Logistics into finance

Most of the lines in Contoso's general ledger were not typed by anyone in finance. They were created automatically when someone in purchasing, the warehouse or sales posted a logistics document. Understanding how that happens is the single most useful thing a finance key user can learn, because it is where most posting errors come from.

Procure-to-pay: goods receipt and invoice

Contoso buys rotors, CMC-RTR-200, from Lakeside Components for plant 1710. A purchase order is not a financial posting. The first finance effect comes at goods receipt: the warehouse receives 100 rotors at an illustrative price of 42 USD, and the system posts 4,200 USD to inventory and the same amount to the GR/IR (goods receipt/invoice receipt) clearing account. When the supplier invoice arrives and is posted, GR/IR is cleared and the payable to Lakeside Components is created.

Order-to-cash: goods issue and billing

Contoso sells 50 alternators, CMC-ALT-100, to Great Lakes Fleet Services. The sales order, like the purchase order, posts nothing to finance. When the warehouse posts the goods issue for the delivery, inventory falls and cost of goods sold rises, valued at the standard cost of 150 USD in Detroit: 7,500 USD. When the billing document is created and released to accounting, the system debits the customer (through the receivables reconciliation account) and credits revenue, at the selling price, say an illustrative 260 USD each, 13,000 USD.

Account determination

How does the system know which G/L account is "inventory" or "revenue"? Through automatic account determination, configured once and applied to every posting. For goods movements, the material's valuation class and the movement type lead to transaction keys, for example BSX for the inventory posting, WRX for GR/IR clearing and GBB for offsetting entries such as cost of goods sold, each mapped to G/L accounts per chart of accounts. For billing, revenue account determination uses the account key in the pricing procedure (for example ERL for revenue) together with attributes such as the customer and material account assignment groups.

The Universal Journal also enriches these lines. The cost of goods sold and revenue lines carry the product, customer, sales organization 1710 and profit center, which is what makes margin analysis possible without a separate posting.

Two more feeds: assets and bank

Two other everyday flows reach the general ledger in the same automatic way. When Contoso buys a test bench for the Detroit plant, the supplier invoice can post directly to the asset: the asset's acquisition value and the asset reconciliation account rise, and the supplier's payable is created. When the bank statement arrives each morning, it is imported and its lines are matched to open items: a customer payment from Great Lakes Fleet Services clears the open invoice, and the bank account and bank clearing accounts move accordingly.

In each case, the user works in the business document (the invoice, the bank statement) and the system builds the journal entry. That is why finance testing focuses so much on master data and configuration: if the asset class, the bank account setup or the matching rules are wrong, every posting that follows will be wrong in the same way.