In this blog we will discuss few areas to adjust the B/S during closing.

1. Introduction
2. Conditions for Adjustment Transactions
3. Sorting Receivables and Payables
4. Scenarios
5. Conclusion

1.Introduction

When companies prepare their financial statements, they often need to organize their receivables and payables according to the nature of their general ledger (GL) accounts, whether they are Debit or Credit. This requires making adjustment postings in SAP FI to ensure accurate reporting. In this blog, we’ll explore the conditions that warrant adjustment transactions and provide insights into how to handle receivables and payables in different scenarios.

2.Conditions for Adjustment Transactions through FAGLF101 (sorting/reclassification)

There are several conditions under which adjustment transactions become necessary:

1. *Customer Accounts with Credit Amounts*: When customer accounts show a credit balance, it shouldn’t be classified as receivables. Instead, it should be categorized as payables. (Other Than Special GL Transactions)
2. *Vendor Accounts with Debit Amounts*: If vendor accounts have a debit balance, it shouldn’t be labeled as payables; it should be recognized as receivables. (Other Than Special GL Transactions)
3. *Reconciliation Account Changes*: In cases where the reconciliation account for a customer or vendor has to be modified, and payables or receivables have to be posted into the new reconciliation reconciliation account, So, it’s crucial to switch to the new reconciliation account before preparing the financial statement so this functionality can be used to transfer all the old balances into the new GL for reporting .

3.Sorting/Reclassification :

Sorting of payable and receivable are the important steps in closing activity as finance department wants to find the actual results in both the receivable and payable.

Sometimes finance also want to sort the payables/receivables as per their aging.

4.Scenarios

To properly sort receivables and payables, it’s essential to understand the scenarios for payables and receivables, respectively.

Scenario#1

Consider a situation where a client deals with a local vendor who invoices in both local currency and foreign currencies like USD. Managing this in a single reconciliation account can be challenging for Trial Balance users since only one reconciliation account can be maintained for a business partner.

Our client faces a common issue: they have a local vendor who bills them in both the local currency and foreign currencies. However, during the closing activity and balance sheet reporting, complications arise. To resolve this, we implement a solution that sorts payables within a single GL account by sorting and reclassification.

In our scenario, all transactions in foreign currency (USD) recorded in the local recon. GL (PKR) as it is maintained in the business partner and user wanted to differentiate the local and foreign liabilities in TB so it should be reported separately to cater this requirement sorting and reclassification functionality is used to bifurcate on currency basis.

Two GLs are used for bifurcate foreign and local payable in TB.

– *Local GL*: 2070010

– *Foreign GL*: 2070020

In our example we are taking the example of vendor ‘1000312’who deals in both USD and PKR invoices.

‘Vendor Line Item Display’

Execute a T-Code FAGLF101 – Sorting/Reclassification (New) on 31 .01.2023

Fill all the relevant parameters ‘here in example we are specifying with sort method, valuation method , account type and specifying the document numbers. (Sort method and valuation area are configured as per the need of scenario)

Execute the program

In the below screen two GLs are used where on the 31st adjustment for sorting of foreign payable is made and get reversed on the 01st of the next month.

*2070011* Adjustment GL Trade Payable/Receivable (temporary GL to adjust the accounting entry)

*2070015* Foreign Liability in Local Currency GL (this GL will show the values of foreign currency invoices after the execution of the process)

Accounting entry of sorting of local payable in to foreign during closing

Reversal on the 1st of next month

Now GL 2070015 can be arranged with foreign liability GL ‘2070020’ in B/S.

Scenario # 2:

Vendor has a debit balance for which user wants it to display on the receivables side but because of the recon a/c maintain in business partner all the DR transactions are showed in trade and other payable GL which create a problem for reporting in TB.

Two GLs are used to achieve the desire results

3310001 – Vendor Receivable

3310099 – Vendor Receivable-Rec Adjustment A/C

Now we have to run the process to sort the DR vendor balance in the Receivable group in B/S

Execute the program for results

In the below screen shot system is passing two entries two regroup the payable in receivable and also reverse the entry on the 1st of the next month

Below are the screen shots of accounting entry of regrouping

Reversal on the next month

Scenario# 3

Sorting/Reclassification of payables and receivable actually used where user bifurcate the payables with the aging in the Trial Balance i.e. due in Less Than 1 year due in 6 Months payable after 1 Year and 5 Years with different GLs

in our example we are taking the closing date as of 31.12.2022

Below is the screen shot after the execution of FAGLF101 where we can check sorting of payables with different aging

Above Screen shot is for the aging analysis of Vendor Liability in different periods in that we have

V005= Payable in 1 Year

V006 = Payable in 6 Months

V007 =Payable after 1 Year

V008 = Payable b/w 1 to 5 Years

Accounting entries of aging of vendors in Trial Balance:

Reversal of accounting entries

To Generate the posting we have to select the posting date and document type in the selection parameters with the key date , system will calculate the days from the baseline date (sorting method is different from the previous scenarios here we used (ZIVE) configured for vendor aging in d/f GLs.

Accounting entries are as follows

(V005)-Due Immediately

For 6 Months (V006)

Due in 1 Year

Payable due after 5 Years

5. Conclusion

Sorting of Payable and Receivables are essential to make the company’s trail balance clear for better reporting .