SAP FI stands for sap finance. Before understanding sap fi we need to understand the duties and responsibility of finance department in an organization.
Duties of finance department are:
- Book keeping/ recording accounting entry for day to day business transactions
- Generating balance sheet and profit & loss statement
- Generating financial reports for legal/ statutory purposes e.g. tax reporting to government, reports for auditors etc.)
Now let’s understand what is meant by day to day activities in a business.
In order to understand activities in a business, we need to understand operations of a business. Every business will have customers to whom it will sell either services or product. Product/services may be purchased from outside or produced in-house. Purchase department has to purchase and supply to production department for production of finished goods. Distribution department has to deliver finished goods to customer.
Supplier/ vendor have to be paid.
Money from customer has to be collected.
Employees need to be paid.
Assets (machine/ vehicle/ building/ land etc.) need to be purchased or produced in-house. Depreciation of assets needs to be recorded.
Above picture depicts business activities generate accounting entry in finance.
Assume no IT system is used in organization, keeping track of activities and recording corresponding accounting entry becomes challenging. This challenge increases many folds by the fact that people are spread across geography. Improper and slow coordination between departments lead to slow business cycle. Manual recording of accounting entries increases the chances of in-accurate data being recorded.
Sap finance module deals with all the activities of finance department. At the same time overcomes the challenges of department’s coordination and manual recording of accounting entry.
Most of the manual activities are automated. Less manual intervention ensures more accurate data. Real time coordination between departments (sap finance module with other modules) ensures all affected parties are updated simultaneously.
Sap finance helps in generating faster financial reports e.g. balance sheet/ profit & loss statement/ tax reports for tax authority/ reports for auditors etc.
Above picture depicts coordination between various modules and FI module.
Sap finance module is composed to several sub modules. Each sub-module is designed to handle specific business activity and corresponding accounting entry.
-General ledger accounting
Sap CO stands for sap controlling.
Sap finance & sap controlling modules are placed close and overlapping (as shown in above picture) because sap finance and controlling modules are very closely integrated. A business activity often generates accounting entry in finance and corresponding entry in controlling as well.