methods suggested in this document,and anyone using these methods does so at his/her own risk.

SAP offers no guarantees and assumes no responsibility or liability of any type with respect to the content of this technical article orcode sample, including any liability resulting from incompatibility between the content within this document and the materials andservices offered by SAP. You agree that you will not hold, or seek to hold, SAP responsible or liable with respect to the content of thisdocument.

lost cash discount scenario

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